You may be surprised to know that taking advantage of current favorable interest rates on the purchase of a $300K home (30 years) after the tax incentive program was actually a great business decision.  Compare the monthly payments of the available rates earlier in 2010 at the annual rate of 5.125% to the more recent rates now of 4.75%.  The difference in the total payment over the life of the 30 year loan is $22,320.  At this price range we’ll utilize the smaller of the two tax credits since this buyer was not likely a first time buyer.  Missing the $6,500 government tax credit was a blessing in disguise.  You would have made $15,820.  This is one case where procrastination paid dividends.

Hamilton County Indiana Residential sales are going to pick up in the first quarter. 

Many people ask if they should wait until spring to list their homes in the Indianapolis area.  They have the perception that buyers wait until spring to go after properties.  Reasons that they feel this way range from the obvious—It looks better with green grass, flowers, or more leaves on the trees—to the feeling that “no one looks for a home January through March”.  Data over the last several years supports the fact that yes, homes do sell when there are snowflakes and shorter days.  In fact, historically approximately 20 percent of homes sell this time of year (excluding the plunge in selling activity early in 2009 due to unprecedented intensified fear from the banking industry meltdown).  Based upon the quantity and quality of the homebuyer phone calls that I have received over the past month, we are going to have an incredible amount of sales for the first quarter.  Due to the perception of the market, people will wait to list their homes until Spring.  There will be buyers ready the first part of the year with a lower home inventory to choose from and will select from those on the market.  

We have determined in our research of monthly residential inventory levels that there is a definite price point where the market is strong and another where competitively priced homes are forcing motivated sellers to negotiate more.  I find the line is approximately $450,000.  Below this price point, homes inventories are between 3 and 6 months, a very favorable level.  Above this line as we look at prices increased incrementally into higher and higher priced luxury homes, the buyers are offered extreme bargain prices.  The higher the price, the better value for the buyer.  Supply is high and demand relatively low so a motivated seller must be open to negotiate.  At lower prices, well-priced listings are selling at a good rate within 96% of the list price. 

Continued low interest rates, $6,500 for sellers who have been in their property for 5 years, and $8,000 for First Time Buyers will continue to provide the incentive to homebuyers in Carmel and Fishers.  List your home in the beginning of January to increase your chance to sell in 2010. 

Those thinking about buying a home right now are in unchartered territory.  Never before has the government offered such an incentive to buy a residence.  Yes, the first-time home buyer program offering $8,000 has been extended, but there was a new addition, $6,500 for home buyers who have previously owned a home.  This is unprecedented and I fully expect it to make a sizable impact to our local real estate market.  The tax credit provides an extra incentive for homeowners who were thinking of either moving to a more expensive home or downsizing but were previously sitting on the sidelines.  

The full $6,500 refundable tax credit is available if you meet the basic criteria:

• You have lived in a home that you own for at least 5 of the last 8 years.
• Execution of a purchase agreement by April 30, 2010 and closing by June 30, 2010.
• Earn less than $225,000 as a couple jointly or $125,000 individually.  The amount of the tax credit decreases as the homeowner’s income approaches the maximum limit of $145,000 for individuals or $245,000 for couples. 
• The purchase price of the home is less than $800,000.

A significant number of home owners will be able to capitalize on either the $8,000 or the $6,500 tax credit and these homebuyers will not need to repay the tax credit if they occupy the home for longer than 3 years.  Since the home values in Carmel are less than many other areas of the country, we will likely benefit more from these tax credits than elsewhere.  Increased homes sales will drive more people pumping money into the local economy. 

High quality at a low price never seems to hold true, but this is reality for High End homes in Hamilton County.  If you have money to invest, have stability in your business, or provide a skill set that proves to be in high demand, I recommend that you buy a luxury home right now.  Nowhere is there better opportunity than the upper-tier homes.

Why?

Surplus Inventory.  This is found with a simple calculation determining rate of homes sold each month compared to homes active on the market.  A 6 month inventory is a great balance between seller and buyer.  Right now, depending upon location, luxury home inventory is measured in years.   In most areas there is at least 2 years and some up to 5 years of luxury home inventory.  There are great buys out there that cannot be replicated for the price.  I have never met a home builder that will start a project with a plan to lose money.  Additionally, the cost of building materials has proven to increase over time.

What will you need?

Ample cash or flexible seller financing.  Get a loan at 417K or below for the best interest rates.  Above this loan amount will require 20% down-payment and a higher interest rate.  Seller financing may be a viable option when the seller feels that you may be their only buying option or they gain a better price for the home.

How do you find a great deal?

Compare.  First, take a look at new construction properties on the market.  If the home has had a one year birthday, it is likely that the bank may be involved in the negotiations in a short sale.  There may be no further profit left for the builder, but there are many incentives for them to sell the property prior to foreclosure.  These homes are great investments since they provide modern floor plans and reduce hidden out-of-pocket expenses compared to older homes.

Be flexible in location.  There are certain areas starving for buyers and may be required to offer more land or higher amenities to compete with higher demand areas.

Work with a real estate professional educated and certified as a Luxury Home Specialist.  By working this market every day and understanding the inventory, financing alternatives, and negotiating points, a real estate broker with this experience could save you tens of thousands of dollars.  Call or email my office for target areas and more information on the luxury home market.

The recent trend of tight credit has presented opportunities for good real estate investments.  Fewer investment property buyers with less competition increases pressure on those who need to sell.  One of two ways to look at investment real estate is how much will it pay you on a monthly basis compared to your monthly expense of holding the property.  If a fixed loan requires an outlay of $1500 per month and you bring in $2000 per month in rent, you are well on your way to making a continuous solid profit.  The renter pays the full loan payment and provides some extra cash while you are building equity and depreciating the asset. 

A second way of profiting in real estate is by purchasing a property and speculating on a dramatic increase in value due to an unusually discounted price or future changes that will benefit the property.  One example of this is the HWY 31 Major Moves expansion project.  Some of the property near interchanges zoned for residential property or agriculture will undoubtedly be utilized and rezoned for commercial use due to the proximity and access to the highway.  Commercial zoning will drive a higher selling price.  Another example of improved value in Carmel would be properties near the incredible Monon Center, also known as Central Park.  With the ponds, indoor/outdoor pools, workout center, Skateboard Park, and many community events, this is an unbelievable asset that people would prefer to live by.  Higher demand in this case has improved selling prices since the announcement of the 2007 facility.

The key to a successful real estate investment is finding a good property candidate (or finding someone who can) and calculating to the best of your ability how you will profit from the risk that you are taking.  If the upside provides immediate cash flow or good potential future value, real estate can be the best investment available.  If you find a property with both, do yourself a favor and jump on it before someone else does.

Right now, demand for residential properties for lease, lease to own, and contract sale (seller financing) is improving.  There are several reasons for this, but the primary reason is tougher loan restrictions on credit.  Lack of easy money just a year ago has created a new group of people who want to, but can’t, purchase the conventional way.  Many of these people have stable cash flow incomes, but for one reason or another (ie. job market, medical bills, credit cards, or divorce) have reduced credit scores. 

Traditional Financing and associated challenges:

FHA- A loan limit of $271,000 in Indiana has increased the credit rating cutoff to 620 to mitigate risk.  The FHA (Government Backed) loan is the preferred option right now for properties that are less than $300K.  FHA usually would be slightly more expensive to the strong buyer.  This is not the case now.

Fannie Mae/Freddie Mac- Conventional and insured conventional loans sold to the secondary market with an upper limit of $417,000 in Indiana are much more restrictive.  One year ago, the Fannie Mae loan (estimated at 60% of the current outstanding loans) was the primary option except for a buyer with some serious credit issues or someone who could only put a very small amount of money down.  There is now a rate bump (higher rate) required based upon a FICO credit score less than 740.  A 740 credit score is very, very good.

Jumbo loans- With the major problems with private mortgage insurance providers, there is no capability to borrow above $417,000 without a 20 percent down payment.  In recent past, the optimistic small business owner may have purchased the same property for 5 percent down payment; therefore, the upper end market has lost a pool of buyers.  Additionally, mortgage interest rates for Jumbo Loans are much higher than smaller loans due to the perceived risk and lower demand in the secondary market. 

If their price range sales are sluggish, many motivated home sellers must turn to a new marketing approach to accomplish their goals if the competition and high inventory levels will prevent a profitable short-term sale.  There is a pool of responsible buyers who would love to live in the home and there is another group of sellers with an obvious demand to get cash flow to cover their debt and maintenance requirements.  These sellers likely comprehend the increased probability of selling their property for significantly more money in the future.  There are viable options and you should decide what is best for your situation with professional guidance and expert advice.  Let’s get specific, call Me.

Chances are that something may go wrong with your next home improvement project.  According to Consumer Reports, out of 17,129 readers asked about their experiences with 18 common projects ranging from painting a room to building an addition, 44% had at least one problem. 

For Carmel and Fishers residents, the best way to avoid similar problems is with extra planning and patience. 

Take the time to consider all costs.  Unexpected incidentals, purchasing the incorrect products, and surprises such as delivery costs and trash removal fees can increase your expenses.  More than 25% of people asked said they paid for poor planning by a median of $625.  Even projects perceived as simple like interior painting have cost readers a median of $280 extra due to unforeseen issues.

Make a plan and stick to it.  One in 10 people asked said they changed their minds during remodeling.  37% of those who made changes spent a median of $2,000 extra.  For people doing big additions, that number ballooned to $10,000.

Hire a realistic contractor.  Nearly one in 10 readers went over budget because their contractor underestimated expenses, did poor work, or failed to anticipate code requirements.  In today’s environment in Carmel and Fishers Indiana, lowball bids are more common, especially in competitive markets.  According to Bruce Irving, a home renovation consultant in Cambridge, Mass., “In today’s climate contactors are loath to lose a job by being too gloomy about a project.  If a guy underbids, chances are he’ll look to make up the difference.  Watch out for estimates with several open-ended amounts for products. 

Check references.  Make sure your contractor has insurance, including workers’ comp, and an up-to-date license.  Scrutinize the contract closely.  It should list each product down to the model number.  If this seems too picky, consider that the survey revealed more than 1,600 complaints of unexpected incidentals costing an additional $200, such as hardware and finishes.

Do some investigating.  Unexpected surprises such as rotting joists, rusted pipes, and frayed wiring were experienced by 16% of the respondents and cost a median of $1000 to fix.  A good contractor will check for potential problems.  Wisconsin based contractor, Dean Herriges, says “during the planning stage, we’ll do some exploratory work to see what’s going on behind those walls.  Telltale signs include water-stained walls (leaky roof) and sawdust along the baseboards (termites).  Your contract should include a clause for unforeseen conditions. 

Examine the financial details.  Unexpected closing costs and extended interest payments costing a median of $1,900 were incurred by readers who refinanced a project.  If needed, be sure the work has permits and conforms to local codes.  Greg Johnson, a building inspector in St. Paul, Minnesota, says a contractor who asks customers to get their own permits “is always a red flag” and “there is a good chance he’s ducking a licensing requirement.”

Below are examples of the hidden costs of home improvement.  These show median overall cost overruns based on a survey conducted by Consumer Reports for eight popular projects:

Bathroom remodel:  60% went over budget, overrun:  $600, main causes:  changed plans, needed to upgrade systems and structural problems. 

Kitchen remodel:  56% went over budget, overrun:  $1200, main causes:  changed plans, contractor underbid labor, and needed to upgrade systems (plumbing, wiring, etc.).

Deck addition:  45% went over budget, overrun:  $700, main causes:  changed plans, cost of materials increased and needed special tools.

Room addition:  55% went over budget, overrun:  $2000, main causes:  changed plans, contractor underestimated labor, and cost of materials increased. 

Basement finishing:  56% went over budget, overrun:  $1350, main causes:  changed plans, needed to upgrade systems, and needed special tools.

New windows:  33% went over budget, overrun:  $600, main causes:  changed plans, structural problems, and water damage.

Interior painting:  31% went over budget, overrun:  $280

Major landscaping:  45% went over budget, overrun:  $735, main causes:  changed plans, increase in cost of materials and needed special tools. 

Source:  Consumer Reports May 2009 Issue

Unfortunately, even here in Carmel and Fishers Indiana, statistics show that most people ignore an unfriendly letter or call from the bank after a missed or late payment(s).  Take action now before it’s too late and the bank takes over the property.  One solution to this difficult situation is a real estate Short Sell.  A Short Sell is a case where a bank can avoid an expensive foreclosure by accepting an offer for an amount less than what is owed on the property prior to an expensive foreclosure.  For the owner of the property, a short sale is an attractive alternative to a foreclosure, which can be personally and financially devastating. 

According to The Distressed Property Institute, LLC the ramifications of a foreclosure include:

• Current Fannie Mae Loan rules prohibit another mortgage for 5 years after a primary residence foreclosure and 7 years for an investor property. 
• Interest rates can be increased due to risk for a purchase as it is now noted on the application if there has been a foreclosure in the last 7 years
• Credit scores could be lowered 250 to 300 points for over 3 years and will remain public in credit history information for 10 years or more. 
• A challenge to Security Clearance and a negative fact that may be available to an employer.
• The bank has the right to pursue a deficiency judgment (loss) due to foreclosure.

Alternatively, the benefits of avoiding foreclosure through a short sale:

• Fannie Mae loans potentially can be gained in as little as 2 years.
• Credit scores will indicate only late payments and after sale the property will show paid or negotiated, which may lower credit scores as little as 50 points if all other payments are made and credit score dips can be limited to 18 months.
• A short sale is not reported on credit history like a foreclosure, it will show paid or settled.
• Most Security Clearances will not be challenged.
• In some cases the lender can be convinced to give up the right to pursue a deficiency judgment (bank loss).

Armed with this information, it is easy to see why you would want to sell your property prior to foreclosure by gaining insight from expert REALTOR with the proper Short Sale training.  Be ready to step through a streamlined process that will enable you or your friends to move out from a difficult financial situation.  Take action now!  Call me or another Certified Distressed Property Expert.  Time is critical to avoid a foreclosure!

WWW.SendOutCards.com/Indiana will grow your business

In real estate as in any service industry, the absolute best way to grow your business is by providing clients with a great quality experience and then have them tout your capability to their friends, family, and anyone that values their opinion; a referral.  The proven way to gain referrals is by showing you care about them and staying in regular contact.  The least expensive, most rewarding, and possibly the most effective is a personal note. 

By the way, notes have a dramatic impact on your personal life as well.  I once heard about President Bush Senior and how he felt that a large contributor of his personal and professional rise through his career was his habit of writing personal notes. 

Many people don’t write personal notes because it is a bit of a hassle.  They are losing out on incredible opportunities!  I have recently discovered and currently use the best product and system for personal notes!  Go to the web at WWW.SentOutCards.com/Indiana . It proves to be easy, inexpensive, automated, and effective. At this site you will be able to systematically pick a predesigned card or add photos and make your own on the Internet.  Type a private message in your own handwriting font (if you prefer),  click on a name from your database which will automatically create the envelope, and hit the send button where it will be sent directly from the printing company with an actual first class stamp.  Add a gift card or other gifts such as brownies with another click.  This is truly a system that provides the handwritten effect with a huge time savings with cards costing a fraction of the price.  No more driving to the shopping center, post office, etc. 

I have arranged for the first 10 people to receive 1 free card to try out the system.  The link above will let you sign up where you can choose at least 2 (non-picture) cards or 1 picture card (postage included), your choice. 

Check it out.  You won’t be disappointed.

My position (and every other real estate professional that I have spoken to on the subject of the Lieberman/Isakson Amendment and Amendment 353) is that it will definitely have a positive and swift impact on home sales and that these two stimulus package amendments will benefit the numerous businesses and workers that are related to buying homes.  

Due to the average price of homes in central Indiana, the amendment offered $15,000 tax credit will be an incredible value to a home buyer.  I have called to inform many of my potential buyers and sellers of the opportunity nearing approval in the Senate and their positive feedback has been tremendous!  For Hoosiers, this is a great way to increase home sales by providing an incentive to buyers, which as a result, will also help stabilize prices on properties.  A real estate engine with more buyers will help reduce foreclosures and short sales inventory and will also create a more competitive environment, thus, higher home prices.  Higher home prices may enable the seller to more easily pay off mortgage debt and will undoubtedly provide a fragile banking system with fewer defaults throughout the country. 

In reference to Amendment 353, which provides home buyers a 4.5% interest rate on purchases– It will help spur activity, however, I don’t believe that interest rates are killing demand.  That is, as long as we have rates as we do now in the mid-5% range.  As mortgage rates jump, there will likely be a pull back on home purchases, but not until rates ramp up a couple of percentage points.  If the consumer believes that the rates will retract, they may pause, but in the end they have the option of refinancing at a later date.  The referenced 4.5% mortgage rate, in my opinion, would be a nice selling point and a spark to activity especially in the luxury price range.  The low rate would also allow someone to look at a higher priced home and mortgage, compared to a smaller loan at today’s rates.  A byproduct of incredibly low rates by historical standards provided by government incentives is the fact that owners may not move as frequently.  We may see a short spike in home sales and push out slower sales a couple of years due to an artificially low interest rate.

I believe consumer confidence, jobs, & excess inventory are the main culprits affecting the housing industry. The latter is the most important for a builder since the consumer is able to save big dollars (value) through distressed sales and the amenities/features that are in those properties on the market.  I witnessed the sale of a home in Carmel, Indiana recently that would have sold for $1M (with repairs) a few years ago and was listed and sold in the mid 600K’s. There is no way for a builder to duplicate that home in that location for the price. No surprise, they had multiple offers and sold it fairly quickly.

A key to good lending practices is identifying the higher risk purchaser with a very low credit score (for ex. 500 FICO) that was approved for a loan just a few years ago.  There are some people that have no capability or track record to be able to successfully pay the mortgage month after month. These people will be higher risk and will lead to more foreclosures in the future. The rules should be tighter than they were, but I think that the current bank response is an overreaction.  Banking executives need to assess the risk standards and openly lend money to reasonable buyers with reasonable jobs and fair to good credit scores.  There is currently a small premium on conventional interest rates for buyers with less than perfect scores.  The increase in interest rates is driven by lower demand from major funds who purchased mortgage backed securities.  This lower demand is at least partially created by fear of risky investments that they were blind to see a few years ago.  Fannie Mae & Freddie Mac have lost leverage to sell the packaged mortgages to this market due to the recent amount of foreclosures.  The government backed FHA loans are increasing in usage and at current pace will likely overtake the share of all of home loans, however, the value of these loans is limited.  Here in Indiana, we should be pushing for higher FHA limits due to the discrepancy between conventional rates with less than perfect credit.  With higher limits, people would get money that is backed by the government (Higher than 271K loan amount) and as a result, a reasonable interest rate with a less than perfect credit score (below FICO 720).  FHA doesn’t penalize people like conventional rates right now for imperfect credit.  Conventional rates may be a full percent or more compared to FHA for someone less than 720 credit score.

Right now, mortgage interest rates are good for perfect credit and this is not currently the main challenge in the real estate market.  The interest rate could be a bigger issue if they increase towards the 7% mark, especially if this change is within a year.  The entire system could be improved if the limits were increased for FHA loans or conventional loan restrictions were eased slightly concerning credit scores.  I am not a proponent of the destructive lending techniques of a few years ago, just better judgment and more reasonable loans to buyers in the category  below “squeaky clean”.

This stimulus is a huge decision for buyers, sellers, builders, REALTORS, and all workers connected to businesses selling products for homes.  A tax credit and reasonable loan rates are keys to real estate activity.  In the end, if the goal is to spur sales, a bill with both amendments will dramatically increase sales in this Indiana real estate market.