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Posts Tagged ‘Fannie Mae’

White House Pushes Fed to Cut Interest Rates

At the end of March 2019, it became known that the White House is pressuring the Fed to lower its benchmark federal-funds rate by half a percentage point, according to an article in the Wall Street Journal by Nick Timiraos and Kate Davidson. There has been no movement yet.

We now see homeowner rates for mortgages at the 4.1% range; some of the lowest in history. If the White House succeeds, the benchmark federal-funds will not translate to lower mortgage rates right away, but mortgage rates will inevitably drop. Possibly even lower than at any time during the past decade. It is a waiting game and time will tell over the coming months.

This would likely create more buyers, push prices higher in most markets, and create an upward push in strong economy cities (and even not-so-strong).

The magical 30-year fixed rate loan 

Since we are aware of the uniquely special anomaly called the 30-year fixed rate loan, (we are the only country that has this type of loan) where neither the monthly PI (principal and interest) payment (not the loan balance) keep up with inflation and the super low rate will be locked for 30 years, we are fully protected.

If you qualify for the best loan, under the FNMA (Fannie Mae, officially the Federal National Mortgage Association, or FNMA is a government-sponsored enterprise (GSE)—that is, a publicly-traded company which operates under Congressional charter—that serves to stimulate homeownership and expand the liquidity of mortgage money by creating a secondary market.) guidelines this is a great time to buy where the numbers make sense. Taking action is important.

Many are not aware that they can purchase up to 10 homes with this type of loan. Married couples (if they qualify separately) can purchase 20. This is already a great time to lock these rates in with the magical 30-year fixed rate loan. If the White House succeeds in lowering rates, the terms will become more attractive.

In my experience, I have seen people look back and lament over not making use of these great circumstances to build a solid portfolio for their future. I hope you are not one of them.

This summer in our Membership area we will have a couple of podcasts where I will talk about this solo and in interviews with experts. I will also be talking about the 30-year fixed rate loan in detail in my show produced for public television called “Remote Control Retirement Riches with Adiel Gorel” that will be airing over the next several days across the country. Take a look at our website here for details and to check for showtimes in your area.

Here is a recent video on the show currently posted on my YouTube channel: https://youtu.be/8eiUYcsOPiQ

 

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Setting Up an LLC With Single-Family Rental Home Purchases

Should I start an LLCIn a podcast I recorded recently, I gave my take on the question I get asked almost daily: “Before I start buying investment homes, should I create an LLC?” I begin by stating that this is a legal question and should be posed to a lawyer.

The 30-Year Fixed Rate Loan

As a non-lawyer, I point out some issues:  We talk about the benefits of getting the fixed-rate 30-year loans.  These loans are referred to as “FNMA loans” ( since they follow the FNMA – Federal National Mortgage Association guidelines). The FNMA loans will not be given to a new LLC. They will be given to an individual with income, a credit score, etc. Thus if you create a new LLC and buy the property in the name of the LLC, you will likely be giving up on one of the most powerful pillars of single-family rental investments: the 30-year fixed-rate loan.

Also, again, speaking as a non-lawyer (always fact check with a lawyer), an LLC has protective qualities only if it adheres to being a completely separate entity from you. It needs its own bank account, checks, (checkbook) books (bookkeeping or software like Quickbooks), etc. If there is a shortage in the LLC, you cannot just transfer money to it. That would be commingling funds and may destroy any protective qualities the LLC might have had.

Multi-Member LLC

In addition, lawyers have been telling me that court cases indicate more and more that for meaningful protection, you need to have a multi-member LLC and not just a single member one.

A single-member LLC is liked because it is a “pass-through” entity. That means the financials of the LLC flow through to the owner’s taxes and no separate tax return is needed for the LLC. However, a multi-member LLC needs its own separate tax return, K-1’s issued to the various members (and who is that other member, by the way?). That means more costly accounting fees and time spent.

In addition, some states require (besides a tax return), a yearly fee. California, for example, charges $800 per year per LLC.

I also mention that when you buy a home for $180,000 and put 20% down, you have a loan of $144,000. If a lawyer considered suing you and looked at this home, it would be unattractive – since the lawyer may not be a real estate professional, and he or she would assume that selling a $180,000 that has a $144,000 loan on it, will yield virtually no money after commissions, expenses, and perhaps selling quickly (it is not always an ideal time to sell). Thus the very existence of the mortgage is already a good protective measure.

Knowledgeable lawyers I know recommend using insurance as the first line of defense. Get good liability insurance on the home, and get umbrella insurance to cover up to your entire net worth.

Recently, I interviewed one of the best lawyers I have met on this subject, Brett Lytle, partner at McDowall Cotter out of the San Francisco Bay Area. Brett is also one of our expert guest speakers at our quarterly Expo once or twice a year. The podcast interview can be found in the Member’s area on our website:  www.icgre.com/members

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Recap of the March 9, 2019 ICG Real Estate 1-Day Expo

Crowd at the ICG Real Estate 1-Day ExpoOur ICG 1-Day REAL ESTATE Expo took place on Saturday, March 9th. It was a huge success; thank you to everyone who joined us. Throughout the day, we had 750+ attendees, with over 550 people in the main room at the same time. Great energy! Some of the attendees were KQED donors, who purchased the Remote Control Retirement Riches with Adiel Gorel Master Package. The donors received two tickets as part of their donation to KQED. It was an honor to have KQED members at the event, and what a thrill to explore our tried and true method with so many new folks. There was a good mix of investors: brand new investors, very experienced investors, and everything in between.

Market teams, property managers and expert guest speakers

The questions from the audience at the ICG Real Estate 1-Day Expo were excellent and I enjoyed answering all of them. I had the main market teams present, and some of the property managers within our national infrastructure there as well. Scott Webster from All Western Mortgage described regular FNMA (Fannie Mae) 30-year fixed-rate loans (some at just under 5%, which, for investors, is a low rate). He also described loans available to people who can’t get the FNMA loans, by virtue of owning more than the FNMA limit. He also outlined loans available to foreign investors. The attendees enjoyed the three expert guest speakers: CPA Joshua Cooper talked about the Opportunity Zone and other tax issues. Joyce Feldman talked about using insurance as the first and probably most important line of defense, and Lucian Ioja talked about optimizing real estate investing in the larger context of financial planning.

New offering on our website

Many new investors joined our QUICK LIST, to whom we send property sheets when we get them from the various markets. Those who joined the list will also receive event invitations and updates, throughout the year. (You can also join us, by texting QUICKLIST to 57838, or by emailing info@icgre.com and request to be added.)

I also introduced the NEW Members Area on our website. The Members Area will be an exciting treasure trove of information, offered in two tiers. It will be fully populated with podcasts, FAQ’s, and other useful information. It is a work in progress right now that we are truly excited about. There will also be webinars on specific subjects offered, as well as special one-on-one “Connect for Success” meetings with Adiel Gorel. We enabled people to join the membership area at a special discounted rate, as an “early member” which is good until April 10th only.

If you were not able to attend the ICG Real Estate 1-Day Expo you can still take advantage of our early member discount. Just use the code MARCHEXPO at checkout to receive 20% off, only available until April 10th. Also, for our early members (at either level), you will be able to attend two LIVE webinars that I will be recording before the “official” May 1st launch.

Everyone’s “membership clock” will only begin to tick on May 1st. Thus, by taking advantage of this discount you are getting a “backstage pass” as we get all our content loaded, and your payment will cover the time starting May 1, 2019. We are excited to have you join us, and will be working diligently to provide useful content to help you secure a strong financial future.

Next Expo May 18th

Many of the attendees from the March 9th Expo registered for the next 1-Day Expo, on Saturday, May 18th. We will have a new market available, three expert guest speakers, and of course loads of Q & A. You can register now for the May Expo here.

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Higher Rates Possible by The End of 2015

Janet Yellen, The Federal Reserve Chairwoman, said that if the economy is on track with job market improvement and inflation climbing closer to its target rate, the fed will start raising interest rates by the end of 2015. This is a move most have been expecting.

 

I presume rates will rise very gradually, and it will be a while before it translates to higher mortgage rates, but the process seems closer than its been in many years. Those of us who have been around real estate for a while know that the super-low rates we see today are not the norm. For most of real estate mortgages’ history, rates have been much higher than they are now.

 

Thus it seems quite likely that in the coming years we will see rates that could climb back into what we used to see in the past few couple of decades. Mortgages reaching 8%, anyone? It’s possible but will not happen quickly. Of course, some veterans remember mortgage rates being higher than that  – much higher. Assuming mortgage rates will indeed rise in the coming years, it only drives home the tried-and-true message even stronger: buy a good home in a decent area, finance it with a 30-year fixed-rate loan and you have put an excellent “stake in the ground” towards your financial future.

 

A 30-year fixed-rate loan has always been amazing. To foreigners they seem like an impossible miracle: how can the loan payments and remaining balance NOT be pegged to the cost of living? That seems like a fairy tale. How could everything else rise with inflation, on average, except for one and only one item: the mortgage rate on a fixed-rate loan?

 

Once people realize how absurd this is, it becomes crystal-clear:  it’s amazing for the BORROWER.

 

As a borrower – go ahead and get these incredible loans. You don’t have to wait 30 years for the loan to pay off. After some time – perhaps 10 years, perhaps 12, 15 or so – the loan, while still having time remaining on it, will likely look like a joke – VERY low payments and very low balance – as good as paid off in essence. (Down to almost a rounding error as the years advance.)

 

Inflation AND your tenant pay the loan off. Inflation makes it lower in real dollar value and the tenant makes the payments for you (and leaves extra for you in the form of cash flow which increases as the years go by since the loan payments are fixed, but rents are not).  This message is always true – regardless of what interest rates might be.

 

However when interest rates are so incredibly low as they are now – it behooves real estate investors to go out and buy homes, finance them with 30-year fixed-rate loans, rinse and repeat. This is a window in time that may not repeat itself for many decades. Take advantage of it.

 

In our ICG 1-Day Expo coming up NEXT SATURDAY 5/30/2015 near SFO, we will discuss this point and many others. There will be lender guests who will teach us about loans for people with over 10 loans in place, loans for foreigners, and other special loan types. There will be market teams for the best real estate markets in the nation. There will be special real estate deals and special houses that can start the process we discuss above for you.

 

As always, we will also have experts on insurance, credit, financial planning, and other topics, plus a lot of networking. Anyone mentioning this blog can attend free with two guests – please email us at info@icgre.com to register.
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Home Prices Rising and How You Benefit

In a Wall Street Journal article (front-page) by Laura Kusisto, May 12, 2015 titled “Home Prices Start to Heat Up” we learn that home prices rose year-over-year in 148 out of 174 metro areas in the United States, as measured in the first quarter of 2015. Fifty-one of these metro areas increased by double digits.

There is no doubt that most U.S. markets, including essentially all the markets real estate investors are investing in, are on an upwards trajectory. (If you are not a real estate investor… you may want to take advantage of as many opportunities as you can to learn about this market and determine what might work for you as an investment in your future.) The reasons are many, including low interest rates and loans becoming even easier to obtain over the past year (and this trend continues). Buyers (no doubt) know that the low rates will not be there forever, and feel compelled to jump in. And they are doing just that. A better employment picture also helps.

Needless to say, the phenomenon of price appreciation by itself can create upwards price pressure, as buyers prefer jumping in sooner rather than later, to get a better price. As I have always discussed and predicted, retiring baby boomers are starting to be a major force in some of the sunbelt states as they seek homes for retirement in warmer climates and friendly tax situations.

For the investor, new and seasoned, what is happening now is not strong enough not to invest. Learning how to take advantage of all of this is optimal at this time. It is a reminder that buying with a fixed-rate 30-year loan that never changes with inflation – and I cannot emphasize that enough – is one of the best financial moves one can make for their financial future! The tenant and inflation will bring the loan balance down as the years go by. Home prices AND rent are NOT fixed, only the mortgage payments are (the loan balance is also fixed and in fact is paid a bit off each month, even nominally due to the amortization).

I will discuss this in greater detail as well as many other factors critical to our real estate investing strategies, during our ICG quarterly 1-Day Expo near SFO airport on Saturday May 30, 2015. We will have market teams from the best markets in the U.S. at the Expo with vendors present for one-on-one discussions. Lenders will tell us about the new loans we can get, including new loans for foreign investors and U.S. investors with over 10 homes. We will also have experts on insurance, credit optimization and repair, and overall financial planning. For more detail on these experts, visit us at ICG Real Estate Investments and click on the button about our upcoming event. To register you may email us at info@icgre.com, and mention where you saw this blog, to attend for free with two guests. If you would rather register through Eventbrite, feel free (although ticket price applies).

See you soon; I look forward to learning from our experts right along with you.

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New Homes Begin to Dominate Investor Purchases

Investors who have been buying older homes from bank foreclosures during the recession are now realizing some of the benefits of buying new homes built this year, in 2015 direct from developers (or minimally a massive renovation – like new). The lower future incidence of repairs, the warranties, the potential developer giveaways–possible only in new home purchases (a builder can give the buyer a covered patio which may be a $6,000 option, but only costs the builder $2,000 to build) and the modern amenities and floor plans are starting to attract more investors.

Since buying homes is in its core a long term investment, starting with new homes is a great send-off with many extra years of performance available. Getting loans on new homes is usually one of the easiest procedures, and with today’s low rates, locking in a 30-year fixed rate loan on a brand-new home is an excellent “stake in the ground” for anyone’s future. Of course, investors should not just blindly buy brand-new homes. The locations have to have the numbers – the right rents for the right prices.

There are some excellent markets providing very good numbers and cash flows in good areas.

For more information, you are invited to attend our quarterly ICG Real Estate 1-Day Expo this Saturday. You will not only meet teams from the most relevant markets and see the possibilities for yourself, but there will be expert speakers on important topics such as the new twists in Asset Protection (you must know about this), buying real estate from your Self-Directed IRA, and getting real estate financing for purchases from within your IRA.

There will be information for new investors and established investors on how to move forward powerfully. There will also be lenders to update us as to the ever-improving loan possibilities for investors (domestic and foreign), and lots of great Q&A and networking. The event is near the San Francisco Airport this Saturday, March 7th, from 10 AM to 6:30 PM. You may also register by emailing us at info@icgre.com or call us at 415-927-7504.

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FNMA 3% Down Loans Are Back!

FNMA, (for those of you new to this blog, Investopedia.com sites FNMA is the acronym and the stock market symbol for the Federal National Mortgage Association, commonly called “Fannie Mae.” This government-sponsored enterprise provides liquidity for the U.S. mortgage market by guaranteeing and purchasing mortgages, indirectly enabling families to buy or rent homes through access to credit) perhaps in a bid to compete with the 3.5% FHA loans, has reinstituted its 3%-down (97% Loan to Value) loans.

The loans are primarily for new home buyers, with some limited provisions for the refinancing of existing FNMA loans. The combination of these new super-low-down loans, coupled with the very low-interest rates in the marketplace, AND the new government lowering of Private Mortgage Insurance (PMI) on low-down loans, combine to make buying homes much easier for new buyers.

What does this mean for investors? A lot! Not only is this loan likely to create extra demand and contribute to home price appreciation, but when an investor thinks of selling an investment home, the pool of ready willing and able buyers will have been greatly expanded. Great news for new homeowners and real estate investors!

At our next 1-Day ICG Real Estate Expo on March 7th, we will have experts on the newest wrinkles in asset protection, how to use your IRA to buy real estate, and getting loans for IRA-bought real estate. In addition, there will be experts speaking on the newest loans available (this keeps changing for the better!), as well as an array of experts, market teams, updates, learning, and networking. Can’t wait. Call our office at 415-927-7504 or email us at info@icgre.com and mention this blog entry to attend free.
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Younger Renters Turn to Buying

In a Wall Street Journal article from May 11, 2017, by Laura Kusisto and Chris Kirkham, we read that millennials and other younger buyers are becoming much more focused on BUYING rather than renting in the past year. This trend is likely to continue.

It is not surprising with lower unemployment, still-low interest rates and FHA loans with 3.5% down payments available to home buyers (*buy to OWN, not as an investment). What effect does this have on us as investors?  Seemingly it will drain the rental pool.

In reality, however, there is a great shortage of good single family homes since housing starts have not yet made up for the gap in new construction created during the recession. Thus renters are still likely to be quite plentiful. Prices, however, are likely to get a boost from this increased buying activity. The home buyers using the 3.5%-down FHA loan are less price-sensitive and willing to pay more for a home they like (after all the difference for them is only 3.5% of the extra amount which is negligible).

Appraisals will track higher as sales prices increase, creating a virtuous cycle of appreciation, also fueled by the inaccurate, but popular sites like Zillow, Trulia (etc.) which reflect the increasing prices in their estimates.
In some of our markets, it may not be a bad idea to sell and take profits. Some markets have already appreciated quite a bit in the past few years, markets like Phoenix, Las Vegas and Dallas. In other markets, as prices increase our equity builds up faster.

Another benefit is since the younger generation of buyers seeks less expensive homes, the builders are creating more and more of those see in the WSJ (article below). Since these homes have exactly the kind of size and price we seek as investors, it will widen the inventory pool from which to buy, as investors are sometimes faced with tight selections.

 

We will discuss this issue, as well as much more, including the improvement in FNMA’s loan guidelines affecting investors, during our 1-Day Expo on Saturday, May 20th near the San Francisco Airport. Mention this blog and you can attend free. There will be market teams, lenders, expert speakers on issues critical to investors, and lots of networking. To see some detail, please go to www.icgre.com/events. To register or contact us, please email info@icgre.com

 

The Wall Street Journal article is copied in its entirety below:
 
The Next Hot Housing Market: Starter Homes
Millennials are buying homes, steering builders toward lower price points
Home buyer Darin Fredericks and his wife Summer Fredericks in the kitchen of their new home in Ontario, Calif., last November. PHOTO: PATRICK T. FALLON FOR THE WALL STREET JOURNAL
Chris Kirkham
Updated May 11, 2017 8:09 p.m. ET
First-time buyers are rushing to buy homes after a decade on the sidelines, promising to kick a housing market already flush with luxury sales into a higher gear.
Tracking home sales to a particular age group is hard, but a series of data points form a mosaic of a generation of young people ready to buy: The number of new-owner households was double the number of new renter households in the first quarter of this year, the share of first-time buyers is creeping back toward the historical average, and mortgages for first-timers are on the rise.
 “They’re crawling out of their parents’ basements, they’re forming households and they’re looking to buy,” said Doug Bauer, chief executive of home builder Tri Pointe Group Inc., which operates in eight states.
 
In a shift, new households are overwhelmingly choosing to buy rather than rent. Some 854,000 new-owner households were formed during the first three months of the year, more than double the 365,000 new-renter households formed during the period, according to Census Bureau data. It was the first time in a decade there were more new buyers than renters, according to an analysis by home-tracker Trulia.
 
Homebuilders are beginning to shift their focus away from luxury homes and toward homes at lower price points to cater to this burgeoning millennial clientele. Demographers generally define millennials as people born between roughly 1980 and 2000.
In the first quarter of this year, 31% of the speculative homes built by major builders were smaller than 2,250 square feet, indicating they were in the starter-home range, according to housing-research firm Zelman & Associates. That is up from 27% a year ago and 24% in the first quarter of 2015.
“There’s an increasing confidence level in that part of the market,” said Gregg Nelson, co-founder of California home builder Trumark Cos. “The recovery is finally starting to take hold in a broader way.”
The shift reflects a reversal of a pattern that has driven the five-year housing-market expansion.
Up until now, the luxury market has soared, while the more affordable end of the market has struggled. Tough lending standards, slow wage growth, growing student-debt obligations and a newfound fear of homeownership have combined to crimp demand among millennials in particular.
Now, the return of first-time buyers is allaying fears that millennials might eschew homeownership permanently. But it also provides an infusion of new demand while housing supply is tight and home price growth is significantly outstripping wage gains.
Home prices in February increased by 5.8% over the same month a year earlier, according to the most recent S&P CoreLogic Case-Shiller U.S. National Home Price Index.
The return of first-time buyers is accelerating. In all, they have accounted for 42% of buyers this year, up from 38% in 2015 and 31% at the lowest point during the recent housing cycle in 2011, according to Fannie Mae, which defines first-time buyers as anyone who hasn’t owned a home in the past three years.
While economists and builders said lending standards have started to ease, getting a mortgage remains challenging for young buyers with shorter credit histories and, in many cases, student debt. Mortgage rates are also expected to rise further this year, posing an added challenge. Rates for a 30-year fixed-rate mortgage has risen to 4.05%, up from about 3.5% in November, according to Freddie Mac.
In Orange County, Calif., Trumark’s Mr. Nelson said he has been selling entry-level homes at nearly double the rate of his higher-end ones. He is even gaining confidence to build homes in more far-flung locations. The company is about to begin construction on a 114-home project in the Inland Empire east of Los Angeles and another development in Manteca, Calif., about 80 miles east of San Francisco. Both areas were hard-hit during the housing crash and were among the slowest to recover.
Builders largely avoided the exurbs after the bubble burst in 2006. But because the land there is cheaper, they can build lower-end homes more profitably.
“Most builders really preferred to stick straight down the fairway, right at the corner of Main and Main. They were afraid to go back into the rough where they built a lot of homes in the prior cycle,” said Alan Ratner, a senior home-building analyst at Zelman.
Outside Las Vegas, Tri Pointe has introduced a new home design that is specifically targeted to millennial buyers, featuring indoor-outdoor patios and deck spaces, as well as a separate downstairs bedroom-and-bathroom suite that could be rented out to a housemate. Mr. Bauer said the homes, geared toward first-time buyers, have been selling more rapidly than pricier homes.
Joey Liu, a 28-year-old technology worker, purchased his first home in San Jose, Calif., earlier this year. He said it is more expensive than renting but that he is getting to the stage in life where it was time to buy.
“A lot of friends of mine bought a home so I started thinking maybe it was time to buy a home and stop paying rent,” said Mr. Liu, who settled on a three-bedroom townhouse for $690,000. He plans to rent out a room to help with the expenses.
He had three housewarming parties to celebrate his newfound status. “This is my first house, so it definitely feels different,” he said.
Builders say their return to the starter-home market shouldn’t invite comparisons to the fevered construction of the mid-2000s.
“One of the misconceptions is that here we go again, this is another 2005, 2006 where all these builders are going to build hundreds of thousands of homes. We’re not going crazy,” said Brent Anderson, vice president of investor relations at Scottsdale, Ariz.-based Meritage Homes Corp. Mr. Anderson said that last year the company was building four to five speculative homes per community and is now up to 6.4 on average.

Building executives said one challenge is that many people are buying first homes later in life, meaning they have higher incomes and greater expectations molded by years of living in luxury downtown rentals. Such buyers also appear wary of driving farther out to get more space.
Sheryl Palmer, president, and chief executive of Scottsdale-Ariz.-based Taylor Morrison Home Corp., said to cater to this demographic the company is building more three-story townhouses or single-family homes on narrow lots. She said about one-third of the company’s buyers this year are millennials, up from 22% last year.

Even Toll Brothers Inc., which typically builds homes for the top end of the market, is venturing into lower price points. In Houston, the company is building homes starting in the mid-$300,000s range, while a typical Toll home in the area costs around $850,000.

Write to Laura Kusisto at laura.kusisto@wsj.com and Chris Kirkham at chris.kirkham@wsj.com
Appeared in the May. 12, 2017, print edition as ‘Generation of Renters Now Buying.’

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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