The Obama tax hikes, the largest tax hikes in America history will take effect January 1, 2011. Hurting families and small businesses next year.
The first hit is the expiration of the so called Bush Tax Relief Acts. The 2001 and 2003 enacted tax cuts for investors, small business owners, and families will expire.
Then, personal income tax rates will rise. On top of this, itemized deductions and personal exemptions will phase out, having the same effect as higher marginal tax rates.
New rates will be:
- The 10% bracket rises to an expanded 15%
- The 25% bracket rises to 28%
- The 28% bracket rises to 31%
- The 33% bracket rises to 36%
- The 35% bracket rises to 39.6%
The marriage penalty returns on the first dollar of income. The child tax credit will be cut in half. The standard deduction wont be doubled for married couplesas it is now. The dependent care and adoption tax credits will be cut.
Then the return of the Death Tax. Now there is no death tax. Die on or after January 1 2011 and there is a 55 % top tax rate on estates over $1 million.
Higher tax rates on savers and investors. The capital gains tax will rise from the current 15 % to 20 %. Dividends tax will rise from 15 % to a whopping 39.6 % in 2011. Then in 2013 the rates will rise another 3.8 %.
All this will make us bring home less of our paycheck, owe more at tax time and create a negative effect on saving and investing. Hold on to your cash, your going to need it.
We received the latest list of advertised foreclosures in the Barrow, Forsyth, Fulton, Gwinnett, Hall & Walton counties only. There were over 6,100 advertised foreclosures and that did not include the other 5 metro counties like Cobb, Paulding, Cherokee, Douglas, & Dekalb. We reported back in August what we thought was a record which was close to 5,000, so this month’s numbers are very shocking.
What we found when we look at the list this month was a lot more commercial properties which is also unusual. Even properties that are highly desirable and have tenants are being foreclosed. We read about the new shopping center in Norcross – The Forum, narrowly escaping foreclosure last month. In that article, it forecasted that there would be additional commercial up for foreclosure, but I had no idea that the amount of foreclosures would be this high.
So what is going to happen with this additional inventory coming onto the market? You probably remember your economics 101 class – more supply, less demand equals lower prices. Just when you think it can’t get even lower, we find that there is a near 20% increase into an already bulging market.
While this is a great opportunity for some, it is creating additional challenges for those who need to sell. Someone recently shared with me the concept that sellers are under “house arrest” because there is nothing that they can do to liquidate their home without taking a large loss in equity. Most homeowners are counting on their homes’ equity for retirement and with prices falling at an alarming rate, it is going to take a long time to recover from this loss.
So what is the upside in this? The only thing we can share is that if you are in the market to purchase, there is no better time to buy. If you can put up with the challenges of working with banks, there is great money to be made. Banks are realizing that there are not enough qualified buyers for their homes, so relatively reasonable offers are being considered and whether you are purchasing to occupy or put into rental service, the discounts are amazing.
If you want to take advantage of this great market, make sure that you are working with an expert real estate agent that understands how to work with the banks to get your deal accepted. Also, because the market is shifting, you want to make sure that you are getting the best information possible about a home and area to make sure that you are able to make the best buying decision.
The number of advertised foreclosures this month is 4957 for Hall County, Barrow County, Forsyth County, Fulton County, Gwinnett County, Hall County, and Walton County. This number does not even include Cobb County, Dekalb County, Paulding County, Cherokee County and Douglas County.
In July there were 4415 advertised foreclosures in those same counties that were scheduled for sale on August 4, 2009. Just how many actually foreclosed is yet to be determined. This month, however, we see that there is a 10% increase.
We have been tracking the foreclosure rates for those counties for years and never have we seen these kinds of numbers. Georgia is a non-judicial foreclosure state which basically means that after 4 weeks of advertising, the lender can foreclose on the property through a sale on the courthouse steps.
So what is going to happen with all of these homes that are now owned by the bank? They are going to try and sell them at greatly reduced prices. This can be good news or bad news depending on your situation. If you are a buyer, there has never been a better time to purchase a home. The incentives for first time homebuyers are really phenomenal. Have you heard about the $8,000 Federal and up to $1,800 State credits available? Learn more details.
However, if you are an existing home owner, you are seeing your property values drop like never before. Most people who bought in the past 10 years purchased houses with a first and a second mortgage. When the bank forecloses all junior liens are wiped out. Therefore the bank that performed the foreclosure has a house that already costs significantly less that other homes in the neighborhood that were bought around the same time.
For example a house that normally would cost $100,000 has a first mortgage of $80,000 and a second mortgage of $15,000. Typically the owner would have paid $5,000 for the down payment. So let’s say the owner has lived in the property for 3 years and now can’t make the payment. The first mortgage would foreclose and purchase the property at the steps for roughly $78,000. Let’s say it costs them $4,000 to actually foreclose. They then list the home for sale at $85,000. So the other homeowners in the neighborhood who need to sell are competing with the banks selling what would normally be a $100,000 house for $85,000. So they have lost $15,000 in equity.
In addition banks are now competing with each other since there are so many of them on the market these days, that they are lowering their prices even further just to move the house off their books and to take the loss.
As a buyer in today’s market, you are most likely looking for opportunities where you can purchase a home with substantial equity. In recent years, short sales have emerged as an attractive option for savvy buyers. However, you should be aware of both the rewards and risks of purchasing a short sale.
The main advantage of a short sale is that you can purchase a property for quite a bit less than market value. Home owners who are behind on their mortgage payments will often consider a short sale as an alternative to property foreclosure. This means that you have the opportunity to negotiate a low purchase price with the lender, so you can benefit from the reduced price when you resale the home in the future.
One of the main difficulties with a short sale is that you may experience resistance from the lender when making a purchase offer. By definition, you will offer less than the home owner owes on the mortgage, so the lender will incur a loss on the short sale. However, many times, a short sale represents a smaller financial loss than a foreclosure, so the lender may be willing to entertain your offer with a bit of persuasion.
The other big disadvantage to a short sale is the amount of time it takes for the lender to agree to a short sale. Therefore, if you are in a hurry to purchase, you are on a strict timeframe, you should really consider this before you move forward. We have seen short sales take 2-3 months to close. There are also other considerations like inspections, repairs, and seller contributions that would need to be discussed with your real estate agent for clarification if this is a good strategy for you.
Overall, a short sale poses fewer risks than other types of foreclosure or pre foreclosure sales. If you have the time and patience to devote to contacting sellers and lenders to arrange short sales, this can be a valuable and profitable investment.
As a real estate agent, we help both buyers and sellers navigate the short sale process.
If you are buying properties for renovation and resale, or a homeowner who is getting a home ready to put your home on the market, you will likely have to deal with contractors during your home’s renovation. While hiring contractors can save you quite a bit of time and help you get your home on the market more quickly, there are a few steps you should take to make sure your contract work goes smoothly.
First, develop a written work plan with your contractor. The work plan should state, in detail, the work that is to be done, the timeframe for completion, and the price that is to be paid for the work. This helps ensure that you and your contractor know exactly what you expect. It’s also a valuable document to have in case the contractor does not complete the work correctly.
Second, pay only for progress. Some contractors will ask for some or all of the fees up front. It’s important get clarity of what you are paying for if you agree to an up-front fee, because it will be difficult to get this money back if the contractor does not complete the work to your satisfaction. Often, you can negotiate a series of smaller payments as portions of the work are completed – this benefits both you and the contractor, because you are more likely to see progress, and the contractor can recoup expenses as the work is being done. We will pay for the materials directly and then do progress payments for the labor.
Finally, make sure that any changes are made in writing. If your contractor needs to extend a deadline, substitute building materials or fixtures, or make any other changes, it’s not enough to rely on a verbal agreement. Your contractor must be willing to commit to all changes in writing.
Other items to consider is making sure that the contractor has the proper credentials as well as insurance – liability and worker compensation. When working with contractors that don’t have the proper credentials and insurance, you put yourself and your home and assets at risk.
Quick turns can provide substantial profits if you take the time to properly research the homes you are interested in buying. You will want to look at comparable homes for sale in the area, to determine the best price for your property. If you exercise patience and persistence, you can purchase properties below market value, so you can sell them for a profit.
There are several risks involved with a quick turn real estate investing strategy as well. First, you may incur unexpected repair and renovation expenses after purchasing the property. You can make a reasonable estimate of these expenses by walking through the home and looking for the cosmetic items as well as purchasing a home inspection. Yet, even with these reports, often times you find that there are items that go above and beyond your initial budget once you start the project. We recommend that you build in a financial cushion for surprise expenses when determining if an investment will likely be profitable. Typically, we suggest 10 -15% of the overall initial cost just to be on the safe side. If not needed, you have only enhanced your overall profit.
Another risk is that you may be unable to sell the home quickly after repairs and renovations have been completed. Even the perfect home can sit on the market for months, and you will be responsible for mortgage payments, taxes, insurance, and other expenses until the property is sold. You should have an alternate plan, such as renting the home to tenants, in case the home does not sell as quickly as you had hoped. So you might want to establish a relationship with a property management company or be prepared to become a landlord.
You might also want to consider the tax implications of this investment strategy. When you purchase and sell the property in less than 12 month’s, the IRS looks at the profit you make from the sale as ordinary income. This will mean that all the profit from the sale will be taxed as your normal tax bracket. So if you make $50,000 profit, your tax will most likely eat almost 40 to 50% of that, but the time you calculate your federal & state tax rate.
It may be possible to accurately assess these risks yourself when evaluating and purchasing investment properties. However, you can save yourself quite a bit of time and expense by hiring a REALTOR® to help you navigate the quick turn process. An experienced REALTOR® who is a seasoned investor themselves, will help you find properties that will make profitable investments, and help you sell the home as quickly as possible once your repairs and updates have been completed. Not all real estate agents understand investing, so we highly recommend that you interview thoroughly to make sure the agent you have selected can provide you with accurate information and assistance.
As a real estate investor, you likely have visions of a life filled with easy income and plenty of free time for travel and leisure. Although real estate investing can certainly bring you wealth and a lifestyle most people only dream of, you need to be aware of common mistakes made by new investors. Being aware of these errors can help you avoid them, and build a profitable investing business that will support the lifestyle you desire.
The single biggest mistake made by new real estate investors is lack of planning. Many new investors fail to develop a long term strategy, instead choosing to plan as they go along. Without a clearly defined set of goals and a detailed plan for achieving them, you will likely make investment decisions that are not optimal for long term profitability. The properties you choose for purchase should fit your investment strategy, not the other way around.
The second mistake make by many investors is failing to properly account for cash flow. While you are the owner of an investment property, you are responsible for not only the mortgage payment, but also the property taxes, insurance, maintenance, association dues, and other expenses that come with owning that home or apartment building. If you find that your rental income is not covering your expenses, you may find it difficult to raise your rent without losing tenants. If you are renovating a home for resale, the property may sit on the market for several months before you locate a qualified buyer. Make sure that you have adequate cash flow to cover expenses during this period.
A third common mistake new real estate investors make is planning for only one exit strategy. If you buy a property with the intention of renovating and selling it, you will need to develop another exit plan if the house doesn’t sell. You could rent the house out until market conditions improve, or offer a buyer a lease-purchase option. Your back up strategies might be less than ideal, but they can keep you from losing money on your investments.
The fourth common mistake is thinking that real estate investing is a ticket to fast wealth. Unless you realize from the beginning that investing takes hard work, patience, and a long term plan, you are likely to become discouraged and give up before you start seeing the kinds of profits that will allow you to live a life of freedom.
Finally, the fifth mistake made by many new investors is deciding you can handle all of the aspects of investing yourself. It’s impossible to be an expert at every facet of real estate investing, so a smart investor will develop a “team” of professionals, such as an attorney, an accountant, property manager, a real estate agent, and several remodeling and maintenance professionals. This will ensure that all aspects of your business are handled correctly, and free up your time so you can continue to develop your real estate empire and long term wealth.
If you are interested in getting started in real estate investing and are interested in Georgia properties, we would appreciate the opportunity to serve you. Find out more about us at http://www.AtlantaHousingSource.com.
If you have been planning to buy a home, you may be looking at purchasing a foreclosed home from a bank or investor as an option. While buying foreclosures is an attractive strategy for many people, it bears both risks and rewards.
The biggest reward of buying foreclosed properties is that you can often obtain a deep discount – between 35 and 45 percent, off the market value of the home. This gives you quite a bit of room to profit from the resale of the home, particularly if you can find a foreclosed property that only needs cosmetic repairs and upgrades. On a $200,000 home, you could make as much as $90,000 profit, minus repairs and fees.
One of the downsides of investing in foreclosed properties is that it takes quite a bit of work and research to find good investments. You will need to be able to research opportunities and determine whether they will make profitable investment. This is where a good real estate agent can help you tremendously. They can research the comparables and advise you on the values in the neighborhood.
One of the riskiest aspects of buying foreclosed properties is that underestimating the amount of repairs required on the property. Even with a home inspection to help identify the potential issues with the home, it can sometimes be difficult to determine the total cost to get the property in proper condition.
Another common problem when buying foreclosed homes is title encumbrances. While the closing attorney will perform a title search (although this can be expensive) to make sure you will be able to obtain a clear title for the property, the do this to protect the lender and not you. We also recommend purchasing an enhanced owner’s title policy to best protect your interests in case there are any issues with the title with the property. With all the foreclosures happening in today’s market, we are finding that even with title searches, there are issues with title and you want to make sure that you are covered.
Typically, a 3 to 10 percent down payment will be required for the purchase of a foreclosed home depending on if it can be financed as FHA or conventional loan. If the property needs repairs, they cannot typically be financed unless you get a special FHA loan called a 203K loan. This type of loan typically requires an owner occupy the property and is not for investment homes, so you need to make sure that you have enough money to pay for these repairs.
There is a lot to consider when purchasing bank owned properties, so make sure that you are working with a team of professionals to make sure that you have all the information that you need to make a good decision.
Buying a property as a real estate investment, fixing it up, and selling it quickly is an attractive real estate investment strategy. The potential for large profits can be a great reason to purchase a “fixer upper”; however, you need to be aware of the risks as well as the rewards of buying such a property.
The major advantage of buying a fixer upper is that you can often obtain such a property below market value, giving you plenty of opportunity to sell it at a profit later. Often, the owners of fixer uppers are financially unable to make the necessary repairs to such homes, and would rather sell the properties than worry about upgrades and repairs. This gives you the leverage to negotiate a lower price.
The first major downside to this investing strategy is that you will have to front the costs of the repairs yourself. You can make an estimate of repair costs when evaluating a fixer upper home for purchase, but you’ll need to build in extra costs for undisclosed damage and surprise repairs. Properly accounting for repair costs is critical to your success as a real estate investor – being too optimistic about repair costs can cause you to end up spending more on renovations than you can make with the resale of the home.
Another risk of buying a fixer upper is that the home may be located in a declining area. While some fixer upper homes are located in desirable neighborhoods, many more are in areas where neighboring properties are also in disrepair. If this is the case, it will be difficult to sell your investment home, no matter how much time and money you have spent renovating the property.
Finally, you should be prepared for the risk that it may take quite some time to find a suitable buyer for the home, no matter what kind of neighborhood the property is located in. You will need to sell the home for substantially more than your purchase price, and buyers may be hesitant to pay much more for a home than it was worth six months or a year ago.
Here is a video of an investor’s rehab before. We will be posting the after in the next couple of days. This 3 Bedroom 2 Bathroom house with a full basement is currently available for rent in the Peachtree Corner’s area of Norcross for $1,295.00. You can see more details about the house at http://www.solidsourcepm.com/homes/detail/123/.
