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.

Tougher mortgage lender requirements and market conditions over the last year has changed the landscape of real estate.

A real estate short sale can take time, but can provide a good value to the patient buyer.

A short sale is one where the owner is not able to make up the difference financially between what a property will sell for after expenses and what is owed to the bank(s).  Banks will approve such a sale and take a financial loss now if the value offered is reasonable for today’s market in order to prevent future losses due to delinquent payments and costly foreclosure proceedings.  The seller must have a credible hardship.  The buyer must have patience.  Due to new guidelines, bank response times will be improving.

Banks have become tougher on loans. 

The good news is that loans banks are approving now will have a lower failure rate compared to just two years ago.  The banks have insulated the appraisal process, increased buyer credit rating requirements, and have been downright picky on stipulations that were overlooked in the past.  Money is still available for people to purchase a home, though not as many.  The byproduct of banking loan restrictions has been a robust demand for single family home rentals.  The buyers that are out of the market to purchase due to a blemish on the credit report still want a home are willing rent for a year or two.  Keep in mind with the new property tax laws, rental home tax rates (2% tax cap max.) can be double that of a neighboring home that is owner occupied.  The rental rate may trend up due to this extra cost.

As a real estate professional, I’ve opened up a toolbox of different strategies to accomplish the goal of buyers and sellers.  We have negotiated a sale with a bank while they fixed a foreclosed home, worked out a sale with a one year closing date, strategized with options on properties,  bought property with a personal retirement account fund, and saved years of seller’s financial hardship by negotiating short sales.  Due to the unusual market provided this past year, I feel more even more educated to be able to provide buyers and sellers valuable insight gleaned through our experiences.

Type:  Ranch with Bonus Room

Age:   Built in 2001

Location:   Near 156^th Street and Springmill Road             

Neighborhood:   Mulberry Farms is a quiet community with a large central pond and playground.

Square footage:  1728

Rooms:   This three-bedroom home has two full baths, a large great room with vaulted ceilings, kitchen with new stainless appliances, main floor master suite and upstairs bonus room. 

Strengths:  This home has updated attractive décor and sits on nearly half an acre.  Many other ranch style homes in Westfield are older and more dated compared to this newer, more modern home. 

Challenges:  This home backs up to 156^th Street but the large lot and trees help to create a barrier.  

WHAT’S IT WORTH?    $180,000

Type:  Ranch

Age:   Built in 2001

Location:   Near 146^th Street and Spring Mill Road

Neighborhood:   Centennial is a large neighborhood with a swimming pool, playground, basketball court, sledding hill, soccer fields, tennis court, and walking trails.

Square footage:  3179 including 1297 in the finished basement

Rooms:   This two-bedroom two-bath home has a main floor den, great room with wood-burning fireplace, formal dining room, full finished basement with a large recreation area, and two-car garage.

Strengths:  There is a full finished basement.  The property is immaculately landscaped and has a built-in sprinkler system and large covered porch.  This home is located directly across from a huge park. 

Challenges:  There are only two bedrooms but the office can be transformed into a third bedroom with the addition of a closet. 

WHAT’S IT WORTH?   $250,000

Type:  Tradional

Age:   Built in 1996

Location:   Near State Road 31 and 196^th Street

Neighborhood:   Morgan Woods is an established neighborhood with large lots and mature trees.

Square footage:  2088

Rooms:   This three-bedroom home has two-and-a-half baths, a great room, dining room, two-story entry, open floor plan, and two-car garage. 

Strengths:  This home is a great value worth more than the list price.  It sits on a wooded lot, has a nice two-story entry, and has same the amenities found in homes above $200,000.  Overall, the home is in good shape considering that it is winterized and no longer actively kept up by the owner.

Challenges:  This is a bank owned home sold in “as-is” condition and may provide some hidden expenses that will increase the chance of requiring surprise out of pocket funds.  The roof has a tarp where there has been a leak possibly caused by a tree limb. 

WHAT’S IT WORTH?    Listed at $156,900

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. 

The recession was led by housing and will be led out by housing, so it is wise to keep up to speed on where things are heading.  It is critical to know what is going on if you own and invest in real estate. 

The data is in and home sales are steady due primarily to the first-time buyers and investor market.  We did see some significant move-up business in price points below the luxury price range throughout the year due to our great cost of living in the Carmel and Indianapolis area.  The move-up buyer seems to be missing from many other markets in the country.  I know for a fact that the first time buyer incentive offering an $8,000 tax credit is sparking people to move forward who would have stayed on the sidelines especially in the $250,000 and under price points.  The investor buyers are also spurring activity, finding great values, and are able to find a larger pool of renters in this market.

According to new monthly data compiled by RE/MAX of Indiana, we see sales of homes in the Indianapolis market holding steady comparing the previous month.  The median home price in the Indy metro area was off slightly from the prior month at $123,900, meaning that half the homes sold for more, half for less.  However, the value was the second highest since July 2008.  Average price for the Indy metro area was $155,190.  Hamilton County continues to be one of the most stable locations in the area where just 6% of sales recorded were listed as foreclosures.  About 21 percent, or more than one in five sales in the entire Indy Metro market, were foreclosures.  Broker Listing Cooperative provided by MIBOR statistics show that the median price of foreclosures is very low, at $57,950 so this really pulls down the median data of all homes.  Median price in Hamilton County was down about 10% from the same month a year ago, to $184,475 from the same source.

For more information please visit the link on www.JohnPacilio.com of the INDY Channel 6 News report where I discuss the real estate market. 

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.