Thomas Boswell wrote a great piece about the necessary temperament (http://tinyurl.com/cmtozb6) to win at the Masters. Patience, calm in adversity, letting go of the past, refusing to blame others for your mistakes. These qualities are what are needed to handle the pressure of a global sporting event. They don't just apply to a Major golf tournament though.
In your real estate business, you will encounter adversity. Tenants will be late with their rent. Unexpected repairs will arise. Someone else will beat you out to get the perfect property. If you let those experiences make your blood boil, not only is it unhealthy for your body but it is unhealthy for your business.
Take these challenges in stride. By planning ahead and having ample reserves you will recognize repairs and vacancies as part of the costs of owning a rental property. You won't be ecstatic about it but you won't let it distract you from where you need to be focusing your mental energy: the creativity that makes your business more efficient and profitable.
Take your setbacks as learning experiences and you won't let them slow you down. They'll just make you stronger.
Saturday, April 7, 2012
Friday, April 6, 2012
Having trouble getting a mortgage? Here's why
My good friend Rich Moroscak at Southern Trust Mortgage (http://www.southerntrust.com/tysonscorner/richm) shared this great article from Forbes on all the hoops you have to jump through now to get a mortgage:
http://www.forbes.com/sites/moneybuilder/2012/03/09/the-perfect-loan-file-2/
As the article explains banks are now in the default avoidance business rather than the lending business. It makes sense considering there were 22% default rates on mortgages loans made in 2007. Nevertheless, the mortgage loan origination and underwriting process has become absurd. The article is not exaggerating when it says that you will need to document every aspect of your financial life to the banks and then provide them with that information several times throughout the underwriting process. Every transaction on your bank statements will be scrutinized and will have to be justified. Good credit and a large down payment are no longer enough. The underwriters now want the perfect paper file.
To survive this new regime have plenty of patience and grin and bear it when the underwriters ask for the same documents for the 10th time. It will be worth it when you finally close on the property.
http://www.forbes.com/sites/moneybuilder/2012/03/09/the-perfect-loan-file-2/
As the article explains banks are now in the default avoidance business rather than the lending business. It makes sense considering there were 22% default rates on mortgages loans made in 2007. Nevertheless, the mortgage loan origination and underwriting process has become absurd. The article is not exaggerating when it says that you will need to document every aspect of your financial life to the banks and then provide them with that information several times throughout the underwriting process. Every transaction on your bank statements will be scrutinized and will have to be justified. Good credit and a large down payment are no longer enough. The underwriters now want the perfect paper file.
To survive this new regime have plenty of patience and grin and bear it when the underwriters ask for the same documents for the 10th time. It will be worth it when you finally close on the property.
Thursday, April 5, 2012
Solving the Housing Crisis With Community Land Trusts
As the Federal government and banks roll out plans to help underwater homeowners avoid foreclosures and to protect real estate values from further decline, one community approach is having notable success in preventing the problems in the first place. Meet the Community Land Trust. These innovative organizations – created over thirty years ago - focus on stabilizing communities by solving the problem of low income housing and thus preventing some of the underlying issues that cause housing bubbles and consequent bursts. And they have spread all across the country.
What exactly is a Community Land Trust? The Community Land Trust Network gives an excellent description. “A community land trust (CLT) is a private non-profit community organization that safeguards land in order to provide affordable housing opportunities. CLTs buy and hold land permanently, preventing market factors from causing prices to rise."
“CLTs build and sell affordably-priced homes to families with limited incomes— the CLT keeps the price of homes affordable by separating the price of the house from the cost of the land. When a family decides to sell a CLT home, the home is resold at an affordable price to another homebuyer with a limited income."
“The goal of CLTs is to balance the needs of homeowners to build equity and gain stability in their lives with the needs of the community to preserve affordable home ownership opportunities for future generations.”
And many CLT’s are accomplishing their goals. According to MortgageOrb.com, a recent study conducted by The Housing Fund and Vanderbilt University found that conventional homeowners were 10 times more likely to be in foreclosure proceedings than CLT homeowners at the end of 2010. (The foreclosure rates were 4.63% and 0.46% for the conventional and CLT markets, respectively.) |
In her excellent piece in the Christian Science Monitor, (A Counterweight to Foreclosure Crisis, Community Land Trusts?) Nancy Humphrey Case describes how The Champlain Housing Trust in Vermont enabled one couple “to find a house they could afford, secure a loan, and survive the recession – without missing a single mortgage payment.”
At the moment there are over five thousand community land trust homes across the country; but more are on the way as other cities are considering the CLT model. Of course, some critics disparage the land trusts as enemies of the free market, even leaning towards socialism. But there’s no doubt that CLTs provide one very effective way to create affordable housing and prevent the ill effects caused by real estate booms and busts. And they have the great advantage of being local!
Wednesday, April 4, 2012
Preview of the Masters
Spring has definitely arrived by the time the Masters kicks off at Augusta National Golf Club every year.
The tournament is filled with tradition. The azaleas, amen corner, butler cabin, Eisenhower's tree, the green jacket that the winner receives, the Champions Dinner where the previous year's winner picks the menu for all of the previous winners in attendance.
The Masters is the only one of the four major PGA golf tournaments that is played at the same venue every year. For some reason it never gets old. There's a magic to it and this year will be no different.
The honorary starters will be golf legends Jack Nicklaus, Arnold Palmer, and Gary Player. Tiger Woods, Rory McIlroy, and Phil Mickelson have really hit their strides and it should make for very exciting competition. Tiger just won for the first time in 30 months at Bay Hill two weeks ago and he has 3 other top five finishes this year. Phil had a win at Pebble Beach in February and a top four finish at the Houston Open last week. McIlroy has been on fire with a 1st, 2nd, and 3rd place finish in his three PGA appearances this year. He will of course be trying to overcome his meltdown at the Masters last year when he was leading by four strokes in the last round and almost hit a cabin with his tee shot on the 10th tee.
Evidently, they've been getting some rain in Augusta so the perilous greens will be soft and ripe for birdies. Scores should be lower than normal and there will be a lot of thrilling shots. If you need a good local place to watch the action try one of our great local golf courses: Pleasant Valley (http://www.pleasantvalleygc.com/) or South Riding (http://www.southridinggc.com/). They'll have all the food and refreshments you need as well as flat screen tvs and a great atmosphere. Enjoy this special event.
The tournament is filled with tradition. The azaleas, amen corner, butler cabin, Eisenhower's tree, the green jacket that the winner receives, the Champions Dinner where the previous year's winner picks the menu for all of the previous winners in attendance.
The Masters is the only one of the four major PGA golf tournaments that is played at the same venue every year. For some reason it never gets old. There's a magic to it and this year will be no different.
The honorary starters will be golf legends Jack Nicklaus, Arnold Palmer, and Gary Player. Tiger Woods, Rory McIlroy, and Phil Mickelson have really hit their strides and it should make for very exciting competition. Tiger just won for the first time in 30 months at Bay Hill two weeks ago and he has 3 other top five finishes this year. Phil had a win at Pebble Beach in February and a top four finish at the Houston Open last week. McIlroy has been on fire with a 1st, 2nd, and 3rd place finish in his three PGA appearances this year. He will of course be trying to overcome his meltdown at the Masters last year when he was leading by four strokes in the last round and almost hit a cabin with his tee shot on the 10th tee.
Evidently, they've been getting some rain in Augusta so the perilous greens will be soft and ripe for birdies. Scores should be lower than normal and there will be a lot of thrilling shots. If you need a good local place to watch the action try one of our great local golf courses: Pleasant Valley (http://www.pleasantvalleygc.com/) or South Riding (http://www.southridinggc.com/). They'll have all the food and refreshments you need as well as flat screen tvs and a great atmosphere. Enjoy this special event.
Tuesday, April 3, 2012
Book Review: In the Plex: How Google Thinks, Works, and Shapes Our Lives by Steven Levy
Rarely is there a company started like Google and even more rare is a great book to chronicle the rise of such a company. Steven Levy (http://www.amazon.com/In-The-Plex-Google-Thinks/dp/1416596585) rises to the task though. He brings us into the brilliant minds of Sergey Brin and Larry Page. We learn just how complicated and amazing the Google search technology is and it is constantly being improved! It turns out, the founders of Google have this relentless drive to make things better, which is what motivates them.
They are costantly asking Why? Why? Why? The status quo is unacceptable to them and we are the beneficiaries of it. Their frustration with running out of space in their e-mail accounts led to basically unlimited storage in Gmail. Wanting to build a better browser where you could search directly the address field led to Chrome. Wanting to have a better collaborative document system led to Google docs.
I have a feeling they are not done with innovation!
Beyond the incredible technology Google creates is the management lesson of how to create a successful corporate culture (Google's motto: Don't be evil) and the challenges that arise when you go from being a small smart-up to a corporate behemoth. Many of the early employees have left Google now because they miss the excitement and creativity of an early stage company. Getting large and successful leads to bureaucracy - something Googlers hate.
All in all, this book is one of the most informative I've read about a subject that everyone should have a basic understanding of: how Google shapes our world.
They are costantly asking Why? Why? Why? The status quo is unacceptable to them and we are the beneficiaries of it. Their frustration with running out of space in their e-mail accounts led to basically unlimited storage in Gmail. Wanting to build a better browser where you could search directly the address field led to Chrome. Wanting to have a better collaborative document system led to Google docs.
I have a feeling they are not done with innovation!
Beyond the incredible technology Google creates is the management lesson of how to create a successful corporate culture (Google's motto: Don't be evil) and the challenges that arise when you go from being a small smart-up to a corporate behemoth. Many of the early employees have left Google now because they miss the excitement and creativity of an early stage company. Getting large and successful leads to bureaucracy - something Googlers hate.
All in all, this book is one of the most informative I've read about a subject that everyone should have a basic understanding of: how Google shapes our world.
Monday, April 2, 2012
Wisdom from Warren Buffet on Investing
Warren Buffet had a great piece in Fortune Magazine recently (http://finance.fortune.cnn.com/2012/02/09/warren-buffett-berkshire-shareholder-letter/) that had some great investing tips that definitely apply to real estate investing.
He describes investing as "forgoing consumption now in order to have the ability to consume more at a later date." What a succinct way to describe investing. If you plan right a little sacrifice now will enable you to have more to enjoy later.
One of the risks he identifies that we need to be aware of is inflation risk. This is a shocking statistic that he shares: "The dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire. It takes no less than $7 to buy what $1 did at that time." You have to make sure that your investments are beating inflation or else you are falling behind.
I love how he describes how investment bubbles are created: "As 'bandwagon' investors join any party, they create their own truth -- for a while."
"Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the 'proof' delivered by the market, and the pool of buyers -- for a time -- expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: 'What the wise man does in the beginning, the fool does in the end.'"
That is sound advice. If we stick to the value investing principles that Buffet espouses in our real estate purchases we will remain the wise men and women and not the fools.
He describes investing as "forgoing consumption now in order to have the ability to consume more at a later date." What a succinct way to describe investing. If you plan right a little sacrifice now will enable you to have more to enjoy later.
One of the risks he identifies that we need to be aware of is inflation risk. This is a shocking statistic that he shares: "The dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire. It takes no less than $7 to buy what $1 did at that time." You have to make sure that your investments are beating inflation or else you are falling behind.
I love how he describes how investment bubbles are created: "As 'bandwagon' investors join any party, they create their own truth -- for a while."
"Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the 'proof' delivered by the market, and the pool of buyers -- for a time -- expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: 'What the wise man does in the beginning, the fool does in the end.'"
That is sound advice. If we stick to the value investing principles that Buffet espouses in our real estate purchases we will remain the wise men and women and not the fools.
Sunday, April 1, 2012
Bank of America Tests Out "Mortgage to Lease" Program
As foreclosures continue to drive millions of Americans out of their homes, disrupting lives and in many cases causing blight and depressing property values in communities all across the country, Bank of America is testing a new approach to the problem.
On March 23 the bank announced its “Mortgage to Lease” Program, which in essence will turn banks into landlords. They are testing the plan on a small scale, offering the program to about 1,000 borrowers in Arizona, Nevada and New York. If it is successful, they will roll it out nationwide. And other lenders are sure to follow.
Writing in the Wall Street Journal, BofA Tests an Option to Foreclosure, Nick Timiraos gives a comprehensive description of the plan.
Here’s a thumbnail sketch.
How it works: The plan will allow homeowners who risk foreclosure to give the bank the deeds to their houses, and to rent their houses from the bank. The bank would offer the former homeowner a one-year lease with options to renew the leases in each of the following two years. The bank would offer a rent at or below the current market price.
An example. Timiraos uses this example to explain the numbers. “based on a sampling of home values and rental rates in Phoenix recently, a consumer with a $250,000 mortgage and monthly payments of $1,600 could swap the house for a lease, renting the home for $900, depending on the condition of the property and the neighborhood.
Who’s eligible: Borrowers who are at least 2-months past due on their mortgages and face considerable risk of foreclosure. They would have to prove that they are able to pay the market rent,
The benefits: the borrower would avoid eviction, the credit damage of a foreclosure and would be able to stay in their homes for up to three years.
The bank would get back troubled properties at a lower cost, avoid the high costs of foreclosure, and eventually be able to sell the property to an investor. In addition, by keeping homes occupied thus helping local neighborhoods, banks would help protect the value of other potentially at-risk properties.
Will it work? No one knows. Of course, some homeowners may say, “I’m going to lose this property anyway, why not just stay here rent free while the bank goes through the long process of foreclosure?” One way to address this reaction might be to develop a plan back to homeownership for the underwater borrower.
At the moment Mortgage to Lease is just an experiment. But if it does work it will be a great help to underwater homeowners, to banks, and of course to investors who are already buying up foreclosures and turning them into rentals. And as home prices continue to fall and rental prices continue to rise – those investors will be lining up to seize the opportunity.
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