How To Add $100K To Your Net Worth In Uncertain Times.

By Troy Corman, t2 Real Estate

We live in uncertain times. Pundits argue if we're out of the recession, if the stock market will continue to rise, and if we're looking at another leg down in the economy when the government exhausts it's stimulus programs.

So what's one to do to not only protect, but create wealth? You can store it in the bank in low-yielding money market accounts. But that doesn't produce gains if we get hyper-inflation. You can continue to speculate in the stock market. But the market can produce horrific losses if the doomsdayers are correct and we get a massive decline. You can buy gold, but gold doesn't pay you monthly income, or give you terrific tax deductions, and it is much more volatile than my investment of choice, rental real estate.

Rental real estate makes you money in 5 ways.
1. Cash Flow - renters pay more each month than the home's carrying cost.
2. Principal Pay Down - rent money pays down our mortgage each month.
3. Equity Capture - we buy homes for thousands less than they're worth.
4. Appreciation - we sell homes in a sellers market when prices are rising.
5. Depreciation - rent homes produce about $10K in deductions per $100K home annually.

The formula to add $100K to your net worth is simple. We buy homes that would be worth around $100K once they are repaired. We look for a $20,000 profit margin by subtracting the purchase price and rehab costs from the home's ARV (after repaired value). In other words, we buy a home for $70K, put in $10K in upgrades and repairs, and sell the home for $100K or more. Buy 5 homes using this formula and you've added $100K to your net worth.

In this price range, we're able to rent the homes for around $1,000 a month, which will produce $100-$300 a month positive cash flow. The cash flow helps cover vacancies and any repair work. We never buy homes that don't have positive cash flow because then we've just bought ourselves a liability.

So should we invest in real estate in Dallas/Fort Worth now? Yes. I expect lenders and banks to ramp up the disposition of their bank-owned real estate and foreclosed properties. Many have talked about a shadow inventory of foreclosures that have yet to hit the market. According to the November 9th issue of National Mortgage News, "Bank of America is now saddled with $33 billion worth of nonperforming assets, almost triple what it had a year ago". Wells Fargo comes in with $20 billion in nonperforming assets, double what it had a year ago. Sooner or later, those nonperforming assets, whether they're residential or commercial real estate, have to be off the books.

As a result, I think that 2010 will offer a once-in-a-lifetime gold-mine for investors willing to take action. The economy, government spending and unemployment will freeze many in fear, which means there will be more deals for those that step up to the plate. Despite some dour predictions of a W-shaped recession, the Dallas/Fort Worth real estate market is consistently ranked as one of the top 10 markets in the nation. Out-of-staters continue to migrate to the Lone Star state in droves attracted by our job market, affordable cost of living and lack of a state income tax. So take action. Because as Wayne Gretzky says, "you miss 100% of the shots you don't take".

Check out this video about the future of Texas real estate.

Homebuyer Tax Credit Extension May Pass This Week.

Brought to you by T2 Real Estate. Credits to RISMEDIA.
RISMEDIA, November 5, 2009—After two weeks of delay, the Senate cleared the way to pass a seven month extension and expansion of the tax credit for homebuyers. By an 85 to 2 roll call vote, the Senate voted to cut off debate on a package of measures that includes the homebuyer credit, making it virtually certain that the legislation will reach President Obama for his signature this week.

The homebuyer tax credit, due to expire at the end of November would be extended through April 30 of next year. First-time buyers who are in the process of making a purchase would not need to worry about qualifying for the $8,000 credit if they close after the November 30 deadline.

For the first time, the legislation that was recently cleared makes move-up buyers as well as first-time buyers eligible for a credit. The $8,000 maximum first-timer credit will continue and will now be available to couples with income up to $225,000, a nearly $55,000 increase above the level in existing law. A new $6,500 maximum credit would also be available to move-up homeowners who have lived in their current residence for five of the prior eight years.

For homebuyers across the country, the expanded tax credit would allow more people to qualify for the credit. While two-thirds of American families own their own home, and most earn less than the income limits that have been established within the extension, more buyers may be eligible. Move-up buyers don’t have to sell their current home to qualify for the new credit, but the money cannot be used to buy a vacation home. “It’s only for a primary residence,” said Regan Lachapelle, a spokeswoman for Sen. Harry Redi (D-Nev.), who helped engineer the deal. “In expanding the tax credit, we are helping first-time home buyers, as well as homeowners looking to move up to a new home, but we would exclude from the credit speculators who may have recently purchased a home intending to flip it for a fast profit,” said Senator Max Baucus, Democrat of Montana and chairman of the Finance Committee.

The tax credit has fired-up the housing market, driving existing home sales to the highest level in over two years. The National Association Realtors reported sales jumped 9.4% to a seasonally adjusted annual rate of 5.57 million units in September and are 9.2% higher than the 5.10 million-unit pace in September 2008.

The legislation included provisions added to address complaints of fraud as well. The Internal Revenue Service is given greater authority to oversee the process to root out fraud, and provisions are added in response to past abuses of false sales or underage buyers. An investigation by the Treasury Department’s Inspector General for Tax Administration found that more than 580 children, some as young as four years old, had received $627,000 in first-time homebuyer credits. The IRS has identified 167 suspected criminal schemes and opened nearly 107,000 examinations of potential civil violations of the first-time homebuyer tax credit.

Dallas Area Home Prices Move Up

As reported in the Dallas Morning News on October 23, some Dallas area home median sales prices have increased over last year. The northwestern area known as Westlake led median price increases as it's average price increased 14% over last year.

Other Dallas area homes enjoying year over year price increases are listed below:
average home prices in Duncanville up 7%;
average home prices in Arlington up 4%;
average home prices in Ellis County up 3%;
average home prices in Garland up 1%;
average home prices in Wylie up 1%;
average home prices in Richardson up 1%
average home prices in Cedar Hill up 1%;
and average home prices in Denton County up 1%.

Savvy home buyers have found the 1-2 punch of interest rates near record lows and the $8,000 tax credit, an irresistable combination.

Speaking of the home buyer tax credit, many hope it is extended. The most recent proposal includes extending it through the first quarter of 2010, and then reducing the $8,000 tax credit by $2,000 increments in each subsequent quarter thereafter. Of course, counting on the government isn't always wise. So if you're in the market but on the fence, get moving. With today's rock bottom interest rates, now is the time to buy!

Mortgage Rates Drop to 4.87% and 4.33%.

Freddie Mac reported that 30-year mortgage rates averaged 4.87%, while 15-year mortgage rates now average 4.33%. Combined with the first time (up to $8,000) tax credit, and affordable home prices, these super low rates make right now the time to buy for savvy investors and owner-occupants.

According to the National Association of Realtors, pending home sales rose 6.4% in August, marking the seventh consecutive monthly gain. In the week ending October 2nd, mortgage applications rose 13% for home buyers, and 18% for those refinancing.

Rates cannot stay this low forever, as Ben Bernanke reported today that his central bank will be prepared to tighten monetary policy (increase interest rates) when the outlook for the economy has improved sufficiently.

Attending The Five Star Default Servicing (Foresclosures) Conference

This week in Fort Worth is the 2009 Default Servicing Conference. It should be quite interesting. I'm looking forward to gaining more education in the foreclosure selling process and meeting with some of the servicers and banks that need help marketing and selling their Dallas/Fort Worth foreclosure properties.

According to Friday's edition of Investors Business Daily, industry insiders believe that as much as 70% of foreclosed properties nationwide have yet to be listed with real estate agents and brokers. Nationwide, distressed properties accounted for nearly a third of the 5.24 million homes sold in June.

"Adjustable-rate mortgages will trigger the next wave of defaults, which will make the subprime meltdown look like a walk in the park," according to Rick Sharga, with RealtyTrac.

Michael Barr echoed that statement in a meeting with a House committee last week. The Treasury assistant secretary said, "Expect millions of foreclosures ahead" despite loan-modification efforts.

Jeff Frieden, CEO of Real Estate Disposition Corp, the nation's largest residential-auction firm shared in those views. His quote, "we expect 2010 to be a watershed of a year for us as millions more of foreclosures loom. Some have sensed it's the bottom of the market; we feel that's a false sense."

I'll compare these sentiments with those attending the foreclosure conference this week. But if these guys are right, now would be the time to sell if you're sitting on the fence - because I would expect a big wave of foreclosures will put downward pressure on most sales prices in 2010.

Dallas Home Prices Up 1.9% In May From April.

The latest Standard & Poor's Case-Shiller Housing Index shows that Dallas home prices rose for the 3rd consecutive month. Only one other city in the index, Denver, can claim the same upbeat 3-month performance. Dallas also has had the lowest year over year decline in the index at -4.1% when compared to May, 2008.

Nationwide, the pace of the home price descent seems to have slowed. Case-Shiller tracks the prices of typical single-family homes located in each metropolitan area. The index survey does not include condominiums and townhouses. It only covers pre-owned properties – no new construction.

Housing recession finally hits in heart of Dallas | Dallas Real Estate News | News for Dallas, Texas | Dallas Morning News

Housing recession finally hits in heart of Dallas | Dallas Real Estate News | News for Dallas, Texas | Dallas Morning News

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