Real Estate Weekly: September 2, 2022

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The median existing-home sales price went up 10.8% in July compared to July 2021 to $403,800. However, that number is down $10,000 when compared to June’s record high of $413,800.

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low maintenance 1 level Condo in desirable Eaglemont Community, features an open floor plan with cathedral ceilings, great room, gas fireplace 2 bedrooms plus office/den, craftsman style millwork. Kitchen w/ plenty of cabinets, stainless steel appliances, space to enter tain with large Granite eating bar & dining with sliding door leading to covered patio to enjoy nature. Deluxe primar y suite with jetted tub, walk-in closet & shower. Large 2- car garage and spacious driveway. Truly a home with all the comfor ts and privac y! MLS#1990564

Record-low interest rates is renewing interest in the housing market for many people.

“When sellers are interviewing real estate agents to market their homes, their primary focus is usually on the advertising that the agent will offer them,” says Jessica Goodbody of Weichert Realtors.

Let us help you meet your marketing goals by advertising your listings in Real Estate Weekly.

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Best cities where you should invest in real estate as a flipper, landlord, or investor

By Erik J. Martin CTW Features

The stock market has taken its licks this year. Cryptocurrency is proving to be a riskier bet than many had anticipated. And the commodities market has been precarious in 2022. So where should people consider investing their hard-earned money and expect more substantial and consistent returns?

Real estate, the experts agree – whether that means being a landlord, home flipper, or investor.

“Investing in real estate as a landlord is my favorite form of investing because it provides multiple streams of income – one stream now while collecting rent every month, and one later while the equity builds in the property year

after year,” says Marcia Castro Socas, a broker in Windermere, Florida.

Joshua Massieh with Pacwest Funding and Real Estate in San Diego enjoys the extra leverage that real estate investments provide.

“There is nowhere in the market right now where $40,000 in cash can get you $200,000 of assets backed by tangible items.

Stocks, cryptocurrency, and bonds will provide a 1:2 leverage ratio, while real estate is offering a 1:5 ratio using a traditional 20% down payment required scenario,” he says.

“Consider that real estate will never just vanish like crypto or stocks can, and you have a little more protection on your real estate deals if you are doing the right due diligence

upfront.”

Messieh adds that, whether you are seeking to flip a home or rent it out, you can sometimes purchase for as little as 5% down (depending on the loan and lender) and achieve consistent profits that can go to pay your own mortgage.

“Adding real estate to your portfolio can help diversify it away from the public markets, too, which is especially valuable in volatile times or periods of high inflation,” notes Ian Formigle, chief investment officer for CrowdStreet.

“And when you become a passive investor in commercial real estate, you can get access to nationwide investment opportunities that you wouldn’t otherwise without taking on the full risks and responsibili-

ties of actively managing the property.”

Of course, the primary disadvantage of investing in real estate is that, like any investment, potential returns and appreciation are not a sure thing. If the real estate market crashes, your assets could lose a lot of value.

“Additionally, real estate is relatively illiquid, meaning you can’t easily cash out if you need the money. Real estate also requires a significant amount of time and effort to manage effectively,” cautions Boyd Rudy, associate broker for Dwellings Michigan in Plymouth, Michigan.

Ask Rudy and he’ll tell you there are three markets he recommends to real estate investors: Detroit, Houston, and Indianapolis.

“Detroit is in the midst of a renaissance, with new businesses and development popping up all over the city. Houston is one of the fastest-growing cities in the country, and its real estate market is booming as a result. Investors can find great deals on properties that are sure to appreciate over time,” he adds.

Ejiro Ajueyitsi, founder and managing partner of Brooklyn Funding Group, meanwhile, advises taking a closer look at Philadelphia; Waterbury, Connecticut; and Binghamton, New York.

“Philly and Waterbury have very low purchase prices with high resale values, so long as you are looking to put in the proper work. Binghamton also has low purchase pric-

es but is a good area where we see a lot of rental income,” says Ajueyitsi. Don’t sleep on Austin, Texas, either.

“We are seeing the growth of Silicon Hills really becoming a major player in the tech space. There are also dozens of colleges and universities with a high concentration of STEM majors in Austin, and even with the explosion of rental rates the city is still relatively affordable compared to other major cities around the United States like San Francisco and New York,” Formigle points out.

Socas is bullish on Orlando, where she says the homes are well constructed, yards are well sized, plenty of shopping and employment opportunities exist, and the population continues to grow.

Idyllwild, California, chagrin Falls, Ohio, and Greenwood, Indiana, are on Massieh’s radar.

“The serene mountain community of Idyllwild has been exploding in popularity over the last few years, and demand is burgeoning for short-term rentals. You can purchase a cabin here for less than $600,000. And you can flip with the low supply and squeeze large profits, turn properties into Airbnbs, or rent out to the locals and snowbirds,” Massieh explains.

Before investing in any form of real estate, get educated on the markets you are interested in, be realistic about your expectations, prepare to be patient, and salt away plenty of extra funds, the pros concur.

Measuring your degree of risk

tolerance & debt-to-income

Question:

We have begun to look for homes, but between higher prices and steeper mortgage rates, we have largely been priced out of the market. Largely – but not entirely. We have found a house that our lender will finance. However, our debt-to-income ratio is 52%. The lender says the FHA will approve such financing. Is this too much debt to take on?

Answer:

We all will have different degrees of risk tolerance. One household that takes in $150,000 a year may well be able to absorb more expenses than another household with the same income. The first household is likely better with budgeting and controlling expenses; at the end of every month, it has money that can be added to their savings.

Mortgage lenders have risk tolerance also, but only in limited amounts. How much they fund depends on such measures as the loan-to-value (LTV) ratio, credit scores, and the debt-to-income (DTI) ratio.

The DTI looks at gross monthly household income and compares it to costs in two ways. The “front” ratio compares housing costs – mortgage interest, mortgage principal, property tax, and property insurance (PITI) – with gross monthly income. The “back” ratio looks at all ongoing

ratio

monthly expenses, including housing costs, auto payments, student loans, credit card payments, etc.

If a household earns $10,000 a month, and if we use the basic FHA DTI ratios – 31/43 – then a borrower can have allowable housing costs of $3,100 and $4,300 for typical monthly expenses.

Loan programs generally have basic DTI ratios. If your monthly finances are below the baseline numbers, you likely will do well with a loan application. However, if you have large monthly payments, you can still qualify for financing.

The reason higher DTIs are allowed is that most loan programs permit the use of “compensating” factors. If you have such assets as big cash reserves, a high credit score, or a lot of money left over each month (residual income), then lenders can go above the basic DTI standards. With the FHA, the back DTI can go as high as 56.9%.

The use of compensating factors is common. Again, using the FHA as an example, 23.71% of the mortgages financed with FHA backing in fiscal 2021 had DTI’s above 50%.

Okay, so we know what the DTI is and we know that with compensating factors, borrowers can often qualify for financing with surprisingly-large monthly debt payments.

Q&A Q&A

ASK OUR BROKER

By Peter G. Miller

This brings us back to the question of risk tolerance. How much debt is comfortable for you?

Everyone will have different answers, but there are several practical issues to consider.

Will you be able to save money every month with so much debt? What happens if prices rise – remember, the consumer price index rose 8.6% for the 12 months ending in May? Can you make required payments if your income drops, or you lose your job for a few months?

Lastly – even though your lender thinks you can get financing with a 52% DTI – is that what you really want? Will you live paycheck to paycheck? What happens if your income declines or you lose a job? Are you saving every month?

In the same way that lenders worry about risk, so should borrowers. When facing a 52% DTI, many buyers are likely to opt for a smaller home, less debt, smaller monthly payments, and less financial risk.

Email your real estate questions to Mr. Miller at peter@ ctwfeatures.com.

Email your real estate questions to Mr. Miller at peter@ ctwfeatures.com.

Closing credits stretch buyers’ purchase power

By Marilyn Melia Kennedy CTW Features

You’ll know if buyers are gaining purchasing power in your market when sellers bend to some buyer requests.

Now, with rising rates, buyers can particularly benefit by asking sellers to contribute part of their closing costs – even in lieu of slashing the asking price.

Closing costs can be hefty, up to six percent or so of purchase price. “It varies state-to-state,” says Danny Marshall of Mortgagerateguru.com.

Some buyers take advantage [of seller’s contribution to their closing costs] to ‘buy down’ their interest rate,” explains Joe Dawson of Mission Mortgage, Washington, DC. By paying one percent of the loan amount upfront, for instance,

a mortgage borrower can usually lower his rate by one-quarter of one percent.

Additionally, putting more towards a down payment may lower the mortgage rate, or eliminate the need to pay for mortgage insurance.

“In a normal market,” explains Chase Michels of Compass Real Estate, in Hinsdale, Ill., “a buyer’s agent would negotiate as much of the closing costs as possible.” But where there’s still a thin supply of properties for sale and high buyer demand, sellers usually won’t pony up for the buyer’s closing expenses, Michels adds.

Gauge the interest in the property and a seller’s motivation. “If a buyer is willing to be flexible on the closing date, then maybe the seller is willing to chip in $2,500 towards closing costs,” he illustrates.

Often, after an inspection reveals repairs are needed, a seller will be amenable to offering closing help, notes Kate Ziegler, a Boston area agent with Arborview Realty. And, when a seller puts a home on the market that needs obvious work, like exterior paint, they may advertise buyer closing credits, since these “are generally paid out of the proceeds of the sale at closing,” and don’t require an upfront cash outlay from the seller.

No matter how willing a home seller is to contribute, however, rules for various types of mortgage loans limit the amounts sellers can pay of a buyer’s closing expenses.

Often, closing help can’t exceed three percent of the sale price, explains Dawson.