Saturday, April 16, 2011

Spring Scam Alert!

Ah Spring!  When thoughts turn to vacation planning, home improvement and even spring cleaning.  Unfortunately, it’s also time for scammers to take advantage of those thoughts.  You think you won’t be a victim, but you’d be surprised how many people get caught off guard by these seasonal scams:

“You’re eligible for a free vacation.”  You get a letter saying you could have a free vacation if you give a credit card number to pay for a deposit. It may look authentic (scammers copy company logos) but it may be a come-on for a bogus vacation club. Here’s a tipoff:  you’re told to call a number that starts with 876, 868, 809, 758, 784, 664, 473, 441, 284 or 246.  These are for Caribbean countries and Bermuda; chances are you’ll be on hold a long time. 

This rental could be yours.”  Scammers write phony ads (using real pictures they’ve copied from other sites) to get you to sign up for luxurious rental properties. Don’t do the wire transfer they ask for.  Instead, contact a travel agent or local real estate agent or use a web site that you have verified is legitimate (try one like www.homeaway.com). 

“We were in the neighborhood.”  You know those people who knock at your door and say they noticed your gutters need cleaning or your yard needs work?  While that may be true, these people may not do the job properly. Check with the Better Business Bureau, go to a site like Angie’s List or ask friends for references before you sign up for home improvement work.

“We’re from the power company.” These scammers may ask if you want a free energy audit. They may even have IDs (anyone can print their own now).  Beware of pairs – one diverts your attention while the other steals your stuff. Utility companies usually tell you in advance; call them immediately.

“Your grandson needs help.”  AARP warns seniors about that call that says your grandchild has been arrested or hospitalized while on Spring break and needs money.  Scammers get the names from social networking sites.  The caller may claim to be a lawyer or police officer.  Take the number and do an internet search.  Better yet, call your grandchild directly.

Tuesday, April 12, 2011

Why I Am Never Going to Own a Home Again?

I hate to be on a soap box two months in a row, and I didn’t plan to be until yesterday, which is when I saw “Why I Am Never Going to Own a Home Again” plastered over yahoo.com, msn.com and some money website I’d never heard of.

The article was written by James Altucher and I invite you to refer to his namesake blog. I know everyone didn’t see this blip on the screen, but his 14 reasons against homeownership are somehow burned into our cultural psyche. I’m going to briefly address his most important 5 reasons against homeownership.

1)      He says buying a home means you’ll never see the cash you pay for the 20% down payment again, as if it vanished. Incorrect. You may not be able to physically touch the money again, but it still exists as equity. A 20% down payment is only required to avoid mortgage insurance. Believe it or not, there are loans out there to cover 95%, 100% and even 103% of the home’s purchase price. You could even use a second mortgage in a combo loan or use gift funds from relatives to drop the cash out of pocket even further.

2)      Closing costs. Yes, they exist and are mostly dependent on the cost of the mortgage loan, but as a buyer you don’t necessarily have to pay 100% of them. Ask your agent to make the seller pay your closing costs so that less of your cash is needed to buy the home upfront.

3)      Maintenance costs. Altucher posits that these costs will impoverish a homeowner for life, whereas a renter avoids these costs. What he misses is that scheduled rent increases are due to 1) market rates and 2) maintenance. Even though someone else fixes your fridge, you still pay for it- only a little each month. Homeowners, however, can decrease maintenance costs by purchasing a home warranty.

4)      Taxes don’t mean financial ruin for a homeowner. If they did, no one would own a home. Altucher again misses the mark because renting isn’t tax free- renters pay for it every month a little at a time. Landlords don’t just sit back and absorb this expense- they pass it along to the renter. Homeowners at least have a mortgage interest deduction (for now, anyway).

5)      His last point against homeownership is interesting- he claims it is a bad investment due to illiquidity, high leverage and poor diversification. I would refer him to the point I made earlier- the money doesn’t disappear- it is available as equity. It is true that you have to borrow money as leverage to buy a house- no argument there. But how many businesses or governments would exist if they didn’t borrow money to accomplish a goal? Every person is in business for himself or herself. If a large loan to meet your strategic life goals is right for you, why shy away from it if it makes financial sense? Now, lastly, I’m not a financial planner, but I have yet to meet someone who only invested in her home and nothing else. Homeownership should be piece of your financial whole.

 I am not against renting- so just hold off on those emails. I personally am floating my assets by renting an apartment. Altucher claims he will rent for the rest of his life. So when should a person rent? You should rent when the cost of home ownership has risen far beyond what a home can generate in rent. Renters can financially come out ahead of buyers if they are disciplined and invest what they save and wait for the right opportunity. And with homes prices down and interest rates at historic lows- the right opportunity may be just around the corner.

Monday, March 28, 2011

When Not to Talk with a Realtor

(Originally published March 2011)

I try to attend at least one networking event in the community each week and I occasionally meet other Realtors. Because we’re working the same crowd it is easy for us to chat with a group of people. But sometimes I have to politely end a conversation with a Realtor and so should you. Here are four conversational clues that tell you you’re not talking with a professional.

“It is unbelievable!” If this is the response you get after you ask, “How’s the real estate market?” you should walk away. This reply was heavily touted in training materials in the 1950’s so that, whether the market was good or bad, the agent would have an immediate, positive reply. It is still being taught. This particular reply is also outdated, unconsidered and, literally, not to be believed. If I ever say this off hand you have permission to stomp on my foot.

“…but I used to be an engineer.” An immediate disclaimer to the question, “What do you do?” should not be “I’m a real estate agent, but I used to be…” This person is probably embarrassed about his/her career choice and may not be around long.

“It is a [insert possessive noun] market.” A professional won’t bifurcate the marketplace when you ask what the market is like. It is always a buyer’s or seller’s market. She or he should have a more academic answer.

Finally, if a Realtor you’re speaking with says, “Call me when you’re ready to buy or sell,” this person is putting profit over value. I want you to know that you may call me (352-1222) for any reason.

I truly appreciate your friendship and referrals.

What do I need to know about lead paint in older homes?

If you’re planning to buy, rent or renovate a home built before 1978, you need to read the Renovate Right brochure produced by the U.S. Environmental Protection Agency. (www.epa.gov/lead/pubs/renovaterightbrochure.pdf).

In it you’ll learn that lead-based paint, which is dangerous to adults but especially to children under six years of age, was used in more than 38 million homes until it was banned from residential use in 1978.

You have the option to hire a certified risk assessor or inspector to check for lead-based paint (call the National Lead Information Center for help finding one). Or you can assume that it’s present if your home was built prior to 1978 and follow the practices in the brochure.

Federal law now requires that contractors performing renovation, repair and painting projects that disturb painted surfaces in these homes be EPA Lead-Safe Certified. You can use the search tool on the EPA web site to find a certified renovator near you or call your local homebuilders’ association for a list of certified remodelers. After the job is complete, be sure to save the records so you can pass them on if you decide to sell your home.

If you have any questions, or need capable and trustworthy representation, please email at jmarshall@cbcworldwide.com.

SCMPD Warns Savannah Residents

(Orginally published February 2011- you heard it here first!)

Savannah/Chatham County Police Department advises that they are experiencing a high amount of HVAC unit thefts in vacant homes listed for sale or for rent. Current target area is Southside and West Chatham county. Please call 911 to report any suspicious activity around vacant homes!

Professor promotes plight of real estate walkaways

By Mary Umberger, January 24, 2011.

Some people regard Brent T. White's point of view as an affront to basic notions of right and wrong -- perhaps even a threat to the general financial well-being of the country.

Others see him as a voice of reason, a calm explainer of a stance that just a few years ago was nearly unheard-of in this country: that walking away from a mortgage contract not only can make financial sense for some homeowners, but it also can be morally justifiable, an act that shouldn't be a source of shame.

White has written extensively on the legal and psychological aspects of "strategic default" -- the apparently burgeoning phenomenon in which homeowners deliberately default on their mortgages because their homes are so far underwater they figure that continuing to make payments amounts to throwing away money.

White's expertise in the realm of distressed real estate is both professional and personal: He's an associate professor of law at the University of Arizona who has studied the attitudes of underwater homeowners and published academic research on their behavior. He also said he recently sold his own home through a short sale, though in an interview he declined to elaborate on his own circumstances.

He has authored "Underwater Home: What Should You Do If You Owe More on Your Home Than It's Worth?" an e-book that's a how-to guide for homeowners who are struggling to understand their options, including bankruptcy, loan modification, short sale, walking away from the loan, or continuing to make their payments.

White contends that underwater homeowners suffer under what he describes as a "moral double standard" -- that although major corporations can and do default on soured business deals with some frequency (and with barely a ripple of public scorn), ordinary homeowners "who default on their mortgage are frequently portrayed as irresponsible (and) called deadbeats," he wrote in the book.

That attitude is unfair to walkaways, most of whom aren't guilty of reckless borrowing so much as they are of buying at the wrong time and watching helplessly as their home values plummet, White said in an interview. He said some of them would be right to consider dumping their loan -- and their home -- before their financial worlds cave in completely.

This advocacy of walking away -- under certain circumstances -- has made him a lightning rod in the arguments over strategic default.

But his extensive writings have generated significant media attention, including an appearance last year on "60 Minutes," where he said "people feel too shameful about letting go of their home, and in fact, people might be better off making economic decisions, rational decisions in their best interests."

He isn't surprised that many people have taken exception to his viewpoint, he said.

"I got lots of hate mail and I got a few threatening notes," said White. "I had people write to the university to demand that I be fired and people threatening not to give money to the university because of what I wrote."

He also has plenty of supporters, he said.

"I get 10-to-1 positive reactions as opposed to negative ones," he said.

White's basic premise is that a mortgage isn't a moral document -- it's a straightforward contract between a borrower and a lender in which both parties agree that if the borrower can't or won't make his payments, the lender will get something of value in return: the house.

"Think of the contract as similar to a prenuptial agreement when getting married," he wrote in the book. "Both parties hope things will work out and commit to try to make it work. But both also understand that it may not. As such, they agree in advance who gets what if they dissolve the relationship.

"Your agreement with your lender is that (the lender gets) the house."

Bankers are well aware of the tactic of strategic default, he said: They've engaged in it themselves. He cited the 2009 example of Morgan Stanley intentionally defaulting on a $2 billion loan after the value plunged on five San Francisco buildings it purchased in 2007 -- a situation he described as neither unusual nor illegal.

"What Morgan Stanley and other financial institutions don't want you to know, however, is that you have the same option to default on your mortgage," he wrote in the book.

Besides, he said, given a choice between making house payments or feeding and educating one's kids, homeowners' greater responsibility is toward their families' needs.

He also rejects the argument that homeowners are wrong to strategically default because of the potential collateral damage to the economic stability of their neighborhoods. Some critics take their concerns further: that if walkaways occur in large enough numbers, there's potential harm for the overall economy.

White said it's too much to ask individuals to "prop up" neighborhoods by carrying bad loans at the expense of squandering one's savings, forgoing retirement, raiding the children's college fund or using credit cards to pay for groceries.

And numerous researchers, he said, have disputed the contention that large numbers of walkaways will further undermine the economy.

Another caveat is that although walking away may lessen a homeowner's immediate problem, it could amount to financial suicide for his or her subsequent credit ratings.

But White said that's not necessarily so: The long-term effects on an individual walkaway's credit and whether the lender can sue to recoup losses on the loan can vary widely, depending on the state where the defaulter resides and other concerns; in some cases, a credit score may heal significantly within a few years, he said.

"What I argue is that there is not a moral obligation to pay your mortgage, and the consequences may be much less severe than people think," he said.

White is unwilling to elaborate on his own homeownership history. When asked about a Tucson house in his name that had been advertised as part of a foreclosure auction, he declined to discuss his own experiences.

"Like most people, I like to keep my personal affairs private," he said in an e-mail in response to an Inman News query.
"However, I did sell my property in a short sale at the end of the year. My writing wasn't inspired by this decision, but my decision was informed by my research. While I am happy to discuss my research, I won't talk further about my personal circumstances."

In the interview, White said that, rather than heaping scorn on walkaways, the public should focus their disapproval on those banks that fostered dubious lending standards and that now exploit people's sense of shame in order to dissuade them from defaulting. He's also critical of those in the housing industry who fanned unrealistic consumer expectations during the bubble buildup.

"Sure, some homeowners bought more than they should and behaved in an irrational way, but most people who are underwater are people who just bought at the wrong time," he said.

"They believed they were behaving responsibly," White said. "They were told you were irresponsible if you rented, that (buying a home) was the best investment you could make -- it came from the government, from (the U.S. Housing and Urban Development Department), from the media and the real estate industry."

He isn't finished on that topic: He plans to release a research report in February that takes the real estate industry to task.
White said in the interview that many in the real estate business contributed to the housing bubble by offering legal and investment expertise that exceeded their legally defined roles as sales agents. In his report, he'll call for increased regulation of the industry, he said.

"I believe that most real estate agents try to do a good job," White said. "(The report) is not an attack on the real estate industry."

But he expects it to generate another cloud of controversy.

"I think there are a lot of real estate agents out there who agree" that the bar for entry into the business needs to be raised, he said. "Others will be quite angry. But I think we need to have a conversation about it. I'm actually quite hopeful that it will begin a conversation."

What do you think? Leave a comment or send me an email at jmarshall@cbcworldwide.com.

Capital Gain Taxes – The Same for Now

(Originally published December 2010).

Toward the end of 2010, many people wondered what would happen to capital gain tax rates on January 1, 2011.  Some even scrambled to close the sale of property before the end of the year.

As it turned out, Congress extended the capital gain rates in mid December; at least for two years. The following is a brief summary of portions of the Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010 (referred to as “the extension of the Bush Era Tax Cuts”) which are likely to impact real estate investors.

Capital Gain and Dividend Rates – Current rates were extended for two-years for all taxpayers with a maximum rate of 15% for both.
Personal Tax Rates – Current rates were extended for two-years for all taxpayers with the top rate remaining at 35%.
Social Security Tax – The employee tax rate of 6.2% on the first $106,800 of wages drops to 4.2% in 2011.
Alternative Minimum Tax – Current exemptions were extended for all taxpayers for two-years.
Death/Inheritance/Estate Tax – An exclusion amount of $5 million and a tax rate of 35% for amounts in excess of the exclusion was established for two-years; the exclusion will become indexed beginning in 2012.
Gift Tax – Like the Death Tax, a Gift Tax exclusion amount of $5 million and a tax rate of 35% for amounts in excess of the exclusion was established for two-years, with the exclusion being indexed beginning in 2012.
Other Extensions – The $1000 child credit; an additional standard deduction for real-estate taxes; extension of 15-year cost recovery for certain leasehold improvements, restaurant buildings and qualified retail improvements (through 2011); and the extension of various energy credits (through 2011).

Although the legislation provides some certainty for two years, we may find ourselves questioning our future rates again in 2012.  Since that is also an election year, it may be interesting!

This information is accurate, yet not cited and was provided to me by Connie Ray, broker of Platinum Partners.