The Credit Crisis and Its Impact on Rental Housing

From the article: “It’s a ‘buyer’s market’, even in multi-family residential properties”, she said with emphasis. “It’s a very bad time to be a seller.”

http://www.propertymanager.com/2009/07/the-credit-crisis-and-its-impact-on-rental-housing/

Source: PROPERTYMANAGER.COM

Three Survival Strategies for the Accidental Landlord

Great article for all you accidental landlords out there! A must read!!

http://greenlandlady.com/site/business/three-survival-strategies-for-the-accidental-landlord/

Source: GREENLANDLADY.com

NAA Survey: 6 Best States for Renters

Investor alert! Nevada #4 on National Apartment Association Best Places for Tenants!

Click this link to read the article:

http://www.propertymanager.com/2010/09/naa-survey-6-best-states-for-renters/

Source: PROPERTYMANAGER.com

Security Deposits Will Keep You Safe and, Well... SECURE

One of the best tools in your landlord/investor toolbox is the “security deposit”. In the State of Nevada, you can legally hold up to 3x the rent in security deposit. Unlike bigger states like Michigan and California, the eviction process in Nevada is relatively quick and easy so you do not really need to hold more than 1 – 2 months for qualified tenants. If you accept an applicant that you know you probably shouldn’t, then you can at least ask for 3x the rent in SECURITY deposit. Don’t be fooled by the old trick of accepting several months of rent in advance. This means absolutely nothing. A poor tenant will pay you rent in advance to show you they have the money but once that period of “pre-paid” rent expires, what protection do you have to ensure they continue to pay rent on time? What do you have to ensure they don’t destroy your home completely and walk away? If someone has poor credit or no credit and you feel compelled to accept them, don’t make the mistake of thinking a lump sum of rent is the same as a deposit. Rent can not be used like deposits legally so do yourself a solid and take lots of security. Security can be used for all sorts of things when the tenant moves out, like repairing the property, covering unpaid rent and late fees, etc. Obviously it goes without saying that I wouldn’t rent to my own family without a deposit so be smart and don’t ever let someone live in your home with no money in security held. You will almost certainly regret it. If they were your friend before, I hope they will be after they move out of your rental property. 

Eviction Tips

Doing your due diligence in advance and being discerning about the tenants you accept in your rental or investment property will greatly reduce the chance for evictions. We generally average about 1 completed eviction per 100 properties per year. No matter how much you plan and screen a tenant, if someone falls on hard times, they just physically may not be able to pay the rent. The good news is that if you qualify your tenants in advance, in the event that you must evict them, those pre-qualified tenants are far less likely to damage the property and more likely to at least leave it intact. If you must go to the eviction stage, it’s a 2-part process. First, the landlord must serve what’s called a “5-day pay rent or quit” notification. The 5-day period is more like 8–10 days depending on the jurisdiction since different municipalities discount Fridays, holidays and weekends as part of the daily count. Once that period of waiting is up, you can file a “summary of eviction”. This is where the costs come in to hire the constable to lock the tenant out and pay the court filing fees. For evictions in which the landlord follows the law during the eviction process and doesn’t open themselves up to legitimate legal challenges from the tenant, the process can be completed in as little as 20–30 days. The important thing is to be smart and review the statutes before you take any steps with the tenant.  You can not simply show up and put a note on their door. You should do a legal eviction so your rights are protected and the tenant can not come back later to say you failed to properly serve them. There are a whole host of other “bad ideas” landlords can do during eviction to make the situation worse. If you have questions on this, feel free to call us up or email me at kyle@cgroupvegas.com.

Swapping Security Deposits for Rent is a Bad Idea...

I'm seeing a lot of private landlords and some property managers continuing the trend of allowing tenants in their final months to use their deposit that's held by the landlord to pay their final month rent. This is a terrible idea. It's important to remember that as a landlord or property manager, your only tool to ensure the tenant holds up their end of the lease is that money you hold called a security deposit. It's called "security" for a reason. Once it's gone, a marginal tenant is not motivated to get the keys back to you in a timely manner or even return the property in the type of clean condition you'd expect it in. Don't give away your only protection. It almost never goes to plan.

Under $1300 is Rental Sweet Spot

Interesting data emerging through July 2010 per GLVAR’s rental statistics. By far the most activity in rentals is in the $1000-$1300 range confirming that the best investment strategy for quick rents is to stay in the low to mid price ranges on single family homes. 4-bedroom homes are garnering significantly more rent this summer as well. Keep in mind rents, unlike home values, can swing widely depending on the season peaking usually in January/February and July/August each year as rental activity increases, while bottoming out between Thanksgiving and New Year’s and also in mid-springtime.

Click the image to view the GLVAR report and graph on Google Docs!

Avoid Phishing Schemes Using IRS Name

The IRS periodically alerts taxpayers to schemes that fraudulently use the IRS name, logo or Web site clone to gain access to consumers' financial information in order to steal their identity and assets.

The scams may take place through e-mail, fax or phone. When they take place via e-mail, they are called "phishing" scams.

This is important to note: The IRS will NEVER contact anyone via e-mail or phone callrequesting personal information. Any correspondence from the IRS will always be via mail and the official letters are easy to verify by all the contact information the IRS includes with the letter.

Here is a sample of some of the more common scams:

• In a new scam, both a form and cover letter, supposedly from the IRS, are faxed to people with instructions to fax the completed form back to the number contained in the form. The letter says that the IRS requires an update of the recipient's tax information and promises to deposit a nominal tax refund to the recipient's bank account in return. The form is a "substitute and recertification" Form 1040, titled "Certificate of Current Status of Beneficial Owner For United States Tax Recertification & Withholding." The form requests detailed personal and financial information, such as mother's maiden name and bank account and PIN numbers, that can be used to steal the identity and access the bank accounts of anyone who responds to this scam. In reality, there is no such form and the IRS does not ask taxpayers to provide the type of information specified on the form.
• In another new phishing scam, an e-mail purporting to come from the IRS advises taxpayers they can receive $80 by filling out an online customer satisfaction survey. In addition to standard customer satisfaction survey questions, the survey requests the name and phone number of the participant and also asks for credit card information.
• A bogus IRS letter and Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding) asked non-residents to provide personal information such as account numbers, PINs, mother's maiden name and passport number. The legitimate IRS Form W-8BEN, which is used by financial institutions to establish appropriate tax withholding for foreign individuals, does not ask for any of this information.

Source: HARTASSOCIATE.com (Tax Specialists)

Star Power Convention 2010

Enjoying Star Power in Murpheesboro, TN this week! Howard Brinton relayed a great quote he heard from somewhere else today that I want to remember:

"Life is not about learning to weather the storm... It's about learning to dance in the rain!"

300 Jobs Coming to NLV!

Solar power company is bringing 300 full time positions to North Las Vegas that will bring $118 million payroll to the city.

Chosen over Colorado, Arizona and New Mexico – check it out:

http://www.lvrj.com/business/new-solar-power-systems-plant-in-nlv-to-create-300-jobs-98854524.html

Fannie Mae Cracking Down on 'Strategic Defaults'

Fannie Me is toughening its stance on going after borrowers who walk away from their homes they can still afford. The strategy of walking away from the home due solely to it being underwater is known as strategic defaults, and Fannie Mae (who along with Freddie Mac back more than half of all mortgages) is cracking down on the practice.

DS News recently reported… "Under these changes, defaulting borrowers who walk away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the day of foreclosure. In addition, Fannie Mae said it will take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments." Nevada is a deficiency judgment state.  

Fannie Mae or Freddie Mac’s policies often are a guiding post for other servicers and lenders given their size in the market.  This new policy in addition to the recent policy change allowing for a new purchase within 2 years of completing a short sale, makes short sales the best option for truly distressed homeowners.

DS NEWS Article:

http://www.dsnews.com/articles/fannie-mae-intensifies-penalties-for-strategic-defaulters-2010-06-23

More New Rules from Fannie Mae

The GSE has issued new servicing guidelines stating that effective July 15, 2010, all servicers must verify the borrower’s income, liabilities, and monthly expenses before a loan modification can be offered.

“The servicer must not agree to change the terms of a mortgage loan until the servicer receives and evaluates the financial information required to verify that the borrower has a hardship, determines that a permanent standard Fannie Mae mortgage modification is the appropriate foreclosure prevention alternative, and obtains Fannie Mae’s prior written approval,” according to the newly issued guidelines.

Prior to granting a modification, the servicer must determine the borrower’s total assets. The liabilities provided by the borrower on financial forms must be compared to a recent credit report, and monthly gross income must be verified. Fannie says the servicer may rely on verbal information obtained from the borrower to document monthly living expenses in its servicing system.

The GSE also reiterated in its guidelines that servicers must require the borrower to make a cash contribution, if financially feasible, toward reducing the delinquency.

In addition, Fannie Mae says if a borrower becomes 60 or more days delinquent within the first 12 months of receiving a modified loan, then the servicer must immediately work with the borrower to pursue either a short sale or deed-in-lieu, or commence foreclosure proceedings. If the servicer determines that another modification is appropriate for the borrower, the servicer must first obtain Fannie Mae’s written approval to try a new loan restructuring.

Servicers may continue to process modifications that were previously evaluated based on stated income prior to July 15. Mortgage loans that are eligible for Fannie Mae’s Alternative Modification program are not subject to the new “hardship” documentation requirements.

The new income verification rules come just days after Fannie Mae announced new policy changes intended to deter financially competent homeowners from strategically defaulting on their mortgage.

Borrowers who walk away from their loan obligation and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage for a period of seven years from the day of foreclosure. The GSE says it will also take legal action to recoup the outstanding mortgage debt from strategic defaulters in jurisdictions that allow deficiency judgments.

Mortgage Rates at 4.69%

Freddie Mac reported today that mortgage rates have dropped to 4.69% - the lowest rate on record (dating back to 1971)! Combined with affordable home prices there hasn’t been a cheaper time to buy real estate in recent memory. With low carrying costs, it also is a prime opportunity to purchase rental or cash flow properties.   

See Freddie Mac’s news release:

http://www.freddiemac.com/pmms/release.html?week=25&year=2010

Fannie Mae Unveils Own HAFA Program

On June 1, 2010, Fannie Mae introduced its own Home Affordable Foreclosure Alternatives (HAFA) Program, which, like the HAFA program issued by the U.S. Treasury, is designed to mitigate the impact of foreclosures on borrowers who are eligible for a loan modification under the Home Affordable Modification Program (HAMP) but ultimately did not complete a modification.

See the details here: http://www.lasvegasrealtor.com/newsletter/Default.asp?file=Legal_Hafa.html

Silver State Arena Project

Great article on the plans for Silver State Arena. Seems to be the likeliest project to go forward as it doesn’t require public funds up front. Could be 10K-plus jobs, and lure a pro sports team.

http://www.lvrj.com/news/silver-state-arena-plan-stays-active-96276688.html

If you haven’t seen the artists rendering for it – see this site also: http://silverstatearena.com/

Commercial Market Upswing?

In this week’s Las Vegas Business Press, a great article on the potential of the commercial market to recover sooner than thought. The fact that nothing new will be built in the next couple of years is helping bring down inventory among existing space. Landlords are incentivizing tenants with free rent and other strategies to fill their higher priced locations.

See the article here:

http://www.lvbusinesspress.com/articles/2010/06/02/news/iq_36114796.txt

Fannie Mae Policy Change

Fannie Mae has given homeowners more reason than ever to consider a short sale as first option.  Effective July 1, 2010, Fannie is changing their policy to allow a homeowner who has executed a short sale to buy a new home again in as soon as 2 years.  In the case of a foreclosure, the timeline is 7 years.  As Fannie and Freddie back half of al mortgages or more, their policies are key in reading how the mortgage industry will approach homeowners who were previously distressed.

Previously, a borrower was required to wait four years before getting a new mortgage, or two years if their home sold in a short sale. Under the new guidelines, a borrower that previously completed a deed-in-lieu of foreclosure transaction can get a new mortgage in two years, provided the borrower has a 20% down payment. If the borrower has a 10% down payment, the wait period is still four years. In some extenuating circumstances, the wait period can be reduced to two years with a 10% down payment for deed-in-lieu of foreclosure, but not for short sales.

Originators are required to manually underwrite mortgages after the waiting period if the borrower previously completed a short sale. This new policy is effective for manually underwritten mortgage loans with application dates beginning July 1, 2010.

Link to policy: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0816.pdf

What is HAFA?

Click the image to view in PDF format on Google Docs!

** READ THIS if your Las Vegas home is upside-down **

I have received several inquiries from friends and clients on the new government program (HAFA) to speed up and simplify short sales.  You may have heard about the difficulty in getting them done (though they have been easier in recent months).  The government has devised a program to do some of the work up front with the bank and the borrower (the seller) to ensure a much faster (less than 30 day) approval timeline for a short sale.   I want to answer some FAQs for you – email me or call me at 702-895-7777 to discuss any further questions. 

What is a Short Sale?

A short sale is when the bank agrees to allow you to sell your home for less than it is worth.  If you owe $250,000 and the home is worth $100,000, the only way you can sell (short of paying the gap in cash) is to convince the bank to accept a short payment, low enough to close escrow.  In this case, a $100,000 house, after closing costs, paying off a second mortgage enough to allow the sale, and any other liens, may only net $90,000.  So the bank would have to agree to accept $90,000 on their $250,000 loan.

What Does It Cost?

It is free.  The bank may ask for a contribution to complete the short sale if you don’t qualify for HAFA – ask me for more details on this.  Your responsibility is solely to maintain the home (even if you are not living in it) until it closes.

Why Would A Bank Accept This?

Because our job is to convince them

A) the borrower (seller) can not continue making payments.  This requires a hardship, some reason that your financial situation has changed from when you originally qualified for the loan.  There are dozens of hardships that fit this criterion. 

B) The bank would not get any more money in a sale at auction or post-foreclosure (as an REO) than they can right now with a short sale.  To do this, we focus on getting a strong buyer and offer for the bank to consider.

What is HAFA?

Home Affordable Foreclosure Alternatives Process.  I have attached a timeline to show how this process will streamline short sales.  Where as in the past they have taken several months to close, they now should take less than 30 days. The HAFA program will aid homeowners in avoiding foreclosure by providing financial incentives to lenders and homeowners, and enforcing timelines on every step of the short sale or deed-in-lieu of foreclosure process.

How is a HAFA short sale better than a standard Short Sale?

There are incentives to the lender to participate in the program and to aid the homeowner with relocation (they will give you cash to help you move!)

Most importantly, with HAFA, the bank must waive the deficiency (which is the gap between what you owe and what the bank gets after the short sale), and the bank can not require a promissory note or cash contribution. 

Can Anyone Apply for HAFA?

Like all government interventions, there is a downside.  You must live in your home, your lender must participate (ask me if yours does).  It also does not apply to second mortgages (they are paid a set amount by the first to accept the short sale).