I'll start by saying that the tactics I'm suggesting in this article are definitely not for every future home buyer. However, the few who use them properly will emerge with instant equity and solid protection against reasonable market fluctuations to the downside.
It's now eight years after the housing and mortgage crash that began in 2006, and a lot of media attention is on increasing prices and even bidding wars for homes in many areas. However, there are also analysts who fear that this is a "mini-bubble" that can't last. Much of the activity is still cash buying by small and institutional investors buying up foreclosures and distressed properties.
A couple of major problems are contributing to pessimism in the current market. First-time homebuyers are just no longer in the market much at all. Many are living at home with their parents, unable to qualify for a purchase, burdened with student debt, or short an acceptable down payment. Even if they can buy, the second reason we're not really in a major recovery comes into play.
Not only first time homebuyers, but would-be buyers in general as well, are fearful of the stability of market improvements. The American Dream has been tarnished, and many people are afraid to commit and buy when they aren't sure about future appreciation. They're also concerned about an economy that's not supporting new job creation or wage increases.
The techniques I'm going to suggest in this article, if you choose to use them, are based on solid strategies used by investors to "buy right," locking in a profit at the closing table. They aren't used by the normal retail consumer buyer because they aren't easy, nor are any of the lenders or new home builders really terribly interested in bringing them to your attention. In fact, you aren't going to be using them for any new home purchases. This is all about distressed existing homes.
Generally the retail buyer isn't getting in on the down-and-dirty foreclosure buying action because the homes are not in livable/financeable condition when purchased, so lenders will not approve a mortgage. They want all repairs and renovation completed to secure the long-term mortgage.
First make a decision to buy at a deep discount to the ARV, After Repair Value, of the home in the current market. Get help to determine what the home you like would be worth if it was ready to live in. Then you go to a lender who will be happy to help you with a FHA 203k home loan. This is really a combination of two loans, one for the repairs. Then that loan is rolled into a long-term mortgage.
You get hard quotes from contractors to do all of the necessary work to make the home livable and make the lender happy. The 203k loan is structured in two parts, the first to get the repairs done. The lender controls release of the funds to the contractor(s) as the work is completed and approved. An appraiser has already given the lender the ARV of the home, so the goal is to get the combination of purchase price and repairs to a level below that value.
A recent real life example was a buyer who found a foreclosure with a negotiated purchase price of $125,000, then received contractor written bids of $42,000 for all repairs and renovation to make it a nice home again. The ARV of the home according to the appraiser would be $192,000. Since the total of the repairs and the purchase was $167,000, this buyer locked in equity and profit of approximately $25,000 at the closing table.
That's a comfortable 13 percent equity from the first day of ownership. Sure, it took a bit longer to make this deal a completed reality, but it was well worth it in the end. And, there were no retail competitors bidding for this home. This buyer was able to locate a home in a neighborhood they liked, and they could visualize it in totally restored condition.
The key is to do the due diligence and get your own reliable estimates of the value of the home once it's repaired. Then get some preliminary quotes from contractors for the obvious work. If you can pad that some and get the right purchase price to guarantee instant equity, you're on the right track. This self-defense strategy for buying your next home will give you a nice cushion for market gyrations and a comfortable feeling of control of your financial future.
Building permits/total housing units: 0.15% Decline in building permits 2005-2011: -60.29% (11th smallest) Building permits 2011 YTD: 8,136 Total housing units: 5,567,315 At the beginning of 2011, a number of new, restrictive building codes went into effect in Pennsylvania. This caused a rush among builders to secure permits, with housing permits increasing a massive 117.8% between November and December 2010, according to the Philadelphia Federal Reserve. The state's housing market has not been doing well since. Permits issued from January to June 2011 fell 16% compared to the same six-month period one year earlier. The national average for permits issued in the first six months of 2011 compared to the first six months of 2011 is a decrease of 6%. Read more at 24/7 Wall St.
Building permits/total housing units: 0.14% Decline in building permits 2005-2011: Building permits 2011 YTD: -77.09% (11th largest) Total housing units: 721,830 Maine has seen one of the largest decreases in building permits in the past six years. This is unsurprising as home sales in general declined substantially. Home sales for June 2011 decreased 21.39% from June 2010, according to the Maine Association of Realtors. The state's median sales price also decreased 1.37% over this same period. According to numbers from the Census Bureau, Maine has the highest vacancy rate in the country, reaching 22.8% in 2010. However, this number also includes empty vacation houses. Read more at 24/7 Wall St.
Building permits/total housing units: 0.14% Decline in building permits 2005-2011: -61.85% (12th smallest) Building permits 2011 YTD: 11,033 Total housing units: 8,108,103 New York State's housing market is among the largest in the country. As a result, the number of permits is minuscule when compared to the state's total housing units. Although new home sales decreased in the first half of 2011 from 2010, the number of permits actually increased slightly during that period, from 10,189 in 2010. This is significantly lower than 2005's 28,921 permits. Read more at 24/7 Wall St.
Building permits/total housing units: 0.12% Decline in building permits 2005-2011: 69.55% (24th smallest) Building permits 2011 YTD: 3,402 Total housing units: 2,808,254 Despite having a healthy economy compared to much of the country, Massachusetts' housing market is beginning to face serious troubles. In June 2011, sales of single-family homes in the state decreased 23.5% from the year before, reaching the lowest level since 1991, according to the Warren Group, a New England real estate research firm. With so few home sales, it follows that not many new homes are being built. Year-to-date, building permits for 2011 are about one quarter of what they were in 2005. Read more at 24/7 Wall St.
Building permits/total housing units: 0.12% Decline in building permits 2005-2011: -76.61% (12th largest) Building permits 2011 YTD: 6,184 Total housing units: 5,127,508 Ohio has suffered, and continues to suffer, greatly from the housing crisis. Over 8,000 homes were foreclosed in July 2011, the ninth-largest amount in the country, according to real estate company RealtyTrac. With such a high foreclosure rate, currently at one in every 608 housing units, housing is already too inexpensive for people to want to build. Ohio has therefore had one of the greatest decreases in building permits in the country over the past six years. Median existing home sales are also down in many areas of the state, according to data from the National Association of Realtors. In Toledo, prices are down 17% from one year ago, the third largest rate in the country. Read more at 24/7 Wall St.
Building permits/total housing units: 0.09% Decline in building permits 2005-2011: -74.06% (14th largest) Building permits 2011 YTD: 1,403 Total housing units: 1,487,891 Connecticut has had one of the greatest declines in the number of new building permits in the country. This trend saw a small turnaround in June -- the first monthly year-over-year gain in 2011 in new construction, according to the Connecticut Department of Economic and Community Development. However, the Hartford Courant reports that for "the first six months of the year, residential construction was down 30 percent compared with the same period in 2010." June was also the first increase in home construction in five years. Read more at 24/7 Wall St.
Building permits/total housing units: 0.09 Decline in building permits 2005-2011: -82.19% (7th largest) Building permits 2011 YTD: 4,250 Total housing units: 4,532,233 Michigan is one of the states that has suffered the most from the recession. The state's unemployment rate peaked around 15% in 2010. It is now at 10.5%, which is still significantly higher than the national average of 9.2%. The state has a vacancy rate of just under 15%, which is one of the highest in the country. New building permits have also decreased by over 80% since 2005, also one of the highest rates in the country. The state may now be more focused on tearing down old buildings than building new ones. Read more at 24/7 Wall St.
Building permits/total housing units: 0.09% Decline in building permits 2005-2011: -84.18% (3rd largest) Building permits 2011 YTD: 4,897 Total housing units: 5,296,715 Illinois has seen an almost 85% decrease in new housing permits since 2005. This is the third largest drop in the country. There are a number of initiatives being made across the state to improve the housing markets. In Chicago, for instance, Mayor Emanuel has made a number of changes to increase the speed with which building permits are issued. Additionally, a "Micro-Market Recovery Program" has been introduced to slow the city's foreclosure rate. Read more at 24/7 Wall St.
Building permits/total housing units: 0.09% Decline in building permits 2005-2011: -72.71% (17th largest) Building permits 2011 YTD: 774 Total housing units: 881,917 West Virginia's decline in building permits has slowed to almost a crawl. In the first six months of 2005 the state issued almost 3,000 permits. For the first half of 2011, that amount decreased to 774. If every permit were to result in a new housing structure, those homes would represent less than 0.1% of the total housing units in the state. Despite all this, construction is one area that is benefiting the state. According to the organization WorkForce West Virginia, 700 construction jobs were added in-state this past July -- the largest amount of jobs added in the private sector. Read more at 24/7 Wall St.
Building permits/total housing units: 0.07% Decline in building permits 2005-2011: -70.81% (22nd largest) Building permits 2011 YTD: 312 Total housing units: 463,388 Foreclosure filings increased 4% in Rhode Island from the first six months of 2010 to the first six months of 2011, according to RealtyTrac. Foreclosures dropped by 29% for that same period on the national level. Rhode Island home sales decreased 20% from one year ago in the second-quarter, according to the Rhode Island Association of Realtors. Additionally, median home prices have dropped 2%. These numbers indicate that Rhode Island's housing market is not recovering at the same pace as the majority of the country. For this first six months of this year, the state has issued a mere 312 building permits, the smallest number in the country. Read more at 24/7 Wall St.
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