Rates are Rising! What’s Ahead?

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Image from Pixabay

By Bruce Kellogg

The Reversing Interest Rate Trend

In 1980, only two years into real estate investing, I purchased two rental houses with 18% loans from Glendale Federal Savings, which is long gone. So are the two rentals, lost to foreclosure because I could not handle the resulting negative cash flow.

18% was the peak in mortgage rates at the time. In the subsequent 42 years, they have drifted down to the recent 3% range, largely due to fiscal and monetary actions taken by the U.S. government intended to manage the economy.

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Now, due to rampant inflation reaching 8.5% annually, the Federal Reserve Board has begun to raise rates rapidly. They never quantify their intentions, but reputable financial observers are predicting increases of 1.5% or more over the rest of 2022.

I believe that the long-term trend in interest rates is reversing now. I think this will change many aspects of the real estate industry in major ways. After 44 years in the business, I feel qualified to express what I envision happening in several areas. I’m thinking about what will be happening December 31, 2022 and beyond. Let’s see!

#1 – Mortgage rates have just reached 5.25% for conforming 30-year fixed rate loans. Adding in the Fed’s 1.5%, we get a conservative 6.75%. I say “conservative” because lenders will add 0.5% or so to protect themselves in the rising trend. So, 7.25% is also possible. Adjustable-Rate Mortgages (ARMs) will be cheaper for borrowers, but riskier in a rising rate environment.

#2 – Car loans are usually close to mortgage loans. Several years ago my son got one below 2% (barely). If these go to 7-8%, a lot fewer new cars will be bought. Vehicle, heavy equipment, and some consumer-financed goods will suffer sales declines. Production cuts and layoffs could result.

Image from Pixabay

#3 – The Federal Debt portfolio is huge and varied. But new, long-term federal bond issues could reach 5-5.5%. Recently in the 2% range, this will increasingly make it harder for the U.S. to service its debt. Additional borrowing, or tax increases, could be the result. Oh, oh!

#4 – SFR (Single-Family Residence) Listings will be low and will stay low. See the diagram (Source: Axios). 92% of homeowners say their home is affordable for them now. Houses are appreciating nicely so far. So, why list, find a new place, move, and pay more??? Some will list due to a job relocation, divorce, inheritance windfall, but not many for a “move up”. Homeowners are “set” at this time.

#5 – Buyers’ Offers will be fewer. With fewer listings, higher prices, and higher rates, the number of buyers will drop off. Prices could decline after a while. Some markets are “topping out” already. This is a local phenomenon, so pay attention!

#6 – Refinances were off 80% last week. This industry is destined to be hit hard. Loan agents will be leaving. Offices will be consolidating or closing. There’s no stopping it.

#7 – Real Estate Agents will thin out, also. Those with small clientele and/or high overhead (e.g., poor commission splits) will not make it. Some will downsize, prospect more, and further educate themselves. Grow professionally, and “hustle harder”!

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#8 – Real Estate Brokerages will also need to retrench. They have been on an “agent acquisition binge” for several years on the belief that more agents = more deals = more income. This has been true, but going forward many agents will add to costs, but not to revenues. Cull the flock. Get lean for the uncertain future.

#9 – “Flippers” are dropping out, and they should. Material costs are rising. There are supply shortages. Loans are more costly. Deep-discount acquisitions are scarce. Buyers are fewer and reluctant. I heard a speaker say 80% of “flippers” do one deal, then quit. In the coming times, that makes sense.

#10 – Syndicators will need to throttle back, also. Especially apartments, mini storage, industrial warehousing, and student housing, have been on a tear nationally this market cycle. “Gurus” have been teaching, and novices have been jumping in. The party is becoming more subdued. Lenders are raising rates and qualifying criteria. Investors are pulling in their horns. Opportunities are fewer and weaker. The bloom is off for syndication.

#11 – Ibuyers are companies, usually brokerages, who buy houses from homeowners as a service, refresh the home, then market it. They have abundant “Wall $treet money”, and they aim for a 7% margin or so. Most are losing money on this business model even in the current rising market. When the market turns, this will no longer be viable for them.

Image from Pixabay

#12 – Real Estate Technology Startups are a new model funded by venture capital and piloted by technology entrepreneurs. Their model involves combining real estate brokerage, lending, title work, and more, to make the process seamless for the consumer. This has been tried for 70 years already, but these people believe that the injection of technology is the key to it finally working. Two of them tried to recruit me. Amazingly, they offer a salary, bonus, health insurance, vacation, etc., in the traditional corporate mode. It was nothing like the old-style brokerage model! They have raised money in the $300-700 million range, so they can hold out a long time when the real estate industry inevitably contracts in the coming years. So, we’ll see.

#13. – Hedge Funds and other institutional investment vehicles have purchased tens of thousands of houses this market cycle. They have “crowded out” traditional homebuyers in many locations, and this has become upsetting to some. When this started, hedge finds targeted yields in the 6-8% range. Now that inflation is in the 8.5% range already and still rising, the yield to the investors is “walking backward”. Enough of this, and these funds might start liquidating their houses in substantial quantities. This could strongly impact SFR markets where it occurs. Some signs of this are starting to develop.

#14 – NNN Lease Properties are commercial properties that are sold to investors who want no involvement and just want a net check every month. Often they have a single tenant, like a Subway restaurant or a U.S. Post Office branch, which is very secure. During a real estate industry downturn, these properties become more risky. If the tenant vacates, or worse, files bankruptcy, things could become quite complicated. I had a client who owned six restaurant buildings during the 2008 Great Recession that a commercial broker had sold to him. Two stopped paying, and two went vacant. We saved them all, but only because he had cash reserves. That will be important in the days ahead.

Image from Pixabay

#15 – Homebuilders had ideal conditions until recently as they worked on the “housing shortage.” Since then: A) Materials prices went up. B) Supply chain delays got underway. C) Mortgage rates began increasing. D) Fewer buyers qualified, and more became reluctant. Fortunately, like farmers, homebuilders stay on top of their conditions. For now, many have gone to “building to order” rather than “building on speculation”. The future will dictate what else needs to be done.

Conclusion

Trends give rise to events, and the trend here is the increase in interest rates, probably over the long term. The foregoing discussions are presented to stimulate your anticipation and response to events as they unfold. Good luck, and I hope you enjoy the ride!

Bruce Kellogg

Bruce Kellogg has been a Realtor® and investor for 40 years. He has transacted about 800 properties in 12 California counties. These include 1-4 units, 5+ apartments, offices, mixed-use buildings, land, lots, mobile homes, cabins, and churches.

Mr. Kellogg is a contributor and copy editor for two national real estate wealth-building magazines: Realty411, and REI Wealth Magazine. He is a recipient of an Albert Nelson Marquis Lifetime Achievement Award, listed in Who’s Who in America– 2019.

He is available for consulting with syndication, turnkey, joint-venture, and other property purchasers and note investors nationally, and other consulting assignments. Reach him at [email protected], or (408) 489-0131.

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.

Probate Real Estate Investing Niche Secrets Unlocked

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By Tamera Aragon

Are you scratching your head – Probate Real Estate Investing – What exactly is that? Probate is the court supervised legal process that includes determining the validity of your will, gathering assets (including real estate), paying debts, taxes, and the expenses of will administration, and then distributing the remaining assets to those persons entitled to them. This process commonly takes a few months to a year. “Probate” real estate investing provides opportunities for discounted properties because the person who is left to handle the assets often must sell the real estate they were left with.

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Benefits Of Investing In Probate Properties

There are many 5 main benefits for why this is a good niche to consider as a real estate investor.

Bargain Basement Prices: The probate market is full of tremendous properties you can snap up for 30% to 50% below market value. Resell quickly and capture a lifetime of gains within days. It’s the ultimate buy low/sell high scenario.

Huge Inventory: There are almost 6 million estates in probate, with assets worth trillions of dollars. Every type of real estate – from houses to beach front motels – are in probate.

Buyer’s Market: Purchasing property out of an estate assures you of a highly motivated seller. Most beneficiaries are anxious to sell the house (and other unwanted assets) so that they can pay off debts attached to the estate that must all be settled before the estate can be distributed.

Image from Pixabay

All Kinds of Treasures: in addition to real estate you’ll find, classic cars, fine jewelry, antiques, art, toys, collectibles, and much more enter into probate every day. Millions of items. And they can sit there for years unless you rescue them.

It’s a Investing Secret: Few people know how to find and purchase property from an estate. Even the beneficiaries don’t know how to sell. That means, you’ll be the first one on the scene because you have little or no competition from other buyer’s – plus you’re helping anxious sellers.

Disadvantages Of Investing In Probate Properties

No real estate investing niche or specialty is without its own set of unique risks. Probate investing does have a few cons I want to share with you. So what are downsides of this niche?

Finding Leads Is Time Consuming: Most counties you have to go to the court house and read through files to get probate leads and information this information is not available on line or from leads lists to purchase.

Executors Can Be Difficult To Talk With: The executor is usually a very close relative to the person that just died: wife, mother, father, sister and they are mourning their loss and can be difficult to talk with. One has to be very sensitive to the situation.

All Heirs Of The Will Need To Agree: Many times there are many heirs of a will and getting them to all agree to sell to you at the price you want may be challenging.

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Market Conditions For Probate Investing

Good Market Conditions

  • Property is located in a flat or declining market
  • Large City where there are more options
  • In a city where there is a good % of retired and elderly population

Bad Market Conditions

  • In an up market
  • Small town
  • In a city where there is a very small % of retired and elderly population

Steps Involved For Investing In Probate Properties

Image from Pixabay

  1. Get a newspaper and look at the legal notice section that lists the announcements of an estate. This is where the administrator, personal representative, executor is named (depending on the state you are in, the above will be one of the names for the person in charge of the estate).
  2. Get a file number on any probate case from the ad
  3. Contact govt office and find out where probates are filed in area where person lived.
  4. Take file number (s) and go to the county office where probates are filed.
  5. Go the office where probates are filed and ask, for example, “Where do I find information on case number 2454059i843” – The case number you took from the newspaper. They will direct you where to go and who to talk to.
  6. Go to the file room and ask to view the file in question.
    The above process is to get you to the file room and to get you talking with someone and building some type of rapport. Once you are directed to the files and know how to look through them, follow these next steps.
  7. You will need to look for aged files, at least 2 to 3 months old because these will be the files that have an inventory sheet that will tell you in one minute if the case has any real estate.
  8. Once you have a file with real estate you will need to get the contact information for the PR (PERSONAL REPRESENTATIVE), it is all in the file.
  9. You will next need to identify all the heirs of the estate and gather all their names and addresses in case you will need to contact them in the future.
  10. Once you have gathered this information, you will send personal hand written letters to the PR
  11. After one letter, wait 1 week and call the PR to see where they are at with the situation.
  12. If it is determined the seller is motivated, and if local, you will want to meet all heirs to finalize contract. If not local, mail the contract with a nice cover letter.
  13. Negotiate and Sign Contract
  14. Sell or Rent Property for profit

Image from Pixabay

Where To Find Probate Property Leads

  1. Probate Attorneys
  2. Newspaper
  3. Local Government Office

TAMERA ARAGON

Tamera Aragon is a professional online entrepreneur and has bought and sold over 300 properties, establishing her as an expert in the real estate investing field. Since 2003, she has purchased over 10 million dollars in real estate and currently holds properties all over the world. Tamera’s focus is on the booming Foreclosure market, buying Pre-foreclosures, REOs and Short Sales. Tamera who is a noted Author, Success Trainer, Speaker & Coach, shows her passion for helping others with the 17 websites she has created and several specialized products to support fellow investors throughout the world. When Tamara is not busy running her website, she is very involved with her Fiji joint ventures and investments. Tamera Aragon is one of the few trainers and coaches who is really “doing it” successfully in today’s market. Tamera’s experience has earned her a solid reputation in the industry as well as the respect and friendship of many of the top national real estate investment and internet marketing experts. Tamera Aragon believes her success has garnered her the financial freedom to fully enjoy her marriage and spend quality time with her children.

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.

Inflation, Tappable Equity, and Home Value Trends

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By Rick Tobin

Historically, rising inflation trends have benefited real estate better than almost any other asset class because property values are usually an exceptional hedge against inflation. This is partly due to the fact that annual home prices tend to rise in value at least as high as the annual published Consumer Price Index (CPI) numbers.

However, inflation rates that are much higher than more typical annual inflation rates near 2% to 3% can cause concern for the financial markets and Federal Reserve. As we’re seeing now, the Fed plans to keep raising interest rates to combat or neutralize inflation rates that are well above historical norms.

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The true inflation rates in 2022 are at or above the published inflation rates back in 1981 when the Fed pushed the US Prime Rate up to 21.5% for the most creditworthy borrowers and the average 30-year fixed mortgage rate was in the 16% and 17% rate range. Back in the late 1970s and early 1980s, rising energy costs were the root cause of inflation just like $5 to $7+ gasoline prices per gallon in 2022.

All-Time Record High Tappable Equity

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In the first quarter of 2022, the collective amount of equity money that homeowners with mortgages on their properties could pull out of their homes while still retaining at least 20% equity rose by a staggering $1.2 trillion, according to Black Knight, a mortgage software and analytics company.

Mortgage holders’ tappable equity was up 34% in just one year between April 2021 and April 2022, which was a whopping $2.8 trillion in new equity gains.

Nationally, the tappable equity that homeowners could access for cash reached a record high amount of $11 trillion. By comparison, this $11 trillion dollar amount was two times as large as the previous peak high back in 2006 shortly before the last major housing market bubble burst that became more readily apparent in late 2007 and 2008.

This amount of tappable equity for property owners reached an average amount of $207,000 in tappable equity per homeowner. If and when mortgage rates increase to an average closer to 7% or 8% plus in the near future, then home values may start declining and the tappable equity amounts available to homeowners for cash-out mortgages or reverse mortgages will decline as well.

All-Time Record High Consumer Debts

The March 2022 consumer credit report issued by the Federal Reserve reached a record high $52.435 billion dollars for monthly consumer debt spending. This $52 billion plus number was more than double the expected $25 billion dollar spending amount expectation and the biggest surge in revolving credit on record. In April 2022, the consumer spending numbers surpassed $38 billion, which was the #2 all-time monthly high.

Image from Pixabay

For just credit card spending alone, March 2022 were the highest credit card spending numbers ever at $25.6 billion. The following month in April, credit card debt figures exceeded $17.8 billion, which was the 2nd highest credit card charge month in US history.

While many people are complaining about mortgage rates reaching 5% and 6% in the first half of 2022, these rates are still relatively cheap when compared with 25% to 35% credit card rates and mortgage rates from past decades that had 30-year fixed rate averages as follows:

● 1980s: 12.7% average 30-year fixed mortgage rates
● 1990s: 8.12%
● 2000s: 6.29%

In the 2nd half of 2022, it’s more likely that many borrowers will fondly look back at 5% and 6% fixed rates as “relatively cheap” if the Federal Reserve does follow through with their threats to increase rates upwards of 10 times over the next year in order to “contain inflation” while punishing consumers at the same time who struggle with record consumer debt (mortgages, student loans, credit cards, automobile loans, etc.).

Financially Insolvent Government Entitlement Programs

There are published reports by the Trustees of both Social Security and Medicare about how the two programs are potentially on pace towards financial insolvency in the not-too-distant future. The Social Security Trustees claim that their retirement program may not be able to fully guarantee all benefits as soon as 13 years from now in 2035. Over the next decade, Social Security is calculated based upon current income and expense numbers to run budget deficits of almost $2.5 trillion dollars.

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As per the Trustee’s published report linked below, it’s claimed that the Social Security Disability Insurance (SSDI) trust fund may deplete its reserves as early as 2034.
Social Security report link: https://www.ssa.gov/OACT/TR/2022/tr2022.pdf

If and when the Social Security trust fund starts operating with cash-flow deficits, all beneficiaries, or Americans who receive the Social Security benefits, may be faced with an across-the-board benefits cut of 20% as suggested by the Trustees. For many Americans who struggle to get by on 100% of their Social Security benefits, the threat of a possible future reduction in amounts of 20% or more can be quite scary to think about.

The average Social Security benefit paid out nationwide in 2022 is estimated to be $1,657 per month or $19,884 per year. A 20% reduction in monthly benefits without using future inflation adjustments would be equivalent to a reduction of $331.40 per month in benefits and a new lower monthly payment amount of $1,325.60.

The Medicare Hospital Insurance (HI) trust fund is also on track to exhaust its cash reserves over the next six years by 2028, as predicted by the Medicare Trustees in their own gloomy report that’s linked here: https://www.cms.gov/files/document/2022-medicare-trustees-report.pdf

Let Your Money Work For You

Image from Pixabay

As noted in my past published articles, the bulk of a homeowner family’s overall net worth comes from the equity in their primary residence. The average US homeowner at retirement age has approximately 83% of their overall net worth tied up in the equity in their home and pays monthly expenses from just the remaining 17% of overall net worth that is held in checking, savings, or pension accounts.

While inflation usually is beneficial to pushing up real estate values at a rapid annual pace, inflation is also devastating to the value of the dollar in your pocket as purchasing powers decline. Inflation for real estate does have a ceiling level at which it becomes detrimental to housing values if the Fed starts doubling or tripling mortgage rates to slow down the inflation rates.

Equity in properties isn’t so easy to access to buy food, gas, clothing, or to pay your utilities as having cash on hand. If and when future government entitlement benefits decrease and inheritance and property taxes may increase, then being self-sufficient while earning monthly income from tenants in your rental properties or by pulling cash out of your properties near peak highs may go a long way towards allowing you to maintain the same standard of living that you’ve been accustomed to over the years.

Rick Tobin

Rick Tobin has a diversified background in both the real estate and securities fields for the past 30+ years. He has held seven (7) different real estate and securities brokerage licenses to date, and is a graduate of the University of Southern California. Rick has an extensive background in the financing of residential and commercial properties around the U.S with debt, equity, and mezzanine money. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), equity funds, and foreign money sources. You can visit Rick Tobin at RealLoans.com for more details.

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.

The Advantages of Commercial Real Estate Investing

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Investment has long been a great way to grow your wealth but often comes with a high barrier of entry. Not only can it be difficult to learn about the various types of investments and how they can work for you but it can also be difficult to find a way to make that initial foray. Investing in the stock market or a start-up can be simpler to do but both bring a high level of risk. If you’re looking for a safer, long-term investment that can bring you regular income, you might be looking to invest in commercial real estate.
The Basics

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Unlike some forms of investment, this is tangible and is considered to be a hard asset. When you make this kind of investment, you can expect to be rewarded in one of two ways: appreciation, which happens when the value of the building or property increases over time, and income gained by renting the space out. These investments tend to be long-term, as it takes far more effort to buy and sell a large building than to trade or sell stocks. When making investments of this type, you’re not looking to make a quick buck, but are thinking about the long haul.
How It Makes You Money

Commercial real estate is a limited resource, which means that it will always be in demand. Companies need offices or manufacturing space, individuals need apartments and entrepreneurs need restaurant or store space. All of those people will pay for that space, and that’s where the first source of income comes from. A well-located building with modern spaces will fetch top dollar from all of these renters, and that income is regular and can be counted on.

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Appreciation is the other source of financial reward but takes longer to build. With this, you’re looking farther down the road, to the point where you can sell that property. This can be a great return on investment if you look at demographics and market patterns. Buying a property for a low price in an area that will boom in a few years means that, as long as you maintain the building, you can sell at a profit.

Commercial real estate can be a very powerful investment tool, as long as you do your research. It boasts potential for high returns and also offers the advantage of a regular income, which many other investments do not. Because of these reasons, this can be a great way to start investing and making money right away.

Contact Vista Capital Solutions today to start exploring our wide range of financing options for commercial real estate.

Biden’s Plan May Incentivize the Construction of New Housing

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By Stephanie Mojica

U.S. President Joe Biden has amped up his efforts to increase affordable housing in the country in response to the housing shortage, multiple media outlets reported. Biden’s plan, which was unveiled on Monday, May 16, 2022, may incentivize real estate investors to build more multi-family housing and steer them away from purchasing single-family homes, according to The Wall Street Journal.

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Home prices and inflation, as well as several years of hampered home construction, have contributed to Biden’s plan, per Scotsman Guide. However, it could take up to five years for the plan to become reality.

Since the 1970s, it has been increasingly difficult to build affordable housing due to costs and zoning regulations, The Wall Street Journal reported. “Tiny homes” are a rapidly growing trend, but many cities have next-to-impossible requirements for permits, parking, and the like.

A modern custom built luxury house in a residential neighborhood. This high end home is very nicely landscaped property.

Under Biden’s plan, a number of reforms and new initiatives could take place, including:

  • Rewarding jurisdictions that relax their zoning and land use requirements.
  • Improving the benefits of the Low Income Housing Tax Credit (LIHTC) program, which is geared toward affordable rental housing.
  • Encouraging state, local, and tribal governments to use some of their COVID-19 funds to create more affordable housing units.
  • Developing new types of mortgages and improving existing programs to allow more flexibility.
  • Increasing the number of owner-occupants in single family homes.
  • Discouraging investors from purchasing single-family homes, which critics say is driving up housing prices to the point where everyday people cannot afford to buy a home of their own.
  • Increasing financing for investors who pursue developing and rehabbing multi-family properties.

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Also, members of the Biden administration say they are meeting with stakeholders in the building industry to find out what it will take to complete more homes by the end of 2022. The increased price of building materials as well as labor shortages have been blamed for the dramatic decrease of new construction in 2022.

Equity Rich, Cash Poor

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Image from Pixabay

By Rick Tobin

As of February 2022, there was an estimated $10 trillion dollars’ worth of tappable equity in residential properties that owners can access by way of cash-out loans, home equity lines of credit, and/or reverse mortgages with no required monthly payments. The average US homeowner who retires has approximately 83% of their net worth tied up in home equity and pays their monthly expenses from just 17% of their overall net worth found in savings, checking, and/ or pension accounts.

The typical homeowner has the bulk of their individual or family net worth tied up in the equity in their primary residence where they live. It’s estimated that close to 37% of all US households live in residential properties (one-to-four units) that are free and clear with no mortgage debt. This number is approximately 5.5% higher than 10 years ago.

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For those Americans who are fortunate to own their own home, the massive equity gains over the past several years have likely more than offset their rising monthly living expenses. This is especially true in states like California where the median price home statewide reached close to $850,000 in March 2022. Many homeowners gained more than $120,000 in new equity gains in 12 months or less.

Rising Inflation

Inflation severely damages the purchasing power of the dollar as we’ve all seen firsthand in recent years. Many consumer product prices have risen as much as 10% to 50% over the past year alone, sadly.

Image from Pixabay

Historically, real estate has proven to be an exceptional hedge against inflation as property values tend to rise right alongside or above published inflation rate numbers like a buoy with a rising tide. In March 2022, the published annual inflation rate reached 8.5%. This was the highest inflation rate in more than 40 years dating back to December 1981.

Between December 1980 and December 1981, the Federal Reserve raised the US Prime Rate to as high as 21.5% for the most creditworthy borrowers and 30-year fixed mortgage rates hovered in the 16% to 17%+ range in order to combat or quash those high inflation rates. Here in 2022, the Federal Reserve will likely raise rates significantly yet again like back in the early 1980s in order to slow down these incredibly high inflation rates that are actually much higher than the published rates.

Falling Cash Supply

Some financial planners or wealth advisors suggest that their clients maintain at least a three month supply of “emergency” cash reserves for their clients. More than half of Americans (or 51%) surveyed had less than a three months’ worth of expense supply, according to Bankrate’s July 2021 Emergency Savings Survey. This total included 1 in 4 respondents (or 25%) who said that they had no emergency cash fund supply at all.

Image from Pixabay

A more recent January 2022 survey conducted by Bankrate found that some 56% of Americans did not have $1,000 in cash savings available to access for emergency expenses. As a result of minimal cash reserves available for many people, they are likely to use credit cards, take out personal or mortgage loans, or borrow funds from family or friends to cover their daily expenses.

Lower cash reserves also adversely affect people who are planning to lease a home. For tenants, they may need enough cash to cover moving expenses and to put up the first and last months’ rent and/or security deposit money.

For home buyer prospects, they may need at least 3% to 5%+ of the proposed purchase price to qualify for the conforming or FHA loans. With the median home nationwide priced near $400,000 in the 1st quarter of 2022, many buyers will need somewhere between $12,000 and $20,000 for the down payment and additional funds for closing costs unless the seller or other family members are gifting them some of the funds.

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With mortgage rates continuing to rise in recent times, the bigger challenge for many home buyer prospects is coming up with enough of a cash down payment rather than qualifying for a monthly mortgage payment that’s a few hundred dollars more per month today than several months ago.

Homeownership Trends

Let’s review some eye-opening numbers associated with housing trends across the nation as per the US Census Bureau and Statista:

  • The national homeownership rate is 64.8%.
  • There are over 79 million owner-occupied homes in the US as per Statista.
  • Approximately 65% of homes are owner-occupied and 35% are rented or vacant.
  • Real estate prices have increased at least 73% nationwide since 2000.
  • An estimated one-third (33%) of all home buyers are first-time buyers.

Mortgage Debt vs. Unsecured Debt

Debt can be like an anchor holding us back. Yet, some debt is better than others like seen with mortgage debt secured by an appreciating property. Other forms of debt such as unsecured credit cards with annual rates and fees that may be within the 20% to 30%+ range can be especially bad. The higher the rate for the debt, the longer it will take to pay it off unless the borrower later files for bankruptcy protection.

Image from Pixabay

The average American has close to $6,200 in outstanding or unpaid credit card balances, according to data released by the Federal Reserve and Bankrate. Many borrowers pay the minimum monthly payment. If so, it may take them on average more than 30 years to pay off the credit card balance in full.

With a 30-year fixed rate mortgage that may be priced near 3% to 7% (or 20%+ lower than some credit cards), the mortgage principal or loan amount decreases as the years go by and the property value is more likely than not to rise as much as the annual published inflation rate. If so, the home value may increase $50,000, $100,000, $200,000, or $300,000+ per year, depending upon the region and latest economic trends.

If inflation rates continue at a sky-high rate, then real estate investments may still be your best option as the purchasing power of the dollar rapidly falls. The future equity gains from real estate will then allow you to pay off consumer debts like credit cards, school loans, and car loans at a faster pace while your net worth compounds and grows.

Rick Tobin

Rick Tobin has a diversified background in both the real estate and securities fields for the past 30+ years. He has held seven (7) different real estate and securities brokerage licenses to date, and is a graduate of the University of Southern California. Rick has an extensive background in the financing of residential and commercial properties around the U.S with debt, equity, and mezzanine money. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), equity funds, and foreign money sources. You can visit Rick Tobin at RealLoans.com for more details.

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.

Married couple allegedly tried to steal Boulder properties with forged deeds

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Image from Pixabay

By Stephanie Mojica

A married couple allegedly tried to steal seven properties from a now-deceased real estate investor, according to MSN and Yahoo! Finance. On Friday, May 13, one of the suspects pleaded guilty to two criminal charges in connection with the scheme.

Savuth Yin, 27, and Yulisa Yin, 24, of the Boulder, Colo. area were charged with multiple crimes in connection with their alleged scheme, which falsified 14 quit claim deeds, court records show.

Savuth Yin pleaded guilty to possessing a defaced firearm and attempted theft, MSN reported. He could serve up to 13 ½ years behind bars, according to Yahoo! Finance.

Charges against Yulisa Yin are still pending.

The legal property owner, 77-year-old Fred Oelke, was found dead in his Boulder area home in September 2021, authorities say. The cause of his death was “undetermined” and none of the Yins’ criminal charges are in connection with it, according to court records.

However, a spokeswoman with the Boulder County District Attorney’s Office told MSN in an email interview that Oelke’s death was “suspicious” and is still being investigated. She further added that while the charges against the Yins are not related to Oelke’s death, no one has been eliminated or identified as a suspect in it.

Image from Pixabay

Someone called a funeral home claiming to be a relative of Oelke’s and asking for his body to be cremated as soon as possible, Yahoo! Finance reported. Keys, property-related documents, and vehicle titles disappeared from Oelke’s home after his death, court records show. Oelke’s tenants say they received calls, purportedly from his relatives, demanding they move out of their homes.

The properties the Yins allegedly tried to steal were worth nearly $3 million, per MSN. Oelke was the couple’s landlord.

The Yins allegedly forged signatures and faked the names of notaries to claim the properties for themselves under the name Nathaniel Turner in the months before Oelke’s death, Yahoo! Finance reported.

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.

Live Seminar – A Market Poised for Growth

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LIVE Investor Seminar

Learn About A Market Poised For Growth!

OUR NEXT LIVE SEMINAR at the Marriott Hotel in Burbank will be on June 8, 2022, and you won’t want to miss it! We will be providing real estate investors with valuable and timely information, such as:

  • Using 1031 Exchange to Increase your cash flow
  • Impact of rising interest rates and what it means for your next move
  • Increased foreign investment and how they’re affecting the current state of the market
  • 8-12% average rates of return on Airbnb STR’s
  • Rise of Albuquerque, NM as a growing haven for fresh real estate investment
Newly Constructed Amazon Distribution Facility in Albuquerque, NM

7 Newly Constructed Netflix Studios in Albuquerque, NM

In fact, Albuquerque, NM is the source of new projects for our Investors. With relationships with key developers, TFS will bring exclusive off-market deals, ranging from SFR / STR’s to Multi-Family and Commercial Assets. With Amazon, Facebook, Netflix, and Apple all active in this market, Albuquerque is poised for immense growth.

Join our LIVE Seminar

Los Angeles Marriott Burbank
2500 N. Hollywood Way, Burbank, CA

Wednesday | June 8th

Lunch Session: 11:30 AM – 1:00 PM
Dinner Session: 6:30 PM – 8:00 PM

Each session will feature the same key information! Reply to this email with your name and phone number to sign up or give us a call at 626-551-4326.

EMAIL: [email protected]

Actual Pictures of Investors’ Homes

Additionally, we will be sharing information about our new fully-managed short term rental Airbnb opportunities in the following hot markets:

  • Indianapolis, IN
  • Joshua Tree, CA
  • Las Vegas, NV
  • Scottsdale, AZ
  • Albuquerque, NM

Each Airbnb investment play 1) offers an average net cash flow of 6-12%, 2) is a fully-managed experience, and 3) will feature in-house designers set to help you ensure your investment succeeds. We will also discuss the streamlined listing process for Airbnbs and some of the tax benefits for this form of real estate.

Our trained real estate professionals will be talking about all this and more at our upcoming seminar – and again, you will NOT want to miss it.

Join our LIVE Seminar

Los Angeles Marriott Burbank
2500 N. Hollywood Way, Burbank, CA

Wednesday | June 8th

Lunch Session: 11:30 AM – 1:00 PM
Dinner Session: 6:30 PM – 8:00 PM

Each session will feature the same key information! Reply to this email with your name and phone number to sign up or give us a call at 626-551-4326.

EMAIL: [email protected]

TFS Properties, Inc. specializes in 1031 Tax-Deferred Exchanges. When the time comes for you to upgrade your real estate investments, it is important to work with specialists having the experience & relationships to help you find the best solution and properties for your individual circumstances. For a complimentary consultation, feel free to contact us at your convenience.

TFS Properties (CA DRE#: 01953354)

Webinar: Top Market – 18%+ Annualized Returns

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Investors – You’re Invited to an Exclusive Sponsored Webinar

Capital Call – 18% or Better Returns!

  • Foreclosure Auctions are back on and the opportunities are incredible – minimum 16% return.
  • Georgia Tax Sale inventory unlike anything we have seen – 20% Redemption Penalties.
  • Fix and Flips/Buy and Hold in America’s hottest market.
  • Build-to-Rent in Georgia’s fastest growing county.

Join me, Charles C. Sells, CEO of The PIP Group, on Wednesday, June 1st at 6:30 EDT, as I discuss the remarkable opportunities our partners have continued to achieve and some new ones we are beginning to launch next month!

Foreclosure Auctions:

Now that the foreclosure moratorium is gone, inventory is back and we are dominating the auctions every month! It was certainly a struggle to maintain our 16% profit promise during the past two years, but we managed to do so in nearly all circumstances and it is back in place. With auctions back in play, clients are seeing average returns upwards of 24% on flips.

Georgia Tax Sales:

Tax Sales in Georgia pay a 20% penalty upon redemption and have a remarkably short redemption period of 1 year. PIP-Group has not offered Georgia Tax Sale opportunities to its partners in nearly 5 years, due to the lack of inventory. Inventory the last 3 months has been unlike anything we have ever seen and we are back in the game! In March, we bought 6 properties at the sale, of which 3 have already redeemed, paying our partners a whopping 68% annualized return! Don’t want to own property from a tax foreclosure in Georgia? That is fine, as PIP-Group will buy your unredeemed deeds for the 20% penalty, at the end of the redemption period.

America’s Hottest Market:

Savannah, GA and its surrounding towns had an incredible increase in home values in 2021. Median home values rose more than 28% on average, with some pockets increasing by more than 35% and there is no end in sight! Last week Hyundai announced plans for a $5.5B manufacturing plant, which will bring 8100 new jobs to the area. It is the largest economic development project in Georgia’s history! (Learn more below)

Build To Rent:

Bryan County, GA has been the fastest growing county in Georgia for the past 6 years. It is also the 6th fastest growing county in the nation, according to the 2020 Census. There also is a high demand for affordable housing in Bryan County, as they are a suburb area of Savannah, GA and have a large military base, Fort Stewart. As a result, PIP-Group has been buying tracts of land for future development in both Bryan and its neighbor, Liberty County. With the news of the Hyundai plant, it is time to develop, as well as acquire candidate properties ahead of the next big surge. We are looking for investors to partner with us to build out a 16 acre tract of land with approximately 65 modular homes. Why modular? We can develop a project like this in under a year with modular, the process is turnkey and unlike traditional stick built homes, modular are just as storm worthy and cost about 40% less.

Join me LIVE this week as I educate and familiarize you with these fantastic opportunities. If you are unable to attend, register anyhow! We will record the presentation and provide it to all registrants the following day.

Want one on one with us ahead of the presentation?

Call us: 877-335-2529

You are invited to a Zoom meeting.

When: Jun 1, 2022 06:30 PM Eastern Time (US and Canada)

Register in advance for this meeting below:

After registering, you will receive a confirmation email containing information about joining the meeting.

Real Property Easements, An Overview. the Purpose & the Risks? (Part 2)

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Image from Pixabay

By Dan Harkey
c 949 533 8315 e [email protected]

Real estate development patterns on a going-forward basis:

Laws have changed, sometimes dramatically, as we have experienced in California. California leadership has recently passed multiple laws to modify the nature of housing occupancy by the public. The changes include urban and suburban housing. The goal is to replace single-family buildings with high-density stack-and-pack cluster apartments and homes. Parking requirements and setbacks have been eliminated to pack them in.

Image from Pixabay

Many developers prefer high-density or cluster zoning and housing to maximize density, space, and profits. Cluster housing was initially defined as housing placement near each other, reducing individual land parcels and yard space to increasing open space and common area amenities. Larger areas of open space within the development form a buffer for adjacent land uses- additionally, cluster housing with homeowner associations would be responsible for the infrastructure maintenance.

There is a distinction between the written physical layouts or placement of easements and written usage agreements memorializing rights and responsibilities between the parties. A well-written agreement is designed to understand the terms and conditions and enforce them among the parties.

A part of centralized development planning is to determine the need and locations of property usage easements. They will be plotted and engineered as part of the approval and development process.

Suburban areas have historically consisted primarily of low-density residential, commercial, and industrial communities away from urban areas but within commuting distance for employment. Suburban communities have had their own political and governmental services jurisdictions.

Populations grew in suburbs because people wanted autonomy from the tightly controlled rules and hectic and congested lifestyles in densely populated urban settings. Suburbs usually provide an overall higher standard of living for a comparable income than the metro or urban lifestyle. Traffic congestion, commercial corridors, shopping, schooling, environmental issues, and freedoms that go with more land and open space make it worth the cost for people to commute into a city for work.

Image from Pixabay

Past President Obama issued a regulation known as AFFH (Affirmatively Furthering Fair Housing). The objective is to create progressive mini-urban cities within the suburbs. The objective was to have suburbs swallowed up by larger cities. These new mini cities would be subject to federal regulations and mandates taking control of zoning and development. This includes eliminating single-family zoning and forcing the building of medium to high-density low-income housing, thereby creating mini-urban-styled downtowns.

Eliminating local government control is the plan to destroy the suburban lifestyle.

Affirmatively Furthering Fair Housing (AFFH) works by holding the development process hostage to the U.S Department of Housing and Urban Development (HUD’s) Community Development Block Grants and federal-planning demands. Suburbs will be prohibited from receiving millions of dollars in HUD grants unless they eliminate single-family zoning, install low and moderate-cost housing, and consolidate and densify commercial and residential districts into stack-and-pack neighborhoods. Highway funds are also planned to be withheld for failure to comply.

Any objections by a local municipality will get municipal leaders of the suburbs sued for discrimination by civil rights groups and by the federal government.

The current administration has reactivated and placed Obama’s AFFH strategy a high priority.

Municipalities commonly use a tool of extortion to gain easements on specifically targeted properties. When the owner applies to process a tentative tract map, the city planners frequently condition the approval to include easements that have little or no benefit to the property owner. In many cases, property owners are even required to pay for the improvements. An “eminent domain action” is frequently used to force property owners to sell their property or allow specified easements. I refer to this as “easement by extortion.” In many cases, property owners are forced to pay for the improvements

In many cases, multiple parties who own adjacent properties, shopping centers, retail centers, industrial, and historic registry facades all require written easement agreements for mutual benefits to protect the interest of all participants. Examples include easements for parking, reciprocal access of ingress/egress corridors, access for installation and maintenance of utilities, operation and management of common areas, and many others.

https://www.nps.gov/tps/tax-incentives/taxdocs/easements-historic-properties.pdf

Actual case studies:

1) Two adjacent property owners who were friends owned and occupied two separate contiguous industrial parcels. The properties are in Gardena, CA. Each land parcel was 40 ft wide by 100 ft deep. The property owner on the right side wanted to build a zero-lot-line building structure that was 40 in width. A zero-lot-line means that the property was initially built-up to the property line with no setbacks. The left-side property owner agreed to construct his building only 30 feet wide so that there would be 10 feet available for ingress/egress of automobiles for use by both properties. The actual physical location for ingress/egress was only 10 feet of the left-side property. The right-side property possessed no other method of entry other than his left neighbor’s property. No written agreements existed, but merely two good old boys who agreed with a handshake and hopefully an occasional cold beer at the local Kelsey’s bar.

An argument and litigation for a prescriptive easement right would be justified since the buildings were built in the 1960s. The original owners and subsequent owners have operated that way ever since.

The right-side property owner owned his property free and clear. The left-side property owner had the first lien of $300,000. A lender suggested that the property owners hire a civil engineer and a lawyer to draft a reciprocal usage easement for ingress/egress. The owners must submit the plans and agreement to the building and planning department for approval. Upon city approval, the reciprocal easement agreement could be recorded. Once the contract was signed and recorded, the easement would remain on the property title.

In this fact-specific case, the problem was that the newly drafted easement would be recorded in the first lien position on the right-side property but as a second lien position on the left-side property. The left-side property’s recorded easement would be in a second lien position behind a $300,000 first trust deed lender. If the borrower on the left side defaulted on his loan and the property was lost in foreclosure, the recorded usage easement would be foreclosed, extinguished, or ceased. Subsequent owners would be damaged and have no right of access. Lack of access for automobile ingress/egress would drastically diminish the functionality and desirability, and the value would be severely affected.

Image from Pixabay

2) An auto body and fender shop fronted on a busy street but had no direct access to the auto storage yard. Entry into the repair shop was available only through an alleyway. All the properties along the street have the same issue and potential risk.

The lender’s task in processing and underwriting a requested loan was to verify that the alley right-of-way was either a publicly owned street or a written reciprocal easement agreement signed and approved by the property owners who required continued access through the alleyway. The recorded easement was verified that it existed and did run with the land. Risk abated.

Image from Pixabay

3) A barbershop operator had the chance to purchase the real property at the location of his operating business. The location was an A+ situated at the entry to a regional shopping mall. Part of the lender’s processing and underwriting staff’s task was to verify a reciprocal parking easement agreement for all the tenants in the shopping center and the inline retail shops near the entry. The recorded easement was verified and did, in fact, run-with-the-land. Risk abated.

4) A small shopping owner and adjacent church struck an informal deal to use each other’s parking. An informal letter arrangement was arranged between two property owners who mutually benefited by being able to use the other owner’s property. The informal agreement does not run with the land. The arrangements are usually for a specified time and are cancellable with a 30/60/90-day notice. Although Sunday mornings were problematic, a large church occupied one side of the street, with marginally adequate parking. Church attendees were able to use the available parking across the street. There is a shopping center across the street with semi-adequate parking, although Saturdays are problematic. A letter agreement was drawn up for common usage of parking rather than an easement. The agreement specifically spelled out the terms of times for needed use of both parties and was cancellable by either party with a 60 days’ notice. There is an unsolved risk because of the informal nature of the agreement.

5) Land loan. A lender made a commercial loan on a vacant parcel adjacent to a large shopping center. The parcel was located strategically at the most prominent entry to the shopping center.

Image from Pixabay

An appraisal was obtained that reflected values as a developed small commercial for drive-through fast food or coffee establishment.

The parcels necessitated every square inch for development with little flexibility. Parking was adequate because it was adjacent to the large shopping center with no prohibitions on the number of spaces. There were no parking easements, but there was also no prohibition.

The borrower’s attorneys drafted an agreement. The principal property owner made a deal with the largest shopping center tenant to place prominent entrance monument signage on the subject parcel without the knowledge of the land lenders. The property owner/borrower attempted to strongarm the land lender into signing it the subordination agreement making the land lender’s first lien junior to the signage easement.

Image from Pixabay

What a preposterous and foolish request! But the borrower/owner of the property was looking for a fool of a lender. How about a massive unforeseen risk for a lender? The lender rightly refused the request.

If the lender had agreed to sign the subordination and allowed a colossal monument sign in the middle of the vacant commercial parcel, the parcel value would have plummeted to a small park to donate to the local municipality as a feel-good exercise.

Understanding easements in relation to real estate ownership and development is full of complex issues. Civil engineers and land planning lawyers specializing in this section of real estate law should assist in drawing the property boundaries, alignments, and applications for municipal approvals. Work with a title company to have the easements recorded and insured. Assess the benefits and risks. Do not circumvent best practices.

Thank You

Dan Harkey

This article is an overview for a general educational purpose only. The information presented should not be relied upon without the advice of counsel.

Dan Harkey is a contributing author to Weekly Real Estate News and is a Business & Financial Consultant. He can be contacted at 949-533-8315 or [email protected].

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.