Real Estate Information

Has the Market Bottomed Out?

Wednesday, October 22, 2008

by John Jacobus

The question I was asked was “Has the market bottomed out?” I think so and here’s why. The market has many dimensions, but the bottom line is “how much will it cost to buy a given house?”

Purchase price and the interest rate on a loan are the major factors in computing the payment. I don’t have a crystal ball, but it looks like home prices are at or near bottom. Never before have home values and interest rates been low at the same time!

Interest rates affect the cost of ownership. The ½ % rate increase to 6 ¼% in mortgage interest this past week adds $83.33 to the payment on a $200,000 mortgage. Another way to look at it is your purchasing power just dropped $10,441. So, if you could afford a $200,000 mortgage two weeks ago, you can now afford only $189,559.

As rates go up, the payment you can afford buys less. Now raise your hand… who thinks interest rate are headed down? I thought so. I too, believe rates have to go up… to 7 1/2 % by spring. That $200,000 mortgage you could handle at 5 ¾% last week … at 7 ½% the same payment will get you a loan of $166,922. Can you wait any longer to buy?

Waiting for home values to fall may not be the best strategy. Home values did not fall 6.9% last week (that’s the amount interest rates went up). In fact, in some areas and subdivisions in central Ohio, home prices are actually rebounding. You missed the bottom. Better get on before you are priced out.

To borrow and rephrase the sadly humorous bumper sticker,

“VOTE NOW! VOTE OFTEN!”

I highly recommend, “BUY NOW! BUY OFTEN!”

You can make money in this market as well or better than a few years ago. But, you need GOOD advice. I got it. Call me!

John Jacobus

John's Taxes

Wednesday, October 15, 2008

by John Jacobus

I think I may be a procrastinator! A smart man once said, “Hard work MAY pay off in the future…but procrastination pays off ‘RIGHT NOW’”. I just completed my 2007 taxes and sent them in.

I sold two rental properties last year to fund the start up costs of RE/MAX Impact. I knew I would have to pay 15% tax on the capital gain. In fact, I figured it wiser to sell before the capital gains rate changed to the ordinary income tax rates, which may be the case after the election. If paying taxes makes one a patriot maybe my likeness should be carved on Mt Rushmore! Okay, maybe I exaggerated a little. Not only did I have the gain to pay tax on, I didn’t have the depreciation to shelter my other income! Double whammy. Do you suppose the government would bail me out? Think not? Okay, what if I cheated people out of their life savings while skimming off millions before I bankrupt the company? (There’s that cynicism rearing its ugly head againJ).

But, on the other hand those investments made money. If I had effected a tax free 1031 like kind exchange I wouldn’t have had any taxes due, however a business doesn’t qualify as “like kind”. The federal tax code allows a person to “exchange” or trade a real estate investment for one of the same kind without incurring a taxable event.

Until the tax laws change, real estate still has an advantage on most investments. If you don’t know where to invest, let a real estate man tout the advantages of real estate.

1) Prices are a bargain

2) Shelters other income

3) Appreciation

4) Produces monthly income stream

5) You may manage your own investment

6) Buy with just 10% down

7) Rental market has never been stronger

8) Profits (gain) taxed at lower rate

9) It’s never worth zero

10) You have a friend in the business

Get Rich While You Sleep

Friday, October 10, 2008

by John Jacobus

John’s tip this week is about How John started his career and takes about 60 seconds to read.

This week’s tip is not about the bail out. Thank Goodness. I’m tired of that already! But, the continuous coverage of it got me to thinking… that and the fact that Cheri was cleaning up the bookshelves.

She had a stack of books set aside and ask me to go through them to see if there were any I wanted to keep. Think and Grow Rich, The Magic of Thinking Big, Acres of Diamonds, How to Make Friends and Influence People… old friends from college days, but wait… Oh Yea… here is the very paperback that motivated me to have a career in Real Estate. How to Get Rich While You Sleep (two of my favorite things) by J.David Huskin and William E. Monsees copyright 1969 & 1970. By the way, this book is still available at www.Amazon.com.

http://www.amazon.com/how-Get-Rich-While-seep/dp/B000P1DPN8/ref=sr_1_1?ie=UTF8&s=books&qid=1223477334&sr=8-1

I picked this book up in Walgreens across from the University of Cincinnati campus in the fall of 1972. It changed my life.

The authors state God divided the day from the night but man divided life… into work, play and sleep. Mankind has to work enough to fund the play and provide a place to sleep. They wrote that you should make money while you work AND while you SLEEP! Their advice? Buy income producing real estate and get a real estate license (don’t worry about the real estate license I already have one).

If you own rental property you should be unaffected by the current financial market. There are more families than ever who need a nice home in which to live. The future looks pretty bright for those who have invested in real estate.

Send me a referral this week. Somebody who needs a home or an investment property.

God Bless Your Day and God Bless America.

Finding a Lender

Monday, October 06, 2008

by John Jacobus

A couple clients called recently looking for a good mortgage company. Seems they both went on a website from a company that advertises that they will shop the loan from multiple banks and get you 4 or more quotes. After all, when banks compete you get the lowest rate, right? Not necessarily. One individual stated the company that advertises they are a lending company sent their request out to 6 or 7 mortgage companies. Credit checks were run from each company lowering his credit score 20 points. Then he didn't qualify for the loan. Another individual stated he did receive a rate lower than they could get locally. Only problem was he was being charged over $9000 in closing costs! THERE IS NO FREE LUNCH. Mortgage companies and banks get their funds from the same sources at the same costs. They package the loan differently to make it sound special but if the rate is lower they have to make it up by charging higher closing costs. Find your lender like you would a doctor, mechanic or Realtor…past experience or referral from a trusted friend.

The Almost Bailout

Wednesday, October 01, 2008

by John Jacobus

John’s tip this week is… you guessed it, the almost bailout.

As you have heard the vote failed. The taxpayers called their representatives and said “Enough”.

I think our government will have to do something but a couple things are worth noting.

#1. The bailout helps only a portion of the citizens.

#2. It is not really a bailout. The government is buying the bad loans at a percentage of the note… possibly 40%. They will sell off the assets and possibly recoup their investment.

#3. HUD has done such a wonderful job of marketing their inventory can we even hope the new government entity created to dispose of these assets will recoup 40 cents on the dollar? (HUD homes take up to a year to sell while HUD saves a few dollars by not paying for electric to keep the sump pump running… ever wonder why HUD homes have mold?)

#4. The crash didn’t happen on Wall Street… an adjustment of 11% doesn’t equal a crash.

#5. Our government is using our money to bailout a problem they created. Doesn’t the Bible say something about the blind leading the blind? Makes you really want to get out there and vote, eh?

Tonight (Wed Oct 1) congress will probably pass the bailout bill. The new bill is supposed to be a lot better than the one a few days ago. But, let’s put all this in perspective. We don’t have all the information needed to make an informed decision and there is nothing you and I can do about it anyway. We have to live with the consequences whether there is a bailout or not a bailout. It will not be the end of the world whichever way it goes.

It looks to me like whoever wins the presidency, new taxes will be coming. I’m thinking I need a few more rental properties.

Tax increases will be easier to stomach if you can get out of paying them. You can do that with real estate.

Sorry for the sales pitch. I couldn’t help myself, especially ‘cause it’s true’.

Take Care,

John Jacobus

Financial Housing Mess

Wednesday, September 24, 2008

by John Jacobus

What does this week's Government Bailout mean to you and me?

Honest, I'm not venting about the mess our government got us into by creating Fannie Mae, Freddie Mac and the whole idea of "mortgage insurance". Basically, not a bad idea if you want to entice lenders to make bad loans. Whatever happened to common sense lending, where a lender reaps the reward or endures the losses of their decisions. What we need here is not another government bailout but a new insurance we could buy to protect us from inept government! "Inept Government Insurance" would have saved each taxpayer $15,000 - $50,000 needed to fund the government bailouts.

The question we should be asking is “How do I survive or even thrive in this financial market?”

Being a simple man, I didn't buy Fannie Mae or Freddie Mac stock... or any other stock for that matter. I prefer "bricks and mortar".

You may know the stock market and are able to do quite well, but understand housing and I am comfortable with it. Yes, the housing market is down overall but good rentals in good areas still are performing well. In fact, the rental market has never been so strong.

Here’s a common man’s advice. Don’t look to the government to make things better. That’s like trusting a fox to guard the chicken house. Resolve to make things better yourself. Start a business. Work a second job. Learn a new trade. Get out of debt. Don’t borrow money to buy depreciable items. Save money. Buy real estate and let everyone else pay your share of the bailouts!

Present Economic Situation

Friday, September 19, 2008

by John Jacobus

A couple months ago I wrote that it was the best time in 36 years to buy a home in central Ohio. It turned out I jumped the gun. NOW is the best time to buy! Last week, after the Feds announced they were bailing out Fannie Mae and Freddie Mac... interest rates dropped dramatically. Mortgage rates fell well below 6%! Home prices are the softest they have been since 1982. Interest rates and prices have converged to form the "perfect storm". Only, this perfect storm is a good thing. Come to think about it, the crew of the Andrea Gail wouldn't haven't thought the storm in the northeast Atlantic that the movie was made about was so perfect, would they?

Tell your kids and your brother's uncle's second cousin's wife there is a window of opportunity to purchase more house than they will ever be able to afford again.

Average home prices have been slowly climbing in most areas and rates will bounce up after the news hits of the next financial fiasco.

I've mortgaged the farm to fill my gas tank so I can help you or your friend find the "perfect" house at the "perfect" price!

Call me now!

Bag Worms

Wednesday, September 17, 2008

by John Jacobus

I was checking my trees Wednesday evening and discovered one of my blue spruces had about 75 bags hanging from defoliated limbs... bag worms. They will actually kill a pine tree because evergreens don't regrow leaves.

You have to check closely for little bags hanging from the limbs because from a distance they look like pine cones. So check them now and check closely!

Those little degenerate pests are not actually the brightest worms on the block. They will inhabit others trees and bushes so check everything, but they love evergreens. I have found them also hanging from my gutters. I don't know what they used to make their bags as the paint on the gutters and the shingles didn't look damaged.

Dispose of the bags permanently... like burning them. If those eggs hatch you will have an army of little green worms that will lay waste to your tree worse than Sherman marching through Georgia.

Bag 'em Dano.

Mortgage Definitions

Monday, September 15, 2008

by John Jacobus

Who are Fannie Mae and Freddie Mac? And what did they do with my loan? In the real estate business we use abbreviations for everything and most of us assume everyone knows what they mean. In reality most people have no clue what we are saying let alone what we mean. Here are some common abbreviations and what they mean.

HUD-Department of Housing and Urban Development, the Federal Agency responsible for encouraging housing development.

HUD 1 Statement-A document prepared by a closing agent describing a real estate transaction, including the escrow deposits for taxes, commissions, loan fees, points, hazard insurance and mortgage insurance. Also called a closing statement or settlement sheet.

FHA-Federal Housing Administration, an agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

FHA mortgage-A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.

Fannie Mae (FNMA) - (don't confuse with Mae West) The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.

Freddie Mac (FHLMC) - (not really an 80's rock band) The Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, is a government sponsored enterprise (GSE) of the United States federal government. It is a stockholder-owned corporation authorized to make loans and loan guarantees. The FHLMC was created in 1970 to expand the secondary market for mortgages in the US. Along with other GSEs, Freddie Mac buys mortgages on the secondary market, pools them, and sells them as mortgage-backed securities to investors on the open market. This secondary mortgage market increases the supply of money available for mortgages lending and increases the money available for new home purchases.

PMI-Private Mortgage Insurance, Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

OHFA-Ohio Housing Finance Agency, a state agency that helps first time homebuyers. OHFA can be used with FHA/VA or conventional loans. Advantages are low interest rates and if borrower qualifies OHFA will front the down payment. They have other criteria such as income limits, target areas and non-target areas etc. Most first time buyers qualify for the OHFA loan.

If you have questions about these abbreviations, call or email me. I'll "spell" it out in a little more detail.

Heat

Wednesday, August 27, 2008

by John Jacobus

HEAT

It is going to cost you more to heat this winter than it did last year. My propane cost $1.65 per gallon last year ($.49.9 in 2003) and now it is $2.39 per gallon... 45% increase in one year. Most homes use about 1000 gallons per year so expect to pay an extra $750 this year with propane. Fuel oil is worse. $3.72 per gallon equates to $3720 per year for heat. Electric companies are asking for 50+% increases so that won't be much better either. Natural gas users... you will fare the best but count on prices going up. Most likely firewood will be costing more due to gasoline prices and demand.

There is some good news. Global warming. But, that may take too long so here are some things you can do right now to help cut your heating bill.

WHAT'S A BODY TO DO?

Most home heat is lost through doors and windows. So check the weather stripping on the doors and tell the kids the windows should actually be closed in winter. Cut down the number of times your door is opened. I'm trying to get Cheri to cut the number of times she lets her dog out... say down to 752 times a day! That will help. Has anyone noticed the average winter temperature in Harlem Township has gone up since Cheri got her dog? I don't understand why her dog can't stay in the garage. It has a fur coat.

If your curtains blow in the wind with the windows closed, that could be a sign the windows need replaced. The pay back won't take long at today's energy prices. A decent vinyl window will cost $300 - $350 plus $100 - $150 for installation. Andersen or Pella vinyl clad wood windows will cost about $450.

Don't forget the attic insulation. An additional 2" layer of blown insulation will cost about $250 and will fill in those little gaps that lose your expensive heat. I just bought a programmable thermostat that claims it will save me another 30% in heating costs. When I get it installed I'll have my friend’s third grader show me how to program it.

Change out those bulbs. Florescent bulbs now look like incandescent bulbs, both in style and the light. You may have to change out those Hollywood light strips in the bath room and get a fancy fixture so you can use the florescent bulbs. It'll save you money while making the bath room look more up to date. A florescent bulb uses 1/4th of the electricity required by an incandescent bulb and will last 10 times longer!

Feel free to call me with referrals of contractors we use.

Please: no emails about dogs or global warming. The snide remarks about dogs and the cynical remark about global warming are for levity. Those aren't my true feelings. I love dogs and global warming.