This is great news for smart real estate investors. I for one am getting ready to back the truck up & load up on some undervalued property in the next 36 months.

Here are the early details of the program changes. (The ful release will be on Monday Feb. 9th

Fannie Mae makes an announcement today to raise the number of financed investment properties back to ten. Since October of 2008, Fannie Mae had lowered the number of financed investment properties a borrower could have to three. Starting again March 1st, 2009, the limit will go back up to 10 properties. This is BIG news to the real estate investor. I think we all knew that going down to three financed properties was too aggressive of a move. Fannie Mae sites it’s reason for the change as a means to help with the housing recovery effort. There will be however tighter guidelines and restrictions from the previous rules Below are the new guidelines for financed properties from number 5 thru 10.
* The minimum credit score goes to 720
* 75% LTV for a Purchase and 70% LTV on a Limited Cash Out for 1 unit properties
* 70% LTV for a Purchase or Limited Cash out on 2-4 unit properties
* No Bankruptcies or Foreclosures for 7 years
* No deliquencies within the last 12 months on any mortgages
* In order to count the rental income from other rental properties the investor has, a two year look back is required from the borrowers Federal income tax returns.
* 6 months reserves will be required on each investment property that you own and the subject property.
This is awesome news and proves that Fannie Mae is truly committed to the real estate investor and fixing the housing crisis. If you would like more information please contact; Provestors Group 310-414-9757, or info@moonlightcapital.com

www.provestorsgroup.com www.moonlightcapital.com info

I was speaking with my neighbor the other day & they were expressing their miscontent with their financial advisor.  Their advisor didn’t bother to call them during this whole stock market correction.  Their advisor also told them several months before that everything was fine.  Stay the course & to be a long term investor.

The old paradigm of buy & hold will destroy your nest egg.  Just think of the investors who owned Fannie Mae, Freddie Mac, Washington Mutual, the list goes on & on.

You need to be an informed investor.  Wall Street isn’t interested in helping you to become affluent.  They are interested in assets under management & commissions.

This was part of the reason I didn’t like being a financial consultant for a Wall St. firm.  I couldn’t stand perpetuating the myth about “buy & hold” , dollar-cost averaging, & not trying to time the market.

When I say “timing the market”  I don’t mean on a short-term basis, that’s day trading not investing.  What I mean is to spot cycles in the market that are obviously times of speculation & overvalue.  Then taking steps to reduce your risk.

The example I like to use is when I sold my personal residence in Southern California in 2005.  The indicators were screaming “OVERHEATED MARKET” .  Although I missed out on a year or two of further appreciation until the very top.  I also escaped a massive tsunami of value depreciation that follwed very quickly.

You need to get educated on where you are in the market cycle & have a game plan.  It’s never too late to learn.

www.moonlightcapital.com

When investing in real estate, you need to know what kind of an investor you are before you begin. This will help to limit your research and time requirements. Are you conservative or aggressive? Do you demand security or are you wiling to take a little risk? How will your decisions affect the financial independence of you and your family? How sophisticated of an investor are you? Have you made many investments in the past? Is your family comfortable with your investment plan?

You must also consider your time horizons, both for yourself and your goals. Do you know how long you will own the property? How many years till retirement, college, etc. Maybe you need different time horizons for different properties. Everyone will have different needs based on their individual time horizons.

What resources do you have available for investing in Real Estate? Will you have enough for a 3 to 6 month reserve? How committed are you to your goals? What do you qualify for?

One of the most important questions is why do you want to invest. Is it for retirement? Are you looking to accumulate wealth? Will you be facing college expenses? Perhaps what you want is financial freedom, caring for aging loved ones, etc.?

What do you want real estate to do for you? Are you looking for cash flow? Are you anticipating increases in value to grow your wealth? Do you have some income you wish to shelter from taxes. Perhaps you have a need for all three. In this case you need to combine several strategies. I am going to talk in general terms for a moment. It will be your job to apply the following information to your own personal situation to help you determine what types of properties you should be looking for. The best strategy I have found for choosing a property to invest in is too first determine what area to invest in. Hopefully you now have a good idea of where you want to look based on the information already covered. You will then want to do your research. Call some property managers in those areas and ask what the demand is for rentals in the area that you wish to purchase in. Whatever the vacancy factor, make sure you adjust for it when analyzing a property.

I always like to ask property managers what kind of properties are in demand. Are renters looking for 1, 2 or 3 bedrooms? Are they looking for apartments or houses? Who are my renters going to be? Where do they work? Are the industries that employ them going to continue? Are there military bases or Universities near by? Is the area maintaining or declining? Are there any new companies moving into the area? Get to know the market and how your property will fit in that market before you buy.

So what kind of property should I buy? Here is where I have to speak in general terms. If you are looking for capital appreciation, I typical recommend one to four unit properties. These are single family homes, duplexes, triplexes and fourplexes. You can usually get lower down payments loans that will allow you to use greater leverage. Your cash flow may not be as good, but if you are in your peak earning years, it may not matter as much to you. This strategy also works well if you are just getting started or you don’t have a lot of capital to invest with. When you are ready to retire you can exchange your highly appreciating properties for properties with greater cash flow.

If you have a little more money to invest you may want to look for larger buildings or commercial properties that will cash flow better. They usually require more money down. Your capital will not usually grow as quickly, but you will more than likely receive greater income from it. It’s important to buy properties that are consistent with your goals.

It is important to understand the factors that control and affect the market that you intend to enter. The purpose of this topic is so that you have a reasonably good idea of the area and property you are thinking of buying so that you can make a good, informed purchase decision. It is not that hard but does take a little time. However, don’t fall into the trap of analysis paralysis. You can overanalyze to the point of never taking action. That is not the intent of this chapter.

All investment property purchases need to have due diligence conducted prior to the purchase. To develop a systematic approach for due diligence, asking the following questions is highly recommended:

Property Management

What is the vacancy factor?
What is the economic rent?
How long will it take to rent?(estimated)

Economic Area of Influence
What are the guiding economic factors that drive the value?
What is the sustainable source of economic growth in the area?
Who are the potential tenants, i.e. high tech, professional, blue collar, etc?

Demographics
What has attracted the prospective tenants to this area? (job growth, retirement)
Is this a resort community or a stable sustaining community?
Are your tenants students; singles; families w/children?

Analysis of Income/Expenses
Follow-up on selected strategy for investing
Determine your property analysis indicators
Strategy for increasing income/ decreasing expenses.

Appeal of Property
General feeling about the area
Convenient driving distances to work/school/recreation
Possibly family oriented

Due Diligence Checklist

Here is a list of things you will want to know before signing a purchase agreement. Not all of the items will be pertinent to every property. If you have questions, don’t hesitate to call on professionals to help you. This is an important step in your purchase decision.

1. Current rent roster with paid to dates
2. List of security deposits
3. Mortgage payment information
4. Personal property list
5. Floor plans
6. Insurance policy and agent information
7. Maintenance and service agreements
8. Tenant information: leases, ledgers cards, applications, smoke detector forms
9. List of vendors and utility companies, including account numbers
10. A statement of structural alterations made to the premises
11. Surveys and engineering documents
12. Commission agreements
13. Rental or listing agreements
14. Easement agreements
15. Development plans, all plans and drawings
16. Governmental permits or zoning restrictions
17. Management contracts
18. Tax bills and property tax statements
19. Utility bills
20. Cash receipts and disbursement journals for property
21. Capital expenditures for the last 5 years
22. Income and expense statements for two years
23. Financial statements and tax returns for the property
24. Termite inspection reasonably acceptable to the buyer
25. All other records helpful to the ownership of the property
26. Market surveys or area studies
27. Construction budgets or actuals
28. Tenant profiles
29. Work order files
30. Bank statements for operating accounts
31. Certificates of occupancy
32. Title abstract
33. Copies of surviving guarantees and warranties
34. Phase I environmental audit

Enjoy your investing and do you DUE DILIGENCE!

The increase in market value over time is called appreciation. It does not matter why the increase in value, only that there is an increase. The national average appreciation rate is approximately 7%. The rule of 72 says that if you take a rate of return and divide it into 72, you will then know how many years it will take for an investment to double in value. Based on this rule, the average home earning a 7% appreciation, doubles in value approximately every 10 years. If appreciation of value is your main focus, then you will want to choose areas where the appreciation is projected to be the greatest. Appreciation is a product of supply and demand. The greater the demand and/or the less the supply, the greater the appreciation. Be careful, appreciation is never a guarantee. But with a little research and some common sense you can make profitable decisions.

As a comparison, let’s take a look at some other investment options and how they compare. Let’s say you have $50,000 to invest. If you put that money in the bank at 5% interest, you will receive a $2500 return. If you put that money in the stock or bond market and it grows by 10%, you will receive a $5,000 gain. If you buy a $250,000 property with 20% down and it goes up 7% in value, you will receive a $17,500 gain.

Be careful. Appreciation is a difficult thing to predict accurately. Past performance is no guarantee of future results. With a little research and investigation though, you can choose areas that are the most likely to show appreciation.

Equity is the difference between what your property is worth and what is owed on it. For example, if you own a property that is worth $250,000 and you have a loan for $100,000, you have equity of $150,000. This equity can be pulled out by refinancing or adding an additional loan or line of credit. It is important to note that this is not considered income for tax purposes because the IRS does not recognize loans as income because they need to be paid back in the future. Please consult with your tax professional before making finance decisions.

One strategy for investing in appreciating properties is that you buy a number of properties and hold them till they have increased in value. You can then refinance them in order to pull out money to live on, or invest in other properties. Be careful if you use this strategy. There is never a guarantee of appreciation, and the interest rates can change, making it more expensive to pull equity out of your properties. You will also need to be able to raise your rents enough to cover the increased debt load. Otherwise you can end up with large amounts of negative cash flow. Negative cash flow comes out of your pocket each month.

Another concern is debt over basis. Basis is the value assigned to a taxpayer’s property used for determining gain or loss from a transfer of property. Basis is calculated by what you paid plus improvements minus your depreciation. If your basis is less than your mortgage amount, you will be taxed on the “gain”. For example, you have a property worth $200,000 with a basis of $100,000. You owe $150,000 because over time you pulled money out. Realtor fees are $12,000 if you sell the property. You will owe taxes on $100,000 not on the $38,000 you will receive from the sale. Depending on what tax bracket you are in, this scenario could possibly leave you with nothing in your pocket after taxes. If the property is foreclosed on you will still owe the taxes.

Fallacy: My score determines whether or not I get credit.

Fact: Lenders use a number of facts to make credit decisions, including your FICO score. Lenders look at information such as the amount of debt you can reasonably handle given your income, your employment history, and your credit history. Based on their perception of this information, as well as their specific underwriting policies, lenders may extend credit to you although your score is low, or decline your request for credit although your score is high.

Fallacy: A poor score will haunt me forever.

Fact: Just the opposite is true. A score is a “snapshot” of your risk at a particular point in time. It changes as new information is added to your bank and credit bureau files. Scores change gradually as you change the way you handle credit. For example, past credit problems impact your score less as time passes. Lenders request a current score when you submit a credit application, so they have the most recent information available. Therefore by taking the time to improve your score, you can qualify for more favorable interest rates.

Fallacy: Credit scoring is unfair to minorities.

Fact: Scoring considers only credit-related information. Factors like gender, race, nationality and marital status are not included. In fact, the Equal Credit Opportunity Act (ECOA) prohibits lenders from considering this type of information when issuing credit. Independent research has been done to make sure that credit scoring is not unfair to minorities or people with little credit history. Scoring has proven to be an accurate and consistent measure of repayment for all people who have some credit history. In other words, at a given score, non-minority and minority applicants are equally likely to pay as agreed.

Fallacy: Credit scoring infringes on my privacy.

Fact: Credit scoring evaluates the same information lenders already look at – the credit bureau report, credit application and/or your bank file. A score is simply a numeric summary of that information. Lenders using scoring sometimes ask for less information – fewer questions on the application form, for example.

Fallacy: My score will drop if I apply for new credit.

Fact: If it does, it probably won’t drop much. If you apply for several credit cards within a short period of time, multiple requests for your credit report information (called “inquiries”) will appear on your report. Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on the credit score.

Optimists will lose money,…pessimists won’t make money… a realist will thrive by seeking the truth & taking appropriate action.

How this for a gloomy first post.  I attended a 3 day workshop with some of the brightest minds in the country who study the stock market.  The reports were mind boggling.  I have known this group for over 12 years & they are not the gloom & doom types that spout off about the end of the world & to squirrel your money in gold coins or cash in the mattress.  I would say they are neither optimists nor pessimists… I would characterize them as realists.  They simply report their findings & give their educated assessment for what the data is pointing to.

The most eye opening chart was comparing 3 other bear markets to determine an average length of time to bottom & then to recovery ( stock market high to low, back to old high again).

Are you ready for this?   The data shows that we should not expect a bottom until around 2013.  Yep that’s right folks, 5 more years.  They did say that there are many opportunities to profit in Bear Market rallies.

I guess that is the bright side.

They also commented about how a “Great Depression” was unlikely. However, this will not be your run of the mill recession.  The average time it took to rebound from a recession in the past was closer to 8 months.

So hold on to your hats folks, it’s going to be a bumpy ride.  I am fine tuning my financial strategic plan as we speak…are you?

Don’t be disenchanted though.  Economic downturns have always created tremendous opportunity for those willing to seize the moment.

www.moonlightcapital.com