Making Assumptions In Real Estate

Making assumptions during a Real Estate transaction can be a costly mistake. Each year in North America hundreds of people assume that the property they are buying is all right. These same people proceed to purchase a home without taking the proper due diligence.

Problems such as wiring, plumbing, insulation and other mechanical features of the home begin failing and then the buyer doesn’t know were to turn.

Your first step in this instance is to seek legal advice from a professional. If your agent did their job then you should have a contract that protects you from many of these unforeseen issues.

However if you waived a home inspection, and failed to warranty the mechanical items in the home then you could have some very costly repairs on your hands. The furnace and air conditioning units are costly items to replace. An unseen leak in an oil tank can mean expensive environmental clean up.

In rural properties it is possible to find that your well has water that is not safe to drink, or that you need to truck water in because the well has inadequate flow.

If you failed to safe guard yourself in the agreement of purchase and sale you will be fighting an uphill battle if you choose to seek compensation. The courts will look more favourably on the vendor in these instances and you will be out of pocket for the repairs. This is unless you can prove that the vendor attempted to hide the issues from you, or failed to disclose problems with the home.

Before you make the decision to buy a home, make a checklist of areas to inspect. Specific areas such as, the roof, chimney, foundation, electrical, plumbing and insulation. Each of these areas of a home can unearth some of the homes history and will help uncover the overall state of repair for the home.

Is the Real Estate Rebound Here?

Over the past six months, real estate foreclosures have continued along at a blistering pace. In addition, the number of bank owned homes is also swelling. Until recently, banks appeared to be unwilling to accept losses in to their real estate portfolio. Short sales proved to be very tough to execute and very few foreclosed properties were actively in the market. The tide appears to be shifting.

Bank Real Estate Owned (REO) Properties

While the average home sales price continuing to decline, sellers can take solace in the fact that volume seems to be turning. After the government tax break ended, there was a stiff drop off in the number of home sales. However, over the past month or two, volume appears to have stabilized, albeit at lower price points.

Buyers have banks to thank for the increased volume. Banks are beginning to show a willingness to deal their trouble properties to the highest bidders. Banks faced a major concern of selling too early at lower prices than they may have gotten by waiting. It would appear that the waiting game is over and many institutions believe the markets have bottomed out.

All real estate is local of course, so it might take a bit longer for the smaller markets in Florida and Las Vegas to experience a rise in the volume of sales, but rest assured its coming. If the economy can avoid a second recession and begin to add jobs, expect residential real estate sales to come back in a big way.

Real Estate Sales Volume vs. Price

While a volume resurgence might be a few months off, a price rebound is at least a year away. The same force driving volume back up is pushing prices down. Every sale of property is recorded the same way, rather it be a foreclosed sale or a sale by an individual. Appraisers and buyers have no way of knowing what sales were foreclosures and what were not. As such, the average sales price will always be deflated in markets with a large amount of foreclosed properties.

On average foreclosures sell for 30 – 40% less than non-foreclosed homes. If half the sales are foreclosures, the market price will decline by 20% more than if all of those homes had been sells by individual owners. The same dynamic that contributes to the volume increase will likely accelerate the price deflation. Assuming buyers can maintain their cool, expect prices in the hardest hit areas to remain below their historical averages for at least one more year.

Investing In The Real Estate Multifamily Sector

Investors wondering how they can benefit from the huge wave of foreclosures sweeping the nation should look no further than apartments. The sector presents the best opportunity to finance and profit from potential increases in rent and property valuations.

Multifamily Investment Strategy

As foreclosures rise, people will continue to need places to live. When they cannot own, they must rent. As millions of former homeowners become renters, apartment owners can expect to benefit from decreased vacancies, increasing rents and potential asset appreciation. This asset class is the perfect place to start investing today.

Like all real estate asset classes, apartments experience significant short term declines in value. Overall valuations grew when rents were expected to grow as fast as the economy. As the economy contracted, rents declined because tenants simply could not pay. Additionally, many homeowners begin to rent their homes at lower prices and potential renters doubled up and sought rent stabilized apartments rather than renting their own apartment. As the economy recovers, expect these trends to reverse.

Investors should consider where they want to position themselves. Investors with cash should attempt to buy higher class properties to take advantage of the many consumers that have enough cash to rent, but are wary of owning in a declining market. These properties typically appreciate faster than Class B and C properties and hold their value longer. Investors should also consider rehabilitating Class B and C properties.

Apartment Financing

Fannie Mae finances apartments. This simple fact keeps the multifamily sector level, while the other commercial real estate sectors decline. Investors can still secure 60-75%+ financing through Fannie Mae at very competitive rates.

It is important to note that Fannie Mae has not been immune to lending issues. Many investors continue to speculate that they will stop lending at some point because of the massive amounts of bad loans they currently have on their books. The government guarantees these bad loans, so at any time they could be given a mandate to stop lending. At that point, investors should be leery of the segment because without financing, smaller investors would have to exit the sector.

Investors interested in this segment should be prepared to manage their properties for at least five years. As the economy recovers and tenants continue to remain fearful of buying primary residence, apartment owners will benefit. Landlords can differentiate themselves by providing a positive, cleaning living space with responsive management. Multifamily tends to be a longer term cash flow investment. As such, name recognition and character directly affect return on investment.