The answer is maybe the deal will be a good buy and then again, maybe not.  Here’s the reason why I say this.  If a property is being sold as a Short Sale it means that the loan on the property is for more money than the property can be sold for.  There is a shortage of funds due the lender.  Sometimes a lender will forgive this amount and sometimes it will not.  If the amount is forgiven it may not be a win for the seller because they may have to show this amount “forgiven” as income in their taxes the following year.  It must be shown as income because it was money that was owed by the seller through a note to buy the property, but not paid back to the lender and the IRS looks at this as money in your pocket even though you never see the money.  Update:  The IRS has put a hiatus on the tax due for a short sale in order to assist sellers.  This may not last forever but it is helping them today.

A Short Sale may save the home owner from going into foreclosure but there are potentially major tax consequences in doing one.  If you are a buyer looking for a deal is this the way to find one?  Maybe if the price being asked for the property is  where it should be in the market.  If the seller is trying to break even, pay off his loan, pay the commissions to the Realtors involved in the transaction, and then move on the price might be “at market”.  But if the market today says the property is over priced, it sits and sits and sits.  Sometimes we see these properties have been listed for hundreds of days and with no appreciable price reduction.  If the seller is truly anxious to sell, they aren’t reducing the price right way unless they are working with an agent who is specifically trained in foreclosure and short sale, like Alex, a CDPE.  If you need to sell you need to price aggressively and be willing to take the hit in order to get out from under.

Selling a home prior to it going into foreclosure when it is worth more than the loans on it involves a lot of steps and isn’t easy to do.  One has to swallow their pride and talk to the lender about their situation, follow every step the lender requires and price the home aggressively in order to sell it.  Many people do the first part but forget to do the latter part, the price aggressively part. You need an attorney and accountant as a part of your team.  You must follow every step you are told to or you’ll find a foreclosure on your credit record and that’s a 5 year hit.  A short sale is only a maximum of a 2 year hit and sometimes even less than that.  Think about it, which would you rather have on your credit report?  Your FICO score drops about 50 points with a Short Sale and 150+ with a foreclosure.

Buying a property during a Short Sale could also mean that you also buy past-due taxes owed by the seller and any other liens that might be placed on the property such as homeowner association fees that are past due.  In effect, you get it all — the good, the bad, and the ugly.

Around San Mateo County, for some reason we haven’t been seeing a lot of aggressively priced listings so these short sales sit and sit. We know there are a great number of homes close to default and these homes should be put on the market but when is the $64,000 question.  People are afraid to face the inevitable and unfortunately it’s often human nature not to do what is necessary before it becomes a panic.  A CDPE Realtor, like Alex Wilkas, can help facilitate the many steps necessary to price a home and get it sold.

Truthfully there is about a year’s gap between a buyer and a seller’s understanding on what’s happening in the real estate today.  Buyers are always ahead of the curve because they are out there looking at property a lot and they begin to see the pricing trends way before sellers do.  Sellers only see what their neighbor sold their home for and they want to sell for that same amount, or more and what the news is telling them.  They’re looking in the past not in the future, or even at today.  That past could be six months ago or longer.  They don’t understand what is happening to the market today unless they are actively out there looking to buy, and when they do figure it out they may find their mortgage is for more money than they could sell their home for today.  They are then  “underwater” because they owe the bank more than what their home is currently worth.  Is this bad?  Yes if you can’t afford the payments and can’t refinance to bring them down to where you can afford them.  It’s not bad if you went into your home with a fixed rate loan and you don’t plan on moving any time soon.  You keep on making those payments and hopefully by the time you are ready to sell your equity has moved back into a positive position.

The biggest issue in looking at buying a short sale is understanding that you may not get the property you place an offer on and the reason is complex.  Generally most lenders are huge operations with thousands of loans in their portfolios.  If some of those properties are “underwater” the lender isn’t concerned about this as long as the payments are current.  They do become concerned when the homeowner stops making those payments.  After several months the lender issues a Notice of Default to the owner and tells them they have a certain period of time to pay up what is owed or the property will be foreclosed upon.  How long this takes depends on the lender.  It is during this period of Notice of Default that one begins to see a home listed as a Short Sale.

The banks generally have several departments that handle these properties and if after a length of time the home has not been sold, it is bundled up along with hundreds of other properties and placed on a Notice of Trustee Sale notice where these properties are auctioned off, and yes it happens on the steps of the San Mateo County Court House in Redwood City.

You might be in escrow to buy one of these properties, but only one half of the bank knows this and if the other half decides to sell the place off and the Notice of Trustee Sale takes place, you lose your prospective home.  You do not lose your deposits but you have, in effect, wasted a lot of time trying to buy something at what you hoped was under market.  If you are willing to wait it out, and if the house you hope to buy doesn’t have a lot of mortgages against it, you will get a great buy.  Patience is a virtue and this is one you want to make sure you have.

It is said that a picture is worth a thousand words and when I drove up to see this property, I had to take this picture of the garage roof.  It is an indicator of how bad this house is, and how much in need of help.  Calling All Contractors out there! This can be a great investment in Linda Mar, Pacifica, but it will take a whole lotta work.  Drive on by to 1659 Linda Mar and decide for yourself.  It is a 4 bedroom, 2 bath house that was once loved by some family and probably well taken care of, but right now it’s a wreck!

The property is in being called a Contractor Special and with almost $35,000 for the pest report alone, a contractor may want to take this down to the studs and rebuild.  It’s priced right at $439,000 but there is a hitch.  In order to buy this mess you need to have your offer presented to the Bankruptcy Court and they won’t give it away, even in its present condition.  In fact, they hope to see multiple bids so they can get more money, not less, from the buyer.

Since I wasn’t able to enter the house, I did peek in through a coupe of windows and this is an example of what is inside.  The kitchen has a few cabinets remaining but nothing else.  There is hardwood flooring in the living room, but who can tell the condition.  Some time ago, a second story was added increasing the square footage considerably and, my guess is adding two more bedrooms and a bath, since there are 2 bedrooms and a bathroom on the first floor.

It appears that someone started doing some work on this house but left it in disarray.  If you are a contractor with money in the bank, and looking for a project, this is a good one.  The houses sell anywhere from $600,000 on upward but the average price is $650,000.  If you can get the work done on your own, you will be able to resell for a profit.  Linda Mar is the most southern part of Pacifica with the best weather and a beautiful beach.  If you’re a surfer-contractor, this might be narvana.

Just in case you think you can “Do It Yourself”, I’ve written about the costs to do things before.  Check it here and do the math. More information about that when you call me at 650-696-2820.

San Mateo County real estate investors, what are you waiting for?  There are many, many good buys for investment today and Fannie Mae and Freddie Mac loan limits will never be higher.  With housing prices dropping, and rates at consistent levels you should be looking right now!  If you want to invest in housing under 4 units the loan opportunities are outstanding.

Today

2009

If you think prices will get lower in 2009 think again, for any savings you might get on the sales price will be offset by the increased loan levels for conforming loans.  If you have to move up to jumbo loans, interest rates are not only higher but you need to have more money down and impeccable credit.

There are great investment opportunities in San Mateo County, Santa Clara County, Alameda County and Contra Costa County.  All of these are fairly close to home and easy to manage.

If you have been thinking about buying an investment property to begin your wealth development and have some money in the bank for your down payment, you are probably at the best time of your life to begin this.  Give me a call so we can talk about it.  I can be reached at 650-867-2909 and we can discuss your specific wants and needs.

Real estate is one investment that consistently holds.  They aren’t making any new land.  We have what we have.  Yes, we have seen a drop in housing prices, in some places it is significant, but on the Peninsula, it has been about 5-10%;.  This price adjustment has been long over due.  It’s always right to buy in a down market.  We’re here to help you and answer your questions.

Whether you want to buy an apartment building, duplex, condo or single family house, all have rental opportunities at top dollar.  While housing prices have declined in parts of our County, rental prices have not.  It’s been a long time since for us to talk about a positive cash flow in our county.  Generally one has had to buy quite a distance away but no longer.

If you’re willing to buy investment property in Oakland, or other places in the East Bay, the buys are amazing.  Many houses are available under $200,000.  Keeping in mind that it’s best to own property within 90 minutes of your home, the east bay has great opportunities for you.  Loan requirements for investment properties are tougher and you’ll need more down payment provided, but if  your money is sitting in the bank earning a small interest amount, housing is always needed and prices will go up.  Real estate always goes up.  We’re here to help you and give you pointers if you’re new to the real estate investment game.  Give us a call.  650-696-2820 for all of your real estate needs.

I have a little chart here to give you an idea and a range of what things could cost.  This is only a guide.  When it comes to kitchens or bathrooms, what you select for cabinets, flooring, counters, appliances, fixtures, and the like can run the cost up ten fold.

EXTERIOR

• Wooden Deck $25 to $50 per square foot
• Wooden Fencing $25-$35 per linear foot
• Concrete Flat Work $4-$6 per square foot
• Build Detached Garage $100-$150 per square foot
• Build Addition $150-$350 per square foot
• Replace Windows $400-$600 per or more depending on size
• Paint Building Exterior $3500-$7000 or more depending on size of house

FOUNDATION

• Install Anchor Bolts $1000-$3000
• Extensive Seismic Retrofit $5000-$10,000
• Replace low foundation wall $100-$250 + per foot

ROOFING (To install one square or 100 square feet)

• Composition Shingles $200-$300
• Wood singles $400-$500 / Wood Shakes $400-$600 if allowed where you live
• Tile $800-$1600
• Install new rain gutters and downspouts $6-$10 per foot
• Install Skylight $1500-$2500 – Sun Tunnels run considerably less.

ELECTRICAL

• Upgrade Service 125 amps $1200-$1600

HEATING / COOLING

• Install New Forced-Air Furnace $2500-$5000
• Install New Wall Furnace $1000-$2500
• Install New Floor Furnace $1500-$2500
• Install Air Conditioning (if there is a forced air furnace in place) $3000-$5000

PLUMBING

• Replace Galvanized Piping with Copper $1700-$3000 per floor
• Replace Shower Pan $1000-$1500
• Replace Tile Shower $2200-$3200

INTERIOR

• Painting $500-800 per room
• Install Prefabricated Fireplace $3500-$6000
• Major Bathroom Remodel $6000-$12,000+++
• Major Kitchen Remodel $15,000-$60,000+++

FLOORS

• Refinish hardwood floors $3-$4 per square foot
• Refinish softwood floor $9-$11 per square foot
• Buff and apply finish $1-$1.50 per square foot

What is a Short-Sale?  It is a sale of property where the owner owes more to the bank than the property is worth on the open market.  We are seeing the majority of these sales today in areas where there was predator lending practices taking place.  And, unfortunately, these predator lending practices often took place against immigrants.  People with fair income, some debt, but poor English skills who were placed into negative amortization loads that they did not understand.  They were placed in loans with sucker rates — you know the kind — 3% for the first 90 days, and then the rate escalates upward.  Some of those loans escalated up to 7 or 8%.  Some of the people caught in this net find themselves owing more each month on the loan to their house, than they take home.  So, they go to their bank for help and try to sell the house before it goes into foreclosure.  Most lenders are willing to work with the people caught in this net and have their Realtor’s go through many hoops preparing a home for market, pricing the home with the help of the bank, and then hopefully, selling the home.  The bank is in the middle of the process from the beginning because they want to get as much money back on their bad loan, as possible.  But, sometimes things don’t go smoothly for someone trying to buy a house with a short-sale.  Sometimes, even when everyone has done what they were told to do, the bank decides to foreclose and that’s the end of your hopes in buying a home under market.

Your next question should be:  Is buying a property through a Short-Sale a good deal?  Maybe yes, and maybe no.  It is a roller coaster ride for sure because you can do everything you’re told to do and find out that you won’t get the property and you have no recourse against the seller because the seller is the bank that makes the rules that we have to play by. Therefore, they can change the rules any time they like.  And they can and they do. But, if you’re lucky, you can (drum roll, please) get a deal.

So, if you decide to try to buy a home that’s “under water” be aware that you will be asked to do things differently.  You will need to have your loan or loans taken out through the selling bank.  If you’re a risk taker, it could mean the way to buy a home in our Fantasy Island, for less money than your friends spent for a similar property.  But, you must, must, must be a risk taker.  For your agent, they just hope that they get paid in the process because the bank holds all the cards — from pricing the home, to commissions.