Georgia Real Estate Report September, 2012 by John Adams

Top Five Home Buyer Regrets Page 14

Volume 12

No. 4

GEORGIA REAL ESTATE REPORT

Atlanta Real Estate Investing Gets A New Twist

GRER

Page 8

Less Government, Lower Taxes, More Freedom

HHHHH $2.00

September 2012

Tips For Buying Bank Owned Homes

Shadow Sales – The next big blow to the Atlanta Real Estate Market By: D. Scott Murphy, SRA

hadow Inventory – has been the buzz for the past few years. How much inventory do the lenders actually have, how much is in the pipeline, how much are they purposely not foreclosing on, and when is all this going to hit the market? Fears of over saturation and value deflation, resulting in more foreclosures, were high on the list of problems facing the real estate

market recovery in Atlanta. Fortunately, in recent months, the numbers of foreclosure listings have declined, and so has the overall inventory of homes available for sale. This shortage of inventory has caused days on market to decline, multiple offers to be the norm, and an indication of increasing values in certain market segments in Atlanta. See Shadow Sales page 12

Timing, Preparation, and Trust Are the Keys to a Smooth Move by Orlando Lynch, President of Atlanta Peach Movers

hen is the best time to move? The short answer is three-fold: when it’s not a peak moving time, when you’re prepared, and when you’ve chosen the right mover. Obviously, other factors play a role, including the weather and other things that are beyond your control, but in my more than 20 years in the moving business, I’ve found that the smoothest moves are those that are well

planned and organized in advance. The first step in planning a smooth move is to choose a non-peak move day. The end of the month and weekends are the busiest times, and if you want to avoid the rush, I suggest See Smooth Move page 11

The LLC As A First Line Of Defense In Asset Protection

How To Preserve Your Wealth In The Event of a Lawsuit by Dyches Boddiford ince its introduction in Georgia, the Limited Liability Company has become widely accepted as a powerful and easy way to safeguard your assets. And for the real estate owner or investor, the Limited Liability Company opens up tremendous opportunities for true asset protection, anonymity, estate planning, and

advantageous tax treatment. Your first line of defense should always be good insurance. But anyone who has read the exclusions pages of their policy will find See Asset Protection page 10

by John Adams, for the Atlanta Journal-Constitution

ecently, I spent a full day looking at bank-owned homes with a group of experienced and novice investors. What we wsaw was nothing less than remarkable. We saw ten homes that were in fairly good shape, most of them less than twenty years old, in reasonably nice neighborhoods, and all priced to sell at $50,000 or less. Another house, a full two story frame house, was in excellent condition, needed only paint and carpet to make it ready to occupy, and is on the market

for $49,900. One of my fellow lookers is a builder. He told me that the materials alone to build the house would exceed the asking price. I was amazed at how much house you can buy in metro Atlanta today for under fifty grand. And most of these had sold before, and the sale had fallen through. Lenders typically give priority to See Bank Owned page 13

Buyers Sense That The Market Is Shifting Toward Sellers Survey finds buyers demoralized by competition for limited inventory from Redfin.com

survey of nearly a thousand prospective buyers in 19 top markets, including Atlanta, shows an increasing conviction that home prices are on the rise, and a growing reluctance to get into multiple-offer situations. The study was conducted by tech-based brokerage Redfin.com. “Many buyers who emerged from hibernation this spring eager to take advantage of low rates and near-bottom prices now seem to have become demoralized by the intense competition for a limited selection of homes for sale,”

the company said recently in releasing the results of the survey, which was conducted in late August. Seven in 10 of those surveyed said they’d encountered competition on at least one offer, and 31 percent said they’d back off when faced with multiple-offer situations, up from 28 percent during the second quarter. While 46 percent believe now is a good time to buy, that’s down from 56 percent during the first quarter. And 32 percent think now is a good time to See Market Shift page 5

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You Can Do the Home Inspection Yourself! by Jeff Luther, Home-Probe Inspections

Of course, you can do your home inspection yourself - but I wouldn’t recommend it. The home inspection is one of the most important components of the home buying process and is best when done by a professional. Often times we talk to purchasers that fore go the opportunity to have homes inspected that they are in the process of purchasing. In some instances we are doing the inspection for the purchasers after they have purchased the property. This is not a recommended course of action for anyone involved in the process of purchasing a home. One of the main reasons we hear that people don’t want to get a home inspection is simply because they don’t want to spend the money. This could be for a number of reasons. Some investors may be considering multiple properties and don’t want to spend $400.00 to $500.00 on each home they’re considering. The solution is to make all offers contingent upon a home inspection within 7 days of the contract date, with results that are satisfactory to the seller. Include this as a SPECIAL STIPULATION to the contract. While the inspection contingency was

previously in the main body of the much-used GAR contract form, it has now been removed to an addendum. Consult your attorney or a Real Estate Professional to learn more and determine if this option is right for you. Unlike a home appraisal, which provides an estimate of market value for the property, a home inspection offers a detailed analysis of the condition of the home. This analysis of the property, when performed by professional home inspectors, will include an opinion of the home’s major systems such as HVAC, plumbing, electrical, structural and roof components, as well as an overall analysis of their performance. A home inspection is a systematic approach in evaluating the systems and components in a home. Oftentimes people will ask me “what do you look for in a home inspection?”. That’s a tough question to answer. The fact is that we don’t really look for anything. It’s more about what we don’t want to see while we go through the home performing our evaluation. There are several things to look for when considering a home for purchase. In investment property, it may be wise to seek out homes that were built in the 1980’s or

later. These may still lend themselves to some of the problem building products such as polybutylene plumbing and LP or “Masonite” style siding but usually haven’t suffered the effects of age, neglect or deferred maintenance. Also, homes with newer systems can be easier on your budget in terms of maintenance and replacement cost.

A home inspector will be able to tell you how old the systems in the home are within a year or two and this is very helpful in establishing budgets. “Flipping” (or buying then quickly reselling) is a common practice in real estate and there are a lot of folks who have been See Home Inspection page 10

John Adams Financial Freedom Cruise ITINERARY:

Royal Caribbean Enchantment Of The Seas

Monday, Sept 9 2013 .....Port Canaveral, Florida, 4:30 P.M......... Boarding & Cocktail Party Tuesday ........Coco Key, Bahamas, 8 A.M. to 5 P.M.............Tendered, PM Seminar Wednesday .......Nassau, Bahamas, 7 A.M. to Midnight.......... Docked, PM Seminar Thursday ..........Cruising At Sea, A.M. & P.M......................... Seminar Friday .......Port Canaveral, Florida, 9 A.M............. Departure

Join John & Marjorie Adams for the 2013 FINANCIAL FREEDOM CRUISE. Book your cabin now for only $50 refundable til early next year. Let’s go to the BAHAMAS and celebrate a NEW YEAR and a FULL RECOVERY in Real Estate! This cruise offers a remarkable educational and entertainment opportunity at an unbeatable price point for all cabins. Call now and reserve your cruise suite for a fully refundable deposit of only $50 per person.

John & Marjorie will be teaching the following topics onboard:

* How To Take All Your LEGAL Deductions * Rehab Techniques for Fun & Profit * Improve Your Life & Business with Technology

* Landlord Survival Training in Georgia * Entity Selection and the Real Estate LLC * Tax Avoidance for Real Estate Investors * Exit Strategies for Long Term Investors * Tax Free Exchanges for RE Investors

This relaxed vacation opportunity allows you to have a good time and learn new strategies and techniques at the same time. We’ll visit the BAHAMAS and enjoy our cruise while we find new ways to maximize our real estate when we return.

RESERVE YOUR PLACE NOW FOR A FULLY REFUNDABLE FIFTY DOLLARS. Call Janis Baker at 1-800-800-7703 extension 113 for reservations and travel information. John & Marjorie Adams will arrive in Orlando on Sunday, September 8, 2013, and invite you to join them for an early evening “Dutch Treat” reception at their hotel. On Monday morning, we’ll take a bus to Cape Canaveral, then board the Royal Caribbean ENCHANTMENT for our 5 night cruise to NASSAU in the BAHAMAS. We’ll have great fun, great fellowship, great food, great entertainment, and great REAL ESTATE EDUCATION, all at a SUPER LOW PRICE!!

Onboard, you will experience award-winning ROYAL CARIBBEAN multi-course dining at breakfast, lunch and dinner, plus VEGAS style entertainment every night. If you prefer, room service is available at no charge for all meals and in-between. Interior staterooms from $595 per person, including all taxes & port fees Ocean View staterooms from $695 per person, including all taxes & port fees For a LIMITED TIME, Balcony staterooms from $745 per person, including all taxes & port fees

Your BEST VALUE is a BALCONY STATEROOM. Reserve it NOW! YOU DESERVE THIS VACATION - RESERVE YOUR CABIN TODAY! FULLY REFUNDABLE DEPOSIT is only $50 per person.

Call Janis Baker at 1-800-800-7703 extension 113 for reservations and travel information.

T H E G E O R G I A R E A L E S T A T E R E P O R T

September 2012

Closing Nightmares & How To Avoid Them

Tired of Losing Money In The Stock Market?

By Howell M. Haunson, Partner Morris, Hardwick & Schneider, Attorneys

Most anyone who has ever attended a closing has a “nightmare” of a story to relate others. This is true regardless of whether their attendance was in a professional capacity (as a licensee, loan originator, attorney, etc) or nonprofessionally (as a buyer, seller, supporting family member, etc). By the very nature of the transaction, real estate closings are stressful – even if all goes well. In fact, they are so stressful that even minor issues might rise to a level that seems to be a total nightmare. How can this be avoided? Parties must be proactive. Anticipate what could go wrong. Be proactive to avoid that which is anticipated. Often

It is important to note that anyone involved in the real estate industry who believes all others will timely perform what is expected of them in a professional manner is doomed for failure – and lifetime of nightmares! times, once the property has been inspected and the parties agree what issues will be addressed, the buyer does not inspect the property again until immediately prior to closing. If any of the issues are not addressed to the satisfaction of the buyer, little time remains to resolve the dispute. The buyer should be proactive and inspect the property often (or have it inspected of their behalf) to ensure the issues are being addressed as expected. Being proactive provides for sufficient time to resolve disputes and allows the closing to be non-adversarial. Do not draw a “line in the sand” as it relates to addressing issues. It really does not matter who should have addressed an issue. What matters is whether it is properly addressed so the transaction can be consummated. It is important to note that anyone involved in the real estate industry who believes all others will timely perform what is expected of them in a professional manner is doomed for failure – and lifetime of nightmares! It may be the buyer side responsibility to obtain an acceptable termite letter, but the seller side might want to proactively determine that the letter

has been obtained and, if unsure, may want to “erase the line in the sand” and obtain one to ensure the closing takes place. It might cost the seller $75.00, but that is far less than the cost the seller might incur if the transaction does not close. Treat all other parties with respect. Lack of respect creates negative emotions. Negative emotions are the life force behind nightmarish situations. If anyone at or prior to a closing openly fails to respect another, all involved in the transaction look bad. The entire transaction should – and the closing itself must – take place as amicably as possible. If the issue still festers after the closing, address it then. Chances are, once the transaction is consummated, the issue will no longer exist anyway! Keep in mind that the final impression is often the most lasting impression of an event. The closing can be a positive experience even if the events leading up to it are very stressful. These three issues may seem obvious. We have all been taught to treat others with respect. Few of us could be unaware that we need to do all that can be done to ensure our own success, without “drawing lines in the sand” and expecting others to help make our success come true. Finally, who could not be cognizant of the fact that we need be proactive and avoid procrastination? Regardless, I know few could state that they have never been involved in a nightmarish or problematic closing. Thus, it seems that even the obvious must be re-iterated at times.

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Only highly qualified investors will be approved. If you are accepted, our unique program allows you to invest in a portfolio of single family houses in which: •$ YOU will have reduced cash outlay. •$ YOU will have minimal time contribution. •$ YOU will have built-in equity in the houses you purchase. Our Credentials: Closed on over 100 houses since 2008 Successful landlord and investor for over 12 years adding more than 10 properties to our own rental portfolio last year alone. Currently managing over 160 properties in the Atlanta area for more than 20 investors.

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September 2012

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Seven Questions To Ask Your Agent Before You Sell by John Adams

We are fortunate in Georgia to have a large pool of highly trained real estate professionals from which to choose. But picking the right one from among the hundreds out there can seem a daunting task. When seeking to sell your home with the help of an agent, here are seven questions to help you narrow the field: 1. Where do you live, and how many homes have you sold in my neighborhood in the last 24 months? Can I get a list of them and the sellers name and phone number? In a perfect world, you want an agent who lives in your community and lists and sells homes there on a regular basis. Past clients and customers are your best source of information on past performance. Every agent will tell you they are licensed to list and sell any real estate in the metro area, and technically, they are right. But you want an expert in your own neighborhood, someone who has walked the walk and knows the local market, inside and out. 2. Will you provide me with a written estimate of what my house might sell for in today’s market? It’s called a “competitive market analysis,” and it takes the MLS computer about thirty seconds to spit one out of the printer with your name on it. But a good agent will take that information, and do in-depth research of relevant information comparing your home’s age, size, bedroom and bath count, and features to the same items on all the comparable homes. In my opinion, this should be in writing. No, the agent is not allowed to give you a formal “appraisal” of your home, but they can and should perform the same amount of work in giving you the information you need in order to put a realistic price on your home in the first place. Beware of agents who routinely tell sellers they can get top dollar for their homes, only to find that the market simply will not bear the asking price. That same agent will pressure you to accept a lower offer when one comes in. 3. Other than put a sign in my front yard and input my home into the Multiple Listing Service computer, exactly what will the steps be that you will take to market my home? Full service real estate firms typically seek a sales commission of around six percent of the eventual selling price. But there is a wide

variety of firms offering a dizzying array of services at multiple price points. If all you want or need is a sign in the yard, you can do that yourself for free. If you need exposure to the Multiple Listing Services, that will cost you, but you still can save money by going with a discounted firm. However, if you want proven professional representation in the preparation, marketing and sale of your home, you should expect to pay a full commission. Don’t buy something you don’t want or need, but know that you get what you pay for. 4. Are you part of a “sales team”, and if so, what parts of my sales effort will be handed off to other people? It is wildly popular in residential real estate today to have a “Team” approach to selling. The “lightning rod” lists the property, a secretary inputs the data, a new agent may handle all calls, a “closer” may handle showings, and another person may handle all the closing arrangements with the attorney. While I have no problem with this approach, it does strike me as fragmented, and possible prone to breakdowns in communication. That being said, you have a right to know, before you commit, how many different people you will be dealing with. 5. If I list my home with you, how long am I locked in? If things aren’t working out, will you release me from the listing agreement? Most listing agents are told by their broker that the minimum listing period is 90 or 120 days. But if an agent or broker is confident of their abilities, you should have the right to be released from the listing agreement if you feel that the arrangement has failed to meet your expectations. That is my opinion, and I am aware that many agents will find it unreasonable. 6. How do you and your firm use the Internet and social media to attract and cultivate prospective buyers? Do you use video? According to a recent REALTORS study, fully 89 percent of homebuyers begin their search on the Internet. Consequently, if your agent is living in the dark ages of postcards and direct mail, you’ll be missing the bulk of buyers and hoping they see your sign. In contrast, look for an agent with an interesting website, with original and local content, video, and free services and resources See Before You Sell page 13

T H E G E O R G I A R E A L E S T A T E R E P O R T

September 2012

HOME INSPECTION

continued from page 2

quite successful with this strategy. Sometimes buyers are warned to stay away from the houses that are being flipped. We disagree. Given that over 50% of our home inspections are conducted inside the perimeter of Atlanta, we are intimately familiar with this part of the real estate industry. The reality is that this is a regular occurrence and as with anything some are done really well and some, well, not so much. There are several things you can look for when considering a home that has just had a makeover by a professional, that may indicate some corners have been cut or there could be some considerable costs not so far down the road. An important course of action is to determine the age of the systems. If the home has been updated throughout with nice appointments and new appliances and fixtures, but they left the 15 year old water heater in the utility room, this is an area of concern. It should also tip you off to start digging a little further as there may be other items that need to be addressed. Also, look for proof that proper permitting was done on all repairs. Often times, contractors or homeowners will only pull General Repair permits if they pull any permits at all. And in some instances, extensive work is done to the property with no one to verify that it was done correctly. Just because you see a shiny new circuit breaker style panel installed in the basement

MARKET SHIFT

does not necessarily mean that the electrical system has been upgraded or that it is safe in its current condition. Proper permitting is important in any renovation project. This protects you, your investment and the occupants of the building. Some home inspection companies will offer a life expectancy of the systems and also give you an idea of what you should expect in terms of replacement cost. We think it’s important to give our clients some direction where these issues are concerned. Knowing that you may have a $2,000 repair to replace a 27 year old furnace could be the deciding factor between buying and not buying a property. While the tips here should not be considered all inclusive and there is no way to cover the nuances of home inspections in a short article, I hope this is helpful. These tips can be used in selecting properties that you may consider pursuing for purchase. I’d suggest using some of these pointers as a guideline in your culling process and always use the services of a professional home inspector.

Announcing the updated 2012 EDITION of the LANDLORDS SURVIVAL GUIDE for GEORGIA John Adams’ Landlording Power Pack is your comprehensive guide to highly effective residential landlording. John knows it works because he has followed it himself for over two decades. The Power Pack includes the ALL NEW book and instructions on downloading all the forms (in both PDF and rich text format) you’ll need. The Landlord’s Survival Guide for Georgia (2012 edition) also includes a complete copy of the Georgia Landlord Tenant Handbook as well as John’s own Killer Lease. This lease is designed to protect you and your property from deadbeat tenants by making sure you have all the protections that Georgia law allows. The Killer Lease offers you much more in the way of protection than any other lease, including the GAR lease. The book contains answers to hundreds of questions and issues that will come up from time to time, and includes a complete reproduction of the Georgia Landlord-Tenant Law along with John’s insightful commentary. This program will save you and make you money month after month. While this book was written based on the Georgia law, its ideas and strategies would be helpful in any residential anywhere. John shares with you his time-tested strategies and techniques to help assure that your Real Estate investment provides you more profit and less hassle. The Lease alone will save you more than the cost of the package on the very first house you rent and John’s strategies will keep on saving you money MONTH AFTER MONTH! The package also includes a 3-CD audio set of a recent Landlord Survival Training seminar, in which John explains some of the more complex parts of the book and expands on hot-spot issues. Most landlords agree that adopting the JOHN ADAMS system saves them on average one month’s rent per property per year.

Jeff Luther is the founder and President of Home-Probe, Inc., your Georgia home inspection company, and has lived in Atlanta all of his life. He is intimately familiar with the older “Intown” homes in Atlanta. Jeff has been buying and remodeling homes in Atlanta since 1997. He can be reached at Home-Probe.Com.

continued from front page

sell, up from 13 percent during the first quarter. This is further evidence that would-be buyers think the market may be shifting against them, Redfin said. While 61 percent of those surveyed by Redfin believe prices will increase, up from 32 percent during the first quarter, the percentage of would-be buyers who are worried about the economy also grew from 20 percent during the first quarter to 27 percent in the latest survey. The National Association of Realtors said recently that its index of pending home sales posted its 15th consecutive month of year-over-year gains in July, reaching the highest level in two years. At 101.7, NAR’s Pending Home Sales Index was up from 99.3 in June and 90.5 a year ago. The index surged above the baseline reading of 100, established in 2001 -- the first of five consecutive record years for existing-home sales,

that also coincides with “a level that is historically healthy,” NAR said. The index is at its highest level since April 2010, which was shortly before the closing deadline for the federal homebuyer tax credit. NAR Chief Economist Lawrence Yun warned that a limited supply of homes for sale is constraining sales -- all regions except the West, which is experiencing “an acute inventory shortage,” saw monthly increases in contract signings. Redfin said that with mortgage rates still near historic lows, buyers working with the company’s agents are “willing to power through until they can find a home.”

Some Of The Topics Included: • The Business Of Being A Landlord • How To Hold Title • Steps To Minimize Vacancy • Steps To Minimize Turnover • How To Advertise & Find the Best Tenants • How To Handle Applications • • •

“I guarantee that this is the best package ever assembled on landlording, or I’ll give you your money back.” -- John Adams $129 includes the book and 3 hours of audio CDs. This package is unconditionally guaranteed to be right for you or I will gladly refund your purchase price with no questions asked. Fair enough? TO ORDER, go to www.Money99.com or call 404-373-6000

This article was created based on the Redfin Blog and press releases from Redfin and the National Association of REALTORS.

September 2012

& Credit Reports Do You Need A License How To Receive & Deposit Your Rent How To Handle Tenant Communications

What Repairs & Improvements To Make Providing Safety & Security How To Avoid Legal Problems What Does Georgia Law Say How To Handle Security Deposit Money How To Cope With Service & Repairs Lead-Based Paint Safety Compliance Dealing With Problem Tenants Eviction, Dispossessory, & Writ of • Possession and many more vital topics • • • • • • • • •

THE GEORGIA REAL ESTATE REPORT

TECHNOLOGY CORNER {GEORGIA REAL ESTATE REPORT {

Cloudware Designed To Improve Your Life by Tyler Jones, Senior Technology Editor GRER

Friends, did you make it to the John Adams Landlord Strategies & Secrets seminar on August 25th? If you did, you know what a great time we had, and how much John always has to share with his classes. But if you missed it, you also missed the presentation about alternatives to some of the more expensive IT options in today’s marketplace. A favorite provider for both John and myself is Google. They’ve got a lot to offer and at rates that are either very low or even free in a lot of cases. This month I’d like to talk with you about some of the options Google has to offer and what tremendous opportunities they may provide for your business. You can boost your site’s professional appearance and

enhance significantly not only your ability to collaborate with others, but to access your data from anywhere you go, as long as you have an internet connection. Google Apps for Business is a tremendous solution for any small business owner that is looking to contain costs while remaining competitive and compatible with the

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rest of the industry. Let’s start with the crown jewel of the Google Apps for Business platform, which is Google Docs. Google Docs not only offers you a lowcost or free alternative to Microsoft Office including word processing, spreadsheet, presentation software and other functions, it also offers you unparalleled collaboration options to share content and build content with other users in your office or anywhere in the world. If you have ever used a version of Microsoft Office then using the Google Docs will be a piece of cake for you. And while Google Docs may not perform all of the high-end functions that a Microsoft Office product would, let’s face it, most of us are only using about 20% of what Microsoft Office will do anyways. From my experience you can get just about everything you need to get done on a daily basis in this wonderful online tool. Once you have started creating content in Google Docs you can easily share that content with anyone else giving them the ability to just read, comment on, or even edit your work. Google has also just recently introduced Google Drive that allows you access to your Google Docs, as well as any other files you upload, from just about any type of device on the planet, including PCs, Macs, iPhones and iPads, Android devices and lots of other options. You also get access to Gmail with Google Apps for Business, but tied to your current domain name. So if your domain is acme.com you can now get Gmail tied to your name@acme.com addresses with up to 10 GB of mail storage per user. Gmail has some of the best spam filtering on the market to help you ensure that the important messages reach you, but the distractions stay out of your way. With the Google Apps for Business suite Google makes all of this free

for up to 10 users. If you need access for more people, or more storage or other advanced features, Google will be happy to make that available for as little as $5 per user, per month. As you well know being accessible to your customers is a critical part of being successful in any business. But how does an existing customer, or a potential one, know what’s the right number to call you on? Maybe you don’t have great cell service at your office. But if you are out, then that’s the only way to reach you. With Google Voice you can ensure that you are reachable with customers calling just one number. Google Voice will allow you to have a single intake number (that you can select for free from Google) and that number then routes to anyone of a number of different end points that you already own. You can even have it route specifically based on who is calling, from what number someone is calling, or what time of day the call arrived. You have lots of different voicemail options including one of my favorites, which is to allow the call to go to voice mail and then listen in as the message is left. You can then select whether or not you want to pick up based on the message that the caller is leaving. It’s a wonderful combination of the best of the days of the answering machine, coupled with the leading edge of what today’s technology has to offer. Check out more on these options at: http://www.google.com/intl/en/ enterprise/apps/business/ https://www.google.com/voice After 15 years in the Atlanta INFORMATION TECHNOLOGY business, Tyler Jones founded Carmichael Consulting Solutions. They provide a wide range of computer and IT services and can handle your challenge, from home and small business users to large enterprise class effort. Call Tyler at 678-719-9671.

Software Pick Of The Month by Tyler Jones, Senior Technology Editor GRER

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Tyler’s software pick: This month’s software pick has to do with privacy, and most importantly your privacy, while on the Internet. Whether you know it or not advertisers are constantly tracking what you do and where you go online. While there is an ongoing debate about privacy and the protections that should be afforded to Internet users, you can take some of that control into your own hands today. For sometime now I have been using Abine’s Do Not Track Plus.

This great free plug-in is available for both Windows and Mac and on all of the popular browsers including Internet Explorer, Firefox, Safari, and Chrome. The plug-in unobtrusively alerts you to the number of companies, ad networks, and social networks tracking you from site to site and by default blocks them. You can selectively allow tracking for anyone you want, but while the debate rages on you can take control of what you allow and what you don’t easily and at no cost. For the free download, visit ABINE.com.

T H E G E O R G I A R E A L E S T A T E R E P O R T

September 2012

Path To Home Ownership Begins with Credit Check-Up Do Your “HOME WORK” Before Visiting Houses by John Adams

More so than ever before, lenders are relying on a three digit number to decide whether or not you are worthy of getting a loan to buy the house of your dreams. And knowing that number in advance can greatly improve your chances of getting approved. I must begin by saying that, in the last 35 years, there has never been a better time to buy a house. Prices are low, sellers are very willing to negotiate, and interest rates are so low that we may never again revisit this opportunity. In the words of another generation, the moon is in the seventh house, and Jupiter is aligned with Mars. That being said, today’s underwriting guidelines make it tough to borrow unless you have perfect credit and a stable job situation, a combination increasingly rare in this economy. So, what can you do now to wisely begin the process of buying a home and improve your chances of loan approval at the same time? LEARN ABOUT CREDIT The first step you should take is to visit the website of Fair, Isaac & Co. at www. MyFico.com. There you will find a library of educational materials explaining how credit scores work and what factors influence your score. And even though you will be offered an opportunity to purchase your score, I recommend waiting. PULL YOUR OWN CREDIT REPORT Next, I suggest visiting the free site, www.AnnualCreditReport.com and pulling a free copy of your “in-file” credit history from Equifax, Experian and TransUnion. These three credit repositories maintain and update the information that goes into calculating your credit score. If there are problems or errors in your credit report, that will translate directly into a lowered credit score. Check your credit history carefully to determine if it is accurate, and if there is derogatory information, consider calling the credit granter and asking that they remove the negative information, especially if there

were special circumstances surrounding the transaction. For example, if a credit card issuer charged you a late fee because the mail was one or two days late in delivering your payment, call the lender and ask to have the information changed. It can’t hurt and it might very well work. Also, look for the proportion of credit being currently utilized. In other words, what is your balance compared to your maximum available credit. Whenever possible, your balances should be less than 50% of your credit line, and the best scores are obtained by those whose utilization is under 30% of maximum. Know that ON-TIME PAYMENTS and CREDIT UTILIZATION account for fully 65% of your credit score. None of the other factors is nearly so important as these two in determining your score. So looking at your credit history in advance is a critical step in buying a home. FIND A LENDER AND GET PREQUALIFIED I have personally had nightmare experiences with Internet lenders, and regretted the day that I tried to save oneeighth of one percent on my loan by applying with an online lender. Internet loans may work for some folks, but I require that there be a loan officer in my town that I can look in

Like investing in property, advertising in the Georgia Real Estate Report makes more than good sense. Reach 30000 investors, owners, buyers & sellers and REALTORS with every monthly issue. Call John Adams for a rate sheet and discuss the possibilities.

the eye and demand answers from. Get referrals from people you trust, and beware of “controlled business arrangements.” That’s the term for a legal scheme where agents, lenders, and attorneys all share in the profits of referring business to each other. There is, in theory, nothing wrong with such an arrangement, but I just prefer a completely heartfelt recommendation. Make sure the lender you select is a mortgage banker, not a mortgage broker. That means they are lending their own money instead of having to submit a package to an underwriter in Los Angeles. The lender should be willing to meet

with you privately, ask a bunch of nosey questions, then pull your three credit reports and scores, and share those scores with you. He should also be willing to offer suggestions on how to quickly improve those scores if you are borderline for approval. For more strategies on the path to home ownership, visit my website at Money99. com. John Adams is an author, broadcaster and investor. He answers real estate questions on radio station WGKA (920am) every Saturday at noon. For more real estate information or to make a comment, visit www.money99.com.

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September 2012

THE GEORGIA REAL ESTATE REPORT

Atlanta Real Estate Investing Gets A New Twist Cash Flow is King as Values Stagnate by John Adams

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Investing in anything carries some degree of risk. For example, if you buy United States savings bonds, you may rest assured that they are backed by the full faith and credit of the United States government. Little comfort when you recognize the government is now Fifteen Trillion dollars in debt (that’s $15,000,000,000,000.00) If you buy stocks or mutual funds, you can recognize that, historically speaking, the direction of the long term market is up, while the direction of the short term market is random. Hopefully, you are in for the long haul. But when you invest in residential real estate, you plan on being able to rent that property to a tenant and generate income. That income can be used to pay the debt service you incurred to make the purchase, or if you purchased for cash, it can generate a cash-on-cash return. That stream of income is called “cash flow.” Here’s the new twist: because the Atlanta market has been hit so hard by foreclosures,

there are areas where you can buy a reasonably nice 4 bedroom, 2 bath home in a nice neighborhood, for under $50,000. Yes it will need some work. Paint & carpet for starters, probably a kitchen makeover, and maybe a new roof or HVAC system. But after you’ve spent, say, $30,000 on this

house, it will look and smell like new. Better yet, it will appraise today for $120,000. But here’s the best part: You can easily rent this house to an excellent tenant due to the home’s condition, and command a good rent. Since it is a 4 bedroom home, it gets somewhere in the area of $1200 a month. After paying out taxes, insurance, repairs, costs, and management fees, a hands-off investor can earn a return of 10% to 20% on his unleveraged investment. Should he choose to refinance at 80% of after-repair value, his cash investment is greatly reduced and his cash-on-cash return gets a strong boost. And here’s the kicker: If you have a Roth IRA that was hurt in the stock market, and you jumped out of equities into a money market fund to stop the bleeding, you can use some of your cash in that account to buy and own the real estate. The cash flow goes straight to your Roth, with no taxes. And if the market ever recovers, your Roth could sell that house for $160,000 easily with all proceeds going back into your retirement account totally tax-free. You’ll need professional help and a trustee who allows truly self-directed IRAs, but this is completely legitimate. And as always, the keys are location, location and location. For more information on how to use your retirement account to invest in real estate related opportunities, visit my website at money99.com. John Adams is an author, broadcaster and investor. He answers real estate questions on radio station WGKA (920am) every Saturday at noon. For more real estate information or to make a comment, visit www.money99.com.

T H E G E O R G I A R E A L E S T A T E R E P O R T

September 2012

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September 2012

THE GEORGIA REAL ESTATE REPORT

ASSET PROTECTION

continued from front page

their concern for liability protection is quite valid. Frivolous claims can cost thousands, if not hundreds of thousands of dollars in attorneys’ fees to defend against. Since your life’s savings are at risk, you should do whatever is needed to try to protect your assets. Asset protection is the legal discipline of structuring ownership of assets to help preserve your wealth in the event of an adverse lawsuit. Such protection strategies involve making your assets less visible, less desirable and less accessible to those who may bring a lawsuit against you. You can do everything right and have the best intentions, but you may be sued anyway by someone who feels they have a right to what you have. When you own little, the few assets you have are not at much of a risk-it is not worth the time or money to prevent a $10 million judgment against you. No matter how official, such a judgment wouldn’t be worth the paper it is written on. But as your level of personal wealth grows, the risk increases substantially. The more you own, the more desirable you are to a would-be plaintiff in a lawsuit. No investment or business is without

risk, particularly those that deal with the general public. The trouble is that even though a liability relates only to the investment or business, unless you erect a formal, legally recognized barrier, anything you accumulate personally including your life’s savings is exposed to judgments. The corporation provides an effective barrier to such suits, but because of tax considerations, is not the best entity to hold long-term assets. For instance, for the C corporation the maximum capital gains rate is 35% as opposed to the 15% maximum rate for individuals. The S corporation solves this problem, but limits the losses that can flow through to shareholders to their basis in the S corporation stock. Partnerships provide good tax treatment for long-term hold assets, but have do not provide limited liability to all partners the way a corporation does for shareholders. The Limited Liability Company (LLC) is an entity that combines the

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best features of the corporation and partnership. Like a corporation, a properly structured LLC possesses the corporate characteristic of limited liability in that it protects its owners (referred to as “members”) from personal liability for the liabilities created by the entity. At the same time, the LLC with multiple members by default is treated as a partnership for federal income-tax purposes. This combination of limited liability and partnership “flow- through” tax treatment can be highly advantageous to the LLC’s members. Up to this point we have discussed liability that originates with assets or debts of the investment or business. How about liabilities incurred by the owner of the entity? Everyday activities as trivial as driving your car carry tremendous potential exposure. Here is where the LLC has an edge. If a judgment is large enough and the holder enforces it to gain more than 50% of the common stock of your corporation, they then have control of the business. They can elect their own officers, make distributions, or even dissolve the corporation. With an LLC, the holder of a judgment against a member must petition the court to issue a “charging order” against the member’s interest in the LLC. Thus, the judgment holder has a right only to any distributions that would normally have gone to the member. They have no right to participate in the management of the LLC. To gain these advantages, the LLC must be properly formed and documented. State law governs the formation of an LLC. The statutes require a public document known as the “Articles of Organization” to be filed with the

Secretary of State of the state in which the LLC is to be formed. An internal document known as an Operating Agreement, similar to the By- Laws of a corporation, governs the operation of the LLC and details the arrangements established by the members. The LLC is superior to a partnership entity form in that it provides all members with the benefit of limited liability. Unlike a partnership, where the general partner has personal liability, an LLC can allow members to be involved in the management without exposing the members to personal liability for the LLC. Limited partners in a limited partnership, even though shielded from personal liability beyond the amount of their contribution to the partnership, cannot participate in the partnership’s management. Since the LLC is still relatively new, some variation can be found among state statutes. Therefore, even though most states treat the LLC for state taxes just as the IRS does, you should aware of any differences particular to your state. The limited liability company is an entity every real estate investor holding property for long-term appreciation should consider. It provides significant asset protection by separating member liabilities from the LLC liabilities while allowing the tax advantages of longterm real estate to flow through to the member’s personal tax returns. Dyches Boddiford is widely regarded as one of the most knowledgeable and authoritative sources on LLCs and “Entity Selection” in the United States. His website is Assets101.com. John & Marjorie Adams will teach “The Real Estate LLC in Georgia” on September 8, 2012, and Dyches Boddiford will assist in the presentation. The course is designed to cover everything you need to know to begin using the LLC as a tool for asset protection, whether you own one house or many. For more information, see page 16 or visit money99.com .

Freedom is never more than one generation away from extinction. We didn’t pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same. Ronald Reagan

T H E G E O R G I A R E A L E S T A T E R E P O R T September 2012

SMOOTH MOVE continued from front page you move mid-week and midmonth. As for the yearly cycle, summer is the busiest season, and winter is the slowest. Most movers operate with flexible pricing, and you are much more likely to get your best deal during non-peak times. If at all possible, you should plan your move accordingly. The next step is to do your homework in advance. When studying for a test, if you read your notes every day, you should easily make a good grade. However, if you try to cram it all in at the last minute, you can expect to miss the mark. The same is true of the moving process. If you start well in advance of your move date by de-cluttering, packing a box or two daily, ensuring that your new home is ready, identifying the right mover, etc., the task becomes more manageable – not to mention less stressful! Finally, you need to choose a reputable and well-reviewed moving company, answer all of your sales person’s questions thoroughly and carefully, and listen to his or her guidance. Probably the biggest error I see is when customers fail to trust the experience and judgment of their chosen moving professional. For example, a large percentage of the customers who call me for a quote think they will save money by having only two movers do the move because the hourly rate is lower. What they don’t take into account is the volume and complexity of the move. Two movers can easily move a small one-bedroom apartment, but when you have a larger home, heavy furniture, and dozens of boxes, a small crew becomes a more expensive option because it will take them longer to get the job done. Trying to figure out how much manpower and equipment you will need for any given job is best left to the experts. Please trust that the representatives of

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any reputable company want your move to be as cost-effective and hassle-free as possible. That’s why we use carefully crafted inventories and formulas to estimate moves, based on years of experience and literally thousands of moves under our belts. A good estimator looks much further into the equation and takes into account your personal situation, the logistics of your particular location, and other factors that help us recommend the crew size and equipment that are right for you. Moving is said to be the third most stressful life experience behind only death and divorce. But if you choose a non-peak move time, prepare yourself in advance, and select and trust a quality, ethically responsible company, your experience will be a breeze.

The following pricing on a minimum of 6 insertions in a 12 month period. No placement guarantee. Black & White Rates: Full Page = $995 Half = $795 Quarter = $595 Eighth = $395. For full color, add 50%. Call 404-373-6000 for placement fees. Real Estate Investor Groups: THE GRER is happy to publish news about your upcoming events, provided space permits. We can not offer you free advertising, but we do try extra hard to work with and support groups who help us distribute our publication to their members at all their meetings and sub-groups. Call 404-373-6000 for details on how we can work together. The Georgia Real Estate Report - 404-373-6000 - John Adams, Publisher

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September 2012

THE GEORGIA REAL ESTATE REPORT

SHADOW SALES continued from front page So what’s the problem? With inventories being at a seven year low and 50% of year over year levels, countless homes are being sold before they even hit the market. Many agents refer to these as inter-office sales, pocket listings, etc. What we are seeing is some of the more desirable homes in the subdivisions becoming available. These sellers who were previously apprehensive now want to take advantage of the stable market. There is no question that, in many parts of Atlanta, it is a seller’s market. A seller’s market is typically defined as less than 6 months of inventory. Buyers’ agents are keeping a keen eye out for fresh listings and jumping at homes at the first sign of availability. This is all consistent in a market with increasing values. The problem is that many of these sales are not making it to the multiple listing services. This is a violation of the agent’s agreement with his or her multiple listing service if he or she takes an exclusive right to sell listing, it must be put in the multiple listing service or there are other unintended consequences. This is true for both Georgia MLS and First MLS, and if the office has membership with both and the property is in a compulsory location, it must be listed in both. Some real estate offices are often lax about this policy. A number of agents have said to me that they believe there is a time period, such as 72 hours, where if the sale is made, they do not have to list. This is not true according to officials at both MLS services. As a matter of fact, FMLS has added additional staff to its Compliance Team and is reviewing every transaction in Atlanta to see if it should have been listed. If they find that it should have been listed, they are billing agents and requiring them to input the listing into the MLS system(s). The issue I have with this as an appraiser

is the huge impact it is having on the market. It is important to realize that mortgage fraud is still alive and well in Atlanta, and lenders have learned the hard way what constitutes an arm’s length, market value sale. When an agent omits listing in the MLS and sells the home to a buyer, with or without the assistance of another agent, that sale does not meet the true definition of an arm’s length, market value sale. Market value is defined as: “The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale” (Dictionary of Real Estate Appraisal, 4th edition. (Chicago: Appraisal Institute, 2002)). The part of the definition which failed in most fraudulent transactions, and in our example, is that the property was never exposed to the market for a reasonable amount of time. Even the home which is listed in the MLS and gets three offers within 2 days was exposed to the market. Furthermore, the seller

will negotiate with the three potential buyers to arrive at the highest value that the market will bear. From an appraisal standpoint, this Shadow Sale should not be used as a comparable for future appraisals in the subject market. Lenders actually state in their appraisal engagement letter that sales must be multiple listed, so what may very well have been the best sale and best comparable in the subject neighborhood may now be disqualified. Furthermore, by not putting it in the MLS, most appraisers will miss it or choose to not use it due to lack of photos and data. On top of that, appraisers determine the trends in the market by extracting data from the MLS system and using a form called the Fannie Mae 1004MC. Without these valuable sales being in the MLS, the market trends could be inaccurate, causing the appraiser to determine the market is declining, when in fact it may be increasing. This could cause loan-tovalue modifications by the lender, improper adjustments to the comparables and a low appraisal. Appraisals are being scrutinized with a “fine-toothed comb”. Lenders are still reeling from the mortgage crisis and are being pressured by Fannie Mae to deliver flawless loan packages, including flawless appraisals. Most appraisals go through three to five review processes before being approved. Adherence to Fannie Mae Guidelines and USPAP (Uniform Standards of Professional Appraisal Practice) is mandatory. If you are an agent or an investor specializing in a particular market you want

to do everything you can to protect values in that area. Years ago, this was not as much of a problem due to the much higher volume of sales. Appraisers dealt with this issue as well as the occasional “FISBO” (for sale by owner), but today, we need to be able to use every possible sale. New construction is another area where this is particularly troublesome. I encourage subdivision agent to list every property, even those sold as pre-sales. It is critical that everyone in this market; buyers, sellers, agents, appraisers, underwriters, investors and the media, do all we can to allow this market to recover. Sellers and agents please multiple list all your properties. Appraisers, know and understand your responsibility is not to determine market value but to interpret market value. Underwriters, realize that the market is not perfect and that no sales exist that satisfy every guideline. Understand that appraisers are trying to work with the best sales available. Give careful consideration to a contract where there were multiple offers and as an appraiser should, put yourself in the shoes of a typical buyer and ask this question: what is available to them TODAY? This is the theory of substitution which is central to the appraisal process. The extremely low inventory is causing legitimate increases in value and we all must do what we can to let the market take its course. An appraiser or underwriter should never have an effect on market value. D. Scott Murphy is the principal owner of D. S. Murphy & Associates, Inc., a residential and commercial appraisal firm, based in Atlanta Georgia, with offices through the southeast. He is an appointed member of the Georgia Real Estate Appraisers Board, a frequent speaker, and a nationally known authority on real estate valuation. He can be contacted at 678-584-5900; dsmurphy@ dsmurphy.com; www.dsmurphy.com

Checklist of Tax Deductions for Real Estate Professionals Here’s a checklist of common deductible expenses for real estate agents, investors, and property managers that you can use to make sure you don’t miss any deductions this year: ● advertising expenses, including websites, mailing lists, newspaper advertising, fliers, online advertising, postcards, promotional materials, logo clothing, and anything else you pay for to market your real estate business; ● bookkeeping, accounting and legal fees; ● business gifts (up to $25); ● business meals and entertainment (only 50 percent deductible); ● cab fares for business travel; ● car and truck expenses, including business mileage, depreciation, insurance, interest on car loans, lease payments, license plate fees, parking expenses, and tolls;

● cell phones; ● computer software; ● computers; ● desk fees; ● education to maintain or improve required skills (but not courses you take to

pass the real estate licensing exam); ● home office expenses (if you qualify); ● insurance, including health insurance, errors and omissions insurance, business liability insurance, and business equipment insurance; ● interest, such as interest for business loans, interest paid on business credit cards; ● Internet access fees; ● map books; ● office equipment; ● office expenses, including rent, cleaning and maintenance, and utilities; ● office supplies; ● postage;

● professional dues and fees -- for example, multiple listing service dues and dues paid to the local Chamber of Commerce, Realtor associations, Investor associations, and real estate license renewal fees; ● referral fees and commission rebates; ● retirement plan contributions; ● subscriptions to professional journals; ● real estate franchise fees; ● taxes, including payroll taxes for employees, state and local business taxes; ● telephone service fees; ● travel to business conventions, including transportation, lodging and food; ● wages and benefits paid to employees. Be sure to discuss your tax planning ideas with your Certified Public Accountant before you take any actions based on this list.

T H E G E O R G I A R E A L E S T A T E R E P O R T

September 2012

BANK OWNED continued from front page offers from owner-occupants. And most buyers don’t have a lot of cash saved up. That means their offer is contingent upon some sort of financing with a low down payment. The buyer applies for a loan, the lender orders an appraisal, the appraiser sees the house and notes that it is not ready for occupancy, and the loan is denied on that basis. Appraisers today scrutinize every detail of the house that might impact the lender’s collateral. Because the paint and carpet combined may cost as much as $10,000, the lender is unable to approve the loan. The deal falls through, and the bank still owns the house. So, how can you convince the bank to sell you the house? Here are some tips: * Make your offer an all-cash offer. In this market, cash is king. Banks are wary of owner occupant loans because they are so hard to get approved. And plan on an earnest money deposit of at least ten percent of your offering price tendered as a bank money order or a certified check. * Have your inspection within a day or two of signing the offer. The sooner you can close the better the lender likes it. Offer to close within 30 days, but know that the lender probably won’t be able to move that quickly. And finally,

HOW DO YOU HOLD TITLE TO YOUR REAL ESTATE? “The Real Estate LLC in Georgia for 2012” by John Adams

Stop Begging for a Lawsuit - Get Your Name Off Courthouse Records. It’s the question you always hear at the closing table. The lawyer says:“How do you wish to take title?” What he really means is “Exactly how do you want your name to appear in the county records so that everyone in the world knows exactly what you own in this county?” Take a moment right now - stop and think about how you hold title to your real estate. Is your name and address showing as the owner of the property? I’ll bet that it is. If you are like the vast majority of owners of single family homes in Georgia, you simply gave the attorney your full name and home address. That way, you figure, you can get the tax bill mailed to you in a timely manner so you don’t forget to pay on time. Well, let’s stop and think for just a second. 1. The county already provides an annual estimate of the fair market value of each property titled in your name, and that is public information. 2. Calculating the current loan balance would take about three minutes per property if you know the original loan balance and interest rate, information that is recorded in the public records above your name on the security deed. 3. Subtracting the loan balance from the tax value on each property would give me the equity you have in every property you own, then I would have a really good idea of how much I could get out of you, if I had a reason to do so. 4. If you have several houses, all titled in your name, it becomes quite easy to add up the dollars available in a lawsuit. 5. And if I were your rental tenant, I might become tempted to find a legitimate reason to go after you for all you are worth, which I happen to have calculated accurately BEFORE I slipped on your front porch and took a fall. 6. Once I file that lawsuit against you, each and every property titled in your name is frozen until the lawsuit is finalized. Yes, that includes the house you live in. You can’t sell and you can’t refinance, and you can’t even qualify to get a new loan. All because you had all the property in your name. 7. If you think one of your tenants hasn’t already thought about this you are very probably wrong. In any case, do you want to take that chance? 8. The lawsuit will likely go on for years, as your insurance company drags their feet hoping for some kind of settlement. If the jury is sympathetic to your tenant, the judgement could easily exceed the million-dollar limit your policy has on liability. 9. If the judgement against you exceeds your insurance limit, you are personally responsible for the remainder. Everything you own, all your houses, cars, bank accounts, even your retirement dollars are at risk to pay this judgement off. 10. And this is all because you put ownership of each house into your own name. Guess what, you made a serious mistake, and after the lawsuit is filed, it is too late to correct. However, if the lawsuit has not yet been filed, you can take action now to solve the problem. It’s easy, it’s fast, and it is extremely effective at stopping a judgement from spreading. But you have to take the action before the accident occurs. If you want to learn the entire story and review all the forms and documents, you can order the entire package for only $99 with my iron-clad, money-back guarantee. Finally, you’ll be able to sleep at night not having to worry about who is getting ready to steal from you everything you have earned for your family. Only $99, which includes the manual and 3 hours of audio CDs. This package is unconditionally guaranteed to be right for you or I will gladly refund your purchase price with no questions asked. Fair enough?

* Don’t ask for crazy things in your offer. For example, its unwise to ask the lender to replace the water heater or repair the roof. You don’t want their cut-rate contractors working on what will become your house. Finally, move quickly. Make your best offer your first offer, and stick to your guns. You may be able to buy a house for less than the cost of the sticks and bricks. For more information on this type of investing, call Snap Decoteau at MetroVest at 404-643-8801 and tell him John Adams asked you to call! John Adams is an author, broadcaster and investor. He answers real estate questions on radio station WGKA (920am) every Saturday at noon. For more real estate information or to make a comment, visit www.money99.com.

BEFORE YOU SELL continued page 4 for prospective buyers. Is the website all about the agent or the community? The buyer does not care if the agent was in the “winner’s club” or the “platinum circle” last year. The buyer DOES care that the local school system has the highest test scores in the metro area. 7. What is your fee structure and are you open to alternative compensation arrangements? I put this last for a reason. The commission is important, but it should not be as important as accomplishing your primary goal, which

should be to get your house sold. If that is your primary goal, you want the best, and the commission is simply part of achieving your goal. However, if your primary goal is to save on commission dollars (don’t laugh out loud), then you should shop and compare until you find the acceptable combination of services and professionalism at a price point you feel is acceptable to you. This article first appeared in the Atlanta Journal-Constitution.

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September 2012

THE GEORGIA REAL ESTATE REPORT

Top Five Home Buyer Regrets by Tara Nicholle Nelson, from Trulia

In life, and in real estate, there are decisions that, if we had them to do over again, we might do differently. But all in all, we are not too upset about how things turned out. “C’est la vie,” as they say. Then there are the decisions and actions we actively regret, worrying over their long-term consequences, wishing we could have a cosmic do-over, stewing and ruminating over what we did wrong. (In truth, it’s a sign of emotional maturity to see every experience as an education, and to be free from ruminating over even the worst of our regrets. But I digress). Contrary to popular belief, my experience shows that the vast majority of homebuyers commit what they see as the first type of mistakes, but not those deep, dark regrets. However, those that do have serious regrets can lose many hours of sleep and many thousands of dollars trying to remedy them. Their only gain? Experience and gray hairs. Here are the top 5 true, deep regrets of home buyers and some insights for how to prevent them from taking over your own life: 1. Premature buying. This is not at all about timing the market or making sure you get in at the “just-right” moment. There’s not much you can or should do about that. But buying before your life or your finances are ready for homeownership is a transgression that ends up causing serious, long-term regrets for those who end up doing it. Premature buying takes several forms, the most common of which includes jumping the gun and buying before you’ve saved as much as you really need, or before you’ve paid your debt down to the level you really needed to.

Another pervasive form of premature buying is to buy before you’ve truly, deeply, seriously run all your own personal financial numbers, which puts you in the position of forced reliance on what the bank, lender or someone else thinks is affordable, which is often wrong. Similarly, buying because you feel pressure to get in while the market is keeping prices and interest rates low, rather than because you want and can afford a home, is a surefire path to real estate regret. 2. Buying too small of a house. People who buy too large of a home often realize, several years in, that they simply aren’t using all of their rooms and many either sell and downsize or find ways to put the extra space they have to better use. People who buy too small of a home, on the other hand, are acutely aware of it from the moment their children start fighting, they find themselves and their energy levels deactivated by clutter or they end up realizing

Buying too large of a home is potentially wasteful of the money spent maintaining, heating and cooling the place; buying too small a home is uncomfortable and frustrating, sometimes intensely so, on a constant basis -- hence, the regret it can create. that there is no room at the inn for the family members or friends they’d like to house, short or long term. Buying too large of a home is potentially wasteful of the money spent maintaining, heating and cooling the place; buying too small a home is uncomfortable and frustrating,

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sometimes intensely so, on a constant basis -hence, the regret it can create. Avoid this regret by starting your house hunt with a visioning exercise: What do you want your home life to look like in 10 years? Who will live with you? Do you entertain or have overnight guests? What activities do you want or need to be able to do there? Do you want to practice yoga, crafts, have kid-

sized homework spaces, work at home, collect classic cars or move your parents in? If so, seek to buy a home that can comfortably fit all these people and their activities, even though they might not all exist -- yet. 3. Buying a home you can’t truly afford. You might think that one of the top 5 regrets of homebuyers would be buying at the top of the market. But that’s not the case -- I know plenty of buyers who bought at the top, paid top dollar and are still upside down on their homes, yet are still happy with their homes because they can well afford the payment and bought homes that will serve their families very well for the very long term (which will allow their home’s value to recover). It is much more problematic to simply overextend yourself on a home -- no matter what the market dynamics are at the time you buy. People who both bought at the top of the market AND overextended themselves made up the large majority of folks who lost homes, as the mortgage gyrations they went through (i.e., taking short-term, interest-only, adjustable-rate mortgages) in order to qualify for the home in the first place also caused them to be utterly unable to sustain the mortgage once the market declined and their mortgages weren’t able to be refinanced. If you can’t foresee being able to make the mortgage payment on your home 10 years in the future without refinancing it, that’s a sign

you might be approaching the unaffordability danger zone. 4. Incompletely resolving co-buyer conflicts. Many co-buyers are couples, but I’ve also seen parents buy homes with their children, siblings buy homes together and even good friends team up to co-buy a home. Any time there is more than one buyer, there is a chance that the co-buyers will have one or more disconnects in their wants, needs and priorities. Often these are resolved almost effortlessly by the realities of the homes that are on the market (e.g., neither party’s dream home turns out to actually exist, or pricing realities require everyone to compromise); other times, people simply work things out like mature individuals, seeking first to understand their co-buyer’s position, then working out a compromise that works for everyone involved. But in still other cases, the conflict is never truly, deeply resolved; even on closing day, one side feels completely misunderstood, or caves in for the sake of avoiding conflict, or someone simply throws a tantrum, insisting that they get their way. In these cases, it’s common for the party who feels undermined and trampled on to ruminate on it as they live in the property every single day, ending up with great resentment and anger over the years. 5. Taking on fixing beyond their skill, patience and resource level. It can be heartbreaking to tour one of the many homes on the market that was clearly the subject of a previous owner’s fixer-upper dream but was abandoned in the middle of a remodel. Often, these abandonments happen because the owner simply underestimated what the project would take and ran out of time, energy or, most commonly, money to get the remodeling completed. But it’s even sadder to tour the home of a frustrated fixer whose owner and family still lives in a half-done, very dysfunctional property, and who are getting more and more disgruntled with their situation every time they make a mortgage payment. Tara-Nicholle Nelson is the Consumer Educator for real estate search site Trulia.com.

T H E G E O R G I A R E A L E S T A T E R E P O R T

September 2012

Refinance Fever Hits New Lower Low by John Adams, from the Atlanta Journal-Constitution

This is absolutely insane, but it’s the truth. If you have a mortgage on your house with an interest rate of anything above 4 percent, it’s time to consider refinancing. Even if you just refinanced last year, rates have fallen off the charts to new, historic lows that warrant your serious consideration. The Federal Reserve has made a conscious decision to hold interest rates down in an effort to stimulate the economy. Whether or not that strategy has worked is not our topic. But the resulting low rates of today’s home loans can save you a bundle - even if you have already refinanced. Last week, thirty-year fixed rate home loans for creditworthy borrowers were still available in the mid 3 percent range, with some lenders offering other inducements, like lowered closing costs or free appraisals. But the real news was in the fifteen-year fixed rate category, where loans have been “on sale” for the past few weeks. Lenders like the shorter term loans because they tend to have extremely low rates of default, and because people who select fifteen year loans tend to stay in their homes longer than longer term borrowers. As a result, lenders are willing to lend for fifteen years at a discounted rate when

compared to the more popular thirty year program, and that rate differential is typically about fifty basis points, or half a percent. But due to the current economic malaise, that differential has risen to almost seventy-five basis points. That means anyone willing to take on the higher monthly payments of a fifteen year loan will be rewarded month after month till their homes are owned “free-and-clear.” Many homeowners who have refinanced in the past are reluctant to do so again, fearing high closing costs or mountains of paperwork. But the closing cost problem has been solved. Most of today’s refinancing candidates look for the lender to pay all settlement expenses in exchange for accepting a new loan with a slightly higher interest rate. That slightly higher rate yields a premium when the lender sells the loan, and that premium is used to pay closing costs. How much higher the rate will be on a zero-closing-cost loan depends on how much money is being borrowed. Higher balance loans have lower settlement fees

as a percentage of the loan amount, so the differential might be very small, perhaps as little as 25 basis points, or a quarter point of interest rate. In contrast, very low balance refinances have much higher costs as a percentage of the amount being borrowed, so the zero-closing-cost option may not make sense. Finally, if your existing loan has less than twenty years remaining, and your goal is to pay it off as soon as possible, there are some other options you should consider right now. As I mentioned earlier, fifteen year term loans are on sale right now. But so are some adjustable rate loans that might work well for you. Lets say you have 15 years remaining on your existing loan and want to own it free and clear as soon as possible. Your current rate of 5.875 percent is well above today’s market, but you don;t want to pay closing costs. You might consider refinancing your current balance with a 15 year fixed with a

zero-closing-cost option. Or you can look at a 5/1 adjustable rate loan at an equally low rate. Because you have agreed to take on some of the risk of rising interest rates (after year five), the lender can offer you a remarkable low rate today. And if you can manage to make additional payments regularly during the first six or seven years, you may have that loan almost paid off by the time the payments begin to adjust. One final thought: these great rates apply to both your principal residence and your secondary residence, if you have one. So if you own a home at the beach or in the mountains, double your savings by refinancing both at the same time. As always, talk to your tax preparer to make sure this is the right time for you to consider a refinance. Ask about the “acquisition indebtedness” rule to make sure your mortgage interest remains deductible. And only consult with reputable and local lenders. But regardless of how recently you may have refinanced, now is the time to take action. Take my advice and lock in a super low interest rate now, while you still can. This article first appeared in the Atlanta Journal-Constitution Sunday edition.

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THE GEORGIA REAL ESTATE REPORT

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T H E G E O R G I A R E A L E S T A T E R E P O R T

September 2012