Alternative Income Sources For Real Estate Agents By Ellen Mikesell
Tough times in the real estate market have made many agents look beyond the traditional residential home sales market to bolster their incomes in a declining market. It has been said that for every problem there is an opportunity and this is as true in the real estate field as any other. Below are some alternative markets worth taking a look at if you want to add income streams to your bottom line in this difficult market.
Performing Broker Price Opinion valuations for banks and mortgage companies. Similar to the traditional Comparable Market Analysis, or CMA, agents are familiar with providing for potential listing clients, they are very much in demand as foreclosures rise. Pay ranges from $40-150 per report and many agents perform multiple reports daily.
Short Sales. As property values decline in many areas of the country, more and more sellers are finding themselves in the position of being "upside down" in their homes. It is well worth the time and effort to learn the ins and outs of handling such sales successfully and those who specialize in this field are seeing their incomes soar in spite of the slow market.
REO/Foreclosures. Only a few years ago, this was an almost non-existent niche in most markets. A handful of agents who specialized in this field dominated the market and it remains difficult to break into. REO offers its own special challenges but mastering and establishing yourself in REO can bring very substantial rewards. All three niches above offer increasing opportunity in the present market and promise to do so for some time to come. The wave of foreclosures is by no means over and market corrections are expected to continue for quite some time. Before making a decision to enter any new niche, it is recommended that you research the pros and cons as well as prerequisites for success in each.
The Great American Real Estate Giveaway By Brian Topley
As the media reminds us on an almost daily basis, many sectors of the real estate market are in the midst of one of worst adjustments since the Great Depression. This is evidenced by the most recent California Association of Realtors (CAR) publication on existing home sales which reported a price decline in the median selling price of 35.3% from a year earlier. During the worst 12 month period during the Great Depression U.S. housing prices fell by a less dramatic 10.5%. For investors with high tolerance for risk, it may now be time to embrace the timeless proverb "buy low - sell high" and start sifting through the wreckage for bargains. And while bargains exist, they are not available universally across all locations or property types. Investors must know where to look, have proper guidance and understand the proper methods for valuation. The sectors with the most opportunity are single family residential properties (SFRs) in class B or B-minus locations of suburbs outside major metropolitan areas. Properties in many metropolitan markets have adjusted very little, while towns in extended metropolitan areas (MSAs) have deteriorated acutely.
Using the San Francisco MSA as an example, CAR statistics released for June 2008 indicate a year over year decline of 4.3% for San Francisco proper. Comparatively, the median selling price in Vallejo, California, a suburb about 30 miles outside of San Francisco, has decreased a much more dramatic 37.3% year over year. Vallejo is still accessible to San Francisco via public transportation including frequent commuter bus routes, Ferry access, casual car-pool access and BART access from the Richmond, California station. Furthermore the statistics do not fully reflect the willingness of banks and distressed sellers to negotiate on a case by case basis in these markets. As an example, one of our investors is currently purchasing a SFR in Vallejo for $104,500. In this instance the property is being acquired for a 65% discount relative to the implied valuation on June of 2007 (based on comparable sales from First American Title Company). Although this 65% discount is tantalizing it should not be a deciding factor in the decision to purchase the property.
Using a discount to market value approach is a fools approach to valuation at this point in the current environment, because it assumes that historical prices were rational. A discount to market value won't pay the mortgage and it does not ensure that the home will be affordable to prospective buyers when an investor is ready to sell. Investors should alternatively use an income approach or an affordability approach to valuation.
For example, consider the Vallejo property discussed previously. From an income approach (assuming a 30% down-payment), the cash on cash return is about 11.6% per year and the cap rate is 9.54%. From an income standpoint this is an attractive cash yield. It handily exceeds the national average money market rate of 2.99% annual percentage rate and the 2.90% average dividend yield for S&P 500 non-zero dividend stocks. This additional return offers substantial compensation for the additional risk and management responsibilities required for this investment.
From an affordability standpoint the medium household income in the zip code is $50,030 per year. Most lender underwriting guidelines consider that 28-33% of household income is an allowable limit for housing related expenses (rent or mortgage plus taxes and insurance). Using this guideline as a benchmark, the average household in this zip code can afford $15,000 per year ($1,250 per month) toward housing related expenses. The mortgage payment for the Vallejo property will be approximately $550 plus monthly expenses of $200 (taxes, insurance, and repairs/maintenance) which is comfortably below the affordability implied limit of $1,250 per month. Assuming a 90% loan to purchase price and a 7.0% fixed rate mortgage, this property could be purchase by the median household for up to $182,000. This represents a 70% premium to the purchase price of $104,500. As a cautionary note, valuation based on affordability won't guide market values until the mortgage market returns historical underwriting guidelines. Further details of this transaction are posted on our website http://www.unitedinvestors.com >> education center >> sample property.
About United Investors
Brian Topley, CCIM is Chief Investment Officer of United Investors real estate investment advisors based in San Francisco, CA. United Investors advises individual and institutional investors in the purchase, leasing, management and disposition of bank owned/foreclosure properties. He may be reached at http://www.unitedinvestors.com or (415) 274-2521.
This information is intended merely to be a general discussion, not deemed to be investment or legal advice. Real estate investments are not suitable for all investors and involve significant risks. Individual investors should consult their tax advisor, CPA, and financial advisors prior to making any investment decisions.
One of the growing concerns of the US economy in today's scenario is the problem of credit crunch. Credit crunch is a term which is used to refer to the period of time when loans become difficult to obtain. What this essentially means is that where a majority of the loan applications were approved previously, only half or a lesser number of loan applications will be approved during this period. Currently, the US economy markets are undergoing such a period of credit crunch. This can be attributed to the global inflation of markets and the recession period.
In such a state of credit crunch, the condition of the borrowers becomes bad as the banks are reluctant to lend for fear of bankruptcies or default. This wariness of the bankers or lenders gives rise to increased interest rates thus making the acquisition of loans more expensive and hence more complicated. In the USA, this credit crunch has the most effect on the real estate business where loans are usually applied for a huge sum caused by the high rates of the real estate market. First time buyers and applicants for jumbo loans find it extremely difficult to provide a stable credit history which is required for the high interest rates.
Moreover during such a period of credit crunch, banks stress on a down payment prior to the issue of loans and this makes it even more difficult for applying loans. While hot shot real estate markets of New York and San Francisco are the most affected by this credit crunch with mortgage loans being hard to acquire, places like Sioux Falls are virtually unperturbed by this phase because of the slow growth in the real estate market. This goes on to show that the location of the properties also play an important role in the acquisition of loans.
As a result of such a crunch period, consumers are relying more on their credit cards to help them acquire these loans. This in turn forces the credit card companies to keep constant vigil on the credit card's activities. With such a situation, the credit limits of the credit card holders tend to go down causing their credit balance to dwindle drastically. Collection agencies are profited by such scenarios and their way of dealing with it is shocking beyond belief. To avoid all this, the credit crunch must be handled effectively by understanding the nuances of the economy and adjusting accordingly.
