FHA Loan Limit Back to $400,000 in Las Vegas

This has been confirmed! The FHA Loan Limit on Residential Real Estate in Las Vegas, NV among other areas has been moved back up to $400,000.

This is a game changer for our market! Since the loan limit was lowered at the beginning of the year, some have been very concerned about values in Las Vegas in the range between $417,000 (Conforming Loan Limit) and $287,500 (2009 Previous FHA Loan Limit). It was though that because of the difficult conforming loan guidelines and Mortgage Insurance (MI) policy guidelines, homes of that value would further deteriorate down to FHA limits. With limits raised back up, I think we averted this disaster. Couple this with continued low interest rates and we could see a market stabilization. Let’s keep our fingers crossed!

If you would like to confirm for yourself, here is the link to the loan limit website for HUD:
https://entp.hud.gov/idapp/html/hicost1.cfm.

Also, now that the loan limit has been raised again. Those that have FHA loans in that range can now take advantage of the FHA Streamline feature and capture the lower rates.

If you would like help taking advantage of these new developments, please contact me.
www.CapeCodAREI.com/contact

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Apartments are empty because people would rather rent houses.

If you were forced to move out of your house, and you looked in the newspaper right now, would you look under apartments for rent or houses for rent? The answer is simple. In addition, in many cases, you can convert that renter into a tenant-buyer, over time because they used to own a home and now have poor credit. If you offer them a chance to own your property with seller financing, in many cases they are going to do it. There is not a better tenant on the planet than a tenant-buyer. They are never late on the rent, they don’t call you when something breaks, they care for the yard and eliminate the need for property management.

I love the doom and gloom that is constantly being reported.  A new Forbes.com ranking lists Las Vegas as the emptiest city in America, the result of the foreclosure crisis and the surplus of empty homes and apartments built when times were good. Construction has ground to a halt. The Commerce Department reports that new home construction dropped 16.9 percent in January when compared to the previous month. That’s the sharpest month-to-month decrease ever.

There are apartments currently offering a flat-screen TV, two months free rent, and $100 off per month.  With apartment vacancies becoming more common around town, apartment owners are offering better and better incentives. But if you have a single family home for rent in good condition in a good neighborhood, you can still fill that up as people who have been forced out of their homes are not thinking about renting apartments.  If you were forced to move out of your house, and you looked in the newspaper right now, would you look under apartments for rent or houses for rent?  The answer is simple.  In addition, in many cases, you can convert that renter into a tenant-buyer, over time because they used to own a home and now have poor credit.  If you offer them a chance to own your property with seller financing, in many cases they are going to do it.  There is not a better tenant on the planet than a tenant-buyer.  They are never late on the rent, they don’t call you when something breaks, they care for the yard and eliminate the need for property management.

The national apartment rental vacancy is at 10.1 percent, up from 9.6 percent one year ago.  And as real estate values continue to dip, homeowners are finding themselves upside down with their mortgage, forcing banks to foreclose and leaving people without their own home, but they still want to live in one.

Passing Detroit as number one wasn’t easy.  The Motor City has seen a heavy decline due to the ailing automotive industry.  But the appeal of Vegas will never die and people should be careful in comparing Las Vegas real estate to Detroit.

In the short run, Las Vegas is going to suffer a little bit just like everyone else. But people are still moving here. December saw an increase in population of 4863. Detroit, nor any other city in the country can make that claim.   And while those numbers are down slightly for Las Vegas, they still are much higher than anywhere else. The demographic trend is still to the southwest, and who can beat weather? Boston is reporting a high of 33 degrees Fahrenheit today with snow possible for Sunday. It will be windy and 65 today in Las Vegas and 70 on Sunday.

Your vacant rental house only has to be more attractive to live in than those apartments and other houses you are competing against. This is a large part of the reason why location is so important. Many investors don’t understand the neighborhoods to buy their rentals in and this can make a significant difference.

If you are even considering investing in Las Vegas real estate, I urge you to contact me.  www.CapeCodAREI.com/contact Let me show you why you should.

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New Real Estate Contract Guidelines?

I have probably written over 200 real estate contracts. I have had 35-40 offers accepted, and entered the due diligence phase on those.  I have closed on the purchase of 25 properties now.  There is one item that has been a hassle for me on 3 different occasions.  Getting my earnest money back.

First, in case you are not aware, let me explain some important elements to understand about escrow.  Usually, the seller gets to decide who will hold the earnest money in escrow. This never concerns me because the fiduciary duties of the escrow agent are clear. They must remain impartial and only do as instructed by both parties. The reason this is key, is that if the sale does not go through for any reason, the escrow agent will not release the money to one party without the other party’s permission. If there is a dispute, it is not for the escrow agent to preside over the dispute. In some states, the escrow is held by attorneys, in others, like Nevada, it is held by a Title Company. 

So on 3 different occasions as a buyer, I have had a seller try to ‘strong arm’ me into giving them some of my earnest money when I did not buy. As near as I can figure, they determined that it would cost me a certain amount of legal fees to prove that I had done no harm, and not been in breach of the contract. So, if I just give them an amount of money less than that, I come out ahead. 

I read somewhere recently that the United States has 20% of the worlds population, and 80% of the worlds civil lawsuits. This is a large part of the reason why. People want money that they are not entitled to. And so contracts get longer, and longer, and longer.

The first time this happened, was over a pretty small amount of earnest money ($2,500) and the seller eventually gave in and signed the agreement. I believe their realtor may have convinced them to. 

The second time, the earnest money was $10,000 and the purchase was in another state (Tennessee) and we eventually decided to give them $2,000 – not because we were wrong, but because it was going to cost us at least that much to fight them.  I call that extortion.  You call it what you want.  It happens often in our legal system. Someone files a lawsuit that has no real basis, and the defendant pays them some amount of money without admitting guilt – because it’s cheaper.  The media will always paint this settlement as an admission of guilt.  It’s just sad.

I’m currently involved in another scenario, where after I cancelled the contract, the seller said to me, “You have cost us time on the market. How much of the $6,000 earnest money are you willing to give us?” The answer was “none”. Again, we were within our rights to cancel, but they want to strong arm us. Now we are getting a lawyer. At some point, even though it costs more, you fight them, on principal. The bummer is, that we could technically spend more than $6,000 to get our money back if this goes to trial, but we don’t want them to have any of it, because it is just wrong.

So what can be done about this?  My Real Estate contracts are about to get longer.  When I am the buyer, the first thing I will do is insist that during the due diligence phase, the escrow release has to be single signature – MINE.  This means that if I cancel the contract for any reason during that time period, I get my earnest money back; no questions asked.

After the due diligence phase is over, if there is a dispute, the contract will require binding arbitration.  That way if they try to strong arm me, I have a less expensive option in front of me. Then I will stipulate that the prevailing party shall be reimbursed for costs and fees associated with attempting to resolve the dispute.

A friend of mine who is a business consultant says that he is amazed that this is not part of every real estate contract already. In all of the ones I have seen, I don’t even recall seeing it. Maybe it has been in plenty of them, but not in those 3.

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Happiness is plenty of cash flow!

I just flew back into Las Vegas, and boy are my arms tired! (OK, that was cheesy).  I was in Rhode Island closing on a small apartment building that I had bought at a foreclosure auction.  Are you thinking why Rhode Island?  The answer is simple.  Abundant cash flow.  As excited as I am about the future appreciation of real estate in Las Vegas, I am just as excited about the incredible cash flow of 3 family apartments in Providence and Cranston Rhode Island.  Now, I certainly don’t expect them to appreciate at near the rate  as Las Vegas, but check this out. The building I bought was $131,000 and needs a little over $5,000 worth of work. 

On the first floor, I have a tenant that has lived there for 10 years paying $850 per month. I have a tenant living on the second floor that has lived there for 14 years paying $850 per month.  And the third floor is vacant and needs most of that repair money, but has 1 more bedroom, so even though it is on the least desirable third floor, with the extra bedroom, we will get at least $750 for it. If we get a section 8 tenant (don’t cringe – section 8 can be wonderful if you screen carefully) we can get $975. So let’s add that up without the section 8 tenant.

$850 1st floor
$850 2nd floor
$750 3rd floor
—————–
$2450 per month gross rent.

The annual real estate taxes are going to be $2,376 ($198/mo) and the annual insurance is $2,977 ($248/mo)

If I had a mortgage for the entire investment of $137,000 (just for illustration), and I were paying a high interest rate (by today’s standards) of 7%, my Principal and Interest payment will be $911/mo

So my monthly budget for expenses is;

$245 Vacancy (figured at 10%)
$245 repairs/misc (typical)
$196 Prop Mgmt
$198 Taxes
$248 Insurance
$96 Water & Sewer
—————-
$1420

after I pay the mortgage, I still have $509 every month

Here is the beauty – this is worst case scenario. I have 2 tenants that have lived there for years, so they are not likely to be leave or not pay rent. The new tenant is likely to be section 8 which pays an additional $225 per month (most of there rent will be paid by the state) and I will likely have very little vacancy. 

Do you like that?

BTW – I closed with hard money because of the nature of the repairs, and am open to flipping this property. Are you interested?

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Howdy pardner

I sat down earlier this week with a potential new real estate investing partner to discuss the terms of our future relationship. This person did not have much experience investing in real estate, and was primarily interested in working with me because I do.  He understands that he does not have to reinvent the wheel.  We all learn (anything) better when someone who knows how shows us – as opposed to fumbling our way through.  We typically can learn it either way, but in the case of investing, the mistakes we make along the way are measured in dollars. 

He, at one point during the conversation, mentioned that he had been advised by people he trusted, not to partner on real estate.  At least one person suggested that he should be in complete control of any real estate transactions.  Others shared nightmare stories of partnerships gone bad.  Without question, a bad partnership can be horrible. 

I happen to have had very successful partnerships.  In fact I’m certain that partnering on real estate, has made me more money than if I had done it by myself.  Even when things in my partnerships have not gone the way I would want them to, I can’t say I have had any partnership experiences that were so bad that I would stay away from partnering.

Is that because I have been lucky? Perhaps in a way – but I was not so much lucky in the partnership as I was lucky enough to have seen good partnerships and bad ones before I went into any. I learned from the mistakes of others.

If you have spent any time at all looking into real estate investing, you’ve certainly heard just awful stories about tenants, right?  But are tenants profitable?  Most certainly  tenants are profitable, when approached correctly.  When approached from the mindset of a person who just thinks it will be easy to rent property without learning the business, very often having tenants becomes a disaster. (If you are planning on having tenants without learning how to be an effective landlord, please keep in touch with me.  I’ll be happy to buy your properties at a discount when you are fed up with them.)

I found found the same to be true with partnerships.  If you partner with someone just because it seems like a good idea, very often, it won’t be.  But if you take the time to learn how to set up good partnerships, you’ll be very happy with most of them, and only disappointed with the others.

I wrote an ebook awhile ago that spells this out better – the advantages and the pitfalls of partnerships.  If you are considering partnering with anyone, I recommend you read it.  If you are against partnerships, I insist you read it.  You can download the book here. You’ll need Adobe Reader to open the ebook.  If you don’t have it, you can download it for free by clicking on the image below.

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