No More Low Hanging Fruit?

Denver MLS Report

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Can you say RECOVERY? I don’t know how else to interpret these numbers.  I thought that the Denver MLS might be pulling a bunch of non-metro stuff in, so this is analyzed by city.  Here are some interesting facts:

• Wow, there are only 6200 homes Active on the market in the Denver MSA, a 12 year low.
• There are only 460 bank owned listings, 7% of the market.  REO’s are the exception now, not the rule.
• Only 640 short sale listings, 10% of the market… much less than I would have expected.
• There are almost 4000 homes that are Under Contract or Pending. This is a VERY high ratio of Under Contract to Active, especially for this time of year.

*Thanks to Todd Barton and Lon Welsh of Your Castle Real Estate for this research.

Looking for more info on Denver economic forecast, including real estate data, use this Link to 2012 Economic Forecast for Denver

Lead Based Paint Certification

2011 Update:  This is an update from last year’s post on EPA Lead Based Paint program.  There have been reports of some enforcement of these regulations despite widespread misunderstanding and lack of knowledge amongst the public and service providers.  Following are some update links for real estate professionals to consider:

• EPA Requirements
• EPA Authorized State Programs
• Information for Contractors
• Information for States and Tribes
• Information for Property Owners of Rental Housing, Child-Occupied Facilities
• Information for Homeowners Working at Home
• Information for Tenants and Families of Children under Age 6 in Child Care Facilities and Schools
• Information for Training Providers
• Information for Lead Test Kit Vendors
• Information for Realtors and Property Management Firms
• Post-Disaster Renovations and Lead-Based Paint
• Related Notices, Final and Proposed Rules, and Background Information on EPA’s Lead Renovation, Repair and Painting Program Rule

What does this mean for contractors on your projects?  Well, this could be a BIG problem for fix and flip investors.  Or it could be just a minor inconvenience. When was the last time your contractor went back to school?  What happens if you get caught?

To be a certified renovator, contractors are required to take eight hours of training from an “accredited” service.  Two hours must be “hands-on training.”

I can’t wait to see some bureaucrat training MY contractor!   If that happens, the training certification is good for five years. The cost of this training is set by the providers, and of course these companies that will have to apply to be certified as qualified to certify other contractors.  Sounds like a big bureaucratic mess.

Do you think you could find a certified “Lead Safe Renovator” today if you wanted to?  Well, the Rule is effective on April 22, 2010. Here is a quote from the EPA website on April 24, 2010:

NOTE: Due to heavy demand, users may experience delays in searching for training providers and certified renovators. EPA regrets the delays and is working to improve the system.

If you are a contractor looking for a “school,” here is a short cut to the local accredited companies as of this writing.  Its risky not to become certified, as fines for contractors who work in pre-1978 homes without EPA certification are rumored to be as high as $37,500 per incident per day!. Wow.  How will the rule be policed?  The EPA expects those who bother to get certified will police their own industry.

They are probably right because contractors who abide by the rules will have significantly higher costs and will lose bids to contractors who are not certified.  This is of course the bad news for investors:  our construction costs just went up!  We just don’t yet know by how much.  Ouch.

If you are an investor (or homeowner) looking to hire a certified contractor, I have words for you:  Good Luck!  In the meantime, watch out for the “spot checks” by the EPA on your job sites.

• EPA Lead Based Paint Certification Program
• EPA Lead Safe Accredited Renovation Training Programs in Denver

Links to more information:

• Contractor Fact Sheet
• Read other information related to the Renovation, Repair and Painting Program Rule.

Morgan Stanley issues a report on single family houses as a investment strategy for institutional and private equity

This is an interesting news story and video about institutional investors buying single family housing assets.  Note the differences between the company “salesman” and the analyst’s comments and opinions.  Following are some key points from the story:

Single family rentals important part of “second wave” of housing

• Due to foreclosure , more people forced to rent
• More American’s renting than owning as percentage (?)
• Homeownership continues to decline in U.S.
• Tight credit environment will continue for foreseeable future
• Does private equity have the infrastructure to manage single family rentals
• First time in history that institutional investors will be buying single family

The Morgan Stanley report is obviously pushing investors to buy REIT shares instead of single family homes individually.  It will be interesting to see the returns of these REIT’s and how they compare to our clients who are buying individual properties and getting very low interest rates for investor loans (as low as 4%!).

I contend that only investors with limitation on mortgage financing should buy REIT shares instead of a “real property.” But I am biased of course!

Denver Real Estate Investment LLC

We proudly serve well qualified investors from around the world who are looking for Turn-Key Real Estate Investment Property in Denver, Colorado.  Be sure to check out the following resources for investors who prefer to buy real property over REITS or stocks using local experienced professionals.

Search Denver Real Estate Investment Property

Denver Wholesale Investment Property Triplex 4 Plex

Here is another related story:  More Renters, Fewer Owners Story Link

Denver Income Property Q2 | 1H 2011 Real Estate Statistics

NOW is a great time to be a real estate investor in Denver.  If you’ve been buying rental property during this opportunistic period unmatched since the 1980’s, you are now enjoying the following:

• Zero effective vacancy rates (actual is less than 2%);
• Record high rents and rent increases;
• Low interest rates for investment property refinance; and
• Excellent yields on invested capital

Many of our turn key rental property clients have refinanced into 15 year mortgages that still provide positive cash flow, and are also paying down principal and packing away equity at a fantastic pace.

But is it time to shift strategies?

For the past two years, the Private Market Group’s turnkey investment property acquisitions have mostly been residential single family homes in good rental areas like Fitzsimons Hospital expansion area, north Aurora, northwest Denver, and certain areas of central Denver. But changes are taking place in these markets and single family houses are becoming more expensive to purchase as the distressed housing inventory gets scooped up by investors, and now owner occupants. Lower supply naturally leads to higher prices.

But the income property category, defined as two units or more, is starting to show promise statistically and financially in the Denver market. As you will see below, the buying opportunities for residential duplexes, triplexes, and four unit buildings looks to be good during the second half of 2011 and perhaps into 2012. The discounts are growing and the market appears to be hitting bottom for this segment.

Following are the key indicators for the Denver real estate market for investment properties; the most important statistics for income property that are tracked by Private Market Group at Your Castle Real Estate:

• Average price per unit
• Number Sold
• DOM (Days on Market)
• Discounts
• MOI (Months of Inventory)

Real estate investors should consider these important indicators now as they plan for investments the rest of this year and through the winter buying months. It is possible that two to four unit properties will be as good or better investments than single family houses during this period until the shadow inventory starts to become available (we will discuss shadow inventory in another article, please subscribe to our news feed so you don’t miss this important information).

Following is a report of the first half of 2011 compared with the first half of 2010. NOTE: These stats are for 2 units and up.

Denver Real Estate Statistics

Second quarter (2Q)  First half (1H) 2011 vs. 2Q and 1H 2010

• The Denver market average price per unit is down 2%; from $80k to $78k.
• The number of income properties sold is up 13%. This follows an extensive trend of declining sales volume; market activity has stabilized in 2010 and 1H 2011.
• Number of days on market is up 36%. Increasing DOM is usually a leading indicator of inventory builds, which then leads to price decreases.
• Sellers are offering larger discounts from the last half of 2010. Discounts are between 4.1% and 5.6%.
• Months of inventory is down, declining from 12.7 months in 2010 to 9.6 months in 2011 (remember this statistic is for income property, 2 units and up only, not single family homes). Because many investors now suspect the bottom is here or near, inventory has been declining for 18 months. This should lead to new appreciation and smaller discounts by sellers in the near future.

Is it too late for single family home purchases? No, there are still buying opportunities for good houses to hold for cash flow. But the income property market may be where the best deals are for the balance of this year in the Denver market. Many investors have already jumped and sales volume of income properties is up 13%.

Another factor to consider for buy and hold investors is the “shadow inventory” of bank owned properties.  It is possible to depress price levels further if REOs and other distressed property hit the market. Watch for our special report on Shadow Inventory for subscribers coming soon.

About the Author:  Paul Barrow is a Private Real Estate Investment and Business Opportunities Broker in Denver, CO. He works exclusively by invitation and referral with highly qualified investment clients seeking cash flow and capital gains in the Denver real estate and business opportunities.  Contact Paul to learn more about the current turn key rental property portfolios and other income property opportunities using the Contact Us page or by calling 303-800-iBUY.

Here are the slides:

Q2 2011 Denver Income Property Trends Slides

TAXES Real Estate

CYA “Cover Your Assets” Tax for Real Estate Investors Meeting Notes

I don’t think anybody would expect an “asset protection and taxes for real estate seminar” to be exciting, but we had overwhelming response and interest in this topic from both investors and brokers.  Attendees were riveted for more than two hours with the incredibly useful information shared by Scott Estill, principal of the tax legal firm Estill & Long LLC in Denver CO.  Here is a short summary of some key points followed by a link to the complete presentation.  If you would like an email announcing the Advanced Real Estate Strategies for Taxes and Asset Protection seminar please use the Contact Us Page with the subject “TAX.”

• Keep Records or for at least 4 years AFTER you sell a property and keep tax returns forever
• IRS is currently targeting real estate professionals and real estate dealers and Sub-S Corps and exchanges for audits
• Reduce chances of audit by using entities (not sole proprietorship), filing accurate organized returns with no blanks
• Business expenses must be “ordinary and reasonable.”  Use the smell test.
• “Own nothing but control everything…”  -John D. Rockerfeller
• Taxation in S Corps are generally better for dealers and brokers for self employment tax reasons
• Limited Liability Company (LLC)  is the most flexible type of entity, may be taxed various ways based on election

Real Estate Tax Attorney Presentation Link

Thanks again to Scott or presenting this valuable and timely information to our members and clients.

Here is the link to the
Complete Tax and Asset Protection for Real Estate Presentation.  

Reminder and Warning:  this is proprietary information (owned by a law firm!) so please honor the intellectual property and copyright of Estill and Long LLC.

Unfortunately, even with more than 2 hours runtime, we did not have enough time to answer all the great questions, especially about real estate dealers and real estate professional tax issues.  Based on the overwhelming interest and number of questions raised at the last meeting of the Denver Real Estate Strategies for Investment Property, I hope to put together a more advanced class.  If you have interest in this topic please sign up for the Real Estate Investor Tools Tips and Resources newsletter on this site and I will send out the announcement.  The attorney’s were very generous with their time as a sponsor of the Private Market Group investor meeting , but fair warning the in-depth class may be a paid class.  Based on the “entry level” class, however, I think the amount of tax savings will be well worth a small about of tuition.

Here are some important tax related links for clients and other Denver Real Estate Investors:

• IRS Forms for Taxes
• Form to File Articles for new Real Estate LLC in Colorado
• Form to get an EIN number for your real estate LLC

Important Disclosure:  The Private Market Group at Your Castle Real Estate Inc, PMRE LLC and Paul Barrow as Real Estate Broker are not qualified to provide tax or legal advice.  The information provided on this website should not be relied upon for making decisions related to taxes or legal or any other company or personal decision.

Colorado Seller Financing Bill Will Allow Owner Carry on Second Home Mortgages and Residential Investment Properties  |

On behalf of lifestyle property buyers, sellers and real estate investors, the Colorado Association of REALTORS® is working with Rep. Ray Scott (R-Grand Junction) and Sen. John Morse (D-Colorado Springs) on a bill that makes changes to Colorado law pursuant to federal law on seller financing.  Industry folks say these private market transactions are helpful to spark activity in today’s environment.

“How about if we allow older property investors with equity and younger lifestyle folks looking for financing to cooperate?”.  Now that would be a great show of  bipartisanship in Colorado?”

HB-1022 is titled “Seller Financing of Real Property”.  The legislation would allow Colorado property owners to carry the financing on up to three transactions in any 12 month period without obtaining a mortgage origination license. Current Colorado state law allows only one owner financing transaction in a twelve month period, and solely for an owners residence.  As reported in a previous post about HUD changes to owner seller financing rules,  current rules are not healthy for the Denver real estate market. Does anyone benefit from preventing these transactions?   Call you legislator and express yourself!   Or just make a comment below and I’ll pass the message along with others.

Go Teamwork  -  Please take a moment to Share / Save / Tweet / Like / Comment.

To find the current status of House Bill 1022 visit the Colorado General Assembly home page and search for House Bill 1022 – Seller Financing of Real Property. Or you can Download HB 11-1022 Owner Financing / Seller Financing Proposed Law Changes.

Colorado Foreclosure Protection Act Updated with New Disclosures  |

The Colorado Legislature passed House Bill 10-1133, signed by Governor Ritter in June 2010 and effective January 1, 2011 which mandates new disclosures for investors (called “Equity Purchasers” in the Foreclosure Act legislation) who are flipping short sale properties.  The key text from the actual bill is below, the most dramatic changes are as follows:

• Investors must disclose to the home owner and lender within one day if they find a “subsequent purchaser” as a flip
• Investor must disclose  to the homeowner and lender accepting the short sale the subsequent purchase price for which the property will sell as a flip.
• Investors must disclose to the subsequent purchaser and the subsequent purchaser’s lender the purchase price the investor paid for the property as a short sale, and the profit margin.
• The time frame associated with a “flip” is 14 days.

In effect, the legislature has created a 14 day seasoning period for investors that will not allow for a contract to be signed between the investor and the end user of the property.  This is a different type, and in addition to, the seasoning period by lenders selling properties (most notably Bank of America) who are disallowing any change of ownership for a short sale property for 30 days up to one year.

It will be interesting to see how this affects short sale transactions, if it just adds more holding time to short sale investors who think that these disclosures will kill deals, or it really has the affect of stopping the “flips.”

NOTE:  ALL CAPS text indicates new language that will be added to the Colorado Revised Statutes.

6-1-1121. Short sales – subsequent purchaser – definition.(1) WITH RESPECT TO ANY SHORT SALE TRANSACTION IN WHICH AN EQUITY PURCHASER INTENDS TO RESELL THE RESIDENCE IN FORECLOSURE TO ASUBSEQUENT PURCHASER, THE EQUITY PURCHASER SHALL:

(a) PROVIDE FULL DISCLOSURE TO THE HOME OWNER AND TO THE HOLDERS OF THE EVIDENCE OF DEBT ON THE RESIDENCE IN FORECLOSURE, OR SUCH HOLDERS’ REPRESENTATIVES, OF THE TERMS OF THE AGREEMENT BETWEEN THE EQUITY PURCHASER AND ANY SUBSEQUENT PURCHASER,INCLUDING BUT NOT LIMITED TO THE PURCHASE PRICE TO BE PAID BY THE SUBSEQUENT PURCHASER FOR THE RESIDENCE IN FORECLOSURE, WHICH DISCLOSURE SHALL BE MADE WITHIN ONE BUSINESS DAY OF IDENTIFYING ANY SUCH SUBSEQUENT PURCHASER AND IN NO EVENT LATER THAN CLOSING ON THE SHORT SALE TRANSACTION;

(b) PROVIDE FULL DISCLOSURE TO ANY SUBSEQUENT PURCHASER AND TO ANY SUBSEQUENT PURCHASER’S LENDER, OR SUCH LENDER’S REPRESENTATIVE, AT THE TIME OF CONTRACT WITH THE EQUITY PURCHASER,OF THE TERMS OF THE AGREEMENT BETWEEN THE EQUITY PURCHASER ANDTHE HOME OWNER, INCLUDING BUT NOT LIMITED TO THE PURCHASE PRICE PAID BY THE EQUITY PURCHASER FOR THE RESIDENCE IN FORECLOSURE;

(c) COMPLY WITH ALL APPLICABLE RULES ADOPTED BY THE COLORADO REAL ESTATE COMMISSION WITH REGARD TO SHORT SALES; AND(d) COMPLY WITH SECTION 38-35-125, C.R.S.

(2) AS USED IN THIS SECTION, A “SUBSEQUENT PURCHASER” MEANS ANY PERSON WHO ENTERS INTO A CONTRACT WITH AN EQUITY PURCHASER  PRIOR TO THE DISBURSEMENT OF THE SHORT SALE TRANSACTION TO ACQUIRE THE RESIDENCE IN FORECLOSURE AND WHO ACQUIRES THE RESIDENCE IN FORECLOSURE WITHIN FOURTEEN DAYS AFTER THE DISBURSEMENT OF THE SHORT SALE TRANSACTION.

Download Complete H.B. 1133 Colorado Foreclosure Protection Act Update

This new legislation is part of a trend of increased scrutiny and regulation in the business of real estate investing.  Investors are adapting to these new rules and learning to add value using new tools and products.  Most recently, title company rule changes now prevent investors from using simultaneous closings to flip properties.  A group of transactional funding companies is creating a cottage industry to help investors adapt to these changes.  Additional products and services will likely become necessary as the regulation increases in this area.

September 2010 Metro Market Report

Single Family (Residential + Condo), Denver CO

• Inventory was 23,332 units at the end of Sep 2010
  • Compared with prior month, available inventory is up 1%
  • Up 18% compared with year ago

• Under contract listings were at 3,645 units
  • Down 4% compared with prior month
  • Down 30% compared with Sep 09
• Sales volume (units) totaled 2,958
  • Down 4% compared to last month
  • Down 23% compared with same month year ago
• Year to Date (YTD) Sales volume (units) totaled 30,286 compared to 31,554 units sold YTD 2009, a decrease of 4%
• Average sales price was $260,929, down 2% versus prior month
  • 4% increase from Sep 09, $251,112 avg price
• Compared with Sep 09, Average Days on Market (DOM) increased 6% to 102 days

Residential Market Statistics, Denver, September 2010

• Available inventory was at 17,985 units, down 1% compared with month ago figures
  • Inventory was up 20% compared with same month, year ago

• Under contract listings are down 8% compared to prior month at 2,936 units
  • Down 27% compared to Sep 09
• Sales were down 6% from month ago to 2,321 units sold
  • Compared with Sep 09, units sold decreased 23%
• YTD sales volume was at 23,933 units, down 4% compared with YTD 2009 sales of 24,983 units

• Average sales price was $290,025
  • Down 2% compared to Aug 10, $295,516 avg price
  • Up 6% versus Sep 09, $274,433 avg price
• Median sales price was $230,000, down 4% compared with prior month, and up 2% from Sep 09
• Average Days on Market (DOM) was at 100 days, up 6% compared with a year ago

Condo

• Available inventory was at 5,347 units, even with last month
  • Up 12% compared to Sep 09

• There was a 9% decrease in under contract units to 709, compared with prior month
  • Under contract listings were down 41% versus same month year ago

• 637 units sold in Sep 10, up 5% compared to prior month and down 24% from Sep 09
• YTD sales volume was at 6,353 units, down 3% compared with 6,571 units sold YTD 2009
• Average sales price was $154,913, down 3 versus last month and down 8% compared to Sep 09
• Median price was $129,000, even with month and down 11% compared with Sep 09
• Average Days on Market (DOM) was at 107 days, a 10% increase from year

Elimination of Owner Carry Mortgages Disastrous

Attention all real estate investors!  HUD is proposing to eliminate ALL seller financing with two lame exceptions:

• Seller lives in the home, or
• Seller becomes a licensed mortgage originator

Passed last year, the federal SAFE mortgage act passed last year preserved the right for sellers to make up to five seller financing transactions per year without needing a mortgage originator license.  But that law was passed subject to HUD’s approval as “compliant” with the intention of the federal law.  This means that, for those states which do not have a ‘compliant law’, the SAFE act allows HUD to implement licensing for those states.  HUD has since issued proposed rules which would no longer allow seller financing for non-owner occupied homes.  This is a disaster for real estate investors trying to capitalize on the high-inventory and poor lending environment we currently face!

Please contribute and do your part to help our industry comment to HUD on this issue.  Efforts to affect this law will not be successful unless thousands of individual investors communicate that we are opposed to this the rules.  Please submit your comments to HUD today, here are the links:

To read the proposed rules, go here – http://www.regulations.gov/search/Regs/home.html#documentDetail?R=0900006480a6b033

To file your comment, go here – http://www.regulations.gov/search/Regs/home.html#submitComment?R=0900006480a6b033
and fill out the form.

Here are some sample message to relay to HUD:

• Mortgage bank loans are not available on many types of properties today
• The current lending climate has made traditional bank financing impossible for some borrowers
• Seller carry financing is a solid way to help the housing industry recover
• These rules would prohibit even partial seller financing – e.g., a “owner carry second”
• Many investors own a property free and clear and would like to get interest on their investment
• Million of Americans own a property other than a primary residence
• Mobile homes are more difficult to sell with bank financing, and there are LOTS of them

Please comment TODAY and help our industry.  It only takes 5 minutes.

FHA Flip Rule Waived for 1 Year!

This will be music to investor’s ears everywhere!  We no longer have to wait and plan to hold for 91 days to contract and sell fix and flip projects to first-time home buyers.   This will translate to lower holding costs, more projects, and higher quality inventory for buyers.  Some investors may choose to pass along the savings to buyers, many will likely choose to retain better margins on properties in this competitive environment.  Thank You FHA and HUD!

90 Day Flip Rule

“Section 203.37a(b)(2) of the FHA regulations, 24 CFR, is hereby:

• Waived for a period of one year,
• Effective February 1, 2010 through January 31, 2011,
• Arm’s length transactions only
• Specific appraisal conditions must be met if property value increases more than 20%

Read the Press Release about the Waiver online at the Official HUD and FHA 90 Day Flip Rule Waiver Announcement

Read the actual Waiver of Requirements 24 CFR 203.37

If you have questions of FHA’s Property Flipping Waiver, please email FHA at: info@fhaoutreach.com or visit: http://www.fhaoutreach.gov/FHAFAQ

4155.2: 4.7

Congratulations investors and real estate investor associations that on the successful grassroots lobbying and information dissemination that helped make this change possible.   Let us all continue to work together to rebuild the housing market from the ground up and remodel the housing stock that has been neglected to improve our neighborhoods and communities.