Written by: Brandon Turner, Bigger Pockets
From: http://www.businessinsider.com/dont-commit-these-seven-deadly-sins-of-real-estate-investing-2012-9

No, I’m not referring to gluttony, wrath, or sloth. I’m talking about the Seven Deadly Sins of Real Estate Investing.

Ok, maybe they aren’t physically deadly – but they are possibly catastrophic to your business.
If you are concerned about the health of your investments, make sure to steer clear from these seven sins:

1. Buying Based On Future Value
Also known as “pro forma” numbers, many investors buy property based on what it “could” be worth, not what it is worth. Real estate agents are especially known for emphasizing the future possible value (they are the eternal optimists) but neglecting the facts on the ground. Make sure you don’t fall victim to this sin and always know exactly what the current value is and don’t buy anything for what could be.

2. Blindly Following A Guru
Real estate investing is not a system. Anytime I see that phrase I cringe just a little bit. The typical real estate guru would have you believe that by simply following a step-by-step system you can make millions in real estate. Millions can be made, but its not by following a system – it’s from following your brain. Investing is about solving problems, and if your “system” is unable to account for flexibility or challenges – your dead in the water.

3. Being Unrealistic With the Math
The one deadly sin nearly every investor has made is not being realistic with the math. Whether overestimating future value, underestimating the repair costs on a project, or simply not taking the time to actually do the numbers- poor math will destroy an investment.

4. Relaxing on the Record Keeping
For many investors, “record keeping” is nothing more than an attic full of vintage Barry Manilow albums (get it? “record keeping”… no? Okay, easy – I’m an investor, not a stand up comedian!) If you don’t know the health of your investments – how can you make informed decisions for the future of your investments? By keeping adequate records and staying up-to-date with your finances, you position yourself to know exactly how well your investments are performing while also ensuring the long-term stability of your investment plan. Additionally, keeping good records makes tax time a breeze as well as simplifying the process when applying for a loan. For more information on record keeping for investors, check out Arthur’s post on record keeping.

5. Confusing Investing with Gambling
Do you invest or do you gamble? Do you even know the difference? Buying something with the hopes that it may someday bring a profit is gambling (or speculating). Flipping, building spec homes, and investing in raw land often resemble gambling much closer than investing. Notice I didn’t say that gambling was one of the Seven Deadly Sins of Real Estate Investing. The sin is not in gambling, but in confusing the two. Each strategy requires a different skill set and different financial resources. Be sure of what you are trying to accomplish and make sure you have the tools necessary.

6. Over Leveraging Yourself
Perhaps the most common real estate sin over the first decade of this century, over leveraging is the act of carrying too much debt than what the properties can maintain. If you are financing everything to the point that there is no cashflow, it is very difficult to weather the storms when they rise up. Just ask the thousands of bankrupt investors who learned this lesson the hard way.

7. Getting Bored and Getting Fancy
The path to wealth through real estate investing is not difficult, but it also isn’t super fast. In an earlier post on BiggerPockets, I mentioned how real estate investing was like playing a game of Super Mario Bros. The game is fairly simple and straightforward, thus easy to master. The difficulty, however, is that once the system has been mastered it is easy to get bored and decide to get fancy. Many investors know that wealth and retirement can be created using real estate, but get bored and try to hurry the process up by speculating and buying deals that don’t fit their plan. This is a sure-fire way to lose most or all of one’s wealth. Remember, it can take years to build up a solid retirement portfolio but only one stupid mistake to lose it all.

Source: http://www.chicagorealestatedaily.com

The S&P/Case-Shiller index of Chicago-area single-family home prices rose 4.6 percent from May to June, according to a report released this morning. The index jumped 4.5 percent the previous month, but it is still 1.7 percent below year-earlier levels.

A 20-city composite price index increased 2.3 percent from May to June and was up 0.5 percent on a year-over-year basis, according to the report.

“We seem to be witnessing exactly what we needed for a sustained recovery; monthly increases coupled with improving annual rates of change,” David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, said in a statement. “The market may have finally turned around.”

In June, prices rose for the second consecutive month in all 20 metro areas the indices track. Chicago posted the third-biggest monthly gain, after Detroit, where prices rose 6 percent, and Minneapolis, 4.8 percent.

“We are aware that we are in the middle of a seasonal buying period, but the combined positive news coming from both monthly and annual rates of change in home prices bode well for the housing market,” Mr. Blitzer said.

On a seasonally adjusted basis, the Chicago-area price index rose 1.7 percent from May to June, vs. a 0.9 percent gain for the 20-city index.

Chicago-area prices still are down about 33 percent from their peak in September 2006, according to Case-Shiller data.

An S&P/Case-Shiller index of Chicago-area condominium prices rose 4.2 percent from May to June. But the index was down 5.1 percent from a year earlier and nearly 34 percent from its peak in September 2007.

By Les Christie @CNNMoney August 7, 2012: 11:53 AM ET

NEW YORK (CNNMoney) — Federal regulations are helping to significantly reduce the amount new homebuyers are paying come closing time.

The average cost of closing on a mortgage has fallen by 7.4% over the past year, according to a recent survey by Bankrate.com. At the end of June, a homebuyer looking to close on a $200,000 mortgage with 20% down paid an average of $3,754, $300 less than 12 months earlier.

Included in those costs are origination expenses, such as application fees and the cost of doing credit checks, and third-party fees, such as those paid for title searches and insurance.

The decline can be attributed to new regulations that require lenders to be more accurate when estimating closing costs for borrowers, said Greg McBride, Bankrate’s senior financial analyst.

The regulation, which was put in place two years ago as part of the Real Estate Settlement Practices Act requires lenders to provide a “good faith estimate” of third-party fees that is within 10% of the actual amount the buyer will pay.

“The big drop in third-party fees indicates the lenders are doing a better job at estimating what the costs will be,” said McBride.

The most expensive state for closing on a home was New York, where total origination fees and closing costs averaged more than $5,400 for a $200,000 mortgage, according to Bankrate. Texas, Pennsylvania and Florida also cost far more than the national average.

Missouri was the cheapest, with total borrowing costs averaging just over $3,000. Other states where closing costs remain low include Kansas, Colorado and Iowa, Bankrate said.

Even on a neighborhood level closing costs can vary significantly, said McBride. Borrowers can save money by getting at least three estimates and paying close attention to the total costs of obtaining a loan rather than getting seduced by low advertised interest rates.

“Borrowers don’t want to get tunnel vision shopping for the best mortgage deal by only looking at the interest rate,” he said. “Closing costs are a big line item and savings there can be quite significant.”
Find homes for sale

First Published: August 6, 2012: 4:16 PM ET. Taken from CNNMoney.

DAILY REAL ESTATE NEWS | FRIDAY, AUGUST 10, 2012

Positive Signs
A separate breakout of income requirements to buy a home on a metro basis shows a wide range of conditions, but most buyers had ample income in the second quarter assuming they could meet mortgage credit standards.

Lawrence Yun, NAR chief economist, said home prices are set to rise in even more markets during upcoming quarters. “It’s most encouraging to see a growing number of metro areas with rising median prices, which is improving the equity position of existing homeowners. Inventory has been trending down and home builders are still under-producing in relation to growing demand,” he said. “Some of the improvement in prices is due to a smaller share of sales in low price ranges where inventory is tight.”

The national median existing single-family home price was $181,500 in the second quarter, up 7.3 percent from $169,100 in the second quarter of 2011. This is the strongest year-over-year increase since the first quarter of 2006 when the median price rose 9.4 percent, but even with the gain the current price is 20.1 percent below the record set in 2006.

The median price is where half sold for more and half sold for less; medians are more typical than average prices, which are skewed higher by a relatively small share of upper-end transactions.

Distressed homes — foreclosures and short sales which sold at deep discounts — accounted for 26 percent of second quarter sales, down from 33 percent a year ago.

Total existing-home sales, including single-family and condo, slipped 0.7 percent to a seasonally adjusted annual rate of 4.54 million in the second quarter from 4.57 million in the first quarter, but were 8.6 percent above the 4.18 million pace during the second quarter of 2011.

At the end of the second quarter there were 2.39 million existing homes available for sale, which is 24.4 percent below the close of the second quarter of 2011 when there were 3.16 million homes on the market. There has been a steady downtrend since inventories set a record of 4.04 million in the summer of 2007.

According to Freddie Mac, the national commitment rate on a 30-year conventional fixed-rate mortgage averaged a record low 3.80 percent in the second quarter, down from 3.92 percent in the first quarter and 4.66 percent in the second quarter of 2011.

A Look at Buyers
NAR President Moe Veissi said buying power is historically high. “Home buyers today can stay well within their means. Record low mortgage interest rates and an over-correction in home prices have opened the door to many potential buyers,” he said.

“What we need now is additional inventory in the lower price ranges, so we hope banks will be releasing more foreclosure inventory into the market. With gains apparent in all of the price measures, banks also should have more confidence in expanding mortgage credit to home buyers using safe but sensible standards,” Veissi said.

A breakout of incomes needed to purchase a median-priced existing single-family home by metro area shows the typical buyer has ample income. Required income amounts are determined using several downpayment percentages, assuming a mortgage interest rate of 4 percent and 25 percent of gross income devoted to mortgage principal and interest.

The national median family income was $61,000 in the second quarter. However, to purchase a home at the national median price, a buyer making a 5 percent down payment would only need an income of $39,900. With a 10 percent down payment the required income is $37,800, while with 20 percent down the necessary income is $33,600.

“Because the income required to buy to a typical home is very manageable by historical standards, any further decline in mortgage interest rates will have little effect. Changes in underwriting guidelines would have a far greater impact,” Yun said.

In the condo sector, metro area condominium and cooperative prices — covering changes in 53 metro areas — showed the national median existing-condo price was $178,000 in the second quarter, up 7.5 percent from the second quarter of 2011. Twenty-nine metros showed increases in their median condo price from a year ago and 24 areas had declines.

First-time buyers purchased 34 percent of all homes in the second quarter, compared with 33 percent in the first quarter and 35 percent in the second quarter of 2011. Historically they are close to 40 percent of the market.

The share of all-cash home purchases was 29 percent in the second quarter, down from 32 percent in the first quarter; it was 30 percent in the second quarter of 2011. Investors, who make up the bulk of cash purchasers and compete with first-time buyers, accounted for 19 percent of all transactions in the second quarter, down from 22 percent in the first quarter; they were 19 percent a year ago.

Around the Country
Regionally, existing-home sales in the Northeast slipped 0.6 percent in the second quarter but are 10.6 percent above the second quarter of 2011. The median existing single-family home price in the Northeast declined 1.6 percent to $241,300 in the second quarter from a year ago.

In the Midwest, existing-home sales rose 1.3 percent in the second quarter and are 16.2 percent higher than a year ago. The median existing single-family home price in the Midwest rose 7.5 percent to $149,400 in the second quarter from the same quarter in 2011.

Existing-home sales in the South increased 1.3 percent in the second quarter and are 7.7 percent above the second quarter of 2011. The regional median existing single-family home price increased 7.4 percent to $163,200 in the second quarter from a year earlier.

With tight inventory, existing-home sales in the West fell 5.3 percent in the second quarter but are 3.0 percent higher than a year ago. The median existing single-family home price in the West jumped 13.4 percent to $234,000 in the second quarter from the second quarter of 2011. “Inventory is pretty tight in all prices ranges in most of the West except for the upper end, which accounts for the sharp price gain,” Yun noted.

Source: NAR

Tribune staff and wire report
7:48 a.m. CDT, August 9, 2012

Foreclosure activity in the Chicago area continued to be well ahead of its year-ago pace in July, as lenders put new homes into foreclosure and pushed through existing cases that languished fore more than a year while federal and state authorities investigated lenders’ foreclosure practices.

During July, 11,885 homes in Cook, DuPage, Kane, Kendall, Lake, McHenry and Will counties received a foreclosure notice, RealtyTrac Inc. said Thursday. Of that total, 5,374 homes entered the foreclosure process, while 3,274 were scheduled for a court-ordered sale and another 3,237 were repossessed by lenders and became bank-owned.

While the overall number is down from the 13,092 foreclosure notices issued in June, it is 37 percent higher than the level of activity in July 2011.

In Cook County alone, more than 7,500 properties began the foreclosure process during June and July.

The trend comes as banks work to make up for time lost last year as the mortgage-lending industry grappled with allegations that it had processed foreclosures without verifying documents.

The nation’s biggest mortgage lenders reached a $25 billion settlement in February with state officials, clearing the way for banks to address their backlog of unpaid mortgages.

On average, 104,000 homes have entered the foreclosure process each month going back to May. That’s well below the 178,000 per-month average in 2009, the year with the highest monthly average, RealtyTrac said.

The increase in homes entering the foreclosure process raises the possibility that more properties could end up being foreclosed upon in coming months. But of late, banks have been dialing back home repossessions and increasingly allowing the borrower to sell the home in a short sale. That’s when the bank agrees to accept less than what the seller owes on the mortgage.

Banks took back 21 percent fewer homes last month than in July last year, RealtyTrac said. Repossessions were down 1 percent from June. They’ve been down on an annual basis every month going back nearly two years.

“Lenders are much less likely now than they were even a year ago or two years ago to repossess a property after they’ve started the foreclosure process,” said Daren Blomquist, a vice president at RealtyTrac.

Completing the foreclosure process can potentially open banks up to liability if they’re accused of improper procedures. And short sales, on average, sell for $25,000 more than a bank-owned property, Blomquist said.

As a result, lenders are much more likely to look for alternatives, such as a short sale, a loan modification or refinancing.

So far this year, home repossessions have averaged about 57,000 a month. That puts the nation on track for just under 700,000 completed foreclosures this year, below the 800,000 recorded in 2011.

The latest crop of homes entering the foreclosure process does not signal that there is a fresh wave of homeowners in distress and missing payments. The majority of the loans entering the foreclosure process are mortgages that date back to the housing bubble years, Blomquist said.

Even so, the increase in foreclosure-starts could boost the number of homes that end up on the market for sale at a sharp discount to other properties. That means, barring another outcome, many of the homes that entered the foreclosure pipeline in recent months could end up weighing down the values of nearby homes when they hit the market.

A stronger housing market could mitigate the impact of future foreclosures on home prices, and home sales are expected to end up ahead of last year. But many economists still say the market is years away from a full recovery.

The number of homes receiving foreclosure-related notices last month increased generally in states where the courts play a role in the foreclosure process. Among them: New Jersey, Florida, Ohio and Illinois.

Many homes on the foreclosure path were left in limbo in those states last year, while mortgage lenders sorted out the foreclosure abuse allegations.

In contrast, foreclosure activity was down sharply in Arizona and California, foreclosure hotbeds throughout the housing downturn, but states where the court does not factor into the foreclosure process.

That didn’t keep California from posting the nation’s highest foreclosure rate last month. One in every 325 households reported a foreclosure-related notice in July, more than twice the national average.

– Tribune staff reporter Mary Ellen Podmolik and the Associated Press contributed to this report.
Copyright © 2012, Chicago Tribune

Brett Arends explains why owning a home is a good thing. Provided by THE WALL STREET JOURNAL

But it’s not enough just to be contrarian. So here are 10 reasons why it’s good to buy a home.

1. You can get a good deal. Especially if you play hardball. This is a buyer’s market. Most of the other buyers have now vanished, as the tax credits on purchases have just expired. We’re four to five years into the biggest housing bust in modern history. And prices have come down a long way— about 30% from their peak, according to Standard & Poor’s Case-Shiller Index, which tracks home prices in 20 big cities. Yes, it’s mixed. New York is only down 20%. Arizona has halved. Will prices fall further? Sure, they could. You’ll never catch the bottom. It doesn’t really matter so much in the long haul.

Where is fair value? Fund manager Jeremy Grantham at GMO, who predicted the bust with remarkable accuracy, said two years ago that home prices needed to fall another 17% to reach fair value in relation to household incomes. Case-Shiller since then: Down 18%.

2. Mortgages are cheap. You can get a 30-year loan for around 4.3%. What’s not to like? These are the lowest rates on record. As recently as two years ago they were about 6.3%. That drop slashes your monthly repayment by a fifth. If inflation picks up, you won’t see these mortgage rates again in your lifetime. And if we get deflation, and rates fall further, you can refi.

3. You’ll save on taxes. You can deduct the mortgage interest from your income taxes. You can deduct your real estate taxes. And you’ll get a tax break on capital gains—if any—when you sell. Sure, you’ll need to do your math. You’ll only get the income tax break if you itemize your deductions, and many people may be better off taking the standard deduction instead. The breaks are more valuable the more you earn, and the bigger your mortgage. But many people will find that these tax breaks mean owning costs them less, often a lot less, than renting.

4. It’ll be yours. You can have the kitchen and bathrooms you want. You can move the walls, build an extension—zoning permitted—or paint everything bright orange. Few landlords are so indulgent; for renters, these types of changes are often impossible. You’ll feel better about your own place if you own it than if you rent. Many years ago, when I was working for a political campaign in England, I toured a working-class northern town. Mrs. Thatcher had just begun selling off public housing to the tenants. “You can tell the ones that have been bought,” said my local guide. “They’ve painted the front door. It’s the first thing people do when they buy.” It was a small sign that said something big.

5. You’ll get a better home. In many parts of the country it can be really hard to find a good rental. All the best places are sold as condos. Money talks. Once again, this is a case by case issue: In Miami right now there are so many vacant luxury condos that owners will rent them out for a fraction of the cost of owning. But few places are so favored. Generally speaking, if you want the best home in the best neighborhood, you’re better off buying.

6. It offers some inflation protection. No, it’s not perfect. But studies by Professor Karl “Chip” Case (of Case-Shiller), and others, suggest that over the long-term housing has tended to beat inflation by a couple of percentage points a year. That’s valuable inflation insurance, especially if you’re young and raising a family and thinking about the next 30 or 40 years. In the recent past, inflation-protected government bonds, or TIPS, offered an easier form of inflation insurance. But yields there have plummeted of late. That also makes homeownership look a little better by contrast.

7. It’s risk capital. No, your home isn’t the stock market and you shouldn’t view it as the way to get rich. But if the economy does surprise us all and start booming, sooner or later real estate prices will head up again, too. One lesson from the last few years is that stocks are incredibly hard for most normal people to own in large quantities—for practical as well as psychological reasons. Equity in a home is another way of linking part of your portfolio to the long-term growth of the economy—if it happens—and still managing to sleep at night.

8. It’s forced savings. If you can rent an apartment for $2,000 month instead of buying one for $2,400 a month, renting may make sense. But will you save that $400 for your future? A lot of people won’t. Most, I dare say. Once again, you have to do your math, but the part of your mortgage payment that goes to principal repayment isn’t a cost. You’re just paying yourself by building equity. As a forced monthly saving, it’s a good discipline.

9. There is a lot to choose from. There is a glut of homes in most of the country. The National Association of Realtors puts the current inventory at around 4 million homes. That’s below last year’s peak, but well above typical levels, and enough for about a year’s worth of sales. More keeping coming onto the market, too, as the banks slowly unload their inventory of unsold properties. That means great choice, as well as great prices.

10. Sooner or later, the market will clear. Demand and supply will meet. The population is forecast to grow by more than 100 million people over the next 40 years. That means maybe 40 million new households looking for homes. Meanwhile, this housing glut will work itself out. Many of the homes will be bought. But many more will simply be destroyed—either deliberately, or by inaction. This is already happening. Even two years ago, when I toured the housing slump in western Florida, I saw bankrupt condo developments that were fast becoming derelict. And, finally, a lot of the “glut” simply won’t matter: It’s concentrated in a few areas, like Florida and Nevada. Unless you live there, the glut won’t have any long-term impact on housing supply in your town.