Jim's Soap Box April 2009

JIM'S SOAP BOX

Arizona Real Estate Newsletter - April 2009

First things first - Sorry for the huge delay in this newsletter, but I have been a little busy. I am proud to announce that I have a new home to hang my mortgage hat. I have officially returned to NOVA Home Loans, and couldn't be happier!

The advantages I had operating as a mortgage broker eventually paled in comparison to what NOVA offers as a Mortgage Banker. The best way to summarize the motivation for this move is that I now have more control over each transaction, more support, and better rates. Please take note of my new contact info.

The goal of my newsletter is to provide educational material mixed with Jim's unsolicited yet fascinating opinion on the Arizona housing market and real estate ownership in general. If you would like me to address a specific topic in the future, please email it to me and I will respond in the following newsletter.


If you are looking to buy now, you should be looking FHA.

Most people who are looking to buy in this market would like to have a small down payment (who wouldn't - right?). Conventional lending in Arizona has become unattractive to the first time home buyer. With a conventional loan you are looking at a minimum of a 10% down payment, and a FICO score of 680 or higher. If your credit score is currently below a 680 (you cannot qualify to purchase mortgage insurance) and will need a 20% down payment. Unless you recently hit the Powerball - I'm guessing you don't have 20% down.

A FHA loan (Insured by the Federal Government) has a down payment of just 3.5%. And, buyers can still qualify for a FHA loan with FICO scores as low as 580. The rates for FHA are very competetive to conventional rates, and the monthly mortgage insurance is cheaper as well. Another strong advantage is that your 3.5% down payment can be a gift from a third party.***

There are additional FHA programs and features that are getting a lot of attention.

There is a $100 down payment program if you are buying a HUD owned home.
There is a FHA Rehab program (203K) that allows you to buy and fix-up a property at the same time. This will allow you to buy the $75,000 fixer-upper and finance $25,000 in upgrades at the same time. The rate is so competetive on this program that you will not have to refinance when the repairs are completed.

All FHA loans allow up to 6% in seller concessions to pay for your closing costs. This allows you to get into the home for only the 3.5% down payment & not a penny more. Many people use this money to buy their interest rate down as well.

FHA is no longer considered the "other option" if you do not qualify for a conventional loan. It is actually the preferred loan program for Arizona and probably financing 80% of today's purchases.



*** Moms & Dads - today is a great day to help your kids buy their first home. With thousands of homes for sale in Maricopa County for well under $100,000 - It's cheaper than renting & you can finally get them out of your house.



Jim Cunningham
Sr Loan Officer
NOVA HOME LOANS
8800 E Raintree Drive #180
Scottsdale, AZ 85260
480 614-6413
480 434-8261 cell
jim@novahomeloans.com

Jim's Soapbox (June '08)

Jim’s Soapbox
(Arizona Real Estate Newsletter - June 08)

You may have heard recently that this is a great time to purchase investment property. One reason for this is because you can now “cash flow” them again. That sounds like a pretty good idea, but what does that really translate into? What really makes this a better time to buy and hold investment property rather than 18 months ago?
I would like to give you a brief overview on the two major concepts of making money on investment property, and why it is a perfect time to acquire and hold an investment property.

Fix & Flip
I am sure many of you have heard of the term “fix & flip”. This is a good money making technique when the real estate market is steady and the volatility is predictable. The concept is to buy a property that is undervalued compared to the other homes in the area and fix it up. The typical targeted repairs are items like new floors, carpet, paint, window treatments, landscaping, kitchen & bathrooms cabinets, etc.. Ideally, these repairs take only 1–3 months, and then you list the property for sale at a much higher price. The goal is to make enough to cover your repair costs, the temporary mortgage payments, and walk away with $20K – $60K profit on that property. The key to success is to have the right property and to turn the property as quickly as possible.
Obviously, this doesn’t always work as planned, and sometimes you lose money on the deal. Factors that contribute to losing money on a Fix & Flip property are the repair costs being too high, the repairs taking way too long, or the property not selling quickly. Sadly, some Fix & Flippers got stuck with property over a year ago when the market turned, and either took a loss selling it below cost or turned it into a rental property. This is not the ideal strategy to own rental property, because most of these people are still taking a monthly loss renting these properties today. I feel that I am an authority on this topic, because I own one of these types of properties myself.

Cash Flow
This is the concept used to identify property that will make good rentals. The word “Cash flow” refers to the amount of cash a rental home generates and uses on a monthly basis. Cash flow can be used as an indication of a rental home’s financial strength. When it comes to renting out your investment property you would prefer it to have a positive cash flow, whereas you are making a profit on a monthly basis. Due to the high price of housing in Metro Phoenix it is more difficult to find homes with a positive cash flow, but it is not impossible. Here are some of the factors we look at to determine a property’s cash flow.
You should first calculate the monthly cost of the property (sometimes called the nut). You need to consider all costs associated with the property including the Mortgage Payment (Principal, Interest, Taxes & Insurance), Property Management Fees, HOA Dues, Pool Service, Home Warranty, Etc. This monthly cost will not only be covered by your renters, but will also have to be covered by you during times when the property is not rented. Also, take into account if you need immediate repairs to the home to make it ready for renters.
Next, you have to calculate how much you can rent the home for. I highly suggest using a seasoned property manager to help you in this analysis. Not only can this person help you identify the right rental rate, but can also help identify the current occupancy of rentals within the area. That should give you an idea of how long it will take to rent your property. I highly suggest Alan Corradini WEST USA realty (602) 380-7913 cell & alancor@hotmail.com . I have been using him to manage my rental property for the last 6 years, and he is the real deal.
When you subtract the monthly cost (nut) from your potential rent you will get that property’s monthly cash flow number. Most people will gravitate towards properties with a positive cashflow – but some people will also consider properties that simply “break even” with the intent of selling them in a few years at an appreciated value.

Why is this a Good Time to Buy??
One of the biggest factors in finding property with good cash flow will be in the price of the home. Being that the mortgage payment on the property will constitute the largest portion of your cost, you want to find rentable property at a low purchase price. This sounds like common sense (Duh!), but a cheap list price doesn’t always mean it’s a good deal.
Today’s housing market has a record number of short sales, foreclosures, pre-foreclosures, distressed, and bank owned property! Some home prices are down over 30% from where they were 18 months ago. This could easily mark the low price point for home sales for the next few years. When you see the following scenario you might think that those properties are not really available. To that I can honestly say,… have you really looked? Because, you only need to find one property that works!

Example
Here is a single family home (3bd/2ba) in Tempe near the light rail. It is bank owned and they are asking $150K (appraises at $205K) and they will pay all of your closing costs with a full price offer. The property is basically move in ready and needs a little paint. You pay 20% down ($30,000) & finance 80% ($120,000) on a 30 year fixed (6.75%).
The principal & interest payment is $778/mo + $50/mo home owners ins. + $92/mo property taxes = total PITI = $920/month. You also decide to have a property manager (a good idea) for $65/month, and you find no other monthly costs. Your net cost is $985/mo.
Your realtor does their research, and informs you that rent on a 3 bedroom within 2.5 miles of ASU should rent for $1,130/mo. And if you get it listed before August 20th, you should be able to rent in within 2 weeks.
$1,130 rent – ($985) cost = $145/ month in positive cash flow. This seems to be a pretty good scenario worth exploring. Here are the positives,…
• You have the potential to make $145/month cashflow.
• You have a 30 year fixed loan, so every month your principal balance goes down.
• You have an great source of Tax deductions at the end of the year
• You have just acquired a property with $55,000 of equity in it.

The above example is simply one basic scenario out of thousands that exist. There are going to be plenty of properties that have a negative cashflow after thorough analysis. But, the key to finding the right cashflow property begins in the act of building a team and looking for them.

Conclusion
Investment property is not everybody’s cup of tea. However, if you have thought about it in the past, today’s housing market provides great opportunities to buy properties that “cashflow”. If you are waiting for the housing market to reduce inventory and “tighten up” to buy an investment property – you are missing the boat.
There are many other concepts and techniques that I did not touch on today that I will be happy to share with you if you have interest

• Buy investment property as a primary residence (2% - 5% down)
• Buy investment property as a second home (5%-10% down)
• Buy a multiplex (2 – 4 units)
• 8 creative ways to find your 20% down payment
• Purchase an investment property that needs rehab for 10% down
• Buy a new home and use your current home as a rental

I am looking towards a great summer both socially and professionally. If you have any questions on this material, or just want to say “Howdy”, feel free to give me a call or an email.

All Best!!

Jim

JIM CUNNINGHAM
Community First Financial, LLC
7575 E Redfield Rd Suite 235
Scottsdale, AZ 85260
480-305-8900 ext 305 - office
480-907-2435 - fax
602-434-8261 - cell
jcunningham@communityfirstfinancial.com
www.communityfirstfinancial.com
www.jimcunninghamcff.blogspot.com
http://activerain.com/jcunningham

Jim's Mortgage Newsletter May 08

Jim’s Soapbox

(Arizona Real Estate Newsletter - May 08)

My wife Madalyn often says to me “…when one doors closes, another door is opened”. I have found that is a great way to describe today’s Real Estate market here in Metro Phoenix.

A common media-driven perception today is that the Phoenix housing market is far more risky than it has ever been before. I find that to be a funny concept for the media to promote, because in really isn’t accurate. Actually, the risky time to buy real estate in Phoenix was that period of time between the unnatural value boom, and the inevitable drop off. Metro Phoenix had a very stable (appreciating) market for 10+ years leading into the boom, and we have almost returned to the point where property value would have appreciated to without the peak and valley of ’05 to ‘07.

I am not going to argue that everything is roses & rainbows within the housing market right now. However, I would like you to take notice that there are so many other ways to take advantage of Arizona Real Estate, that regardless of the condition of our current market, it always the perfect time to do something.

I would like to share some Real Estate projects and concepts that are booming today. The housing market is not lousy, it is simply different.

· Rehabs
· First Time Purchase
· Investment Purchase
· Home Equity Lines of Credit

Notice that I am not suggesting in any of these concepts that you sell any of your property. You should never sell real estate in a down market unless you really have to. I believe we are almost to the end of the depreciating portion of the cycle – hold on to your property.

REHABS

“Rehab” is a buzz term in our industry for any renovation you plan on doing to an existing home. If you want to add a new bedroom, expand your bathroom, build a guest house, or enclose your patio – you are basically talking about a rehab project.

Today is a great time to renovate your home. Compared to 18 months ago, rehabs are much cheaper per square foot and they get finished in a fraction of the time. In 2006, it could take up to 60 days to get the concrete delivered – not to mention the delays in framing due to the lumber shortage. I am not in the construction industry (I am a lender), but I can attest that projects that took 9 months to complete in 2006, now take about 2 months. The summertime is also a great time to rehab your house in metro Phoenix, because the delays from rain & humid weather are pretty hard to come by.

There are several ways to finance your Rehab project depending how big your project is. Sometimes drawing on a new (or existing) Home Equity Line of Credit is the best way to go for short term money. Also, “one-time” construction loans are a popular option for large scale projects. Either way, you can call me with questions because there are special programs for Rehabs to keep your closing costs to a minimum.

Here is the name of a Rehab Specialist I trust, and have worked with for several years. His name is Marten Niner. His cell phone is (602) 739-7073 & his email address is justintimecontracors@yahoo.com. Martin can both help you with the design of your project and give estimates. He is a good first step in this process.

There are many other great Rehab companies here in Phoenix, just be sure to ask for references before you commit.

PURCHASE YOUR FIRST HOME

In case you haven’t followed the housing trend this year I have great news,… it is a buyer’s market!! The next 6 months, preceding the election, could mark the low tide of property values in Maricopa County. I could not think of a better time to buy than when property is at its lowest. Buy low and Sell high are still pretty good words to live by! Take advantage of distressed property prices and have the seller pay for 100% of your closing costs. The last 8 purchases I financed had the seller paying every penny of the closing costs.

Also, 100% financing is still around. I have FHA programs with Down Payment Assistance (i.e.Nehemiah and Ameridream) that let you purchase with only $500 out of pocket. I have the 102% Rural Housing program if you would like to purchase a home in Anthem, Queen Creek or Buckeye (for $0 out of pocket). If you are not sure if you qualify, call me & I can let you know the next day.

INVESTMENT PURCHASES

Again, in case you haven’t followed the housing trend this year I have great news,…IT IS A BUYER’S MARKET!! This is probably the best time to get an investment property since the summer of 2001! A common complaint that I hear today is the inability to do 100% financing on investment homes. Well, that statement is very true; you are going to need 10% - 20% down to buy an investment property. However, you can actually purchase a home that has a positive “cash flow” now. You can find a pre-foreclosure property with $50K in equity the day you buy it. (You won’t be able to get to that 50K equity out right away, but you could leverage it to your favor in about 366 days J).

I also have a great Hard Money Lender that will allow you to purchase an investment property (that requires a rehab) and they will lend you 90% of the whole project (including the cost of the rehab). So, for 10% down you can buy a Fixer Upper, and finance the repairs all at the same time. I quoted them out last week, and they were charging only 8.875% and 1.5 points. That is a smoking deal!

HELOCs

Even though a lot of banks have run away from selling this type of product, there are still a few banks that do them very well. The advantage of the Home Equity Line of Credit has been two fold. There is the advantage of the low rate and the flexibility to use it. Today the Prime rate is 5% & I have HELOCs with rate as low as Prime -1%. That means you can borrow at a net rate of 4%. I am confident that 4% interest rate beats most credit cards, furniture loans, pool loans, fixed 2nd mortgages, and car loans. It is the most powerful debt consolidation tool available. next to inheritance

The ability to leverage a HELOC to 100% to the value of your home has basically disappeared, but 85% is still available. If you have $10,000 in revolving debt and Equity in your home you should think about consolidating.

I am looking towards a great summer both socially and professionally. If you have any questions on this material, or just want to say “Howdy”, feel free to give me a call or an email. The line about inheritance was a joke – I am trying to keep you on your toes.

All Best!!
Jim

JIM CUNNINGHAM
Community First Financial, LLC
7575 E Redfield Rd Suite 235
Scottsdale, AZ 85260
480-305-8900 ext 305 - office
480-907-2435 - fax
602-434-8261 - cell
jcunningham@communityfirstfinancial.com
www.communityfirstfinancial.com
www.jimcunninghamcff.blogspot.com
http://activerain.com/jcunningham