Northern Virginia Turn Around Full Throttle!

Wow! I’ve never seen this kind of turnaround happen so quickly. In just a few months, we have gone from negative numbers in every category to double and triple positives all around Northern Virginia (just outside Washington, D.C.). Here’s what’s happening:

The foreclosure market has created a feeding frenzy for properties priced under $500,000. Nearly 36% of all homes on the market under $500K are foreclosure homes. Only 6% of listings over $500K have that distinction. Thus, prices have reached a psychological barrier point, which has brought out buyers in the thousands around the Capital area. (Stats available at http://www.mris.com/, click Market News.

The buyers are competing again for properties priced right and in good condition. It is not unusual with the foreclosure market to see 10 or 20 contracts competing. Many of the foreclosures need only cosmetic fixes and some have upgraded kitchens, baths and flooring. More are coming in the next month.

There are plenty of fixer uppers available for those willing to apply “sweat equity” to build wealth.

Prince William County is the county of affordable housing once again. I’m seeing more and more first time buyers back in the market, purchasing single-family homes starting in the $100,000’s. (These homes are also enticing for investors!)

Prices are now holding. If you are buying, more than likely you’ll be paying closer to asking price now than was possible just a few months ago. Buyers on average are paying 97% of list price.

So what? What does that mean to you? If you purchased your home in 2005 or earlier, then now is the time for your move up. Real estate is local and all the signs are lining up: shrinking inventory, increasing demand, holding prices, lower interest rates. Move up into that larger home (or your first home!) before the prices or interest rates make it out of reach!

Until next month…

It's a REAL Spring Market - Northern Virginia Real Estate

Days on market have dropped. My team members and I are hitting up against multiple offers on listings. Listings in the office are selling. Traffic at open houses are up by 40% in some communities. And the number of contracts written in our market are outpacing last year’s levels. What’s more important to home owners, we are seeing pocket markets that are starting to appreciate.

When looking at the last two springs, this spring market has really taken off. The market has turned around and it starts in the Capital city of Washington, D.C. and is moving out from there (as it has year after year). What’s more important is that the latest financing regulation changes have included the Washington, D.C. as a high-priced region. This means that conforming loan limits around your home will be at the highest level possible -- $729,750. Before this latest move, loan limits for conforming loans were at $417,000.

So what? What does that mean to you? If you’re looking to sell, it now means more buyers may have been brought into the level it would take to purchase it. In addition, it means better loan programs with lower interest rates – in essence, money just got cheaper.

Should You Invest In Foreclosures?

Periodically I hear from readers who want to make $1 million in real estate -- quickly and with no money down. Usually they want to know more about real estate foreclosures -- how to buy them and how to profit from such homes. I've participated in a couple of these deals, and I'm now working on my second million -- I gave up on the first.

Foreclosure properties can be a good place to invest for exponential growth (or loss). There are some deals out there for little or no money down, but potential investors should take precautions because foreclosed properties can involve significant risks.

There are various ways to invest in foreclosure properties. The first and probably most popular is to purchase a property, fix it up and then rent it out, hopefully creating a positive monthly cash flow. The investor then becomes a landlord, with all the responsibility of an investment property owner.

The second way to invest is to seek out foreclosures or "handyman" specials, buy them, invest more money to fix them up and then sell them, taking -- hopefully -- a profit once the house is sold.

A third approach is to purchase a foreclosure that is underpriced and selling it immediately at a higher value.

One way to sell homes for a higher value is to take back a mortgage. For example, let's say a house worth $100,000 is sold at a foreclosure to an investor for $50,000. The investor may put down 10 percent and assume or create a new mortgage for $45,000. The investor then advertises the property at a discount, say $80,000, offering 100-percent seller financing (remember, we're figuring that like houses are worth $100,000).

The owner hopes to create a sense of urgency by underpricing the house and pulling in buyers.
If successful, the investor takes a promissory note from the new purchaser for $80,000. He has now created a $35,000 note for himself (The difference between the $80,000 sale price and the original $45,000 mortgage). The new buyer makes payments to the investor for an $80,000 loan and the investor makes payments on the original loan for $45,000. In real numbers, here's what it would look like.

If the original loan is for $45,000 at 8 percent over 30 years, the principal and interest is $366.88. When the second buyer takes a note for $80,000, the investor may charge a bit higher interest since he's offering 100 percent financing.

Let's say he offers an $80,000 loan, 9.5 percent over 30 years. The monthly payment is $672.68, creating a positive cash flow of about $306 per month.

If the borrower stays in the house for 30 years, the investor will make $88,295 in interest and $30,000 in capital gains after he's paid his own interest on the first note for a total return of $118,295. Not a bad return on a $5,000 downpayment.

Keep in mind that not all mortgages allow an owner to "wrap" a second mortgage onto original loan. Most loans today contain a "due-on-sale" clause, meaning if the property is sold, the first trust must be paid off immediately. Wraparound financing is popular when investors purchase foreclosed Veterans Affairs (VA) properties as the VA allows wrap-around loans in such cases.
Before you go out, checkbook in hand and ready to bid away, take some advice first.
If you're deciding to invest in foreclosure properties with a spouse or with other investors, be sure that everyone understands this form of investing. You are about to enter a world of high finance, property management, calls in the night from tenants and other risks that regular homeowners never experience.

Second, get educated. Reading this column does not constitute preparing the first-time investor to start bidding on properties. There are plenty of real estate agents and auctioneers who do this on a daily basis and would be happy to educate you in the world of foreclosure properties. Also, visit the bookstore for guides by reputable authors who know investment intricacies.

• Third, be realistic.
• Not all foreclosures are good deals.
• Not all foreclosed properties are available at discount.
• If you take back a loan your buyer could default.
• Most loans today prohibit wraparound financing.
• Repairs might be far more than you expect.
• Not all tenants pay their rent on time -- or at all.
• Some renters damage property.
• Changing interest rates could impact your bottom line.
• It may not be possible to re-sell the property without extensive -- and costly -- repairs.
• Not every deal yields a profit.
• If you have a profit you may face taxes.
• If you only look at foreclosures you may miss other investment opportunities.

The list of potential downers goes on...and on and on.... Think of it this way: If making money with foreclosures was both easy and a sure bet every time, no one would bother with IPOs -- or jobs.

Fourth, get professional help from brokers, lenders, attorneys, accountants, home inspectors, and others.

Whew! The market's turning

We are ahead of last March at this time by about 10%. Foreclosures are the hot commodity right now, drawing multiple offers left and right. This week, we were involved with two foreclosures -- one had 10 offers; another 13.

Prices are stabilizing and moving upward in some areas in the DC market. I'm seeing the same thing happening around the eastern seaboard. See my piece on http://www.realtytimes.com/ (http://realtytimes.com/rtpages/20080305_condotrends.htm) about the bottoming out of many markets across the country.

Report: Best Time To Buy In 4 Years

By Tim McLaughlin

According to a report released by CNN this past week, it may be the best time to buy a house in more than four years.

Valuations on home prices (the difference between what a home should cost and its actual price) are the lowest they've been since 2004, according to the report.

The Cleveland-based bank National City Corp, together with financial analysis firm Global Insight, revealed Tuesday that more than 88% of the 330 housing markets surveyed showed improved affordability during the last three months of 2007.

"Housing valuations are almost back to long-term norms," said National City's chief economist, Richard DeKaser. He called current affordability "the best in the past four years."

The report compares actual median home prices with what the authors determine are proper home values based on population density, relative income levels and interest rates, as well as historically observed market premiums or discounts, to determine whether markets are over or under valued. The report also factors in market intangibles that make some areas more desirable places to live, and more expensive.

The survey covered home valuations during the last three months of 2007, but DeKaser pointed out there's reason to believe that valuations are even more favorable for buyers today Interest rates, although they have inched up lately, have been steady or lower compared to late last year, and are certainly lower than historical norms.. There have even been wage gains; personal income rose 0.5% in December.

Takeaways: With the spring market upon us, economists and industry experts appear to be in agreement regarding the current value proposition regarding residential real estate and the strength in buying opportunities vs. any point in the foreseeable past. The home of your dreams in well within reach and more obtainable today than ever before. Fair market prices, affordable interest rates, and the most knowledgeable team of financial consultants can make that dream a reality. At Weichert Financial, with an array of product options and the expertise to assist, we are here to help. What can we do for you? It pays to ask.

Tim McLaughlin is senior vice president of secondary marketing for Weichert Financial Services.