Author: Marlowe Clark

Keep Your Eyes Open For Fraud

When less fraud is being reported, that tends to mean consumers get complacent and aren’t being vigilant, thinking that fraud is less common. But what it actually entails is that fraudsters are getting smarter. According to the Federal Trade Commission (FTC), the total value of fraud reported by consumers in 2022 was $8.8 billion, with 2.4 million fraud reports. This dollar value is an increase of 30% from 2021, despite fewer reports. In 2021, there were 2.9 million reports totaling $6.1 billion.

The increasing online presence is definitely contributing to the problem. The greatest amount of losses by method of contact is social media, accounting for $1.2 billion. The second most reported method of scam is an online shopping scam. Older methods of fraudulent activity are still alive and well, though. Imposter scams are the most common method, and phone calls have the highest per-person reported losses at a median of $1400. Investment scams are also getting increasingly popular, with losses more than doubling from $1.8 billion in 2021 to $3.8 billion in 2022.

Photo by Oscar Gray on Unsplash

More: https://www.ftc.gov/news-events/news/press-releases/2023/02/new-ftc-data-show-consumers-reported-losing-nearly-88-billion-scams-2022

What Is A Seasoned Down Payment?

If you’ve just unexpectedly come into some extra cash, you may be tempted to immediately put it towards a home so you can start accruing equity as soon as possible. Unfortunately, this isn’t always possible. Most, but not all, lenders require at least a portion of your down payment to come from what they call seasoned funds. Typically, seasoned funds are those that have been in your possession at least 60 days. Lenders will require a paper trail to confirm how and when you acquired the funds used for your down payment.

Usually, at least half of your down payment must come from seasoned funds. However, rules vary by lender, both with the percentage of funds that must be seasoned and the length of “seasoning.” Fortunately, this mainly applies to windfall gains, and there are other methods of acquiring money that don’t need them to be seasoned. If the money was acquired via borrowing from your savings or retirement account, this is generally allowed, though you should discuss the tax implications of this with an accountant. Some lenders will allow gifts to be used for a down payment. Some don’t allow it at all, and those that do will probably require a written confirmation from the person gifting the money.

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Important Terms All Real Estate Investors Need To Know

Even with all its ups and downs, real estate has always been one of the safest investments. But as with any type of investment, you need to know your stuff to get the best deal. That means being familiar with some of the terms used in investment. Three important ones are hard money loan, net operating income or NOI, and debt-to-income ratio or DTI.

A hard money loan is any loan backed by real property. While this is the actual definition, there’s another aspect of most hard money loans that is what investors are most interested in. Usually, a hard money loan is an immediate, short term loan used for the purchase of commercial or investment property. However, they are typically offered only by private lenders, and often have a higher interest rate due to the shorter term length.

NOI is the net amount of revenue you gain from your investment, after deducting related expenses. These expenses could include such things as mortgage payments, property taxes, insurance, and property management fees. At first, NOI may appear to be the same as return on investment or ROI. In common parlance, the terms may be synonymous. However, in investment real estate, ROI actually refers to the length of time it takes to get positive NOI.

DTI is a term you need to know if you are getting any loan, not only an investment loan. Fortunately, the name doesn’t hide what it is. It is simply the ratio of your total debt to your monthly gross income. Lenders use DTI to determine the loan’s interest rate. A lower DTI will give you a better rate on mortgage loans.

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Seasonal Adjustments Reveal Slight Home Sales Growth

No matter which region of California you’re looking at, things initially appear pretty dire for home sales. From December 2022 to January 2023, it’s down in every single major area. The decrease is smallest in the Inland Empire at 15.4% and highest in the San Francisco Bay Area, where sales dropped 38.1%. They also dropped significantly in the Central Valley, by 30.8%. Even in the Far North, where prices actually increased by 4.9%, home sales are down 18.4%. Most regions experienced a decrease of approximately 19%.

However, that rate is not seasonally adjusted. Winter is the slowest season in terms of home sales, so it makes sense that sales would be down. One rate that is seasonally adjusted is the statewide single-family residence (SFR) data. With sales being down in every region, you’d expect sales to be down statewide, since those regions do encompass the entire state. But with seasonal adjustment, we discover that the month-to-month SFR sales actually increased ever so slightly, by 0.4%. In fact, this was the second straight month of seasonally adjusted increase in SFR home sales. It’s hard to say just yet whether this is an overall increase in market confidence, or simply preparation for the often-hot spring season, but in either case, expect sales to increase. If spring sees not only an increase — which is expected regardless — but a seasonally adjusted increase, then we’ll know that market confidence has improved.

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More: https://www.car.org/aboutus/mediacenter/newsreleases/2023-News-Releases/january2023sales

How To Prepare For The Spring Real Estate Market

Spring is almost always the hottest season for real estate. It’s very likely that it will be this spring, as well. However, things are going to be a bit different. The market feels somewhat volatile at the moment, with prices having plummeted rapidly immediately after a dramatic increase. Mortgage rates, having reached their peak, are now beginning to tick down over time, but it’s hard to gauge rates on a day-to-day basis. Sales can’t be predicted at all based on job growth, since the job growth is primarily reduced unemployment. This uncertainty is going to make buyers more cautious than usual this spring.

That’s not necessarily a bad thing if you are looking to buy, though. Prices may not be at their lowest point, but they don’t have much farther to fall given inflation. Mortgage rates are no longer inordinately high. And importantly, competition isn’t going to be as high as it is most spring seasons. That means you have time to shop around, look for the best deals, and watch how the market pans out. If you get out there looking now, you’ll have a better idea of where the market stands by the time you find something that’s right for you. But make sure you’re prepared to buy and have a pre-approval. If you wait too long, demand will start to go back up as mortgage rates continue to fall, and suddenly you have competition.

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More: https://www.cnn.com/2023/02/09/homes/preparing-to-buy-a-home-2023/index.html

LA City Eviction Moratorium Ends; Now Under County Moratorium

Until the end of January 2023, the City of Los Angeles has been under its own eviction moratorium laws, separate from those of the county as a whole. The city’s moratorium has ended. However, the county’s moratorium isn’t over yet. Every city in LA County is now under the county’s moratorium rules.

With the LA City rules gone, tenants are no longer able to defer rent payments. But note that the rent freeze is separate and not part of the eviction moratorium. Rents still cannot be raised on rent-controlled properties in Los Angeles until January 31, 2024. Under the county eviction moratorium, evictions are allowed only under certain circumstances. If the circumstances are related to COVID, it’s very likely that the landlord cannot legally evict. Also, use of the Ellis Act to evict tenants by removing the property from the rental market is still not permissible until April 1, 2023. If the tenant breached the rental contract, though, the landlord is probably able to evict, with a few exceptions.

See here for more specifics about the LA County moratorium regulations: https://aoausa.com/all-88-cities-within-l-a-county-now-fall-under-the-l-a-county-eviction-moratorium/

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ITIN Loans: An Option For Non-Citizens

Those who are not citizens or possibly not even residents of the US may have trouble qualifying for mortgage loans. Fortunately, there is an option available, so you don’t necessarily have to be stuck renting if you have just recently moved to the US. ITIN stands for Individual Taxpayer Identification Number, and is a number that the IRS can assign to taxpayers who cannot get a Social Security Number. If you apply and are assigned an ITIN, this can help you qualify to get an ITIN loan.

While you don’t need to be a resident or citizen, there are still some requirements for ITIN loans. You do need to provide tax returns and may have to fill out Form W-7. It’s possible that you will also be asked for additional forms of identification, such as a driver’s license or birth certificate. As with any mortgage loan, you will be expected to provide proof of income, assets, or employment.

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Benefits Of A Senior Living Community

The prevailing narrative is that senior living communities are designed for elderly retired people. However, they are generally open to anyone over the age of 55. Most people age 55 aren’t retired yet, and this certainly isn’t very old. You may not think you need to live in a senior living community yet, but it isn’t about necessity. There are benefits to it that you may want to take advantage of as early as possible.

Even if you don’t consider yourself in poor health, certain laborious tasks can become more difficult — if not impossible — at a relatively early age. Many senior living communities have full time maintenance staff, so you don’t need to worry about it at all. There will probably also be a dining hall, so you may not need to cook. Because the community will be expecting that some members have reduced physical capabilities, there will be some small benefits that can make your life more convenient even if you don’t strictly need them. This includes no or fewer stairs, more railings, and slip-resistant flooring. But these communities haven’t forgotten about their physically fit residents; many senior living communities have their own gym.

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Surrender Versus Forfeiture In Lease Agreements

A little known fact is that lease agreements actually establish two entirely separate legal relationships between the landlord and tenant. The first is a right of possession granted to the tenant, and the second is a list of contract rights, which is what allows the landlord to collect rent. Though the lease agreement establishes both of these, they can be cancelled separately and through different means, though certain actions can cause both to be cancelled simultaneously. Cancellation of the right of possession is termed a forfeiture, and cancellation of the contract rights is called a surrender.

Because a tenant can’t unilaterally forfeit their right to possession or have the landlord surrender their contract rights, it falls on landlords to follow the proper procedures when a tenant chooses to vacate the property or stop payments. A savvy tenant could escape paying missed rents if the landlord unwittingly cancels the contract rights. On the other hand, a savvy landlord could put a former tenant on the hook for missed rent payments if they follow all the legal procedures, though one of the legal procedures involves notifying the former tenant, so this isn’t necessarily easy.

It’s always in a vacating tenant’s best interest for the contract rights to be surrendered. Landlords need to be careful of following the law when attempting to lease a property that is legally still in a vacating tenant’s possession, but it’s not always in their best interest to initiate a forfeiture. The landlord could instead act as the tenant’s agent in subletting the property, while continuing to collect rent from the tenant for the remaining duration of the lease agreement. However, to do this, the term of the sublease must end on the same date as the existing lease agreement, otherwise the landlord is considered to have illegally given possession to a new tenant while the former tenant still retained it.

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More: https://journal.firsttuesday.us/surrender-cancels-the-lease-agreement-3/88817/

Fastest Growing Homeless Population Is Those Over 50

The homeless population grew rapidly between 2017 and 2021, in part due to the pandemic, but this doesn’t explain all of a 43% increase in those seeking to access homelessness services. Even more alarming is the increase in those over 55 seeking assistance, a whopping 84%. This is not at all proportional to the 7% increase in the total population over 55.

Many of these people were already homeless and are growing older on the streets or in shelters. If these conditions continue, such people are unlikely to live much longer. With the living conditions of people out on the streets, poor access to healthcare, and crackdowns on homelessness by authorities, an age of 50 is more like an age of 70 in terms of health and life expectancy. With the slowly decreasing overall life expectancy in the US in recent years, this does not give them much time.

An increasing number of them, though, are becoming homeless after the age of 50. Older adults, especially those who are retired, often live alone on a small fixed income. Their income is frequently just barely enough to pay rent and afford groceries. With rent prices having skyrocketed, and Social Security benefits not keeping up, many of these people are no longer able to afford rent and are forced out of their homes.

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More: https://calmatters.org/health/2023/02/california-homeless-seniors/

Millennials Living With Parents Are Ready To Move Out

During the pandemic, there was a large influx of young adults who moved back in with their parents during lockdowns, or simply stayed there if they already were. There were various reasons for this — some include not wanting to be away from them while isolating, losing their job or transitioning to work-from-home, or graduating from college — but regardless of the reason, many of them were able to spend the last couple of years saving up money for a down payment. Now these young adults are looking to buy, in many cases for the first time, as they were probably renting before.

The share of adults age 25-34 living at home has been steadily increasing since 2003, when it was 10%. Back then, that age group was entirely Generation X. Now in 2022, it’s almost entirely Millennials, and the youngest among them are in Generation Z. But 2020 was actually the peak year, despite being the year of the sharpest increase. It has since decreased from 17.8% in 2020 to 15.6% in 2022, about the same level it was at in 2015. Based on historical trends, it’s expected that the number will drop back down to somewhere in the 8-12% range at some point, but this is unclear given that the steady increase was already in progress long before the pandemic.

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More: https://www.nar.realtor/magazine/real-estate-news/young-adults-living-with-parents-are-ready-to-purchase

Top Metros For Millennial Buyers

Millennials currently form the largest cohort of homebuyers, and have done so for about a decade. That means the places where millennials are looking are probably going to be the hottest spots overall. By looking at mortgage data, LendingTree analyzed the top metro areas where millennials are considering buying. Note that this doesn’t include full cash sales since it’s derived from mortgage data, and LendingTree only has access to mortgage data for users of their platform.

LendingTree found that millennials make up the largest share of homebuyers in all 50 of the largest metros, and are a majority in 37 of them. The top metro area is San Jose, CA with 63.57% of mortgage offers going to millennials. The remaining top 10 are Denver, CO; Boston, MA; Seattle, WA; Austin, TX; San Francisco, CA; New York, NY; San Diego, CA; Los Angeles, CA; and Washington, DC. Narrowly missing the top 10 is Pittsburgh, PA, only a hundredth of a percent below Washington, DC’s 56.35%. But really, millennials are buying everywhere — not a single metro has a millennial homebuyer share below 40%, the lowest being Las Vegas, NV at 41.92%.

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More: https://www.lendingtree.com/home/mortgage/most-popular-cities-millennial-homebuyers/

Most Common Incentives To Sell

The housing market has its ups and downs, but it’s a relatively resilient business. There’s almost always at least one reason for some segment of the population to sell, even if the economy is looking shaky. However, interest rates definitely aren’t one of them, since 93% of homeowners already have a mortgage interest rate below the current average. But again, that doesn’t mean there aren’t other reasons to sell.

There are plenty of reasons, in fact. The five most common reasons to sell right now only account for 62% of sales as a whole. Only one accounts for more than a fifth of sales, which is wanting to move closer to loved ones, the reason for 21% of sellers. There are two reasons cited by 11% of sellers each, retirement and the neighborhood becoming less desirable. Upsizing accounts for 10% of sales, and 9% say that the structure of the household changed.

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More: https://themlsblog.com/2023/02/06/the-top-reasons-for-selling-your-house/

Should You Get A Home Equity Loan?

With home prices having skyrocketed and now starting to slow, many homebuyers are curious whether it’s a good time to get a home equity loan. In a survey of 1000 homeowners by MeridianLink, 21% stated they were considering getting a home equity loan at some point during the year, compared to just 8% last year. However, a little under half — 48% — aren’t even confident they know what a home equity loan is, or definitely don’t know, which encompasses 13% of respondents. Rising prices have, in fact, increased total equity by 15.8%. But that’s not the only thing you need to know.

The most important factor to keep in mind is whether it’s actually a home equity loan you’re interested in, or the similar but distinct home equity line of credit (HELOC). The answer will depend what you need the funds for and how quickly you want to repay it. A home equity loan has a fixed interest rate that is locked when you take out the loan. They’re relatively safe if you have good credit, but with current interest rates being high, they’re most useful for short-term uses, such as funding home improvement projects with a solid return on investment. HELOCs, on the other hand, have a variable interest rate that is based on the benchmark rate. The benchmark rate is currently still increasing, but that should change in the not-too-distant future. Therefore, a HELOC can be useful if you want to take advantage of high equity now and aren’t particularly worried about paying it off any time soon.

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More: https://www.foxbusiness.com/personal-finance/more-homeowners-consider-home-equity-loans

How Women Got Ahead Of Men In Homeownership

You may be surprised to find that there are actually far more single women who own homes than single men who own homes. Given that the wage gap is still a persistent problem — women earn 83 cents per dollar that men earn, on average — it doesn’t seem like this would be the case. But single women own over 2 million more homes than single men. The trend exists nationwide; there are only two states where single men own more homes than single women, North Dakota and South Dakota. So what’s the reason for this?

There are a few different reasons. It’s true that there are, in fact, more women than men in the US, but this alone doesn’t account for the vast difference. A significant factor is life expectancy. It’s five years higher for women than men, 81 years versus 76 years, for a variety of reasons that we won’t get into here. The result of this is that many homes owned by women are owned by widows who outlived their late husbands. Another reason is that women are more motivated to find success, as a result of historical — and continuing — discrimination. They’re more likely to seek to purchase than rent, even if they’re equally able to afford it. This is especially true among younger women. There are also more college educated women than men, which may lead them to make better financial decisions.

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More: https://www.cbsnews.com/news/home-buying-single-women-outpacing-men-in-home-ownership/

Financial Checklist For Before You Buy

Buying a house is a tough financial decision, but it’s a lot easier if you know where you stand right now. Perhaps you check your bank balance regularly enough to know how much you currently have — but do you know how much you spend, and where the spending goes? Before buying a house, especially if you need to take out a mortgage loan, make sure you know what you can afford.

The first thing you should do is organize your budget. This doesn’t necessarily even mean you need to make changes, but you’ll need to figure out whether you do or not. List all your sources and amounts of income and expenses. No one is going to remember what all they purchased, but you can use your credit and debit card statements to help. There is software that can help with arranging all the numbers. Those of you who regularly itemize your tax returns will be familiar with this and may be already up to date, but it’s common to take the standard deduction instead, so you may not be used to it.

Step two is to get a copy of your credit report. Not only does this show you where you stand with credit — and therefore whether or not you can afford to take on more debt — but it’s the same information mortgage lenders will be looking at. You’ll want to make sure you and the lender are on the same page with your credit history. This can be done once per year for free from government-approved websites. Be careful, though — there are a lot of scam credit reporting websites out there.

Finally, ensure that you have enough for a down payment. While a down payment isn’t strictly necessary, some lenders have a minimum down payment for loans. Even if there is no minimum, both the interest rate and the initial balance due will be higher with a lower down payment. A down payment of 20% of the purchase price or more is ideal; however, that doesn’t mean it’s a problem to put down less. Many buyers can’t afford to spend that much upfront.

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What The Increasing Benchmark Rate Means For You

You’re probably aware that the Federal Reserve has been repeatedly hiking up interest rates. The idea behind this anti-inflationary measure is that increasing interest rates will result in lower consumer spending, which will force prices down to recover demand. The Fed’s eighth and most recent benchmark rate increase was on February 1st, just a couple days ago. However, this increase was the lowest of the series — only 0.25 percentage points, compared to prior increases of 0.75 or 0.5 percentage points. This is because we’re starting to see the desired result, decreases in inflation. It’s not enough to stop cold turkey, but it’s enough to reduce the pressure on interest rates.

But what else has the increasing benchmark rate done, besides reduce inflation? Well, obviously it has increased interest rates. This includes credit card rates, auto loan rates, and some student loan rates. Up until recently, it has also included mortgage rates. But mortgage rates are only indirectly affected by the benchmark rate, and they’re actually starting to decrease now. Another rate indirectly affected by benchmark rates is the savings rate. You’ll start to earn more money from savings accounts and certificates of deposit. It’s important to note, though, that with inflation being as high as it is right now, it has already entirely negated the effect of this savings over time, so you’ll have to save for quite some time for it to matter.

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More: https://www.cnbc.com/2023/02/01/what-a-federal-reserve-quarter-point-interest-rate-hike-means-for-you.html

Low-Income Housing Actually Increases Property Values

Much of the slow progress of zoning reform can be attributed to Not-in-my-backyard advocates, or NIMBYs for short. This refers to the homeowners that are resistant to reform because they believe it will decrease their home’s value, thus reducing their future sale profit. One big target for NIMBYs is low-income housing. It’s true that low-income housing is probably less valuable itself than the NIMBYs’ homes; however, to assume that it would drag down the value of nearby homes is simply inaccurate.

In fact, the addition of low-income housing actually increases the value of mid- and high-tier housing within a half mile radius by about 4%. There are a few different reasons for this. First, low-income housing in mid- or high-income areas generally also translates to multi-family residences. Higher density housing means an uptick in population density, which also usually increases home values. In addition, new multi-family housing construction is most often replacing either tear-downs or vacant lots. The area’s average value would actually increase just with that new construction alone, without any change to nearby home values. Finally, in areas that are already experiencing price growth, low-income housing further accelerates it by increasing existing high demand in that area.

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More: https://journal.firsttuesday.us/nimbys-judge-low-income-housing-by-its-sound-and-judge-wrong/88650/

Why More Construction Doesn’t Always Mean More Homes

The housing shortage we’re currently experiencing has been attributed in large part to lack of construction. There’s a lot more to the story, though. First of all, the slow construction doesn’t even account for all of our housing shortage — there are other factors such as increasing population, a rapidly changing housing market, and vacant homes not for sale or rent. As far as construction, the problem isn’t merely a lack of it. It’s true that construction dropped significantly during the pandemic, but it’s mostly recovered now. The actual issue is that the homes being constructed are frequently not adding additional units.

The statistics you see when looking at construction starts account for all types of construction. However, much of the construction that’s occurring right now isn’t on vacant land. In 2021, 76% of builders reported that the number of available lots is low to very low. In California, a lot of this has to do with zoning laws. Many areas aren’t zoned for multi-family residences or even for residences at all. Even in areas that allow condos or apartment buildings, single-family residences (SFRs) are in higher demand in California. Building SFRs in the right place is also difficult. 28% of SFR construction is reliant on lots called infill sites. While these are vacant land, which is good, they’re in areas that already have a high density of housing and are less in need of additional construction. A further 20% of SFR construction starts come after teardowns, merely replacing one SFR with another SFR.

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More: https://journal.firsttuesday.us/new-construction-doesnt-always-mean-more-homes-to-go-around/88622/

Converting Your Residence To Rental Property

If you are considering purchasing rental property and also thinking of moving, one possible option is to not sell your home when you move and instead rent it out. There are various pros and cons to doing this, and whether it’s the right option for you will depend on your situation.

The most obvious benefit is that there are fewer transactions involved. You don’t need to list your home for sale and you don’t need to find rental property to purchase, though you may still be purchasing a new residence if you don’t already have somewhere else to move. You may not even need to pay an agent at all — though an agent can still be useful in guiding you to the right choices for your situation. It could also be financially better for you to simply buy once rather than buy twice and sell once. This will depend greatly on several factors, including such things as the market conditions, neighborhood, property size and condition, budget, and mortgage balance. Even if you know you can afford to buy one property, you may not be able to afford to buy two properties and pay off your current mortgage, even with the income from selling.

However, converting a primary residence to a rental property is also a process, especially if you still have a mortgage. If you purchased the property as your primary residence, that was taken into account in your interest rate. The rate is probably lower than if you purchased it as rental property. Because mortgage companies don’t want you to lock in a lower rate then immediately decide you don’t want to actually live there, your mortgage contract may have a stipulation that you must have lived there for a certain length of time to convert it to rental property. Even if you don’t have a mortgage, property taxes are also lower for primary residences. There’s no time restriction on conversions for property taxes, but the rate will change.

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