I often get calls from consumers who ask me about foreclosures.  Many times these people are looking to buy their first investment property and they've been told, or somehow extrapolated, that the foreclosure market is the place to be.  While it is possible to find a solid investment in a foreclosure, it is not the best strategy to narrow in to just foreclosures.

Having spent quite a bit of time in the REO (Real Estate Owned - the industry term for this segment) business, both on the asset management and listing agent side, it has been easy to see how much the business has changed.  I believe at one time you could probably find a better deal among foreclosures vs general listings.  However, in my opinion, that type of general application is no longer true.  Asset managers typically seek out multiple opinions of value on the home - usually in the form of an appraisal and a Realtor's Broker Price Opinion.  Typically if those values are not within a predetermined variance they will then get another opinion of value to help reconcile the issue.  That number is determined to be the Fair Market Value and from that number the list price is derived.  Implicit in the term Fair Market Value is that the value is fair - meaning that it takes into consideration the market forces, repairs, etc. and derives a value based on the exposure to all entries in the market.  Some REO companies specifically seek to price their property on a 90-120 value, meaning that the property will be exposed for a longer time and, presumably, generate a higher price.

Generally speaking, most REO companies have a policy that dictates every step of the process.  You are not likely to swoop in on the property in the first 30 days and offer 80% of what they are asking and get an acceptance.  Most REO companies are looking for a net on fair market value in the low 90% range in that first 90 days or so on the market.

The good thing about REO listings is that because there is no emotional stake in the property they are also very systematic about the disposition of the home.  Typically they will evaluate their marketing strategy monthly and make changes to the price if appropriate (and if no one has bought the home after a couple of months it is probably appropriate).  Additionally the net of fair market value that they will accept tends to decrease meaning they will look at and potentially accept lower offers.

Almost all REO companies require their properties (foreclosures) to be placed in the local MLS.  If a property happens to be priced too low your chances of scooping it up before others notice is relatively low as many times it will take a few days to negotiate an acceptance with the REO company (via their local listing agent who communicates with the asset manager).  Perhaps the 'best' deal that can be had on a foreclosed property is after the property has been on the market for an extended period and has become shop-worn.  Still, one needs to exercise caution because there could be a reason no one else has purchased the property.

There is quite a bit more to the foreclosure/REO process, but I wanted to make the point not to narrow yourself to a 'foreclosure' because you heard of someone who got a great deal on one.  In my experience, there are just as many great deals in the non-foreclosure market.  Really it comes down to finding an area that you know and recognizing a good deal when you see it.

If you spend all your time "chasing deals", you are going to get very tired and probably not "catch" very many.  Your best bet is to hire a solid Realtor who knows their stuff and keep your ear to the ground.

Questions - Call me (James Brinkman, West Elm Properties, Austin Real Estate) at 512.698.3525 or email Brink@WestElmProperties.com

The Federal Reserve cut its Fed Funds Rate yesterday for the first time in 4 years by 1/2 point.  In speaking with a couple of the lenders that I work with and trust the consensus is that borrowers waiting for lower fixed rate mortgages will probably be disappointed.  The opinion is that cuts in the FFR generally just don't translate into cuts in fixed rate mortgages. 

So who does this benefit?  According to these lenders, possibly those looking to get a lower rate via refinancing (possibly those trying to get out of an adjustable rate mortage).  Additionally those with a HELOC (home equity line of credit) or credit cards ties to the Prime Rate should experience a benefit.

Although Austin's real estate market is not suffering, it is clear that the US market still is and the rate cut was probably the appropriate course of action to tap the breaks on the skid, especially since the news was released yesterday that housing construction fell to a 12 year low and that the number of foreclosure filings reported in the US doubled from August 06 and are up 36% from July. 

Most people know you can use your IRA or 401(k) to invest in stocks, mutual funds, bonds, CDs and other similar items.  Did you know, however, that you can also possibly use your retirement accounts to invest in almost any type of real estate as well as real estate investment trusts, private notes and loans, mortgages, LLCs, LPs and Sub-Chapter "S" Corps, just to name a few?  Of the 45 million individuals with IRAs, only 3% are invested in these alternative assets.  The numbers for the 401(k) are roughly similar.  Typically these investments are done through self-directed IRAs or self-directed 401(k)s, which combined can be called Unlimited Retirement Accounts (tm), or URA (tm) for short.

Possibly the least known but most powerful way to invest in real estate is through a Solo 401(k). 

The Solo 401(k) has several distinct advantages over the IRA. 

• Your contribution limits can be higher - The amount of money a person is allowed to contribute to a Solo 401(k) is greater than what they typically are allowed to contribute to an IRA.  This can be the difference between $4,000 and $40,000 in some instances.
• The contributions can now be made into a Roth account inside the SoloK - The Pension Protection Act of 2006 makes the Roth 401(k) permanant.  This act was signed into law by President Bush on 8/17/06 and removed the 12/31/10 expiration date that was in force previously.  Besides the tax benefits of the Roth (not taxed when the money is pulled out), currently with a Roth inside a Solo 401(k) there are no income limits, unlike on an IRA.
• There are no Unrelated Business Income Taxes (UBIT) - Within the SoloK, Unrelated Business Income Taxes will not come into play if you leverage any portion of a real estate investment purchase.  In an IRA when a portion of a real estate purchase comes from a loan you have to pay UBIT on the related portion of the profit.

As a Certified Consultant through the IRA Association of America, I can help you understand the amazing possibilities available for your retirement accounts.  If you have any questions feel free to call me or email me at Brink@WestElmProperties.com

Unlimited Retirement Account and URA are both trademarks of the IRA Association of America and Jeff Nabers.

As I mentioned in my last blog on Investing in Austin, I attended a class on investing which piqued my interest because I found a source for 100% financing on investment properties.  Combine that with other strategies and you could be looking at being able to buy investment properties with no downpayment and no money out of pocket for your closing costs.  Before I get too far down that path, let me back up a little...

Most people I talk with want to buy investment property but most I speak with have something that is holding them back.  Here are the common obstacles and answers to those obstacles:

• "I don't know what to look for" - I do, I am the expert, and that's why I am here to help you.  As your Realtor it is my job to monitor the market and find the properties that I believe will work for you and your investment goals.  I also consider it my job to educate you to the point that you feel comfortable and confident in the decisions you make.
• "I feel unsure/insecure about the future of real estate" - That's an easy question to understand right now with the news dominating the national headlines.  Know this though, real estate in Austin has appreciated at an average rate of over 6.5% annually over the past 30 years and the outlook for the Austin market appears to be strong well into the future.  The 50 year growth trend line for real estate in the United States is also 4.5%.  If your investment goals include building wealth, investing in real estate should be a part of your investment strategy.
• "My budget can't handle negative cash flow" - I certainly understand, that is why I will help you find a property that will minimize those risks and help you structure the deal so that you can have positive cash flow in your first year. 
• "I can't afford the downpayment" - Most people believe they need 20% down for an investment property.  That isn't the case in most instances.  As I've mentioned, I now have a source for lending that can obtain 100% financing which means no money out of pocket for your downpayment.
• "I don't have time to manage it" - There are plenty of capable management companies in town who will manage your property for a small fee.  Frankly, I think its a fantastic idea to let someone else manage it.
• "I have past credit issues" - The lending industry has loan products for almost any situation.  Don't let this fear hold you back from exploring your options.

The reasons people buy investment properties vary.  Some of the main reasons for buy investment properties are:

• Accumulate wealth
• Retirement Income
• Capital Preservation
• Capital Appreciation
• Rental Income
• Career Opportunity

What reasons are important to you?  That is a critical question to determine so that you can assess what the best type of property is for you and what the best strategy is for you.  Not every property works for every situation.  Each client's situation is unique and every property is different.

Questions? Call me, James Brinkman, West Elm Properties,  at 512.698.3525 or email to Brink@WestElmProperties.com

When I began my career in real estate in 1992 I was still in college and not completely sure which direction I would go within the real estate.  Quite frankly, I wasn't fully engaged into getting into the real estate business for my career until 1993 when I switched majors from the PPA program (a professional accounting degree) to my eventual Real Estate/Finance major. 

In 1994, upon graduating from The University of Texas at Austin, I went to work at Keller Williams Commercial, Shopoff-Gurkin, for Doug Gurkin.  Doug was one of the two brokers who owned KWC and much of the business that he had done over the prior few years had to do with helping investors, many of whom hailed from California, buy investment properties, mostly duplexes and fourplexes, in the Austin area.  Most of them had purchased their investment properties between 1989 and 1992 so by the time 1994 rolled many of them had experienced significant gains on their property's valuation and were looking to exit the market, via a 1031 exchange, and reinvest somewhere else.

If you've very much of what I've blogged about you've probably noticed that I enjoy studying and discussing market trends.  Much of this interest was sparked during my time at Keller Williams Commercial and during my previous time at Brock Consulting Group.  Even with my dealings with my clients who are looking to sell and buy a home, I bring that extra ingredient of analysis to the equation and take pride in making sure my clients get a good deal for whichever side of the deal they are on.

This takes me really to one of my main goals in real estate - to help my clients achieve financial security through their real estate transactions. 

It starts with the first time homebuyer, who moves from renting to owning their first home.  The statistics show that the average net worth of a renter is less than $5,000 whereas the average net worth for a homeowner is over $170,000.  Its a fantastic feeling to help someone find that first home, at a good price in a solid neighborhood, and know that they've just taken a monumental leap toward increasing their net worth and financial security.

From there the next step many of my clients take is moving up.  In en effort to help my clients financial situation I typically offer a move-up program to my clients.  Many time moving up in price range can make the percentage increases in the market have a bigger effect on your bottom line net worth.

After that, most of my clients start to consider buying an investment property.  It really is a fantastic idea for someone who really is looking to increase their net worth and provide a future income.

Recently I went to an investment class and I will share more on buying an investment property, the art of getting in with no net first year cash cost as well as 100% financing in my next blog.

If you have any questions feel free to contact me off of the West Elm website or email me at Brink@WestElmProperties.com .

The smell of new paint. 

The feel of new carpet under your toes.

The smile that comes across your face as you look out at the new home you got to build and help design.

It's filled with your upgrades, your taste and your style and it's a very tempting draw for many buyers.  In fact, many buyers wouldn't do it any other way.

It's the new home.  Truly yours.

But do you know everything you need to know to protect yourself on this purchase?

Surprisingly, many buyers of new homes go it alone when they buy a new home.  The common scenario goes like this - You know you want to buy a home.  One evening or weekend you are out driving around looking at new home communities.  Maybe you've seen a subdivision or area that grabbed your interest.  Maybe you looked through the paper and tore out or circled the new home subdivisions that looked like they would fit your needs the best.  However you found it, there you are, walking into the new home model.  A friendly person greets you and you mention you are just looking around.  This person is sometimes called the sales counselor, sales consultant, on-site rep or builder's rep - I'll call them sales counsultant for now.  The sales consultant asks you to fill out a registration sheet just for their records and many times asks you if you are working with a Realtor and you tell the sales consultant that you are just looking around and not working with anyone at the moment.  You finish filling out their short information sheet and go peek in the model.

Oh wow!  Amazing.  It's beautiful. 

This is the home you want.

You walk back in through the sales office and the sales counselor asks, "So what did you think?" ...and before you know it you are signing an offer for the home and writing out an earnest money/security deposit check.

Hey, I understand.  Every time I go with my wife to a new home community for a builder event she will turn to me at some point and say, "let's move here!" 

Let me ask you this though - how many times have you went to buy a new car and not done some research as to the dealer's price or, as I did, signed on for Consumer Reports comparison service which helps guide you in determining a reasonable price?  Another question might be, how many times have you bought a home?

Many people go into a new home builder without a Realtor on purpose believing it will help them negotiate a better price for the home since the builder will not be paying a commission to the Realtor.  On the surface it sounds logical.  In reality it usually doesn't come to pass. 

For most homebuilders, if they do not pay a Realtor commission they take the money that would have been paid and put it back into the marketing budget.  The commissions are already factored in by the builder in their marketing budget and, if not used to pay a Realtor who will assist the buyer through the transaction, the money goes toward other marketing avenues - billboards, signs, commercials and the like. 

In other words, typically, the price to the buyer is the same, regardless of whether a Realtor is involved or not.

The sales consultant works for the builder and is an employee of the builder.  Don't get me wrong, most that I've met and worked with over the years are wonderful and friendly people and will deal fairly with you but make no mistake about it, they work for the builder.  They would love to put a contract together for you and they may be up front with you what they can offer in incentives and discounts but, in the end, their obligation is to their employer, the builder, not to you.

A Realtor, however, is there to represent you and your interest only.

So, now that you know it usually costs you nothing to have a Realtor work for you, let's explore a few of the reasons why it's not only cost efficient but also advantageous.

 1. A Realtor does the everyday - A home purchase isn't something to be taken lightly and it's something most of us do only a few times in our life.  As a Realtor, I do this everyday.  I understand the workings and details of the process from contract to closing, from the foundation pour to the handing off of the keys. 

2. A Realtor will have a better understanding of fair pricing for the area - Are you overpaying for the home?  Are you getting a good deal?  Has the builder sold other homes of similar size and quality for less or more?  I'll use this example - a fefw years ago I was working with a client in a neighborhood off of Bee Caves Road.  My clients found a home they wanted to make an offer on and the builder had several comparable sales in the MLS system.  The builder's list was $619,000.  The buyers and I looked through the comparables, looked to where we wanted to end up and submitted our offer - $480,000.  That's quite a bit different and the sales consultant/builder rep let me know so.  Our "final" offer was $520,000 and the sales consultant/builder's rep said there was no way they could sell the home for that price.  A week later we had the home under contract for $520,000 with some additional upgrades, nearly $100,000 below asking.  The majority of the comparables were above us and I know for a fact that another couple who went into the builder unrepresented paid tens of thousands more for their comparable home, but I was able to leverage the comparables and the market at the time into a great deal for my clients.  Will every home transaction be like this?  No, the market's changed, some communities have limited comparables, if any, and sometimes when the builder says it is their bottom line it is their bottom line.  But whether the pricing is fair or not is going to be something a Realtor will be more familiar with than the average home buyer.

3. A Realtor can meet with the homebuilder to make sure deadlines are met and the home is being built according to the buyers needs.  Sometimes it is difficult for the buyer to make it out to the home site during the day, due to scheduling or work for example.  I can be your advocate to help you out in certain situations.

4. A Realtor knows of special incentives and offerings from builders - Almost every day I get an email from one of the builders in the Austin area letting me know of special discounts and incentives as well as homes ready to deal for quick close out. 

5. Most Importantly - Having a Realtor means you have someone working on your side.  Not only can I help you with potential comparable sales information or at least determining whether the pricing is fair, plus the knowledge of what incentives are being offered, I can also negotiate from a non-emotional position since I don't have an emotional investment in the home.  Some buyers are uncomfortable with being too aggressive fearing it will strain their relationship with the builder's salesperson, a relationship that has to exist sometimes for 9 months.

Additionally in certain situations I can offer my own incentives and rebates to new home buyers.  For instance, I have a move-up program for people who are planning to sell their home and buy a new one.  This can result in my client paying very little out of their own pocket for my services.  Sometimes I offer other incentives so check with me before you even go looking for a new home.

You can check out an inventory of many of the new home builders in the Austin area right on the West Elm Properties website - Click Here to see the inventories as well as streaming video.

A recent article from the Los Angeles Times discusses a complaint that has been lodged against the recently launched Zillow.com website.  Zillow, which was 'turned on' 8 months ago, is being accused by a fair housing advocacy group of being purposely misleading.  The complaint apparently says that misinformation about values of homes is being used by many within the real estate industry, such as lenders and real estate agents, to take advantage of consumers.

I have actually been quite curious of the Zillow experiment.  Over the past few months I have noticed that they have made strides to provide information regarding local markets such as historical trends and county and state averages.  The trouble with Zillow, in a state such as Texas, is that our sales information is not public data.  With a system that is based on compiling sold information from public resources, Zillow will seemingly always be lacking in Texas. 

Just to see how Zillow is doing, I went ahead and ran my own home through their system.  I did the same six months ago.  Over the past 6 months it says the 'zestimate' is up $30k.  Is the market really up $30k - no, not at all.  Additionally, they have a heading at the top that says my "30 Day Change" is down $10,464, which is interesting given that the market in Austin has shown consistent growth.  Also kind of weird to me is the "1 year value change" graph which looks like every stock performance chart I've ever seen. 

That said, I do believe the value of this home is within what they give as their 'value range', a task which isn't too difficult given they are giving me a value range of $120,000.  Other magic involved in their value is the 3 comparables they provided me with.  My home is in the Spicewood/Balcones area.  One of the sales is in my neighborhood.  In fact, it's only 1/3 mile away.  The second comparable is in Canyon Creek.  Huh?  Canyon Creek of down Anderson Mill Road, out on 620 and then into Canyon Creek, Canyon Creek?  That's not comparables.  Hmmmmm.  Let's see about the 3rd comparable sale...in....Northwest Hills?  Seriously?  The home they gave me is just west and south of the intersection of 183 and Mopac, 4.17 miles away, according to their own estimates.  I don't know how far in actual driving terms. 

Okay, I'm trying to be fair.  Really!  I am.  However, there are just so many quirks in the system I can completely see where the fair housing advocacy group is coming from.  I truly hate the fact that anybody would use the site and take anything away from it other than entertainment.  A Zillow statement referenced in the article states that "zestimates are designed to be a starting point for consumers who want to learn about the value of homes".  The problem is, what if the starting point is wildly inaccurate.  And honestly, in my own case, what good is a starting point with a range of over 35% of the value of the home?  I would guess that your average consumer is familiar enough with a neighrborhood they are researching to understand the values within 35%.  In truth, a valuation system that doesn't come up with a value within 10% is useless.

This actually brings me to my next point, and that is the treatment of the property valuation like a stock or some similar commodity.  To me, the 1 year value chart makes me want to laugh and shake my head at the same time.  Privacy precludes me from sharing the actual chart with you, but if I did you would see a chart that goes up $10k, then down $15k, then up $30k, then down $5k, then up $15k, then down $20k, all within a 12 month period.  I am not saying that there will not be fluctuations in what you can get for a home over the period of a year as the market conditions change and the seasons change but I don't believe it looks anything like a line graph of specific plotted points.  A better representation might be a range.  Real estate values are not a fixed, exact amount.  Two people can look at the numbers and come up with a different value for the home and honestly that doesn't mean either value is incorrect.  Typically there is not an exact replica of the property to use as a comparable so adjustments will need to be made to the comparable.  Typically new construction is the closest you will get to a set, standard value point.  In the end though a home is worth what someone who likes it will pay for it.  I think technology has opened up many doors and provided us, as the consumer, with so many tools and the ability to access so much more information.  I continue to believe that technology will lead us to some amazing places and provide us with so many new and exciting opportunities.  However, right now in Texas, online property valuation is not something that is tenable.  If you want a property valuation you best bet is to hire an appraisal or I can complete a free Comparative Market Analysis or Broker's Price Opinion.  Just contact me: James Brinkman, West Elm Properties, 512-698-3525, Brink@WestElmProperties.com

As an aside, I just don't feel the whole zillow, zestimate, zindex things is cute at all.  It's seems like one of those things that someone thought, 'let's be clever and throw a 'z' on the front of some words!' (typically words beginning with vowels other than the zillow itself).  Well, to me it's kind of zannoying!