Attn Condo Owners: Burglary Ring

One of my clients in Clarendon sent me this, which came from his management company. Let's be careful out there!

There is a professional burglary ring targeting condominiums in Arlington, Alexandria and Fairfax.

This group has been described as "very brazen" and walk onto properties like they belong there. They wave to residents and staff, even stop and have conversations. Gated communities and access control do not stop them. They frequently knock on doors and ask for a fictitious person if the door is answered. If no one is home they break in.

The police need the residents' help in catching this group. Someone needs to see them, witness them breaking in or call the police because a stranger knocks on their door looking for someone and gives a description.

If you experience anything matching the MO described please call 911 immediately and report the incident.

Please remember to always keep your doors locked.

Buyers May Not WANT Condo Docs for Short Sales & Foreclosures

I was quoted in the Washington Post yesterday for my recommended strategy of NOT asking for condo docs on a foreclosure or short sale.

In the original article here, the author discusses the fact that:

Virginia law requires sellers or their real estate agents to get a presale financial disclosure packet from the association and give it to buyers. Buyers have three days to review the financial disclosures and rules governing life in the association and can back out of the deal if they don't like what they see. In Maryland, buyers have seven days in which to review the documents and cancel the purchase. In the District, buyers are allowed three business days.

The challenge with short sales and foreclosures is that the sellers either can't or won't provide these documents (which come with a charge of several hundred dollars.) This leaves buyers in a tough spot -- they don't know whether there are any problems with the Association's finances, for example, because they never received the packet. Sometimes buyers can pay for the pack themselves, but often Associations won't give them to anyone but a current owner.

BUT, there's an upside to this frustrating situation: Buyers who never receive the packet retain their right to back out at any time up until, and for 3 to 7 days after receiving them (depending on jurisdiction). See my quote here:

Katie Wethman, a real estate agent in McLean, pointed out a way to game the system. "It can be a strategic choice not to ask for the documents," she wrote. "Buyers retain a right of rescission up until, and for three to seven days after, the receipt of the documents. If the buyer is concerned about timing, financing, finding a better deal, or just getting cold feet, they may wish to delay receipt of those documents as long as possible. They may forgo them altogether in an attempt to keep their right to walk away right up until settlement."

So talk to your agent about your situation and whether it makes sense to try to obtain the documents or not...you may come to regret having asked for them.

Scared about taking on a short sale or foreclosure home because of the rehab work involved? Consider purchasing one using an FHA 203(k) loan, described in my blog post here.

First Time Home Buyer Class - Scheduled in Arlington

Note> For the most recent schedule of dates for 2008 and 2009, please visit the First Time Home Buyer class page at my website. Classes will be held in Montgomery County, DC, Arlington, and elsewhere in Northern Virginia.

The first classes of 2009 are now scheduled at Arlington County Library. As in the past, there is absolutely no cost or obligation to attend this one hour educational session where we will recap the current market conditions (including stats like days on market, inventory levels, and average sales prices), discuss the future outlook, and provide an overview of the home purchase process, including common pitfalls and financing basics. Simply contact us to register (enter seminar and the date in the comments) so that we may have materials available for you. Space is limited. Details are as follows:

Date(s):
Tuesday, February 17, 2009
7:15 pm - 8:30 pm
registration required

Logistics:

Arlington Central Library, 2nd floor meeting room
1015 N. Quincy St
Arlington, VA
Metro: Orange Line/Ballston

Cost: There is no obligation, and the session is FREE, but registration is required by emailing me at Katie@katiewethman.com. Seating is limited.

Related Link: Search the MLS

Read More: Working with Katie as Your Buyer's Agent

Read More: Buyer's Resources

Read More: $7500 Home Buyer Credit

Finding an Investment Property in Northern Virginia

As prices plummet, some solid investment opportunities are starting to emerge…but how do you identify good investment properties?

Step 1: Identify some target neighborhoods.

- The first thing to do is to consider long term (e.g., 10 years) appreciation potential. Think about area employment (and more importantly where those employers are—commuting time is a big factor). Also think about long term demographic shifts like BRAC, as well as infrastructure projects like new metro stations or light rail lines.
- Consider the neighborhood. Ideally you want to find the lone problem house in a great neighborhood, but that’s easier said than done. Also consider neighborhoods that previously had been more desirable in terms of age, location, and home condition, but perhaps were hit hard by this recent wave of foreclosures.
- Consider the price range – While you hope to ultimately find a property that will be cash flow positive, you nonetheless have to front the money to buy it, and getting a loan these days isn’t easy, especially for investors. Financing remains a problem, and lenders require investors to put 30% down, plus closing costs of about 3%. Interest rates run about a percentage point higher than owner occupied properties. Figure out how much cash you’re willing to put into the property, what you can qualify for in a mortgage, and back into a price range from there.
- Look at rents the neighborhood can command. Once you identify a few target neighborhoods, begin collecting rent data. The best place to collect rent data is on Craigs List in addition to the MLS. This is because many landlords conduct the process themselves and so the listings are never in the MLS. You also can’t be sure how aggressive a listing agent was in procuring a renter, which may skew the price. If they put it into the MLS but then never on Craigs List (by far the more popular site for finding renters), then it’s likely the rents there are lower than what the market actually commands. Unfortunately there’s no easy way to gather historical Craigs List data – you just need to keep watching and see which rentals seem to go quickly. Consider calling some of the landlords to ask whether they’ve had a lot of responses.

Step 2: Identify some target properties

- Short Sales & Foreclosures are a great opportunity because you can be patient. (See my post on the challenges of timing a foreclosure transaction here and the frustrations of shorts sales that never close here.) While an owner occupant doesn’t have the luxury of time and can get frustrated with all the problems of these transactions, investors can go with the flow since their timing is more flexible. And that flexibility pays off by getting properties for less money.
- Consider the home’s condition and your level of expertise in doing or managing renovations. Many of the short sales and foreclosures on the market today come at bargain prices, but require everything from heavy cosmetic work to kitchen and bath remodels to mold remediation. Very few properties in the attractive price ranges are move-in ready, but there's a lot of upside for people not afraid of elbow grease and with the right handyman connections.
- Be patient. You may need to wait for the right house at the right price. Set up an alert so that you can be ready to jump on a property that meets your investment needs as soon as it comes on the market—you can be sure other investors are circling and waiting for the right opportunity as well!

I’ve seen some inside the beltway single family homes below $400K and townhouses in under $300 in areas that I feel have great long term potential given our area's strong job market and expected government growth (see this post on the best place to live in a recession here, and article on the bailout being a boon to our local economy here.)

In another post I’ll cover how to look at cash flows for an investment property.

I’m working with several investors and have already previewed many homes that fit the criteria above. Call or email me to set up an appointment to discuss investing opportunities!

How Much Do I Need for a Downpayment?

How much do I need for a downpayment?

It depends.

(Come on, you knew I was going to say that.)

There are some rules of thumb though. First, you can bet you need a heck of a lot more than buyers did a few years ago, or even one year ago. There are lots of influencing factors: type of financing, amount financed, type of home (condo/townhouse/detached house), and whether it’s an investment property or you intend to occupy it.

To understand downpayments, we really need to understand the Private Mortgage Insurance (PMI) industry. These are the guys who ‘insure’ the loan for the bank. If you have less than 20% equity in the property (whether via a downpayment or appreciation), any lender will require you to buy PMI. PMI premiums are paid by the borrower, but the beneficiary is the lender. So in other words, if the borrower defaults, then the PMI policy will pay the lender.

Up until recently, banks would issue a “second trust (mortgage)” rather than requiring the borrower to pay for PMI. So a borrower would have a first mortgage for 80% of the value, then a second mortgage for somewhere between 5% and 20% of the value—so the borrower needed as little as 0%. The mortgage interest on the second trust was deductible (a win for the borrower), there was less downpayment needed (another win for the borrower), and the bank got a second loan at a higher interest rate than the first (a win for the bank, or so they thought at the time, AND they held the home as collateral, which couldn’t possibly fall below the value at which it was purchased, right??) The only people that lost out were the mortgage insurance folks.

Fast forward to the default wave of the last two years. Banks are now holding two bad loans instead of one, and no insurance policy to collect on. PMI folks were just fine with that, as they had their hands full anyway with all of their own defaults. In today’s lending world, you can’t find a bank who’s willing to do a second trust that takes the total loan-to-value (LTV) ratio above 80%. So basically: no second trusts. And it’s really tough to find a PMI firm who will insure a loan without meeting certain conditions.

To really know what downpayment you need, you need to talk to a lender and find a program that works for you. But here are some rules of thumb:

- Conventional loans, count on needing 10 to 20%
- FHA – will require 3.5% (as of 01/01/09)
- VA loans – this is about the only program going where you can still get 100% financing, so if you’re a vet, look into it!
- Investment properties – 30%

There ARE special programs out there, though, like HPAP in the District and VHDA in Virginia. So, again, talk to a lender. I can recommend some great ones. You also need to keep your realtor in the loop. Often certain property types don’t work well with certain loan programs, or may trigger additional downpayment requirements.

If you’re confused about where to start your search and understanding how much you can afford, send me an email. I’m happy to work with you to see what types of homes and program combinations will work best for you.