Four New Rules for Flipping Homes

I found this to be a very relevant article about changes you might see as you look to flip homes for profit in this market. For more information on how this might affect you contact Will today at 617-312-7232 or Info@Boston-Real-Estate.org. View Boston Real Estate for Sale here.

Four New Rules for Flipping Homes
BUSINESS BIZ COMPANIES MARKETS
Bankrate.com

If flipping a house in today's real estate market seems riskier than trekking with a ragtag band of hobbits to Mordor, take heart: Home flippers can still find plenty of opportunities, though they're not entirely without risk.

It may seem counterintuitive to invest in real estate when the housing market is in its darkest hour. But in fact, it may prove to be the most optimal time for such a venture. According to RealtyTrac, a seller of mortgage default data, the foreclosure rate reached its highest level in 50 years in 2007, and has since risen to record numbers in the third quarter of 2008. Real estate investors are finding bargains everywhere, particularly in formerly hot housing markets such as Florida, Nevada and California.

Angie Hicks, founder of Angieslist.com, a compendium of consumer-service reviews, says a recent informal poll of list members found that of those who had purchased a home in foreclosure, 29 percent of respondents had done so within the last six months. Of those, 95 percent said their purchases were profitable.

"The key ... is doing your research and knowing what you're getting into," says Hicks. "Know the area you're buying, the market, how the price compares to the neighborhood."

The horizon is flush with opportunity for those with the money and know-how to snap up a bargain and flip it, but to make it pay you first must understand how the rules of the game have changed.

1. Stick with familiar territoryCharlotte, N.C., resident Emma Allen, CEO of Emma Allen Enterprises and an experienced flipper, says there's lots of inventory on the market.

"The prices that were recently so outrageous are down again, so those with capital or access to credit will find it's a very good time to pick up bargains in the marketplace," Allen says.
Allen finds those bargains mostly in neighborhoods where she would like to live. "Properties I've added lately are near our downtown area, with an urban feel to them," Allen says.

Areas undergoing urban renewal present good investment opportunities. Allen, who owns a home on a large, popular lake, also thinks waterfront is a win-win on a flip, but she echoes Hicks' caution. "If you're not terribly experienced, stick with what you know -- just like buying stocks," says Allen.

The dreary economy has resulted in increased inventory, but it has also affected financing. Allen and other veteran home flippers say the days of flipping on a thin wallet have officially ended.

2. Check your capitalIt seems elementary, but in the recent past many flippers found themselves in trouble because they had not correctly calculated the amount of money it takes to finish a flip and market it. Allen says investors should figure out how much money they'll need right upfront, and not just the purchase price. It translates to being realistic about renovation costs and the hidden expense that gets so many in trouble: carrying costs.

"You may have carrying costs on the books longer than you think. The days of the 60-day flip are gone," Allen says.

Carrying costs, or house payments you must make until you sell the property, can subtract thousands from the bottom line. And even though you are technically chipping away at the debt incurred when you purchased the property, the interest you're paying at the top of the flip probably won't be earned back in the sale. Those payments come right out of your potential profit.

What about financing in general? While it's certainly more difficult to obtain a bank loan, it still can be done. But having a stash of cash is still important. Veteran Southern California flipper and interior designer Nicole Sassaman advises would-be flippers looking for a loan to "be sure to have 25 percent down and 18 months of reserves in the bank."

For more information on how this might affect you contact Will today at 617-312-7232 or Info@Boston-Real-Estate.org. View Boston Real Estate for Sale here.

Mortgage Rates Go DOWN and Applications Go UP!

An important update on rates for investors, buyers, and owners who have or need a mortgage right now. It is a great time to invest in Boston real estate.

Mortgage Rates Drop to Lowest Level Since January

The Associated Press 04 Dec 2008 12:35 PM ET

Rates on 30-year mortgages plunged this week to the lowest level since January after the government launched a sweeping new effort to aid the U.S. housing market.

Mortgage finance giant Freddie Mac reported Thursday that average rates on 30-year fixed-rate mortgages dropped to 5.53 percent this week.

That was down from 5.97 percent last week, and the lowest since the week of Jan. 24, when it was at 5.48 percent.

Further drops could be on the way if the government launches an industry-backed plan to lower the rate on a 30-year mortgage to 4.5 percent by spending hundreds of billions to buy mortgage-backed securities issued by Fannie Mae and Freddie Mac .

That would follow an effort announced last week by the Federal Reserve, which is planning to purchase up to $600 billion of mortgage-backed securities and other debt issued by Fannie and Freddie and the Federal Home Loan Banks.

Those institutions don't make loans directly to consumers, but provide money to the mortgage market by packaging loans into investments.

The Fed's move caused rates to immediately drop by about a half-point, and many in the real estate industry hope rates will keep dropping as the government increases efforts to battle the credit crisis.

Rates "are now almost a full percentage point lower since the last week in October," Freddie Mac Chief Economist Frank Nothaft said in a statement.

Mortgage rates are sinking as Treasury yields, some of the most sensitive barometers of investor sentiment, have dropped to record lows this week as a torrent of bad economic news continues.

But as investors send yields down, they're also influencing the economy—driving interest rates so low that savers get punished and borrowers get a break.

Treasury buying has picked up and sent yields down because the economy is in a recession that investors believe will be long and deep.

Consumers already are taking advantage of the situation.

New mortgage applications more than doubled last week, according to the Mortgage Bankers Association's weekly survey released Wednesday.

Refinance volume more than tripled, and made up nearly 70 percent of all applications. Rates on other types of mortgages also fell, according to Freddie Mac's survey.

For 15-year, fixed-rate mortgages, rates averaged 5.53 percent, down from 5.74 percent last week.

Rates on five-year, adjustable-rate mortgages dipped to 5.77 percent, compared with 5.86 percent last week.

Rates on one-year, adjustable-rate mortgages dropped to 5.02 percent, from 5.18 percent last week.

The rates do not include add-on fees known as points. The nationwide fee for 30-year and 15-year mortgages averaged 0.7 point last week.

The fee on five-year, adjustable-rate mortgages averaged 0.6 point, while the fee on one-year adjustable-rate mortgages averaged 0.5 point.

A year ago, the nationwide average rate on 30-year mortgages stood at 5.96 percent, 15-year mortgage rates averaged 5.65 percent, five-year adjustable-rate mortgages were at 5.75 percent, and one-year adjustable-rate mortgages stood at 5.46 percent.

For Questions on this information or real estate in Boston contact Will Montero at WMontero@WarrenRE.com or visit his Boston Luxury Real Estate website.