Investor Report: The Basic Principles in Gulfport-Biloxi, Mississippi

There are no sure bets in real estate investing. Everybody knows that, but there are some basic principles that almost always work well.

For example, when most of the market is down or flat, look for counter-cyclical local "niche" markets that are at the very early stages of significant economic and population growth, and where land prices are relatively low.

One such area right now that's beginning to attract serious attention is Gulfport-Biloxi, Mississippi.

You may recall that it popped up out of nowhere in the latest quarterly federal home price survey numbers because average values there in the past year jumped by 6 percent, while much of the country was looking at negative numbers.

Well, it turns out there's something significant going in the Gulfport-Biloxi area two years after Hurricane Katrina -- namely economic growth powered by federal and state "Gulf Zone" investment and tax incentives, a major rebound in the casino industry, plus employment expansions at nearby military and NASA space research facilities.

Governor Haley Barbour says there's a need for at least 100,000 new, moderate cost houses in the area right now -- and as many as 300,000 over the next three to five years. And the good news for investors is that, despite the fact that the area now supports the second largest casino industry in the U.S. -- it's bigger than Atlantic City and second only to Vegas -- real estate is still cheap.

For example, you can buy a new 3 bedroom, 2 bath, 1,350 square feet home on a small lot in Bayside Park for $125,000, according to Michael Eadie of Gulfstream Realty and Development. As rentals aimed at the growing local workforce -- or even families finally getting out of their FEMA trailers -- Eadie says properties like these turn positive cash flows, qualify for special federal tax breaks, and have excellent long-term capital appreciation potentials.

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Going Green: Easier Than You May Think

Green may not be your favorite decorating color, but the concept of making your home environmentally green is growing in popularity as more homeowners realize that they can also save a little more green in their wallets.

The first thing to understand is that you don't have to buy a new, already green home or build a custom home to go green. There are everyday things that can be done that will not only save you some money in the operating costs of running your home but also may make your home more attractive when you want to sell it.

"Going green doesn't have to be painful. It doesn't have to cost you more money. It's more than just changing one fluorescent light bulb. It's an important consideration," says interior designer, Abbey Koplovitz.

"If you build from scratch, you're doing a residential renovation, and you build using green materials, it is going to cost you 20 to 30 percent more but again, you're already spending say $400,000, what's a little more," says Koplovitz.

But when it comes to making an existing home green, it's a lot cheaper since you often build that cost into the routine maintenance. Then the only thing is to routinely make your choice for materials be green.

"Buy a low-flow toilet. Buy a washer and dryer or a dishwasher that uses less water. A lot of my clients think about these things because they decrease the cost to run the home," says Koplovitz.

"So if you're going to buy stainless steel appliances to help sell your house because the kitchen might be a little tired, buy something that's Energy Star rated," says Koplovitz.

When you start your green-home project, first think about and identify what your priorities are. Is cost the main concern? Are you trying to eliminate a problem such as allergies by going green? Are you concerned about the environment and want to make sure the products you buy come from environmentally-friendly manufacturers?

"Typically you have to give something up. So I always tell my clients, 'What really is the most important thing to you?' If price-point is the most important thing to you, then that limits your choice of products. If color range of choices of flooring is really important to you, and you want to be environmentally green, you kind of go down different paths. So I think it's really important to identify what your goals are and how you want to be green," says Koplovitz.

She says that homeowners who have children with allergies will typically be concerned with air quality. So they'll go green by changing flooring or paint.

"You can get paints that are low or no Volatile Organic Compounds (VOC)," says Koplovitz.

But simple knowledgeable choices can keep you allergy-free and help the environment at the same time.

Koplovitz says avoid vinyl at all costs because it gives off toxic gasses. "If allergies are a concern, a really great product is linoleum; true linoleum doesn't increase your price-point very much and it's hypo-allergenic," says Koplovitz.

"If you have wood floors and you need to get them refinished or if you're putting in wood floors, you can go with latex finishes on them. Or, if you're doing carpeting, and you're not allergic to wool, there are many wool projects on the market that are made without a harsh chemical adhesive and harsh chemical processing," explains Koplovitz.

Most people paint their homes every five to 10 years. So one way that people can really contribute to the environment without spending a lot of extra money is by buying paints that have low or no VOC.

"Those are now readily available at all the major manufacturers of paint. So you don't even have to travel very far to get them," says Koplovitz.

To go green, you don't have to do it all at once. But as routine maintenance needs arise, think environmentally green when it comes to choosing materials and products and you'll likely save some money and take pride in doing your part to help protect the environment.

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Ask Realty Times Question: Do foreclosed or REO homes sell for less money than other occupied homes? If so, what's the percentage?

Answer: This is a more complex question then anyone might believe, but allow me to offer a brief overview.

We know there are a huge number of foreclosures in the U.S. and that the numbers are rising. For instance, the foreclosure listing service RealtyTrac.com reports that in October foreclosures were up 94 percent over the same month last year.

The difference between fair market values and the sale price for distressed properties is called the "foreclosure discount" and some of the homes listed by RealtyTrac sell at enormous price reductions. However, in some markets there is little or no discount. Thus the size of the discount depends on local market conditions. In general terms, the more distressed homes available for purchase -- the larger the percentage of foreclosures and REOs relative to all homes being sold in a given market -- the greater the foreclosure discount.

Homes which have been foreclosed are sold at auction. The lender typically bids the amount of the loan in an effort to recapture the value of the principal, but this is not always the case. If the property does not sell at auction then the lender has made the winning bid and takes title to the property as "real estate owned" -- a REO.

Is it better to buy at auction or from the lender? The answer depends on the local market and the lender. In some markets, you can buy REOs in big numbers, say 100 or 1,000 at a time, and with significant discounts. In other cases, you can buy foreclosures one-by-one.

In considering foreclosures and REOs you have to look at more than price. Yes, there may be a discount, but what repairs will be required? Will you have to evict former owners? Squatters? In some cases foreclosures will be a bargain even with expenses, but not always.

If foreclosures seem interesting, you want to check the listings with care, work with an experienced broker and attorney, and have cash available for acquisition, repair and retention. Foreclosure professionals try to turn over properties as quickly as possible to reduce carrying costs, maintenance and security expenses, generally in six months or less -- and sometimes in just a few days if the property can be wholesaled to a contractor or investor for repair.

Question: I purchased my home in March. Everything has worked fine until now -- when the heat pump went out. I called my home warranty company, who -- slowly -- called a heating professional to come out and take a look. Two weeks later I still don't have a working heat pump! First the part wasn't in stock. Then that part wouldn't fit. Then the part wouldn't work -- the heat wouldn't shut off! And finally, one of the experts pointed out that the part wasn't the same one being replaced -- it was a cheaper, less effective version.

I have sat home numerous days -- from work -- and evenings either waiting for the guy to show up, or waiting for the next guy to come and fix what the first, or second, or third guy couldn't. Is this my home warranty company's fault? What rights do consumers have in these situations?

Answer: If you're in a cold climate then waiting several weeks to get the heat fixed is not acceptable. It surely would not be acceptable for a landlord and it is not acceptable for a warranty company either.

If the property is old enough then it may well be difficult to get a proper part. As to your "expert" and their "expert," once you get into the world of dueling experts you'll likely need a third one to referee.

Check with your warranty company to see if they have a complaint department or a supervisor. If not, call the consumer affairs department of your state attorney general's office. Beyond that, check with them to see in the future if you can simply have repairs made and then send the bill to them, arguing that a bum heater in cold weather is a threat to health and hearth.

Take a look at HomeWarrantyReviews.com for additional information.

Question: I've been saving money for the last decade to build my dream house -- and now the time is finally here! As far as location, I'm pretty flexible. I rent in the city of Portland metro area now, but would like to be further out from the city center. How would you recommend going about choosing a builder? Are there certain certifications I need to look for?

Answer: I look at home building as a craft. One "builder" and a second "builder" with equally wonderful credentials may well create homes with vastly different levels of quality and cost.

I also view building as a localized business. Once you have identified where you want to build, go down to the building permits office and see which builders are active in your area. Drive by projects, see which ones look interesting, and then speak with builders. Ask builders if you can speak with recent clients in the area -- ask about their experience.

Or if you like a particular home, send a note to the owners and ask if they would recommend their builder.

Question: My husband and I are considering moving back East to live near my family. We aren't in any real rush, but want to move in the next year or so. Is there a certain season that's better than others for selling?

Answer: I have a view regarding this question which is probably different than a lot of brokers: I say any time is the right time to sell. Here's why:

Many areas have active real estate "seasons" when most transactions occur. If you think about this you realize that to have these transactions you need both buyers and sellers. In slower times you simply have fewer buyers and fewer sellers -- however, if there is balance between those who want and those who have then selling times should be about the same.

Of course, if there's a particular time of year when your home looks great, maybe because everything is in bloom, then the opportunity to market in such a favorable environment should not be overlooked.

Question: I've been a landlord for years, but recently I rented out to some tenants who constantly have loud parties -- bothering neighbors with whom I generally have a good rapport. I'm also concerned that the home may not be being taken care of. Do I have any recourse?

Answer: How loud is loud? Some police departments and environmental health agencies actually have meters to measure such things -- if someone is above the limit they can get a citation.

You need to ask if the neighbor's complaints are reasonable -- say band practice on a week night. If yes, then perhaps the best approach if you know the tenants and have good relations with them is to sit down, explain your concern and alert them to the possibility that the neighbors could seek help from the police or local government.

If the neighbor's concerns are not reasonable, then you should still sit down with the tenants and discuss the complaints anyway so they know what's going on. It may well be that noise concerns are a pretext, the real issue is some other matter with the neighbors.

A common lease provision includes language which says an owner can deem a tenant "undesirable" and terminate a lease if the tenant, his family, guests, or employees cause annoyance to neighbors. Check your lease for such language and then ask an attorney if it's actually enforceable. If yes, then perhaps a gentle warning letter to the tenants would be appropriate.

Question: A few years ago I purchased a home with a subprime mortgage. I put no money down and have been making interest only payments. I am getting worried, as I don't think I'll be able to make the new, higher payments when they start up next year. I don't want to move out of my home. I love it here! Any advice?

Answer: Yes, refinance now with a conventional loan or the FHASecure program. However, check your loan papers to assure that you do not set off a prepayment penalty -- if there's one in your loan then if possible you'll want to wait until the penalty period ends before refinancing.

What you have -- to be polite -- is a toxic loan, what lenders describe as "nontraditional" financing. It will be difficult if not impossible to get another interest-only loan with nothing down in many markets. Thus you will need either equity in the home or cash to reduce the mortgage balance when you refinance.

Given your situation it would be a good idea to start saving now so that you can carry the property at a higher monthly cost if that is necessary for a few months to avoid the prepayment penalty. Make a point of paying all bills in full and on time to maintain your credit standing. Speak with lenders now about replacement financing.

Question: I'm looking to become a real estate agent. I love the idea of helping people find their dream homes! Is there a way I can take classes and still keep my full-time job? Where do I go about finding out more about school.

Answer: This should not be a problem. Hundreds of thousands of newly-minted salespeople enter the real estate market each year, so there are plenty of classes available.

Educational requirements vary by state. For specifics, speak with your local Realtor association, individual brokers and check the phone book (does anyone do that anymore?) for real estate schools. You may be able to find night and weekend classes that will qualify you to take the licensure exam.

Have a real estate question? Send your inquiry to Ask Realty Times. Because of the volume of mail received, Mr. Miller cannot respond to questions individually or privately. Published letters may be edited for space and style. For comments regarding other Realty Times articles, please contact individual authors by pressing here. For past columns, please press Ask Realty Times.

This column is designed to provide accurate and authoritative information in regard to the subject matter covered. It is made available with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services. If legal services or other expert assistance is required, the services of a competent professional person should be sought.

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source: luxuryvirginiahomes.com

Washington Report: Senate Banking Committee Unveils

Maybe all the criticism and jokes about Senator Chris Dodd being AWOL from his housing and mortgage legislative duties on Capitol Hill -- while he runs for President at the back of the pack -- are financially getting his attention.

After months of delay, the chairman of the Senate banking committee last week unveiled his major reform plans for the home mortgage industry -- and they've got some real teeth.

Among other provisions, Dodd's bill would ban all prepayment penalties imposed by lenders in connection with subprime and nontraditional loans, require escrows for taxes and insurance for all subprime borrowers, and prohibit loan officers from steering home buyers to higher-rate, higher-fee mortgages than they deserve or can afford.

Violators would get hit with mandatory cancellations of the loan -- full paybacks of downpayments, principal, interest and closing costs fees -- and $5,000 cash penalties on top of that.

Inflated appraisals would also be targeted: Borrowers could sue their bank or loan broker any time the appraisal on a house came in 10 percent or more below the actual market value, as established by independent valuations.

And all those "liar loans" -- you know, the ones requiring no asset verification, no income verification, no verification of employment that were so popular at the height of the housing boom -- well, you can probably kiss them good bye if Dodd's legislation is enacted.

The bill would impose much stricter requirements for documentation … and would give the Federal Reserve Board the authority to write regulations enforcing the tougher standards.

Dodd is expected to push his reform bill for Senate floor action as quickly as possible, and then go to conference with the House, which has already passed a comprehensive mortgage market reform bill with roughly similar objectives.

With the chairman back in the legislative saddle, there's also a better chance for Senate floor action on the bill the housing market has been waiting for months to see: Reform of the Federal Housing Administration's loan programs -- higher mortgage limits, lower downpayments and risk based pricing to pull in a wider span of home buyers and refinancers.

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Remodeling Contracting Work Expected to Jump in the Years Ahead

In recent years, the home remodeling market in the United States has enjoyed solid growth. According to the Joint Center for Housing Studies, Harvard University, spending on residential improvements and repairs has climbed steadily, setting a new record of $280 billion in expenditures. Plus, the National Association of Home Builder's (NAHB) current market conditions indicator, its Remodeling Market Index (RMI), showed a slight increase this third quarter to 46.2 from 44.8 in the second quarter.

"Buoyed by continuing strong demand for minor additions and alterations, the remodeling market is expected to end the year in pretty good shape," said NAHB Remodelers Chairman Mike Nagel, CGR, CAPS, a remodeler from Chicago. "Though down a bit from the previous quarter, the remodeling market is not experiencing the dip in production and sales being seen by the new home building sector of the industry."

The RMI measures remodeler perceptions of market demand for current and future residential remodeling projects. Any number over 50 indicates that the majority of remodelers view the market conditions as improving.

"The RMI is consistent with our forecasts for the remodeling market," said NAHB Chief Economist David Seiders. "We expect activity to contract in 2008, but to resume positive growth in 2009 and beyond."

The Joint Center for Housing Studies joins Seiders' forecast for a more positive future. It predicts total home improvement activity, installation type, and project detail from 2005 to 2015 to increase at a 3.7 percent inflation-adjusted compound annual rate, generating 43.6 percent inflation-adjusted growth for the decade. The share of the home improvement activity done by professional contractors, the report adds, should rise by 45.7 percent by 2015.

"Falling sales of existing homes, and depressed remodeling contractor sentiment remain negative factors in the outlook for the industry," comments Kermit Baker, director of the Remodeling Futures Program of the Joint Center. "With borrowing costs remaining favorable, though, owners are still able to take advantage of the run-up in their house's value over the past decade to finance home improvement projects."

According to the RMI, minor additions and alterations nationally increased significantly during the third quarter to 47.07 (from 43.27), while major additions and alterations remained stable at 46.89 (from 46.36). Regionally, minor additions and alterations increased significantly in the northeast to 56.68 (from 50.43) and Midwest to 57.44 (from 45.06). The amount of work committed for the next three months rose slightly to 36.12 (from 35.91) and the backlog of remodeling jobs decreased to 44.93 (from 47.33). Additionally, owner-occupied remodeling increased to 49.1 (from 47.1), while renter-occupied remodeling declined to 38.7 (from 40.2).

Lastly, the Joint Center's "Foundations for Future Growth in the Remodeling Industry," a recent report in its "Improving America's Housing" series, notes that despite recent industry concentration, remodeling firms remain very fragmented, as self-employed contractors not only account for a majority of businesses in the industry, but also for most of the recent growth. In lieu of consolidation, many remodeling contractors have become more specialized. "By specializing, remodeling firms can achieve efficiencies even if their revenues do not reach the levels of traditional scale economies," noted Baker.

Note: The RMI is based on a quarterly survey of professional remodelers, whose answers to a series of questions were assigned numerical values to calculate two separate indexes. The Remodeling Futures Program, launched in 1995, is producing a better understanding of the US home improvement industry so that businesses can better take advantage of the opportunities that this market offers.

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