Finally!  A break for those of us complaining that First Time Homebuyers are snapping up all the incentives.  Congress ultimately reasoned that it makes sense to apply stimuli elsewhere in the economy.  Hello, Move Up Home Buyers!  Those of you who have owned their current homes at least five years will now be eligible for tax credits of up to $6,500.

First-time homebuyers — or anyone who hasn’t owned a home in the last three years — would still get up to $8,000. To qualify, buyers in both groups have to sign a purchase agreement by April 30, 2010, and close by June 30.

First-time homebuyers have been getting tax credits of up to $8,000 since January as part of the economic stimulus package enacted earlier this year. But with the program scheduled to expire at the end of November, legislation was passed to extend and expand the tax credit to include many buyers who already own homes.

Both  tax breaks, totaling more than $21 billion,  were included in a bill extending unemployment benefits for those without a job for more than a year.  In explaining the rationale for the Bill’s passage, Sen. Max Baucus, D-Mont. said, “we are still in a world of economic hurt, and Congress must continue to act boldly and creatively.  With the right mix of tax breaks and investments we will get through this recession and get folks working again.”

The real estate industry has been pushing to extend and expand the housing tax credit. About 1.4 million first-time homebuyers have qualified for the credit through August. The National Association of Realtors estimates that 350,000 of them would not have purchased their homes without the credit.

The credit is available for the purchase of principal homes costing $800,000 or less, meaning vacation homes are ineligible.It (the credit) would be phased out for individuals with annual incomes above $125,000 and for joint filers with incomes above $225,000.

Among the more interesting endeavors of our chief statistician (and managing broker) Lon Welsh is a four decade study of Sales Prices in the Denver metro area.  At times like this, when a “sky is falling” mentality prevails, it is helpful to examine current events in a historical context.  Consider, for example, the predecessor to today’s housing trough, the period 1987 – 1991.  Housing prices dropped 7%, recovered three years later, and continued the march upward.  In contrast, todays declines are three times those of the late 80’s.  Those who study volatility would posit then, that such a dramatic fall would precipitate an equally dramatic rise.  Well, only time (and crystal balls) will tell.  One thing is pretty certain.  Folks, we are at the bottom.  Recent price trends  bear this out, particularly in the under $250K price range.  Finally, it should be noted that, overall, the average price of a home in Denver was $27K in 1971 and $272K this year.  Nothing appreciates like real estate over the long haul.

Source:  YCRE analysis 1/09-3/09 and MLS year end reports

This question of “which is best” begs for a simple straight-forward answer.  Unfortunately, when you consider the many variables (and, therefore possible answers) at work here, it soon becomes apparent that an an iterative process of several answers to several questions is in order.  So, the answer to the big question becomes merely the sum of those smaller answers organized systematically to reach a practical conclusion.  Some of these questions are, for example:

• What is your risk profile?  What rewards are appropriate (in your mind) for that risk?
• How’s your credit?  Those scores affect the range of choices available
• How handy are you and how much time can you devote to your investment?
• How much “hassle” are you willing to tolerate?

Now, before you get frustrated with the apparent presence of more questions than answers, know that we have “been there, done that”.  So, the flowchart below has been constructed to guide you through that collection of choices which impact the probability of success in your effort.  If you are a novice, use this as way to prioritize and streamline an otherwise complex process.  If, on the other hand, you have been doing this for a while, consider this exercise as a “reality check” that offers some external validation.

The summary above is distilled from Chapter 1 of our popular, 200 page book The 2009 Guide to Colorado Real Estate Investing.  For more detail, including eight more chapters  about virtually every aspect of Real Estate Investing — Property Mgmt, Team Building, Financing, Managing the Buying Process, Rental Property Fundamentals, Selling a Property, and much more, send me an email at bart@reinvestgroup.net.  Don’t miss this opportunity!

One of today’s soundest investments is never touted in financial-services ads. The reason: Wall Street wouldn’t make any money off it.  Since 1974, Americans have had the ability to use IRA assets to buy investment property. Yet the means to do that — called a self-directed IRA — remains one of the least known and unheralded investment vehicles in the vast financial marketplace.
With foreclosed homes selling at dimes on the dollar, residential real estate is a bargain for investors holding cash. And if they can put 30% down, IRA investors will find specialty lenders eager to help them leverage their retirement savings with mortgages on rental properties.
The U.S. housing market may not yet have hit bottom, but the winds appear to be shifting. Existing-home sales are on the mend in hardest-hit markets and foreclosure-avoidance programs are expected to stem the rising inventory of bank repossessions, meaning the window to buy at rock-bottom prices could close before the year is out.
Remember, homes purchased with IRA funds can’t be used for personal purposes. Doing so risks the IRS declaring the assets withdrawn and demanding immediate payment of income taxes and penalties on the entire account value.
Still, as an investment readily understood by anyone who’s been through the home buying and selling process, purchasing a steeply discounted property that can produce annual income of 10% and more is a low-risk strategy for uncertain times — especially for retirees whose fixed-income investments are paying paltry yields right now.
Here five reasons why an IRA based  real estate investment is a wise move today:

1. A solid alternative to stocks. When economies teeter, investors often run to hard assets such as gold.  Yet gold’s value is measured not only in ounces but also in the intangible fear that surrounds its price spikes.
When it comes to hard assets, there’s perhaps no greater shared sense of value than for land and a dwelling.  And in U.S. history, there’s never been such a fire sale on our housing stock.
The Great Depression exacted a heavy toll on home values, but there was nowhere near the inventory flooding the housing market as in the past year. The reason: A collapse in home prices, not stocks, triggered this meltdown.
Of course, some would say foreclosed-home buyers capitalize on others’ misfortune. But the sooner we clear the massive, nationwide inventory of unsold homes — which many economists argue is a key to recovery — the better off we’ll all be.
2. Well-suited for long-term investors. Even in the best of times, the stock market looks out six months to a year. Right now, even seasoned pros can’t feel the bottom of the muck we’re in.  Many retirement savers are uncomfortable with their nest egg tied up largely in stocks. That’s just the direction where the system of IRAs and 401(k)s — which also advances Wall Street’s interests — shepherds them.
Real-estate cycles generally run in decade-or-so swings and this one may not yet have neared its bottom. Housing values could drop another 10% to 20%, but the stock market also could drop further and take a decade to recover.  For those in or near retirement, buying a property that produces rental income that’s likely to increase with inflation is a sound a long-term investment.
3. Significantly undervalued asset. For investors willing to hang on to a property for five years or more, residential real estate today presents a tremendous opportunity to do just what investors ideally do — buy low and sell high. In some of the hardest-hit markets, homes are selling for just $75 per-square-foot, that’s about a third of the new construction cost for a single-family home.  An IRA buyer in that case would get a relatively new house that would require little maintenance … substantial upside (in terms of appreciation) when the real-estate market finally recovers.
4. A steady income generator.  At a time when companies are slashing stock dividends at record rates, retirees can’t be assured of that income source. And with government bonds paying a pittance in terms of yield, that fixed-income stream is running mighty shallow.  Income from a rental property bought with a self-directed IRA flows back into the retirement account. The IRA holds title to the property and the income it produces can be directed into all manner of investments typically held within an IRA.  On a percentage basis, that income can be two to three times higher than today’s fixed-income offerings even after paying expenses such as property taxes and insurance. Meanwhile, the account holder can eventually reap the potential appreciation of the underlying asset (the property) that the IRA owns.
5. The ability to flip real estate with no tax bite.  Proceeds from selling an IRA-owned home roll back into the IRA without facing capital-gains taxes. To the contrary, an investor who buys and resells a property within a year with non retirement funds faces ordinary income taxes.
So, you are left with the question, what will yield a better return in the next five to 10 years — taxable securities, or a modest rental home in a decent school district — selling for 30 cents on the dollar — whose value may soon be juiced by record-low mortgage rates and unprecedented tax breaks?

See related article here.

If you are a Buyer, Seller or Investor, you are affected by HB 1091 which became law on July 1.  This law now mandates that Carbon Monoxide detectors be installed in the majority of homes.  The law is the result of outcry surrounding a couple of well publicized, tragic deaths in the past year.  Since this requirement will have such a broad effect, virtually all who read this post and live in Colorado will eventually be affected.  Here are the highlights of the law:

• Affects any “dwelling unit” using a fuel based heating system and emitting CO2
• Contract for Purchase/Sale will now contain certification provisions for buyers and sellers
• Home sellers must certify proper installation upon sale of property
• Any new or “permit-based” construction will require installation
• Rental units must be upgraded at next opportunity (vacancy)
• Multiple detectors typically required (on a “per bedroom” and “per heating unit” basis)

This list is by no means a complete discourse on the subject.  Readers are advised to spend time researching the details of this law.  View the  complete text of the Lofgren Family Carbon Monoxide Safety Act.

I’ve heard this question often enough that it’s time to formulate a standard answer.  Your financial planner should be able to put together a comprehensive plan that would consider the amount of investments you have in IRA’s, 401K plans, potential amounts from Social Security and, of course real estate.  I like being able to do this myself, at the expense of some accuracy.  I do my own using some simple tables and my calculator and then, submit it to my financial planner for further verification. To answer the question, I would do the following:  First you need to come up with how much income you’ll need when you retire.  You take your current gross income, and apply the factors I’ve outlined below.  You have to make a guess at what inflation will be between now and the time you retire.  Since nobody knows for sure, the only reasonable thing to do is take a low rate of inflation and a high rate of inflation.   Let’s  use 3% and 6%.  Those inputs, together with a range of short to long term scenarios, say 10 to 25 years, yields the following factors which can be used to estimate the size of a retirement “kitty” needed.

Now that you’ve addressed the question of “how much”, it’s time to focus on the “what”. In my next post on this subject,  I’ll talk about ways to put that “kitty” to work.

In my last post on this subject, I suggested that it’s time to take another look at this “Fallen Star”.  For a review and background, see my earlier post here. Well recent stats are validating that premise that now may be the time to buy.  And, as you can see from the table below, certain year-on-year stats are demonstrating that the turnaround has definitely begun and, as we are wont to say, “the train is leaving the station.”  So what does that market look like now?  Well, lets take a look at latest figures for

Single Family Residences

Now,  does that look like something you want to pay attention to?  Common sense suggests that you would want to look seriously at something like this when:

A.  Inventory is declining

B.  Discounts are shrinking

C.  Days on Market are declining

Folks, this looks to me like a perfect storm.  One additional ingredient I’d like to see is Prices putting in a bottom and/or increasing.  That should be the kicker.

Over the years, we’ve learned that many of our fellow real estate investors tend to share common characteristics which are predictive of success (and lack thereof) in this business. Two of the more common “types” of players in this game are what we call tire kickers and deal makers.

Interestingly, years of experience does not automatically mean a buyer is a dealmaker, nor is a new investor a guaranteed tire kicker. The determining factor is the extent of the investor’s preparation. In a nutshell, dealmakers take the time to think things through. True dealmakers are easy to spot. They know their financial capacity in cash and credit; they have criteria for property type, market, and minimum return requirements along with a business plan that addresses those criteria. They use the tools of financial measurement to quickly evaluate the property, then formulate a game plan and deal structure that allow achievement of their goals. They are ready to act when the opportunity appears.

For more information, including a free consultation, send us a request at REInvest Group.

List?  Which list?  Well, in case you were living under a rock and missed it, the big news this week was noted Real Estate Guru, Barbara Corcoran’s Top 5 list of cities poised to recover quickest from the downturn.  Perched atop that list was our fair city, besting the likes of perennial “top list” inhabitants such as San Francisco CA, Austin TX, Seattle WA, and Raleigh NC.

Noting that there are several factors which argue for a strong housing market, Corcoran listed both Job and Population Growth as numbers one and two.  It also helps to have good weather, she noted.  Sorry about that, Buffalo.  Other characteristics, which many of us would tend to ignore, play a role as well.  When you think about it, cities which have an abundance of first time home buyers, a highly educated work force and vital downtowns would seem to have the edge.  It also helps if problems of overbuilding in cities are on the decline.  Though listed last by Corcoran, by no means least is the fact that Denver was among the first cities to bear the brunt of the wave of foreclosures sweeping the country.  That dubious distinction early on has been a blessing in disguise in that much of the crisis is now behind us.  And, the latest market data suggests that there is, indeed, a trend in place.  Days on Market is shrinking, as is inventory.  No longer shrinking, thankfully, are prices.  Thanks Barbara, for the  PR.  View video —->

If you are looking to buy your first home, here are some ideas to consider.  A home gives you a place to live, pride of ownership, tax deductions, and with a little planning, it can become an additional retirement tool.  Of course, you will want your home to fit your needs, but also consider some other ideas to make it a good investment.
Find the neighborhood that you like and then complete a rent survey as if you were going to rent it out immediately.  Do a rent survey of the area by looking at ads in the classified section of the newspaper and determine what the rents for a similar property are.  With interest rates below 6%, you need to secure monthly rents of about .006% times the value of your home.  As an example, a $200,000 home should rent for about $1,200 a month.  If the rents seem OK and the home is located in a growth area, it will probably be a good investment.
Then consider the following strategy:  After you have purchased your first home, live it in for one or more years, then purchase a second home.  Your first home is usually purchased with little or no money down.  There are many first time homebuyer loan programs to take advantage of.  Your second home can also be purchased with no money down.  Normally, this is done by securing an 80% first mortgage and a 20% second mortgage.  Then, rent out the first home.  Yes, you will probably have a negative cash flow for a year or two, but liken it to a contribution to a 401K or IRA.  You are using these funds for the same reason, saving for your retirement.  In the third to fifth year, purchase the next property to reside in and convert the second to a rental as well.  Since you can obtain the best interest rates as an owner-occupant, it is to your advantage to utilize this type of financing.
Under current tax rules, if you live in your home for 2 years or more, you can rent it for three years, sell it, within the three years and enjoy beneficial tax treatment.  You will be subject to recapture on depreciation, but this can be a great way to get mostly tax free money to invest in other rentals.