Save $32,000! Save $54,000! Save a ton of money! Take 5 to 7 years off your thirty-year loan! This biweekly payment program is being heavily advertised right now for a fee of almost $400. This is a great deal for the mortgage company, but not for you.

In fact, people in the mortgage business–loan officers and brokers– unanimously call this fee a rip-off for home owners. Here’s why. You can do it yourself for free. Why should you pay a company $400 needlessly? Actually, this is quite clever on the part of the mortgage companies; they have figured out a way to get more money out of their already existing, excellent customers.

Magicians use slight-of-hand to trick their audience. They distract people with flashy movements in their right hand, while the real trick is taking place unnoticed in their left hand. In this case, the mortgage company flashes your savings at you, making you think the “magic” is in the biweekly payment. The truth is, there is no savings by sending in money biweekly rather than monthly, and you do not save because of compounding interest, like you might think; in fact, if you read the fine print you see that they do not even credit your account biweekly, but monthly. The reason there is no savings by paying biweekly rather than monthly is because mortgage payments are paid in arrears. (This means your payment on the first of the month makes the payment due for the previous month. Mortgage payments are not like rent payments which are paid in advance; they are paid in arrears; therefore, paying days or even two weeks early does not save anything in interest.)

The savings comes from the fact that there are two months out of the year in which you would be making three payments rather than two. Thus, you are making two extra biweekly payments (one extra monthly payment) per year. There is no good reason why you should pay a company $400 to make an extra payment per year. It’s nonsense.

To accomplish the same thing yourself for free, select one of these two options:

1. Option 1 (Best for people who are paid every other week)
   Calculate 1/2 of your principal and interest payment. Send in that extra amount on the two months you receive three paychecks.
   
2. Option 2 (Best for people who are paid once a month or twice a month)
   Divide your principal and interest payment by 12. Send in that extra amount each month with your payment.

• If you are one of the majority of people who work hard for their money and pay taxes, then you don’t want to spend $400-$500–and perhaps a monthly fee as well–to do what you can easily do yourself for free.You don’t need sales flattery such as “You are a special customer chosen to receive this special offer,” or the silly sales pressure, “Hurry and sign up before the expiration date.”

• You are in charge of the terms of your mortgage. If you choose to add to the principal and pay off your loan early, you will save good money. It is simple arithmetic; there is nothing magical about sending in the money every other week.

With foreclosures up 42 percent nationally in the last two years, according to RealtyTrac.com, many buyers today are taking advantage of an opportunity to get a property for less than the market rate. Some of the “deals” however, can come with some treacherous penalties if you’re not careful.

The sellers market — at least nationally — has been over for about 20 months now and buyers who were waiting for the bottom need to come out of hiding, liquidate their investments and come to the table with a good contract that can garner them equity in a home as they walk in the door. Prices have stabilized, interest rates are still low (but not for much longer, according to some), and sellers are now willing to help with closing costs.

Buyers can determine if they’re getting a good deal by looking at the numbers locally and then even on a more granular level by talking with a Realtor in your area who can give you the last two years’ numbers on sales of your target property.

What you’re looking for is a comparison of month-to-month, year-over-year numbers, i.e., July this year compared to July last year. Then you want to take a look at each month’s sales numbers over the last 13 months – July ‘06 through July ‘07. What’s the trend for the prices? What has been the trend for seller subsidies, etc.

You’ll also find more homes on the market for foreclosure and short-sale. I’ve dealt with the difference of the two, so I’ll not revisit that topic. Simply search RealtyTimes.com for “short sale” and there’s plenty of research for you.

What I want to warn you about this week are the penalties involved for buyers of the above described properties that are only uncovered in the fine print of the addendum that you’ll receive with the bank-owned property.

Read it. Read it. Read it.

I was reviewing a contract for a colleague the other day when we discovered that if the buyer did not settle on the contracted date, then the buyer would end up paying a per diem penalty of $100. (In plain-speak, that would mean a $100 per day penalty until they settle.) This is a penalty even if the seller gave permission for the buyer to postpone settlement for a few days for any reason.

This was an addendum not part of the usual contract used in our area — which is what you’ll find across the country. The banks/lenders selling their own inventory will let you use the customary contract from your local Realtor association, but then they tack on a huge addendum that, many times, eliminates many of the buyer protections that were laid out in the previous contract. To get the “good deal” the buyer must agree to the addendum before moving forward. Thus Buyer Beware.

The per diem clause is one Realtors really need to be aware of. It’s not the same from bank to bank. The per diem penalty for another contract I saw the other day, did not stipulate a set dollar amount, rather 1/10 of 1 percent of the sales price. In this case, it was $392 per day. That means if you postpone for 10 days, the buyer would have to come up with nearly an additional $4,000 to settle.

What do you do? First of all — don’t put yourself in a situation where you don’t have enough time to settle and get all the financing, inspections, HOA disclosures, etc. done in time. I’ve seen some contracts where the buyer wanted to write such an enticing contract, that they agreed to a contract that really couldn’t be performed on time, thus kicking in the per diem penalty.

Remember, we’re not in a quick-settlement environment any longer — so give yourself some time to get everything performed in the contract and allow time for things to mess up. That would be at least six weeks minimum.

  Mr. Carr has covered real estate since 1989. He is the author of Real Estate Investing Made Simple. Got a personal real estate issue? Post your questions and comments at Anthony’s blog: http://commonsenserealestate.blogspot.com.

by Clifford A. Hockley

Dr. Morgan has owned the 10 thousand square foot strip center at the corner of Cornell and Baseline in Portland for 20 years. His father helped him buy it and over the years deeded his interest to the good doctor. His kids are all grown and done with college. He sees himself working until he is 65. Now at 60 years of age the doctor needs to make a decision: to sell or not to sell?

His phone was ringing off the hook. Real Estate brokers were calling him every day quoting sales prices that were off the charts, close to $240 a foot or $2,400,000 dollars. He and his father had bought the property for $400,000, and he was struggling with his decision.

With only limited time to pay attention to his investment, he has relied on a competent property management company to help him manage the property. The property has a great cash flow. The tenants are all on absolute NNN leases. The mortgage is all paid off. Before income taxes, he’s taking home close to $12,000 a month, or $144,000 a year. With a 50 percent tax rate, he nets about $72,000 a year.

He went to see Barry, his CPA, to discuss his options. His CPA told him that he had $2,400,000 in equity, and he had a number of different options. First, he could do nothing and continue collecting rental income and living on that. Second, he could sell it outright, pay taxes and live off the interest on what’s left. Third, he could refinance and use the loan proceeds to acquire a second property. Fourth, he could sell using a 1031 tax deferred exchange and reinvest the proceeds into a new property.

Now let’s examine the last three options in a little more detail:

He could sell his property and pay capital gains taxes and depreciation recapture. He would net about $1,750,000 in cash. He could deposit this sum in a bank and live off the interest. Assuming a 5 percent return he would get about $88,000 a year, which would be taxed at ordinary income rates of around 30 percent (federal, state and local taxes), leaving him with about $62,000 a year in actual income. If he tapped into the capital, he could raise his pre-tax cash flow to $113,000 a year, assuming he planned on living to age 90. Barry pointed out that the interest income would shrink each year, and that once he sells the property, there would be no more appreciation, nor any way to make any more real money.

He could keep his property, refinance and use the proceeds from the refinance to acquire another property. As an example, he could borrow $1,440,000 and buy another property for $3,600,000. He would obtain some cash flow as well as interest and depreciation shelter for his current income. He could refinance and buy using up to 70 percent leverage but a safer and more conservative level would be at 60 percent leverage. This option would yield him a pretty good cash flow for his 70’s and provide more than double the asset value for his heirs or his estate later in life.

He could complete a 1031 tax deferred exchange and trade into another property. His CPA reminded Dr. Morgan that, “in order for an investor’s 1031 exchange to be completely tax deferred, the value and equity of the replacement property should be equivalent to or higher than that of the relinquished property. If you take cash out or go down in value in your replacement, then you will pay taxes on that portion of the transaction.”

He could take his $2,400,000 and trade into a property conservatively up to three times that amount or $7,200,000. This would grow his asset base, but may not generate the same amount of cash flow in the short term as he is currently experiencing.

The best benefit is that Dr. Morgan would not have to pay Uncle Sam any capital gains taxes. The challenge, in this scenario, will be to find a good property to trade into that throws off as much or more cash flow.

The 1031 exchange offers many investment options for the Doctor:

• another strip center
• Apartments
• Industrial property
• Office property
• NNN investments
• Tenant in common investments
• Land for development

Dr. Morgan’s ultimate goal is to maximize his income from his real estate assets in safe investments that won’t require much of his time to manage. He knows that when he hits 65, he will be retiring and would like to use the cash flow from his real estate investments to support him and his wife. He also knows that his kids have no interest in real estate and plan to sell everything and use the cash for their own purposes when they inherit his real estate holdings.

Barry stresses how important it is to run scenarios for each of the exit strategies to decide what the best way to proceed is. He suggests working with a knowledgeable real estate broker to help him pencil out his decision, as any one of these options could work.

Finally Barry tells him not to sell anything using a 1031 exchange unless he has lined up his three choices (or 200 percent of the existing value of his current property) to exchange into as the tax hit would be significant and there is no reason to give the government a free $500,000.

As a result of his meeting with his CPA, Dr. Morgan contacts a real estate broker he trusts and together they perform some exit strategy scenarios to focus their search in the right direction.

We encourage you to do the same as you plan for the success of your real estate investments.

Published: August 7, 2007

Clifford A. Hockley is the President of Bluestone & Hockley Real Estate Services, one of the larger brokerage and property management companies in Portland, Oregon.

Mr. Hockley holds an MBA Willamette University and a B.S. in Political Science from Claremont McKenna College. He is a Certified Property Manager and Bluestone & Hockley Real Estate Services is an Accredited Management Organization (AMO) by the Institute of Real Estate Management (IREM). Mr.Hockley serves as member at large on the Portland IREM board. He has twice been named Certified Property Manager of the Year (2001 and 2003) by the Institute of Real Estate Management and is a frequent contributor to industry newsletters.

We don’t usually cover the monthly report on pending home sales issued by the National Association of Realtors® (NAR), concentrating instead on NAR and the Census Bureau’s other reports on housing permits and starts and the completed sales of new and of existing homes. However, with good news in such short supply lately - perhaps the understatement of the year - it seems worth talking about the smidgen of sunshine that accompanied the pending sales report for June.

The Pending Home Sales Index, based on residential home contracts signed in June was 102.4, 5 percent higher than the downwardly revised May index of 97.5. The index was still lagging behind the 112.0 pace in June, 2006 by 8.6 percent, but the increase over May was the biggest jump in more than three year, since March 2004 pending sales were 6.1 percent higher than those in February 2004.

Pending Home Sales: A Little Good News In A Grim Time

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We don’t usually cover the monthly report on pending home sales issued by the National Association of Realtors® (NAR), concentrating instead on NAR and the Census Bureau’s other reports on housing permits and starts and the completed sales of new and of existing homes. However, with good news in such short supply lately - perhaps the understatement of the year - it seems worth talking about the smidgen of sunshine that accompanied the pending sales report for June.

The Pending Home Sales Index, based on residential home contracts signed in June was 102.4, 5 percent higher than the downwardly revised May index of 97.5. The index was still lagging behind the 112.0 pace in June, 2006 by 8.6 percent, but the increase over May was the biggest jump in more than three year, since March 2004 pending sales were 6.1 percent higher than those in February 2004.

The index has a baseline established in 2001, the first year pending sales were examined, based on the average of contract activity that year. That level was designated at 100 in the index. Coincidentally 2001 was also the first of five consecutive years when existing home sales set records.

The official NAR website states that annual changes in the index are more closely related to actual market performance than are month-to-month comparisons but as the relatively new index matures and seasonal adjustment factors are refined, the month-to-month comparisons will become more meaningful.

The Index increased 8.6 percent to 103.6 in the Western region in June but declined 5.5 percent year-over-year. In the Northeast the index was 96.0, 2.4 percent lower than last year but 3.1 percent higher than in May. The South had an index of 111.6 which was 4.7 percent above May figures but 12.7 percent below one year ago. The Midwest increased 3.5 percent to 92.5 but was 8.2 percent lower than June 2006.

Lawrence Yun, NAR senior economist, said that it was especially encouraging that all four regions saw increases. “However, it is too early to say if home sales have already passed bottom. Still, major declines in home sales are likely to have occurred already and further declines, if any, are likely to be modest given the accumulating pent-up demand.”

The index is a leading indicator for the housing sector. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing. Pending sales for June will represent a subset of the actual sales of existing homes that close in July. NAR will release those sales figures near the end of this month.

Published: Wednesday, August 8, 2007
By Dan Seymour
The Associated Press

NEW YORK — The dream of owning a home is fading away for many Americans with less than stellar credit.

Tuesday, HomeBanc Corp. said it will not issue any more loans, and Impac Mortgage Holdings Inc. shut down a type of loan called “alt-A” for people with limited documentation or slight credit issues.

That followed bankruptcies for two of the country’s biggest home lenders — American Home Mortgage Investment Corp. and New Century Financial Corp. — and tighter terms at most other lenders that are surviving a shakeout in the industry.

“Every day I hear about a number of lenders that are reducing their products,” said George Hanzimanolis, president of the National Association of Mortgage Brokers. “It is going to take a while before the dust settles.”

Stocks of many surviving lenders are at multiyear lows, and it is common to find shares in the industry that have lost 90 percent of their value in the past six months, or even weeks.

The shocks to the industry are siphoning lenders and cash away from the market, which reduces competition and restricts people’s access to home loans.

Hanzimanolis said lenders have raised the minimum credit score that qualifies for financing. Most lenders now require bigger down payments, he said, and are eliminating exotic loans or making them more difficult to qualify for.

The silver lining is that people with good credit who can document their income have the same access to home loans as they did a year ago.

Richard Belling, president and chief executive of Community Financial Group Mortgage, said his bank has not scaled back its lending. The Grafton, Wis.-based lender does not issue “subprime” loans, or loans to people with checkered credit histories, and Belling said the bank’s prime mortgage products “are still pretty much as available as they have always been.”

The reason marginal borrowers are being cut off from credit or being charged a lot more, while the market for “vanilla” mortgages is unscathed, stems from the buckling of a multitrillion dollar industry hatched on Wall Street.

The market for investments backed by mortgage debt — including bonds backed by home loans and a complex, risk-splicing security known as a collateralized debt obligation — has exploded in the past few years.

Investors bought more than $2 trillion in mortgage-backed securities last year, according to the Securities Industry and Financial Markets Association. Issuance of mortgage-backed securities in the past five years was more than double the issuance in the preceding five years.

With lenders accessing all that cash and competing for business, many eased their standards. By funneling so much cash into the industry, these financing markets encouraged lenders to offer a slew of exotic loans that stretched what had been the limits of past lending standards.

Now, snakebit by a cold housing market and a breakdown in credit quality, these financing markets are in shock. Prices for bonds backed by mortgage debt have tumbled, and there are few if any buyers for CDOs.

“It is pretty bad,” said Joyce DeLucca, founder and managing principal at Kingsland Capital, which manages $2 billion in low-grade assets and credit vehicles. “In many cases, you have the complete absence of buyers. … The demand for the assets has kind of disappeared from the market.”

The difference between lenders that are closing down and banks that continue to offer loans at the same prices comes down to whether the lender relies upon Wall Street for financing.

Banks that raise their own capital are surviving. Because of the turmoil in the credit markets, lenders that rely on investment banks are being cut off.

“We have already seen quite a retrenchment in the availability of mortgages for subprime borrowers,” said Sal Guatieri, senior economist at BMO Capital Markets. “There certainly will be less funds available because investors are pulling back. … Suffice to say it will be increasingly difficult to get a mortgage at a fairly low rate unless you have pristine credit ratings.”

by Al Heavens

Even the stars are having trouble selling their homes.

Newly divorced Britney Spears recently unloaded her seven-bedroom house in Malibu for $12 million — $1.5 million less than the asking price — after nine months on the market.

On July 30, Paris Hilton put her Spanish-style house in Hollywood Hills, built in 1926, for $4.25 million. She paid close to $3 million for the house in November 2004. Will she get her asking price?

If celebrities can’t seem to get what they want for their houses, how are the rest of the country’s home sellers supposed to cope?

One solution: Home-staging. Beth Ann Shepherd is president of the luxury Los Angeles home staging company Dressed to Close, and bills herself as “home stager to the stars.” She lists among her clients the Black Eyed Peas’ Fergie, and actors Josh Duhamel, Greg Kinnear, Christina Ricci and Eva Longoria.

While she does focus on the rich and famous, Shepherd insists that her techniques can be tailored to everyone’s pocketbook.

First, “glamorize your curb appeal.” Whether it is all new sod, fresh landscaping, new exterior design, landscaping lights, or something as simple as an updated, modern front door and handle, “curb appeal is paramount to getting buyers through the front door.”

Make a memorable entrance. The minute a potential buyer walks in the door, he or she should think “looks good, sounds good, and smells good.” Put an oversized mirror in your entry (”people love to look at themselves”) or a dramatic piece of artwork. Fresh flowers and scented candles go a long way for this first impression, Shepherd says.

Next, refresh old or worn attributes of the home. If you have hardwood floors, have them sanded and re-stained in a darker color, since “dark wood floors are more popular than ever and quickly add drama to a home,” according to Shepherd.

If you have carpet, have it steam cleaned or replaced with a light taupe berber — appealing to most people and makes the room actually appear larger, she said. If you have stone floors, have them pressure cleaned.

Make your furniture unobtrusive. “Open your mind to new furniture layouts,” she said. “Remember, the fireplace does not always have to be the focus of your seating area. A lanai, beachfront or pool area may be more pleasing to the eye.”

Modernize your kitchen with stainless-steel appliances. Stainless steel appliances immediately add perceived value. If you have the room, add a glass-front wine cooler.

Get the five-star hotel look in your bathroom. “Everyone loves to go on vacation; therefore, bring the same thick, white, luxury hotel towels into your home bathrooms,” she said. Always have the thickest towels on your racks and have two hand towels carefully placed next to each sink. A wood tray with infused scented reeds or scented candles, beautiful bathroom cotton-ball, as well as a Q-Tip holder (with cotton and Q-Tips) are “delightful in projecting the five-star hotel look.”

Professionally built-out closets add value to your home. Have closets only one-half filled to capacity. Have all your shoes on racks and nothing on the floor. If your closets are scraped up or dingy, paint them white. Put cedar blocks for scent and always, always have matching wood hangars for every item of clothing.

Look at your master bedroom as if it were a luxury-hotel suite, she said. You only need a few items to impress. Thick white sheets and pillows. Thick white duvet and duvet cover. A nice tray with a couple reading books. Scented reed diffusers (or scented candles). One plant to reach the ceiling (adds perceived height to any room) and, if room, a nice chair with reading light in the corner or a sofa seating area.

Make sure your house “sounds good.” Hook your iPod up to inexpensive wireless speakers casually placed throughout the house and have “Frank Sinatra’s Greatest Hits” playing during open house and viewings. “I strongly recommend you invest in at least one plasma television,” she said. “If possible, one for the main TV-watching area and one for the master bedroom. You will get your money back in the sale of the home.”

Add perceived square footage by dramatizing outdoor areas. If you have a small patio, put an oversized leaning mirror on the back wall to double the size and place a café table with two chairs, two placemats and colorful napkins with interesting napkin holders. If possible, hang a candle-light chandelier or an outdoor light above the table. If you have a larger area, create an outdoor living room with eating area. Outdoor living rooms are impressive to buyers and add to the perceived value. Purchase extra-long white sheer mesh draperies and install rods around your trellises or outdoor area for that billowy drapery feeling found only in exclusive resort hotels throughout the world.

“This is a dynamic, fast way to provide the major, “Wow!” needed to sell your home higher and faster,” Shepherd said.

Al Heavens writes about real estate and home repair and improvement. He is the author of What No One Ever Tells You About Renovating Your Home: Real-Life Advice For Hassle-free, Cost-Effective Remodeling (Dearborn Press).

by Phoebe Chongchua

Before you sign a commercial lease here are some important points to consider so that you don’t get locked into a space that isn’t suitable for your needs.

Location, Location, Location

“I think what people need to consider is if the new space is located in a central location that has easy access to public transportation,” says Lauri Greenblatt, President of Promus Management.

The company was formed in 2001 to help with commercial income property management needs throughout Southern California. Her website, promusmanagement.com, has information, articles, and case studies.

Greenblatt says, before signing a lease be sure to understand the true benefits of studying the location of an area. “In a competitive job market where there are few employees, a good location can help an employer to attract and retain qualified employees.

Also being centrally located can increase business because your office is easy to get to.

It’s also a good idea to take into consideration the patterns of growth. As time goes on will your location be part of an up-and-coming area that has a fully-serviced infrastructure or is the growth occurring in other parts of the county that would later make the area you’re considering leasing in on the outskirts of town?

How visible do you need to be?

If your business needs more visibility don’t sign a lease without checking out how much activity goes on in the area. Is there significant foot traffic? Will your office or company be visible to those driving by? Is it easy to access? Is there traffic congestion? Sometimes along with visibility comes heavy traffic so being seen can be a double-edge sword. Consumers can spot you but they have a heck of a time getting to your business — dealing with heavy traffic can be a huge deterrent and ultimately hurt your bottom line.

How much growth do you anticipate?

Don’t just live in the now. It’s critical to think ahead and anticipate your company’s growth. “If you are in a rapid growth mode, consider negotiating the right to expand your premises during the lease or if that’s not possible negotiate a cancellation clause,” says Greenblatt. She says most landlords will allow a cancellation if they are given plenty of advance written notice and paid any un-amortized leasing commissions or tenant improvements which are basically any costs that were incurred to lease the space to you.

Don’t fake it!

Most commercial leases are legal-sized documents that are anywhere from 15 to 30 pages long. There is a substantial amount of information and Greenblatt says usually a tenant will understand most but not the entire lease. If that’s the case for you, before signing the lease, this is one time you simply can’t fake it.

“Consider asking an attorney to review only the sections you don’t understand,” says Greenblatt. She says don’t waste your money having an attorney review the entire document, “You’ll probably understand 80 to 90 percent of it.”

Greenblatt says an area in the lease to pay very close attention has to do with any additional charges that the landlord can pass through to you in the form of additional rent. Greenblatt says the charges come in the form of common area maintenance (CAM) charges or things like the triple net lease (NNN) can require a tenant to pay just about everything such as taxes, insurance, and maintenance costs.

A gross lease is one in which you pay just the rent and that covers all of your operating expenses. A net lease is one in which you pay your base rent plus on top of it you might just pay your taxes or you might pay taxes and insurance. In a whole triple net lease you pay your share of everything taxes, insurance, and operating expenses.

Depending on the type of lease that you sign, “It can literally double your occupancy cost; it can be almost as much as your rent. So it’s really important to understand what kind of lease you have and what can be passed through to you,” says Greenblatt.

She adds that this section in a lease can be difficult to decipher. That’s why Greenblatt recommends contacting a Certified Commercial Investment Member for assistance. “CCIMs analyze and advise people on commercial real estate investments,” says Greenblatt. You can locate a local chapter by visiting ccim.com .

The best advice is don’t allow a lack of understanding to compromise your future — before you sign a commercial lease be sure to read it carefully and when in doubt, ask for help from experts.

Published: August 6, 2007

Phoebe is writer, speaker, and author. She is the Director of Business Development for Quality Service Certification and a trainer in customer service for the real estate industry. She is a Realtor with The Guiltinan Group, a division of Prudential California Realty.

Her articles, feature stories, and columns appear in various publications including The Coast News, Del Mar Village Voice, and Rancho Santa Fe Review in San Diego. Phoebe worked for KGTV/10News in San Diego as a Newscaster, Reporter and Community Affairs Specialist for more than a decade. Phoebe’s writing is also featured in Donald Trump’s book: The Best Real Estate Advice I ever Received. She is the author of If the Trash Stinks, TAKE IT OUT! 14 Worriless Principles for Your Success available at Barnes&Noble.com, Amazon.com, and at PhoebeChongchua.com.