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Investing In Real Estate Without The Fuss Of Management

Real estate is almost always a solid investment. The two major barriers are the high initial investment required and the necessity to manage the property. The former can’t really be fixed, but there are things you can do about the latter. While there is always the option to hire a property manager, this increases the investment required and can make the profits less attractive. Fortunately, there are some other options for real estate investment without being involved in management, which is termed passive real estate investment.

The other options are real estate investment trusts (REITs), real estate crowdfunding, private real estate funds, and exchange-traded funds (ETFs). In all of these cases, you are investing only a portion of the funds. This also reduces the barrier to entry, but at the cost of lower profits. REITs are trusts that own and manage income properties. Investors can purchase shares of REITs that pay dividends. Similar to REITs, ETFs are publicly traded; however, ETFs are traded on the stock market rather than purchased as shares of a company. Real estate crowdfunding and private real estate funds both involve a group of investors pooling money for an investment project. Crowdfunding gives each investor more choice about which projects they’re interested in, which is better for an investor who knows what they’re doing while still not putting the onus of management on them. Private real estate funds are the option for investors who just want to throw money at an investment and not be involved at all, as they are managed by professionals that choose the projects.

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When Is A Bridge Loan Right For You?

A bridge loan is a type of loan that uses equity in your current home to finance the purchase of a new home. Like nearly any loan, a bridge loan has interest and is paid off in installments. Unlike a traditional loan, though, the balance is paid off when your current home is sold. While you don’t technically need to sell your current home to pay off a bridge loan, it’s most useful in situations in which you want to both buy and sell.

Some seller-buyers will sell first, then use the sale proceeds to purchase a new home. However, this comes with potential uncertainties about how long you will be left without a home, especially if you make offers and aren’t successful. You may be staying in hotels or renting for longer than anticipated. Another option is to buy a home first using a traditional loan, then sell. If bridge loans weren’t a thing, there wouldn’t be anything inherently wrong with this. But they are a thing, and this is exactly the situation they’re designed for. While bridge loans do come with a higher interest rate than traditional loans, the length of the loan is typically much shorter. After all, most traditional loans are 15 or 30 years, and no one is going to be waiting that long for a sale to finalize. One caveat of bridge loans is that since they are based on the equity in your current home, if your equity is low, the loan amount will also be low.

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JPMorgan Chase Acquires First Republic Bank

This year has not been a good year for banks. City National Bank settled for millions early this year. In March, two major banks — Silicon Valley Bank (SVB) and Signature Bank — went bankrupt. These weren’t the only banks to fail, but they were the most well known. Now, First Republic, the largest bank to fail since Washington Mutual in 2008, has been added to list of failed banks. After First Republic failed, it was briefly taken under government control before being auctioned off. JPMorgan Chase, who had also purchased Washington Mutual when it failed, is the new owner of First Republic. The entire situation with First Republic has cost the Federal Deposit Insurance Corporation (FDIC) about $13 billion.

However, analysts and federal regulators emphasize that the banking crisis has calmed down, now. When SVB and Signature Bank failed, fears were warranted. But those failures sparked an inquiry into which banks were likely to fail, and First Republic was identified as a likely candidate early on. So, this wasn’t entirely unexpected, and regulators were able to act quickly. Additionally, the FDIC admits that SVB’s failure was partially their fault, as they had not been meticulous in their supervision. Analysts aren’t expecting any additional major bank failures in the near future.

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More: https://www.npr.org/2023/05/01/1172868295/first-republic-bank-failure-fdic-jpmorgan-chase

The Features That Translate To Higher Home Values

If you want to make the most of a partial remodel, look no further than the kitchen. Unless no one in the family knows how to cook, people will spend quite a bit of time there. Kitchen remodels are a great investment if you know what’s trending. Right now, that means terrazzo floors, soapstone, and quartz. Marble and granite are old standbys that won’t generate additional interest. Additionally, more avid chefs are definitely looking for less common kitchen amenities. These include steam ovens, pizza ovens, and professional-grade appliances.

Getting all new furniture may not seem like a solid investment, but it certainly can be. You probably do want to if your current furniture is noticeably old or beaten up. And while you’re at it, you should choose the leading trend, which remains the modern farmhouse style. This style is typified by comfort, neutral color schemes, reclaimed materials, and vintage accessories, while at the same time using modern clean lines. Nearly all modern farmhouse style homes use reclaimed wood and have large, comfortable furniture. Many display rustic-looking, but still modern, wrought iron accents as well as antiques.

Having a shed somewhere on the property will also bring in more money. In addition, accessory dwelling units (ADUs) are still popular. Combining the two also works great. Buyers are paying more for properties with sheds converted into living space. Notably, this actually doesn’t translate to a quicker sale – for one reason or another, homes with sheds stay on the market longer, despite selling for more. If you do want to sell quickly, some inexpensive upgrades that will accomplish just that are doorbell cameras, heat pumps, and fenced backyards.

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More: https://www.realsimple.com/features-that-boost-home-values-2023-7375268

Construction Down Overall, But Up For SFRs

While construction rates have been low overall since the pandemic, construction rates can potentially vary significantly depending on the type of building you’re looking at. This can be the result of different levels of demand or zoning regulations. Recent zoning reforms have tried to push construction more towards multi-family residences, believing that zoning is the primary obstacle.

However, if recent numbers are any indicator, there simply isn’t much demand for multi-family residences. Construction starts on buildings with five or more units dropped by 6.7% in March. Permits for such buildings also fell sharply, by 24.3%. At the same time, construction of single-family residences (SFRs) increased by 2.7%, and SFR construction permits increased by 4.1%. Overall, construction starts dipped down 0.8% and permits decreased by 8.8%.

Even though this wasn’t the goal of the zoning reforms, not everyone sees this as a bad thing. SFRs being in higher demand could signal that more people are ready to buy as opposed to rent. However, since it’s not renters but potential landlords that would create demand for multi-family residences, it’s also possible that homeowners simply aren’t seeing the value in renting the units out, leaving potential tenants in the dust.

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More: https://www.reuters.com/markets/us/us-single-family-housing-starts-increase-march-2023-04-18/

Interest Rate Versus APR: What’s The Difference?

When comparing loans, buyers frequently only look at the interest rate. However, that’s not the entire story. There’s another number that lenders are required to supply, but that lendees rarely pay attention to. That number is the annual percentage rate, or APR. This shows an estimate of the actual percentage of the loan amount that you pay each installment period. It takes into account the interest rate, principal loan amount, and loan length, as well as any lending fees or closing costs.

Even though the APR gives you a better idea of how much you’re actually paying, the interest rate by itself is still important. This is because APR doesn’t take into account compound interest. If the interest rate is high, the amount you pay each installment period could increase significantly over time. This means a loan with a lower APR could potentially cost more over time if it has low lending fees. If two loans look very close and you’re concerned about exact numbers, you may also want to look into the APY, which is the annual percentage yield. This value does take into account compound interest. As such, it’s going to be slightly different each year, but knowing the APYs across multiple years will give you the best idea of how much you are actually paying.

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When Can A Contractor Place A Lien On A Property?

When people think of a lien, what most people think of is a mortgage lien, whereby the mortgage lender retakes possession of a property in the event of missed mortgage payments. Most don’t realize that the lien is actually created as soon as you get the mortgage loan; it merely doesn’t have any effect unless the contract is breached. Lien is a rather general term that applies to any situation in which one party has the right to possess another’s property until a debt is paid or waived. One type of lien is a mechanic’s lien, which is the type a contractor can place to use your property as collateral for their work.

There are two broad categories of liens, consensual and nonconsensual. Mortgage liens are consensual because they are initiated by the property owner when they get a loan. On the other hand, mechanic’s liens are nonconsensual, and can’t be placed unless the contractor is legally able to. This means that while a mortgage loan is always in effect in case of a breach of contract, a mechanic’s lien that occurs as a result of the breach of contract can’t be placed until the breach occurs. Breach of contract is only one reason for a mechanic’s lien, though. It can also be placed in the event of nonpayment, unpaid property taxes or fees, deceptive practices by the property owner, or disputes over the work performed.

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How To Identify And Take Advantage Of A Seller’s Market

Real estate agents and experts will frequently declare that the market is either a seller’s market or a buyer’s market. There isn’t some esoteric industry secret formula, though. Figuring out whether it’s a buyer’s or seller’s market is actually fairly straightforward, as long as you have access to relevant data. There are three indicators of a seller’s market: low inventory, high demand, and low construction.

Of course, these statistics are interrelated. If construction has been consistently low, there will be fewer homes on the market. If inventory is low, buyers will be more competitive, driving up demand. But it’s actually low demand and high inventory that reduces construction rates in the first place, resulting in a cyclical effect. Moreover, each of them are affected differently by factors external to the cycle. So, in order for there to be a seller’s market, all three factors are probably true.

So what should you do if you find yourself under the conditions of a seller’s market? Well, if you’re a seller, everything is great — you’ll probably find a buyer, and be able to sell at a high price, as well. However, even if you’re a buyer, you can work the seller’s market to your advantage. Be aware that prices will be higher in a seller’s market, so a home that looks overpriced may actually be perfectly priced in a seller’s market. If you see something that fits the criteria you’re looking for, be ready to make an offer. It’s likely that multiple buyers are looking at the same thing you are. Make sure to get a pre-approval so that sellers know your offer is serious. In a high demand climate, sellers may get so many offers that they won’t even look at offers that don’t seem genuine.

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Buying A Fixer? Here’s A Good Loan Option

For people who don’t necessarily have a lot of cash on hand but are willing to invest over longer periods, buying a home in need of repairs is often what they look to. This may be in to live in or to resell the home later, but in either case, you may need to finance the repairs, the purchase itself, or even both if you’re low on ready cash. Fortunately, there are loans that are designed specifically for this situation. One such loan is the FHA 203(k) rehab loan.

The FHA 203(k) rehab loan can be used to finance both a purchase and repairs simultaneously, preventing the need for multiple loans, credit usage, or a line of credit. This can definitely save you money in the long run, especially if you are able to qualify for a low interest rate. There are two types of FHA 203(k) rehab loans: a standard loan and a streamline loan. The standard loan is designed for long-term, larger projects, such as renovating entire rooms. This type has no limit on the portion of the loan used for repairs, unlike the streamline loan, which has a limit of $35,000. It’s quicker and easier to access funds from a streamline loan, which makes it more suitable for smaller projects, like installing an HVAC or repairing plumbing.

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High Interest Rates May Be Contributing To Low Inventory

With how much discussions of real estate tend to pit buyers and sellers against each other, it’s easy to forget they’re often actually the same people. Many sellers are also buyers, either planning to buy to replace the home they’re selling, or already bought another home. This isn’t always the case, of course — it’s entirely possible that someone could have never purchased anything, inherited two homes, and sold one of them. But this isn’t most sellers. What this means is that market conditions that are generally considered to primarily affect buyers will also affect sellers.

Such as right now, where it appears that the high interest rates that are holding buyers back are also making sellers hesitate. The majority of homeowners now have an interest rate lower than the current rates, especially if they took advantage of ultra-low rates such as the rates during the pandemic. If these homeowners were to sell and buy a new home, they would be losing their low interest rate and gaining a high interest rate. For 82% of them, that may not be worth it. Over half of those considering selling right now are deciding to wait until interest rates drop.

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More: https://news.move.com/2023-04-17-Realtor-com-R-Survey-82-of-Those-Looking-to-Buy-and-Sell-a-Home-Feel-Locked-In-by-Low-Mortgage-Rate

Be Sure Early Lease Terminations Are Legally Proper

Transitioning from renting to buying a home can be exciting. However, make sure not to get too excited too early before you’ve terminated the lease. It’s not at all uncommon for a renter to not want to deal with their landlord any longer than they have to, and simply leave. But that could actually be costing you money or leaving you open for a lawsuit.

Lease agreements will always have an early termination policy. It may look like ignoring the policy and ditching is just a way to skip the fees, but it’s actually not. You’re still on the hook for rent payments until the lease is actually terminated, and the early termination fee could be significantly lower. There may not even be a termination fee — the rules vary widely by region and by property manager. Don’t be afraid to talk to your landlord, either. They’re much more likely to be sympathetic to your situation if they’re aware of it. If you tell your landlord you’re terminating the lease early, the worst they can legally do is charge a termination fee.

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Revised Building Codes Are Bringing Mini-Apartments To Long Beach

There was a time that smaller homes and multi-family living were common in Long Beach. Over the decades, that has transitioned to condos and then to single-family residences. But in 2020, Long Beach municipal codes were revised, reducing the minimum square footage requirement to just 220 square feet. The original aim was probably not co-living, which wasn’t on the radar given that it occurred around the start of the pandemic. Nevertheless, builders now are seeing the opportunity to build apartment buildings consisting of small units with shared common area.

Derek Burnham is a former Long Beach city planner and now works at a development firm, and is excited about the idea. Burnham has already planned about 48 units, which are going to be roughly the same size as hotel rooms, around 350 to 500 square feet. The target audience for this project is people who want to be near jobs and transportation, but can’t afford the typical apartment or condo unit. But builders don’t yet know how receptive people will be to it — after all, the transition away from shared living towards single-family residences was cultural and not pragmatic. Because of this, the plans are flexible, allowing anything from private units to shared units to miniature family units.

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More: https://lbpost.com/news/micro-apartments-are-coming-to-long-beach-will-renters-rush-to-squeeze-into-them

Transfer Taxes Increased For Ultra-High-End Homes In LA And Santa Monica

Two measures went into effect this spring, Measure GS in Santa Monica on March 1st and Measure ULA in Los Angeles on April 1st, both of which enact an additional transfer tax on the sale of very expensive homes, dubbed the Mansion Tax. Measure GS affects properties sold at over $8 million and Measure ULA has two tiers, one affecting properties sold at over $5 million and another affecting properties sold at over $10 million.

Prior to these measures, the transfer tax in both cities was a small dollar value per $1000 of purchase price regardless of property value. Including county taxes, this value is $5.60 in Los Angeles, and Santa Monica has two tiers, one at $4.10 per $1000 and another at $7.10 per $1000. Measure GS added a third tier to the Santa Monica system, which is a significantly higher $56 per $1000 value for homes over $8 million. Los Angeles still only has one base value of $5.60 per $1000, but with an additional tax of 4% for homes between $5 million and $10 million, and 5.5% for homes over $10 million.

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Don’t Skimp On Preparing Your Home For Sale This Spring

Spring is already halfway over, so if you’re planning to sell your home this season, you should get on it quickly. Especially since you may need to do some sprucing up to get a good deal. If you bought your home during or shortly before the pandemic, this may be your last chance to benefit from the spike in prices. But buyers aren’t simply snatching up any home they see, like they were during the pandemic. They’re being more deliberate, so you need your home to be appealing.

This means all the standard procedures for increasing your home’s appeal apply. These include things such as repairs, upgrades, repainting, curb appeal, and staging. In some markets, you can get away with not doing these things, or only doing some of them, because the buyers are happy to purchase a cheaper home and perform the upgrades themselves. Not the case this spring. The seller will have to make the investment, which hopefully translates to a higher price as well.

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More: https://www.realtor.com/advice/sell/what-first-time-home-sellers-need-to-know-to-be-successful-this-spring/

When You Should And Shouldn’t Put 20% Down

Having a 20% down payment used to be a requirement for nearly all loans. That hasn’t been the case for quite some time, but it’s still touted as the conventional wisdom. In many cases, that may be true, but it’s not always the best idea. There are both advantages and disadvantages to putting 20% down.

If you have the money available already, it’s quite likely that the benefits heavily outweigh the drawbacks. Even though 20% down is no longer a requirement to get a loan, it is still a requirement to avoid mortgage insurance fees. Putting 19% down, for example, simply makes no financial sense at all, regardless of your financial situation. It’s also good to put down as much as you feasibly can in order to reduce the loan amount, thereby reducing your payments. The 20% mark is important if you can reach it.

If you still need to save money in order to achieve a 20% down payment, you’re going to need to crunch some numbers and also make some predictions in order to arrive at the correct solution. If you’re close to being able to put down 20%, it may be in your best interest to continue saving up to avoid mortgage insurance fees. But if you aren’t close, it may be best to simply forget about it. Even if you are definitely able to save money, by the time you get to the point that you can put down whatever 20% is now, home prices are likely to be significantly higher. In that case, it may be better not to wait. You also need to consider other costs and where you’re getting the money. If you need to take out a loan or draw on investments to reach 20%, this is probably not a good investment, unless it’s the only way you can viably make a home purchase.

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Cash-Out Refinancing A Solid Option For Home Renovations

If you’re planning to renovate your home, whether you intend to continue to live in it or to sell it at a profit, you need to think about how to pay for the renovations. Of course, it’s possible you have the cash on hand, which is great. But if not, there are a few financing options you can look into. It’s common to get a home equity line of credit (HELOC) or simply take out an additional loan. However, another option you may not be aware of is cash-out refinancing. It works by refinancing to a loan amount higher than your current loan balance, and taking the difference as cash.

The most important thing to consider when determining if you should get a cash-out refinance loan is the interest rate. It very likely won’t be the same as your current interest rate. If the rate is higher or even the same, it’s probably financially negative in the long run unless you can increase your home’s value significantly with the renovations. That’s why it’s a good option specifically for renovations. On the other hand, it’s entirely possible the rate is lower, or simply lower than traditional loans or HELOCs, in which case it’s a good financing option for any purpose. However, you may not want to use cash-out refinancing for large projects. Since you don’t receive the entire value of the new loan, but only the difference between the new loan balance and old loan balance, you’d need to increase the principal significantly to finance large projects. This could increase your interest payments by quite a bit even if the rate is lower.

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The Bills That The Business Lobby Doesn’t Want Passing

The business lobby in California, and in particular the California Chamber of Commerce, has had quite a lot of success taking down bills that they deem “job killers.” Many of these bills are not at all designed to kill jobs, but rather to improve conditions for employees. To the business lobby, these are the same thing, but these are often the types of bills that the majority of the populace in California would tend to support.

One of the bills the California Chamber of Commerce is targeting is a bill to tax total wealth on individuals with a net worth of $50 million or more. Introduced by Milpitas Democratic Assemblymember Alex Lee, the bill would be the first of its kind if it passes. Obviously, there have been taxes on income, but so far, none on net worth. Lee’s argument is that the stocks and properties owned by the ultra-wealthy allow them to legally borrow and transfer funds in a way that avoids a significant percentage of income taxes. According to the chamber, this would simply convince the ultra-wealthy to leave California, rather than increase tax revenues.

The second bill was proposed by Los Angeles Democratic Senator María Elena Durazo. The bill would increase the minimum wage for health care workers to $25 per hour. According to Durazo, health care workers — especially whose who are women or people of color — frequently take home poverty wages, despite working multiple shifts due to being understaffed. The chamber argues that increased payroll costs for health care facilities would simply be passed onto patients, reducing health care affordability.

The chamber has a similar argument against the proposal to increase the required minimum paid sick days offered per year from three to seven, claiming that either the costs will be passed to consumers or the employers will cut benefits or lay off workers. Long Beach Democratic Senator Lena Gonzalez, who introduced the bill, says that the current sick leave is not adequate and forces employees to either forego pay to stay home or risk infecting coworkers.

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More: https://calmatters.org/newsletters/whatmatters/2023/03/california-business-job-killer-bills/

Sharp Divide Between East And West US Market Direction

For the past couple of years, house prices had been rising dramatically across the country. Here in California, we’re now starting to see prices drop since the start of this year. Prices are now falling in all 12 major housing regions west of Texas, as well as in Austin, TX. The same can’t be said everywhere, though. In the 37 largest metros east of Colorado, excluding Austin, TX, prices are still rising. Of course, markets can differ drastically by state, but such a clear divide between eastern and western US may be unprecedented.

Falling home prices was the expected result of the federal benchmark rate hikes. It seems to be working in the western US, as prices become too unsustainable to continue to increase. The regions with the most significant price drops are the ones that were rather expensive. But there are still other factors at play in the eastern US, driving prices still upward. Some areas, such as Hartford, CT and Buffalo, NY, never reached unsustainable home prices and remain rather affordable. They also have rather low inventory. These factors combined are keeping prices from dropping, leading to an 8% increase in prices in January. Florida is attracting many new employees with multiple financial companies relocating to Miami in 2021 and 2022. Prices are expected to eventually start falling even in the east, but don’t expect anything drastic. Low inventory across the country is preventing any sudden market collapse.

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More: https://www.foxbusiness.com/real-estate/tale-two-housing-markets-prices-fall-in-west-while-east-booms

How To Prepare To Buy A Home In A Short Sale

Short sale is the term for the sale of a property when the seller owes more on their mortgage than the listing price. The extra regulations that apply to a short sale typically apply to the seller, but that doesn’t mean the buyer doesn’t need to do their research as well. Much of the homework that goes into buying a short sale property is best done ahead of time, so these types of transactions work most smoothly when the buyer is specifically looking for short sale properties.

If you know you’re looking for a short sale property to buy, make sure to find an agent that specializes in short sales, or at least has a large amount of experience with them. Expert short sale agents will have the best idea of a reasonable purchase price and what types of offers will be most attractive to the seller. You may have heard the common advice to get a pre-approval for your mortgage. In the case of a short sale, it’s best to go a step further and get a full approval. Nearly everyone who offers on a short sale will be pre-approved, so that alone won’t make you stand out, but a full approval will. And whether you’ve planned on purchasing a short sale property ahead of time or not, it’s important to be patient. Short sales typically take longer than traditional home sales. In fact, buyers often drop out of short sale negotiations because they simply don’t have the time, leaving you with less competition if you’re patient.

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Huntington Beach Adamant About Anti-ADU Stance

SB 9, also called the HOME Act of 2021, is a California law requiring cities to allow homeowners to subdivide lots into potentially up to 4 units. This law makes it significantly easier to built accessory dwelling units (ADUs). Huntington Beach has decided it doesn’t like this, and is willfully ignoring the law, stating that they won’t process ADU applications. The City Council has even gone as far as to enact an ordinance declaring that they are exempt from some of the requirements of the Housing Accountability Act (HAA). The HAA streamlines the approval process for low- and moderate-income housing. Huntington Beach is not compliant with HAA requirements, and so the city is attempting to declare that the regulations simply don’t apply to them.

This is entirely illegal on the part of Huntington Beach, and so naturally, it hasn’t gone over well. The city has received letters from the Department of Housing and Community Development (HCD) and has been sued by the California Office of the Attorney General (OAG). Knowing that the state does have authority in this regard, the Huntington Beach City Council is starting to backpedal. But this probably isn’t the end, nor was it the beginning. Huntington Beach has already been sued previously by the state for housing law violations, settling in 2020 and losing millions of dollars in state funding.

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More: https://journal.firsttuesday.us/california-attorney-general-clashes-with-nimbys-in-huntington-beach/89592/