Software Developer and Performance Engineer
Real Estate
Thoughts, ideas, solutions, and more about real estate investing.
It is the Economy Stupid. Leave it Alone!
May 14th
The problem with the economy is that no one will leave it alone. It keeps getting stirred up by stimulus plans such as stimulus checks, a housing voucher, vehicle vouchers, and who knows what is next. People are not buying because they are uncertain of the future. It doesn’t matter how cheap that house or car is. If you are afraid of loosing your job and facing the possibility of living off your savings for a long time, you are not going to buy anything. The economy is grinding to a halt because of uncertainty, not because people don’t want to buy things. Giving them incentives to buy only helps those who have the money and feel certain their job is not in jeopardy. They would probably have bought anyway so the stimulus check or voucher being given ends up having no net effect. If you want to stimulate the economy, make it boring, predictable, consistent, with few rule changes except where it matters. Complete and fair oversight of companies to ensure they are being operated within the law. When people have confidence that their job is secure, they will buy houses and cars. Until then though, all the stimulus plans in the world won’t motivate people to buy anything if they don’t believe in their financial future.
Extend Voucher Program to Investors
May 9th
Why not make the $8k voucher program available to investors? Instead of limiting the program to people who are looking to buy their primary residence, how about we get these homes off the market. Granted, there are investors who should not be allowed to participate in the program. Criteria should be setup to ensure that the right investors are being encouraged to purchase homes. Requiring them to have tons of cash on hand is not a solution. It just limits the investors chosen to those who have lots of money anyway. They can afford to buy up houses at deep discounts. Instead, find the small investor who has less homes than the Fannie Mae loan limit which sits at 9 right now. Help them buy another home or two so that they can successfully manage the property as a productive asset. Tenants need places to live, but if the investor is having trouble, it is going to affect the tenant. There are lots of small investors out there who cannot buy homes because of how tight credit is, and the increase in rates and requirements they must meet to purchase a home. Freeing up these small investors to buy a home or two will take lots of homes off the market. It is also very likely that the homes will be managed much better as it will be more than just another home. It will be their 3rd home or 8th home. Some of these small time investors will make it big and buy up yet more homes. They just need an environment where they can grow. Right now there are so many rules, limits, regulations, and requirements; it is impossible for them to take advantage of the cheap housing that is flooding the market today.
Another Wave of Foreclosures in the Making?
May 7th
Buying a house is a huge decision and one that should not be entered into lightly. Unfortunately, thousands of people have done just that and we have foreclosures everywhere. The government wants to give everyone 10% or $8k (whichever is less) vouchers for buying a house to simulate sales. They are even considering letting people use that $8k as a down payment. Will this not cause a second wave of foreclosures? The program is only for those who are buying their primary residence. If they need $8k from the government as a down payment to buy the home, they should not be buying at all.
New Fannie Mae rules are making things worse, not better.
Sep 27th
By now everyone knows the big problems in the housing market. What you probably don’t know is a rule that will probably make things worse. It was designed to protect Fannie Mae, but it is having the opposite effect. It is making things worse and will prolong the pain of this housing downturn. Worse yet, it will devalue the loans Fannie Mae has bought even more. You can only value something as much as someone will pay for it. The foreclosed homes are sitting on the market even longer because investors can no longer buy as many homes.
RULE: Investors may only have up to 4 investment property loans as per Fannie Mae. It used to be 10.
PROBLEM: Investors are unable to buy homes and they they sit on the market. Getting loans to buy these homes has gotten very expensive.
RESULT: Homes are going to be on the market much longer and the housing market is going to remain repressed for much longer than it should. Investors would love to buy homes but they can not. People who want to sell are unable to find people who can get a loan. The value of homes will decrease much further as a result because investors will have to use more of their own money to buy a house and will want a greater discount as a result.
What should Fannie Mae do? Put the limit back to 10. I am not suggesting that they raise it higher than 10, but there are a lot of people who would be willing to buy homes right now because of the low cost. Another thing Fannie Mae should do is not allow these loans to be less than 20% down. This will ensure that the investor has money at stake and not the 0% down or 5% down that got everyone into trouble.
Finally, they should require that the foreclosure proceedings are more quickly executed. In Ohio, it takes about a year for the entire process to be worked out. In that time the house has been empty, unkept, and is loosing value because of damage, copper being stolen, water damage, and a host of other problems because it the house sitting vacant for so long. By the time these homes are back on the market everyone is loosing a ton of money, especially the banks, and an investor who wants to buy has to do so at a big discount because of all the repairs that will be needed. If the house was pushed through the foreclosure process in 2-3 months, the houses wouldn’t be in bad shape and they could be sold at a better price.