Virtual Paintout

Been Down So Long It Looks Like Up To Me

I’ve always wanted to find a one-handed lawyer.  Not that I want a lawyer with only one arm.   But whenever I ask my lawyer a question he answers me by saying, “well, Dane…on the one hand you could do this, and then on the other hand you could do that.”  I think if he only had one hand, I might get a straight answer.

And so it is that I find myself mimicking my lawyer, saying that on the one hand, the bad real estate market seems to be over. At least in Florida, here the inventory of resale homes is shrinking and the inventory of new homes is growing. All the while rates are still low (albeit mortgages are hard to qualify for just now). 

While on the other hand prices remain low, lower, lowest.  And so while this is awful news for sellers—and coupled with no certain date of a recovery; it could not be better news for investors and new residents in the area, who are picking up nice homes for a song and finding honest to goodness mansions for something less than a symphony.

A great friend who is about to retire called the other day asking me to send her listings of homes for sale on a golf course, with a pool, for under $400,000.  She is a Realtor from Maine, wanting to retire here, and so she honestly understands residence value.  You will smile to hear that there are dozens of homes that would fulfill her list of “must-have” needs, but most are closer to $250,000 than to $400,000.  I told her, “on the one hand there are lots of homes you will like, but on the other hand you may not have to go all the way up to $400K.”

A new client of mine wants a house with every bell and whistle.  Saltwaterfront with a dock, plus a pool, plus high ceilings, plus granite, plus multiple garage stalls, plus, plus, plus.  The houses I first found all seemed to lack one or more of his “touchstones”.  Then I found among the expired batch of homes in the “once for sale for almost $2 million” group, one that looks now like it will be perfect for him and his family--and is for sale by a bank for about one fourth of the original asking.  So on the one hand these special houses are out there, but on the other hand, they’re hard to find.

In the good news column, I closed on two houses one day last week.  It seemed like old times again.  I had almost forgotten the excitement of bringing two contracts to the table the same day.  And since that day last week it has occurred to me that Richard Farina’s book title; Been Down So Long it Looks Like Up To Me. Applies to most of us in the real estate business.  To wit: any good news just seems spectacular, while bad news is expected.  Nonetheless, I am hearing more good news than bad right now, and hoping that the marginally good news regarding a general increase in employment will continue to boost the real estate market. 

On a sad note, Richard Farina, the author of Been Down So Long…never lived to experience his own wild literary success;  he fell off the back of a motorcycle on the way home from the publication party for this book, and was killed instantly.  So on the one hand, his life was just getting good, and on the other—well you get it.

Dane Hahn is a real estate professional practicing in Englewood, Florida.  You can reach him at dane.hahn@gmail.com or by phone at 941-681-0312.  See him on the web at http://www.danesellsflorida.com/

Paying Off the Mortgage--Good Idea?

My wife and I spent a few days visiting a great friend, a single gal who is only a few years from retiring from a teacher’s position in a school district in Maryland.  She asked me—after a few glasses of wine—the one question that I hear all the time, “should I pay off my mortgage before I retire?”

This used to be the American Dream—to retire almost debt free—but with all the options that we have now, maybe it’s not so much today.  And so, the right answer is, it depends.

There are a ton of variables related to coming up with the right answer, and of course I won’t print her financial information here, but the things we discussed and that will make a big difference are, what kind of income will you expect to have after retirement, and what expenses can you anticipate—from where you sit today?

If you have recently refinanced your mortgage, so that it is in the 4-5% range; if you will retire with a good monthly income; if you will qualify for social security and medicare concurrently with your retirement; if you have some savings that can carry you through any lean times; if you are healthy and have a family history of longevity; then you might want to evaluate paying off your mortgage.

The real question is, is it smart to pay off the mortgage, and thereby eliminate the monthly housing expense, by spending real cash to do it?  And of course this presupposes that you will want to live there for some time and that the house is neither too big or too small, that it is in the part of the country where you want to stay, and that you can’t imagine there will be any expenses relative to the house that will come as a huge surprise over the next few years—like a new roof or the like, which might make you wish you still had your cash.

Here’s what I see as the most important elements of her situation.  What is the rate of interest she’s earning on her savings account compared to the rate of interest she’s paying on her mortgage? All other things being equal, if you are paying 5.5% for your mortgage and earning less than 1% on your savings, then your money would be better used by eliminating the mortgage.

But would using your cash to pay off your mortgage leave you with enough of a cushion to live on for the rest of your life (or until you decide to sell your home at some point and use the equity/proceeds to cover living expenses – if you should decide to do that).

Let’s look at these elements individually.

As for the interest rate comparison, it would seem pretty clear that using some of your savings to pay off your mortgage makes good financial sense. I’m basing this conclusion on the assumption that using some of that money to pay off the much higher interest rate mortgage (even after factoring in the income tax benefits of it) seems logical to me.

Probably the harder part of this decision is whether or not the cash left over (if you do pay off the mortgage) would be enough.  If your annual expenses are under control, the question to be answered is whether or not those expenses can be covered by the fixed income sources (retirement, social security, savings, and other income if any). If they can, then keeping a 6 month cash cushion may be sufficient (knowing of course that if push came to shove, you could sell your home at some point and get the equity back out of it to live on). On the other hand, if you would need to tap into your remaining funds to supplement your income sources, then the decision may not be so straightforward.

And then there are the conspiracy theorists who think the Administration and Congress may throw all of us a curve, and the value of the dollar will melt away.  But even if we suffer high interest rates and rampant inflation, the only real effect that would have on paying off a mortgage is that your savings will earn a higher interest rate, and the cash value of your house will go up.  There will be lots of other problems, but not in this example.

Any devaluation of the American dollar notwithstanding, after weighing the payoff decision, if you still aren’t comfortable with what to do, my opinion is  you should get with a Financial Planner and crunch some of the numbers specific to your situation. It will likely cost you a little bit to do that but the expense will be “short money” and may well be worth it in the end.

Dane Hahn is a real estate professional with Tarpon Coast Realty in Boca Grande, Englewood and Sarasota.  He can be reached at dane.hahn@gmail.com or 941-681-0312.

See him on the web at http://www.danesellsflorida.com/ or http://www.danesellsnh.com/

Moving to Central America

As I was saying last week, some friends and I supposed that if our American Political Administration became any more socialistic, as some pundits presume—and depending on the elections of 2012--there might be a small exodus of “movers and shakers”.  The decision to go somewhere outside the US would be a function of life being so different here that men like John Galt and Ben Franklin would find it impossible to live the life we have come to cherish and the life our fathers and grandfathers envisioned when they fought WWI and WWII. (And Korea and Viet Nam)

This column is a continuation of the one I presented last week, and deals with the “what if” of where a businessman, still either employed with a day to day responsibility to employees and family, or partly retired might consider living, outside of the United States. You may not have given this much thought for yourself, but even if you only watch HGTV's “House Hunters International”, and wonder what it would be like to live outside the US, you share in this fantasy.

The countries that seemed to be the most likely were generally in Central America. The five countries that were discussed were Costa Rica, Panama, Equador, Colombia, and Belize. Of course Mexico and Honduras have many appealing areas too. One of our group liked China—but try learning the language…

Everyone wanted ease of access (location and airports), a lower cost of living and taxes, lower cost and better availability of land, and like the Pilgrims, we wanted to see the success of other Americans living there, including ease of language, and stability of currency. Also the quality of life is a key to making such a move, our discussion touched on the relaxed atmosphere and living amidst a culture that’s less obsessed with work and consumerism. There’s less government intrusion, fewer lawyers making things difficult for everyone, and—despite what the popular media would have you believe—lower crime rates.

The atmosphere differs from country to country of course, which is why it makes sense to follow the advice you hear so often: live in a place for a while before you buy real estate there. Places that seem perfect on vacation may not be perfect for an entire year.  Our group of potential ex-pats is actively planning familiarization trips before the 2012 elections, just to be sure; but I stress, they are doing all this, “just in case”.

Weather itself is a key factor for many expatriates. Panama City and parts of Mexico can feel like Florida in the summer. But it can get downright cold and damp in some Central American mountain regions. Some prefer the “eternal spring” climate you get in the highland mountain areas of Panama or Ecuador, venturing down an hour or two to the beach a couple times a year. Others want a permanent beach life, with sun and sand every day of the year. Our group didn’t want to be in ski country of Argentina or Chile, but you might. If you are thinking about such a move, make sure you evaluate your preferences when picking out potential destinations.

What’s most appealing in Latin America may be the pace and culture, and the reduced cost of living is a major factor as well. Whether you are young and your income is low, or retired with a fixed income, you can easily cut your monthly cost of living down 30 to 60% without making a lot of sacrifices. It’s possible for a couple to live on less than $1,000 a month in Ecuador or Nicaragua, and still have a great life, but bump it up to $1,500 or $2,000 a month and you’ll have a maid, a gardener, and one or two restaurant meals a day.

The cities of wealthier countries such as Argentina, Chile, or Mexico will cost far more than those in less developed countries, but you will still spend less overall for a better quality of life. We were less interested in living in major cities like Buenos Aires—but even that doesn’t cost what it does to live in vibrant New York or London: the cost is more in line with living in Des Moines or Tulsa—but with a lower tax bill.

Even in nearby Mexico, only those who live in fancy beachfront penthouses or in gated American-style housing communities are paying anything close to what they would at home. Away from Mexico’s coastal tourist zones, finding a nice two-bedroom apartment for less than $500 a month is not difficult, and usually that’s with utilities included. A typical locals’ lunch will be two or three dollars. In most areas you can easily do without a car.

Where my friends will go will depend on so many things; expected level of comfort, the choice of the countryside or a city, and how much living space is needed.  Some folks claim they are willing to live like a local, but in fact I would not expect to see my friends with dirt floors and an outhouse…but rather a gated and walled-off main house with one or two casitas and some land for crops.  You’ll see plenty of both from Mexico down through the tip of Patagonia.

My research indicated that the cheapest overall, while still being attractive places to live in Central America, would be Guatemala, Ecuador, Nicaragua, and Honduras (apart from popular Roatan), while Panama is less expensive as a renter than an owner. Prices there have risen rapidly in the past decade. If you just heard about buying in Costa Rica, you’re about 20 years too late. An ocean view building lot that would cost a half million dollars in Costa Rica, for example, would be more like $50,000 in Nicaragua. There’s a similar differential in home and condo prices. Subtract a zero when you cross the border.

For South America, the least expensive countries with a sizable expatriate population are Ecuador, Peru, Uruguay, and Argentina—in that order. Brazil’s currency fluctuates like a small boat on a stormy ocean, so it’s a tough one to classify. Chile gets more expensive each year, but has the best infrastructure.

Remember that Panama and Ecuador use the U.S. dollar as their currency, so you don’t have to worry about exchange rate changes in either of those. The Belize rate is pegged at a steady 2-to-1 exchange. Mexico’s rate can vary 30 or 40 percent from year to year. In many Latin American countries with their own currency, rents are usually listed in local pesos, but if you buy property it will be negotiated in dollars.

Is any of this going to actually happen? Will this band of Floridian snowbirds live up to their

Plan, or is all this just a cocktail induced conversation?  Time will tell.  But as I say, they are discussing their “life boats” and if the time comes—they will be prepared.

Dane Hahn is a real estate professional, you can reach him at dane.hahn@gmail.com  or by phone at 941-460-8979.  See him on the web at www.danesellsflorida.com

Where Would You Go if the S**t Hits the Fan?

Sitting around the pool the other evening—with a very high end group of businessmen, the topic of our conversation turned to: where would you move to if living in the USA became difficult? And by difficult, our conversationalists meant impossible in one way or another. The worst case in our discussions would be if the American administration became fully socialistic to the degree that personal property was confiscated—but the discussions were longest and strongest in the “more likely” category—in which we assumed extreme inflation brought on by a cheapening dollar and possibly default on government loans.

The players in this circle were financially able to live anywhere, but they each prefer to say where they are—for now.  And where they are in the winter is Florida, but they also have homes in various locales around the northern states in the US.  These are conspiracy theorists, who are already hoarding precious metals.  This discussion was about their personal “life boat”, where they would go if getting out of the USA and going somewhere else to live for some time became important.

You may not have the same drive they do, modifying the Marine credo, “when the going gets tough, the tough get going”  but even if you only watch HGTV's “House Hunters International”, and wonder what it would be like to live outside the US, you share in this fantasy.

What would it be like to live there? And where is there? And who is John Gault? Questions for thought.

More and more people spend their days working from home—employers are happier today not to have to provide a desk and phone for workers who can do as good a job working from home.  It’s a double win--for the employer, he saves the costs of providing space for the employee—and the employee can save the commute, and maybe the cost of day care for a child while he/she works from home.

As I say, the guys around the pool could afford to live anywhere.  And so the conversation wandered, but the topic was: “Why don’t I find a place to live (just in case) and prepare to work from there. The short list of places that might make sense to the group were warm and not too far from Florida. They discussed Costa Rica, Panama, Columbia, and Equador. Most of this selection came from a thin knowledge of the cost of living in each country, the beauty of the natural topography, the language needs, and the safety of the economy and political outlook. So there is a bonus if Americans are already there.

Even plain vanilla retirees have flocked to Mexico in the past decade. Some half a million U.S. citizens are living there full time or close to it. The Social Security office says more checks are sent to Guadalajara, Mexico than any other city outside the US. But other sunny spots have also seen a huge influx of retirees, including Costa Rica, Belize, Roatan Island in Honduras, and the highlands of Panama.

More intrepid adventurers have ventured further south to Ecuador, Argentina, Uruguay, or Brazil to take advantage of great buys on real estate and cheap salaries for domestic help. In recent years these retirees have been joined by younger and younger expatriates who are taking advantage of the ability to do their job from anywhere with a high-speed Internet connection. These younger residents don’t receive the same incentives that retirees do, but with the cost of living a fraction of what it is in more developed countries, they still come out way ahead.

Here are some of the factors to consider and resources to check into when thinking about a move to Latin America, either on a sabbatical or as a full-time residency:

Costa Rica used to offer incentives to rich (by their standards) gringos to move there and watch the foreign investment flow in like a river. It worked so well that they finally stopped offering the incentives and didn’t even grandfather in the people already living there. But the construction crews didn’t miss a beat. The momentum kept going. So some parts of the Pacific Coast of Costa Rica are now more expensive than parts of the U.S., fed by a property bubble caused by “crazy California money” flowing down south.

But many other Latin American countries still offer great incentives to expatriates. There is usually an age requirement—though this can be as young as 45 in some cases—and residents must prove an ongoing income over a certain amount per month. This amount is high by local standards but low by first-world standards: $1,000 a month in Panama and Nicaragua, $1,500 in Honduras, and $2,000 in Belize for instance. Nicaragua will actually waive the age requirement if your income is high enough and Honduras will waive it if you invest $50,000 in a business that employs locals.

If you can meet the official requirements—including a letter from police stating that you haven’t been convicted of a felony—you get a whole basket of goodies. These may include a fast-track residency permit, duty-free importation of household goods, reduced or eliminated property taxes, a tax waiver on construction materials, cheaper medical care, and even discounts on travel and entertainment.These vary from country to country.

  

More on this topic in next week’s column.

Dane Hahn is a real estate professional practicing in Englewood, you can reach him at dane.hahn@gmail.com  or by phone at 941-460-8979.  See him on the web at www.danesellsflorida.com

Robins and Moving Vans--Winter is Over !

Being a Realtor can be a pretty hard job, there are long hours and disappointments, punctuated by the occasional sale—which these days is a “drop everything emergency” and “get the deal to close moment”.  But the business has its quiet times too.  And so it happened that I was fishing in Lemon Bay this week with a couple of potential clients, and they asked about the “market”.  I was happy to share the news, the housing market’s long, cold winter may finally be in a springtime thaw.

New data show that the price declines we've all seen are easing in big cities, and sales of new homes improving.  Many economists see the easing of foreclosures as key, since the glut of these properties being sold at a discount has been a significant drag on both existing and new home prices.

The Sarasota local daily paper had a front-page story on how the “pending” sales were way up.  Let me say that I personally have had two homes under agreement (pending) for nearly 6 months.  The offers came in the “owners” agreed to the price, but the banks (who need to approve the deals) have been sitting on their hands for weeks and weeks.  So “pending” is not the leading indicator it once was in better times, back then a pending deal took about 1 month between the accepted offer and the close of escrow and occupancy of the home.  This is like saying the number of "engagements" is way up, so the weddings will follow--but maybe not...

“The foreclosure market is drying up.  Banks may be shy to load the market with their inventory, or they are waiting for the Administration to require them to allow the former owners to rent the houses back.  In any case, if it continues, it will likely mean that we’ve either seen a bottom—or have passed a bottom—in prices because of limited supply and still strong demand.”

The US economy overall has been improving, with unemployment, retail sales, corporate profits and other measures showing steady if unspectacular gains. Housing has been one of the last holdouts, but analysts note that prices have stabilized and sales volume has been gaining.

Notices of default, which are the first step in the foreclosure process, fell in the first three months of the year, a 17.6 percent drop from the same period last year.  Banks still retain many foreclosed properties on their books, and some analysts have predicted that housing prices could weaken again if lenders dump these properties into the recovering market. But any long-feared “second wave” seems to be increasingly unlikely.

Low interest rates and the availability of bargain-priced properties are drawing more buyers into the market.  Although don’t think that the low price mortgages are all that easy to get.  You still have to pretty much prove to the lender that you don’t need the money, in order to get them to consider you as a borrower.

Several factors continue to hold back a major turnaround in housing, including a weak job market, tight mortgage lending standards and the huge number of homeowners who can't sell the home they no longer want to live in--these are the folks who would like to retire to Florida or elsewhere but they owe more on their mortgages than their homes are worth, leaving them essentially stuck in their properties. And until we get a major housing recovery,  the broader economy, and the Florida market, will suffer.

New-home sales nationally fell 7.1 percent in March from the previous month, the Commerce Department said Tuesday, but don't worry about that too much, it was partly because Commerce revised February sales figures up significantly. Even though the figure for March was the lowest since November, overall sales of new homes are up about 16 percent for the first three months of the year compared with 2011, the department said. The report helped boost the Dow Jones industrial average 74.39 points to 13,001.56. That improvement means that new-home sales in April and May will probably be stronger than last year, which were the worst on record.

But just as the Robins portend the coming of Spring, and the Crocus tells a gardener that it’s time to get the seeds in the ground, moving vans tell more about the health of a real estate market than any of the “cooked books” the industry tries to sell you.  And there are moving vans on the highways now.  My opinion: it looks like this Nuclear Winter is about over.

Dane Hahn is a real estate professional in Englewood and the SW coast of Florida.  You can reach him at dane.hahn@gmail.com or by phone at 941-681-0312. On the web see him at http://www.danesellsflorida.com/

Flipping Real Estate, Legal or Illegal?

A couple of weeks ago I had several readers ask about flipping and why it was illegal.  I told them "Flipping is legal unless there is fraud", but promised I would try to make some sense of what’s going on with the “flipping trials” that have been on the front pages of the local papers. As the testimony unwinds, the local press has painted legal and illegal flipping with the same brush, and cast a shadow across the concept of buying and reselling homes for profit, implying that it was illegal.

Any time you buy and sell a house (usually without intending to live there)—that’s called a flip. It’s either a fast flip or a slow flip, but it’s still a flip no matter how you look at it.  The media in cases where an investor bought a property and sold it a short time later uses the term “flipping”.  That’s just doing business.  It’s legal.  And it happens every week, even in depressed markets.

But an illegal flip is just like a legal flip except it includes some mis-statments of fact (the fraudulent step) in one of the many documents that buyers and sellers have to sign.  The guys who are on trial right now made a practice of moving properties (often with a little fraud) and got away with it, over and over.  What they were doing at the time might have seemed like everyday business, but once they got caught their illegal short-cuts became a news story.

Again, flipping houses is not illegal. Fraud is illegal. So what kind of fraud did these guys get in trouble over? Here are a few possibilities:

1. Getting appraisers to raise the appraised value of a property, often double or triple the value, resulting in the lender (being duped into) making larger loans for the flipper or their buyers.  This step allows the buyer to overpay for property (and maybe pocket the difference).

2. Arranging down payments for a buyer, often from a third party—sometimes from a loan company or maybe even from the seller—resulting in an unqualified buyer buying a house that they couldn’t afford and shouldn’t be approved for.  This works best when the value of real estate is escalating rapidly.  The buyer can live there, or sell the house and the seller and flipper (might fraudulently) split the profits.

3. Falsifying loan documents required by banks to get a buyer approved, documents such as pay stubs, social security numbers, verification of employment, personal tax returns, verification of funds on deposit, etc. Resulting in a fraudulent application.  This may even include stolen identification numbers buying homes, and dumping them to a “flipper”.  When the stolen ID numbers are those of a dead person, the county discovers the default when the taxes come due, and the flipper has resold the home long before any of this is discovered.

4. Using straw men (people who appear to be buyers, but are standing in for the buyer) is legal and often done in real estate, especially if the actual buyer is a celebrity or high profile sports star, who might have to overpay if his identity were known to the seller.  But flippers occasionally use “straw men” who are paid to use their ID's, and sign the documents; but once the sale is made to the straw man, he immediately resells the property to the “flipper” for a profit.  The flipper pays off the straw man and keeps the profit.  This “launders the chain of title, and is a frequently abused type of fraud; which once discovered leads to an FBI investigation.  A straw man can be a stranger, an illegal alien (with phony papers) or even a relative of the flipper.  Flippers may also be illegal aliens, and probably will use fraudulent tax and social security numbers.

5. Back dating lease agreements to prove a track record of the tenant making payments on time and a year or more occupancy, even though that tenant just moved in. This is very common. Closing companies and banks/mortgage companies want the loan to go through and the sale to happen.  They used to say, “We do it all the time” but they don’t say that anymore.

A few years ago the FBI was following several (bald faced fraudulent) deals on broken-down commercial buildings in which the flipper makes a fair offer to purchase, and the seller accepts; then the flipper gets a fraudulent high appraisal on the property and a high dollar loan for the appraised price, at closing the flipper pays the seller the agreed amount and keeps the excess of the money from the bank (this can be millions). This requires the closing company to aid and abet the swindle.  Sometimes really bold flippers will do a second deal on that same property, with new very high appraisals.  Once they have the money, these guys usually leave the area, with the loan in default.  Some of the more brazen might burn the building for the insurance and to eliminate the evidence.

Illegal flipping occurs anytime the deal is different than what is represented on the contract presented to the lender. Each loan is based on the stated facts, so if even one fact is misrepresented, it’s fraud.  Regardless of how many people participate in the process.  If you are thinking all this makes sense, just remember, fraud against a bank or lending company is investigated and enforced by the FBI.

Legal flipping occurs when you buy a house, and either fix it up or simply choose to resell it.  If you’re buying and rehabbing houses, document all the work you do.  Keep a file on what you’ve done and spent to make a case on how you raised the value so quickly. You should also document your work using before and after photos.  Good records will help with everyone you deal with from other contractors to bankers to the IRS.

Dane Hahn is a real estate professional practicing in the Englewood, Florida Area.  Reach him at 941-681-0312, or by email at dane.hahn@gmail.com.  See him on the web at http://www.danesellsflorida.com/