The Home and Real Estate Investor Newsletter Nov05

Home & Real Estate Investor Jan 2006
A publication of The Association Of Home Investor Specialists

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In This Issue

Remodeling That Pays

2006 Market Forecasts

Mortgage Trends

Financing II

You don't need to start from scratch to add value to your home!

Remodeling That Pays!

Kitchen and bathroom remodeling projects are returning more of a homeowner’s investment than ever before, according to a new report released by the National Association Of Realtors and Remodeling Magazine.

Bathrooms Are Profitable!

Many homeowners who complete midrange bathroom remodels can expect to make money; the cost on a national average for this project is $10,499, and the return is $10,727, or 102.2%, compared with 87.5 percent in 2002.

On average, major midrange kitchen remodels cost $43,862 and return $39,920, or 91% of the costs to remodel, up from 66% in 2002.

Nationally, homeowners who add an attic bedroom spend an average of $39,188, and on resale, they recoup 93.5% of the cost. Master suites, however, do not fare as well; an upscale addition, which costs $137,891 on average, returns only $110,512 on resale, or approximately 80.1% of the remodeling expense.

America’s homeowners spent more than $139 billion on home improvements and repairs in 2005, according to data from Harvard’s Joint Center for Housing Studies.

To read the full story online go to
http://www.ushomeinvestor.com/news/NAR_Remodel.htm

Publish Your Projects Online:If you have photos of a recent/current home investment project that you'd be willing to share with your fellow investors, please let us know.We'll write an online "before and after" story around your project.

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2006 Market Forecasts

The key word for the housing market in 2006 is balance, with a return to a more normal rate of price growth, according to the National Association of Realtors®.

David Lereah, NAR’s chief economist, said current trends in the housing sector are healthy. “We don’t need to break a record every year for the housing market to be good – in fact, cooling sales are necessary for the long-term health of this vital sector,” Lereah said. “A modest slowdown in home sales, coupled with improvements in housing inventory, means the market is in the process of normalization. That will help to bring balance between home buyers and sellers, yet sales will remain historically strong.”

After setting a fifth consecutive annual record, projected to 7.10 million units for 2005, existing-home sales are forecast to ease by 4.4% to 6.79 million this year, which would be the second highest on record. New-home sales, which should be a record 1.29 million for 2005, are expected to decline 6.0% to 1.21 million in 2006 – that also would be the second best year in history. Total housing starts for 2005 are seen at 2.07 million units – the highest since setting a record 1972 – with a 6.6% slowing to 1.94 million this year.

To read the full story and check regional stats online go to
http://www.ushomeinvestor.com/news/NAR011006.htm

The Practical Real Estate Investor

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Mortgage Trends

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 6.33% in November, up from 6.07% in October; the rate was 5.73% in November 2004. In late December, Freddie Mac reported the 30-year fixed rate eased back to 6.26%.

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Financing II

All mortgage lenders are basically real estate investors; they lend money to finance the purchase of real estate in order to obtain a return on their investment. Often lenders will pool mortgages and sell them to other investors. Finding money with which to finance your investment project is easier when you remember that any investor is looking for a secure return on their money is a potential source of funding.

The loan market is divided into The Primary Mortgage Market, made up of lenders that originate (fund) loans; and The Secondary Mortgage Market, where loans are bought and sold after they have been funded. By purchasing loans, the secondary market helps primary lenders raise the capital they need to make further loans.

Primary Market Lenders

Savings Associations, Thrifts & Banks all have a fiduciary obligation, regulated by the government, to protect their depositor's funds. Mortgage loans generate income they can use to pay interest to their depositors.

Credit Unions historically made short-term consumer and home improvement loans although they have recently moved more into lending against primary home mortgages.

Insurance Companies often invest a portion of their premium income into large, long-term loans that fund commercial, industrial and large multi-family apartment buildings.

Pension Funds typically invest money in real estate development projects through banks and mortgage brokers. They also invest in large commercial projects.

Endowment Funds from hospitals, universities, non-profits and charities are increasingly used to fund commercial projects.

Mortgage Banking Companies originate loans with their own funds as well as funds belonging to insurance companies, pension funds and individual investors. They sell these loans to investors and typically charge a fee for servicing the loans. As an active real estate investor, mortgage-banking companies can act as an intermediary between you and multiple potential passive investors.

Mortgage Brokers are neither lenders nor mortgage banking companies. Brokers act as intermediaries between the borrowers and lenders, providing initial loan processing services for both parties. Brokers are paid a fee for their services by the lender and/or the borrower.

Private Money Lenders are typically investors willing to fund higher risk real estate projects in return for higher returns on their investment. Real estate investors sometimes use Private Money to fund their projects because they expect to need the money for only a short period of time and so the cost of the loan is low in respect to the expected profit. (Some investors run into trouble when projects take longer than anticipated and/or they cannot realize the anticipated sale price at the end of the project).

Investment Syndicates

Investment Syndicates are typically established as business entities to support the funding and development of real estate.

Participating in an investment syndicate allows investors with modest sums to invest in large-scale development projects. Returns on the initial investment may be in the form of on-going income from rents or from capital gains when the project is sold.

Syndication may be Private, involving a small group of friends or experienced investors, or Public, with participation in the syndicate made through the purchase of real estate securities governed under SEC rules.

Syndicates may be structured as General Partnerships or Limited Partnerships.

In a General Partnership all partners have an equal share of the profits or losses from the investment as well as equal voting rights in respect to management decisions of the partnership. One or more partners acts as Trustee(s) for the group, holding the title to any property in trust for the Partnership.

In a Limited Partnership the General Partner manages the syndicate on behalf of the other Limited Partners (investors). The limited partners have no control over the Syndicate. Limited Partnerships are frequently used by developers or real estate brokers to fund real estate developments. The General Partner is paid from the profits of the Syndicate and the Limited Partners share in the profits in proportion to their investments. The liability (or exposure to losses) of each limited partner is no greater than their investment in the syndicate. Any excess losses incurred as a result of the investment are the responsibility of the General Partner. NOTE: Selling an interest in a Limited Partnership may be regulated under SEC and State regulations concerning the sale of securities.

The Real Estate Investor's Choice

As a passive real estate investor you may consider participating in projects either by providing funding through one of the above mechanisms, such as becoming a limited partner in an investment syndicate. As an active investor, you may be seeking to utilize other people's money to buy real estate investments in order to generate income and/or capital gains.

As well as exploring all of the above funding sources, active investors should also consider sources of funds outside of the Primary Market such as:
Credit cards (especially low-rate cards) with high available balances.
Family members with money to invest (be sure to let them know the risks involved).
Self-directed IRA accounts (personal or through friends and family).
Second loans or Home Equity Lines on your personal residence (check the terms of the loans to be sure they can be used to purchase investment property).

When searching for investors to fund your projects, remember potential investors are seeking the highest return for the least risk. Therefore, the more you can demonstrate reduced risk, the lower your cost of borrowing (which is why lenders offer lower rates to low risk borrowers with the best credit scores).

By preparing your project plans clearly and demonstrating a commanding knowledge of your projected expenses, you can negotiate a lower interest rate on your loans.

To read more about financing investments, go to
http://www.ushomeinvestor.com/buyers/financing.htm

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Good Reading

The Millionaire Real Estate Investor by Gary Keller (buy it online through our bookstore ...

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