The CityRidge Blog » Foreclosures

Flipping Properties Require Margin and Fixed Expenses

admin — Mon, 09 Nov 2009 23:35:27 +0000

This article, “Flipping Properties Require Margin and Fixed Expenses,” by M. Anthony Carr from Realty Times gives first time investors a good perspective on flipping homes. With so many foreclosures out in a buyers’ market, first time investor-flippers need to be aware of scenarios that might give them second thoughts:

Ah, yes. The flipping of houses. What better way can a common man build his millions? Well, not many. It really can be a quick way to create wealth as long as the flipper doesn’t let the flippee house take over his life and bank account.

The number one equation to take into account on this project is the margin. What is your cost to get into the house and the average sales price of a house in the selected neighborhood on a remodeled home? Obviously, you want this margin to be as high as possible. The challenge in today’s market, when looking at it nationally, is that many of the diamonds in the rough are located in areas where prices are still declining, so the investor must be sure to purchase the house, gut out the old, insert the new, and get out of the house before the declining price catches up with him and his profit.

Successful flipping is all about your margin. I would love to give you a set equation with fixed expenses, but every house is different. One house may need a kitchen, another, the kitchen and two baths. Here’s a pretty cool calculator online that can help determine your cost at www.RemodelingMySpace.com. With the flipping I’ve seen done in our market, it seems to be pretty accurate on its estimation of replacement costs.

Understanding that all homes are different, the sample below works for our hypothetical house only. Not for every potential flipper on the market. So here’s your calculation.

Let’s say the asking price is $199,000 for the house in its current condition. You see that it needs a new kitchen, 2 new baths, a new furnace, carpeting, painting inside and out and finally, some landscaping.

After your bids from your work crew come in, your fix up expenses come up to $47,000. Add the $47,000 to the $199,000 for your net expense: $246,000. Now you have the Realtor of choice calculate the price homes are selling for in the community that are remodeled or in excellent condition (because by the time you get done, yours should be in excellent condition). Let’s say it’s $285,000. Wow, it looks like you just picked up a cool $39,000. Well, not exactly.

First, you have to determine how long it will take to sell the house and calculate your carrying costs (monthly payment, construction loans, etc.) If you’re in the same situation as most foreclosure markets, you need to figure about 4 – 6 months carrying costs of preparation and marketing time. If your costs is about $1200 per month (for the mortgage plus utilities), you’re now out $4800 (and your take has dropped to $34,200).

And don’t forget your 7 percent selling costs for commission and closing expenses, which is roughly $19,950. So now your margin of profit is about $14,000 give or take a $1,000.

As you can see, this is how a lot of people get into trouble thinking that if they pick up a house for $85,000 under market price they’ll be rolling in the dough quickly. Most experienced investors are looking for a margin of 50 percent of the value or $100,000 on a higher priced home.

The challenge of a profit margin of $14,000 is that it can be quickly removed in a declining market or the negotiation process in a buyers market.

VISIT OUR WEBSITE www.CityRidge.com

Bookmark to:

New details emerge on Obama foreclosure prevention plan

admin — Thu, 30 Apr 2009 01:16:59 +0000

The Obama administration yesterday announced additional efforts to stem foreclosures by offering lenders and homeowners incentives to cut payments on second mortgages, write down balances on first mortgages that are underwater, and repay loans in a timely fashion. The U.S. Treasury Dept. also wants lenders and their customer-service agents to agree to modify both first and second mortgages as part of a comprehensive solution.

Details of the foreclosure prevention plan include: Decreasing second-mortgage interest rates to as low as 1 percent for five years for some borrowers; and reviving a Federal Housing Administration effort to persuade lenders to reduce loan balances enough so that borrowers again have equity in their homes.

Funding from the program will come from a previously authorized $50-billion allocation from the $700-billion Treasury Dept. rescue fund established by Congress last year. The plan would provide cash incentives to both loan officers and borrowers for successful second-mortgage modifications. A loan officer would receive $500 upfront, plus $250 annually for up to three years as long as the loan remains current. Borrowers who make payments on time will receive $250 a year for up to five years.

Housing Affordability Fund Mortgage Protection Program

admin — Fri, 03 Apr 2009 02:19:07 +0000

C.A.R. launches mortgage protection plan for first-time home buyers
The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) today launched the C.A.R. Housing Affordability Fund Mortgage Protection Program (C.A.R.H.A.F. MPP), for first-time home buyers.

Through the Housing Affordability Fund Mortgage Protection Program, first-time home buyers who lose their jobs due to layoffs may be eligible to receive $1,500 per month, for six months, to help make their mortgage payments. A qualified co-buyer also can participate in the program, and receive a monthly benefit of $750 per month for up to six months. Program benefits also include coverage for accidental disability and a $10,000 death benefit.

C.A.R.’s Housing Affordability Fund is dedicating $1 million toward its Mortgage Protection Program, and estimates that as many as 3,000 families will benefit from the program this year.

To qualify for the Mortgage Protection Program, applicants must:

· Be a first-time home buyer – someone who has not owned a home in three

or more years

· Open escrow April 2, 2009, or later, and close on or before Dec. 31, 2009

· Use a California REALTOR® in the transaction

· Purchase the property in California

· Be a W-2 employee (cannot be self-employed)

To apply for the program, home buyers must request an application for the H.A.F. Mortgage Protection Program from their REALTOR®.

Bookmark to:

The New Mortgage Relief Plan

admin — Fri, 06 Mar 2009 05:15:27 +0000

Break down of President Obama’s Mortgage Relief Plan effective as of March 04, 2009:

1. $4-5M Freddie Mac&Fannie Mae loan holders :

-Refinance at lower rates
-Borrowers with higher loan rates that may be underwater can refinance

2. Lenders work with borrowers to modify terms of sub-prime loans that are at risk of default and foreclosure:

-Establish clear guidelines for mortgage industry that will encourage lenders to modify mortgages on primary residences.
-Reduced payments must be no more than 31% of homeowner’s income

3. Keeping mortgage rates low for millions of middle-class families looking to secure new mortgages:

-Treasury and Federal Reserve will to purchase Fannie Mae and Freddie Mac mortgage-backed securities to ensure stability and liquidity.
-Treasury will provide up to $200 billion in capital to ensuring Fannie Mae and Freddie Mac to continue to stabilize markets and hold mortgage rates down.

4. Wide range of reforms to help families stay in home:

-Judges can reduce home mortgages on primary residences to their fair market value, as long as borrowers pay their debts accordingly.
-Award $2 billion in competitive grants to communities bringing people together and testing new and innovative ways to prevent foreclosures.

Restrictions of Obama’s home owner affordability and stability plan:

-Loans must be from on or before January 1, 2009, and can be modified through December 31, 2012 only once.
-First-lien loans on owner-occupied properties with unpaid principal balance up to $729,750 for a conforming loan. -Borrowers must fully document income, two most recent pay stubs, most recent tax return, and sign an affidavit of financial hardship.

How it works:

-Three step relief plan for qualifying home owners:

1. Reduce the interest rate (rate floor of 2%).
2. Extend the term or amortization of the loan up to a maximum of 40 years, if necessary.
3. Forbearing principal (principal forgiveness or a Hope for Homeowners refinancing are acceptable alternatives), if necessary.

-Loan servicers will be required to use a net present value (NPV) test on each loan that is at risk of imminent default or at least 60 days delinquent.

-Servicers will follow a specified sequence of steps in order to reduce the monthly payment to no more than 31% of gross monthly income; monthly payment includes principal, interest, taxes, insurance, flood insurance, HOA fees.

-Homeowners are eligible for up to $1,000 of principal reduction payments each year for up to five years who make their payments on time.

The administration also has created the new Making Home Affordable page. In this section, the administration talks directly to consumers and offers advice to the 7-9 million homeowners who may be eligible for mortgage assistance. The site offers great self-assessment tools to answer the question whether or not you qualify for mortgage relief.

A new phone number has been announced for homeowers needing urgent assistance – the Homeowner’s HOPE Hotline for urgent help at (888) 995-HOPE. More details are available at www.financialstability.gov.

Call us toll free at 866-495-3566 to obain more information.

Bookmark to:

Short Pay Refinance, Simplified.

admin — Tue, 06 Jan 2009 01:52:30 +0000

Many homeowners wonder how they can lower their mortgage that reflects current market conditions. A Short Refinance is the solution. A Short Refinance is simply as follows, straight from the guidelines:

The Short Pay Refinance is similar to a Short Sale with one major exception; the homeowner keeps their home! It is the same processes, along with the techniques used while negotiating a Short Sale or Loan Modification. Your broker will negotiate a settlement for a reduction of the principal loan balance on the current note. Once an acceptable settlement is reached a new loan is completed for the homeowner (thus the refinance portion of Short Pay Refinance.)

Both parties benefit from a Short Refinance; the homeowner reduced the principal amount owed (generally 95-97% of the current market value) as well as lower payments; the current lien holder actually nets an average of 10% more than they would with a Foreclosure or Short Sale so it is in their best interest to work out a settlement.

If you need help with your loan, we will gladly help you out. Call us at 1-866-495-3566 to get more information. Our friendly and experienced staff are waiting.

Bookmark to:

Riding Out Our Economy

admin — Thu, 13 Nov 2008 04:30:38 +0000

This week, mortgage rates continued to fall, indicating a drought in consumer spending, and the immense job losses nationwide.

According to Frank Nothaft from Freddie Mac, vice president and chief economist, the economy shrank by 0.3 percent in the third quarter.

Having the economy experiencing massive job losses, foreclosures, bankruptcies and financial distress, lenders have tightened their credit standards even further.

The Federal Reserve Senior Loan Officer survey from October states that about 70 percent of the banks raised their prime mortgage lending standards, and about 90 percent of the banks offering nontraditional mortgages also did the same.

With the economy in turmoil, it is crucial for consumers and homeowners to be wiser with their spendings for months to come. Even keeping their credits in good shape is important when economy does turn around. If your credit is shot, chances of getting a loan or a refinance are slim to none. You don’t want to miss out on opportunities.

Hang in there. This economy will turn around eventually. It’s just a matter of riding out the difficult times cautiously and keeping your eye out for that light at the end of the tunnel.

Bookmark to:

More Options for Homeowners’ Mortgage Relief

admin — Fri, 17 Oct 2008 09:48:00 +0000

Waiting for the homeowner bailout provisions to come down to you from the $700 billion Emergency Economic Stabilization Act of 2008 won’t be necessary. The $300 billion Housing Economic Recovery Act of 2008 can provide more to relieve you immediately if necessary. In fact, the $300 billion recovery act mandated mortgage modifying provision and a voluntary “Hope for Homeowner” (H4H) refinancing program, so homeowners an qualify.

The $300 billion recovery act signed in July is ready to take effect. It was mandated for mortgage servicers to modify loans for certain homeowners and help avoid foreclosure under these requirements:

A default on the mortgage either has already happened or is “reasonably foreseeable.”
The home owner lives in the property as his or her primary residence.
The lender is likely to recover more through the loan modification or workout than by forcing the home owner into foreclosure.

The institute further advises:

1. Your hardship letter should demonstrate job loss, a serious health condition, an ensuing balloon payment, a coming adjustable rate reset or some other financial calamity that will preclude you from making your mortgage payments as scheduled.

2. Send the letter along with documented evidence — your financial statements, employment records, tax returns and bank statements and other evidence that demonstrates how you can afford a modified loan under your present financial circumstances. Also send the lender a current appraisal of your home or otherwise document the current value of your home.

3. Deal directly with a representative of the lender’s “loss mitigation” or workout department– not a broker, loan originator or other mortgage staffer.

More help for homeowners can be found here: “Foreclosure Prevention Efforts Grow.

Source: http://realtytimes.com/rtpages/20081016_bailout.htm

Bookmark to:

HOPE For Homeowners by FHA!

admin — Fri, 10 Oct 2008 10:40:33 +0000

President Bush signed a legislation that allows HUD’s Federal Housing Administration (FHA) to continue providing help for struggling homeowners with their mortgages. The Hope for Homeowners program, a.k.a “H4H,” allows FHA to continue it’s current efforts in providing assistance to struggling families with their mortgages which they cannot afford anymore.

This program allows certain borrowers who struggle with their current mortgage to refinance into affordable FHA-insured mortgages. This program has been implemented as of October 1, 2008.

Good news is that you don’t have to wait to find relief from this program. FHASecure, which is FHA’s existing refinancing program, can help homeowners determine whether or not they are eligible for this refinance right now. Here are several ways to obtain more information regarding this program:

Contact a local, HUD-approved housing counseling agency at HUD.gov;
Contact the HOPE NOW Alliance at (888) 995-HOPE; or
Call FHA at (800) CALL-FHA.

Hope for Homeowners requires that new loans needs to be based on a family’s long-term ability to repay the refinanced mortgage, and only owner-occupants are eligible for the FHA-insured mortgages. Borrowers must also meet the following eligibility criteria:

Their mortgage must have originated on or before January 1, 2008;
Their mortgage debt-to-income must be at least 31 percent;
They cannot afford their current loan;
They did not intentionally miss mortgage payments; and
They do not own second homes.

Features of FHA-insured loans under the new program include:

30-year, fixed rate mortgage;
Maximum 90 percent loan-to-value ratio;
No prepayment penalties;
$550,440 maximum mortgage amount;
Extinguishment of any subordinate liens; and
New home appraisals from FHA-approved appraisers.

Although this program is available for the current homeowner, FHA will continue to offer lenders the alternative option to foreclose on their borrowers. Also, similar to FHASecure’s recent additions, lenders are encouraged to write-down the outstanding mortgage principal balances to 90 percent of the new value of the property.

If we continue to slow down the foreclosures, this program supports FHA’s efforts to stabilizing our local housing markets. According to U.S. Department of Housing and Urban Development, from September 2007 to June 2008, FHA has guaranteed more than $93 billion of mortgage capital.

FHA claims that they will insure up to $300 billion in new loans. Borrowers will end up pay an upfront premium of 3 percent of the original mortgage amount, and an annual premium of 1.5 percent of the outstanding mortgage amount. However, any other costs incurred by FHA can be reimbursed by Fannie Mae and Freddie Mac.

The program will last from October 1, 2008 through September 30, 2011. Since September 2007, FHASecure has helped more than 290,000 families obtain safer, more affordable mortgages. FHASecure hopes to help 500,000 families by the end of the year.

If you’re struggling, you’re not alone. Do not opt out this program! Hope for Homeowners will help you ease the burden of your faulty mortgage in today’s economy.

Bookmark to: