Interest Rate Trends
U.S Treasuries have eased from gains made last week and early this week. Sentiments over inflation and the economy push yields lower. Expect commercial rates to decrease slightly in line. To combat higher interest rates, we’ve created our “Market Solution Program”, with rates in the low 5.25-5.665% range for Multifamily and Commercial properties.

Author
Landmark Commercial Capital:Source

An applicant and his wife signed a rental agreement for a one- year lease yesterday. Today his wife decided she does not want to move here. I have a $2,000.00 deposit from him. Am I obligated to refund it? I informed him that I would make every attempt to rent the home and would refund any remaining amount beyond the daily rent deducted from his deposit. Is this legal?

Answer:

There is no “cooling off” period in real estate. If you sign a lease, you are responsible for the full term of the lease. A landlord must use his best efforts to migrate the tenant’s loses by trying to re-let the premises. You should send a security deposit letter indicating that the tenants owe for the full term of the lease and you will be using their entire deposit. You should explain that their liability would be lessened, when a new tenant is found.

Author
~Dennis Block: Source

The Republican nominee, Senator John McCain says on his website (www.johnmccain.com) that he will leave capital Gains at their current rate of 15%.

During the Democratic Debate in Philadelphia, PA on April 16, 2008, Senator Hillary Clinton (www.hillaryclinton.com) said she may or may not raise capital gains taxes, “…but not above 20 percent.”

Prior to the debate, Senator Barack Obama (www.barackobama.com) had said that he would raise capital gains taxes to between 20 and 28 percent. During the Philadelphia debate, Obama said “…I would look at raising the capital gains tax for purposes of fairness.”

No matter what the rate may be in the future, the 1031 Exchange plays an important role in real estate. You can be assured that First American Exchange Company will be here to assist you in deferring capital gains taxes via a 1031 tax-deferred exchange.

Author
First American Exchange Company: Source

• - buyers who are waiting for prices to come down
• - owners who have been foreclosed on
• - renters who’s landlords were foreclosed on 
• - those not able to afford to buy
• - tenants that were displaced from the condo-conversion craze 

The National Association of Realtors has projected continued growth for occupancy and rental rates. Yet, we are hearing a lot of owners in prime areas express their concern of the rental market. Many owners have stated they are no longer able to be as aggressive with rents. Some have expressed that they have had to lower asking rent or offer incentives. Some factors affecting a rental slump:

• - sellers unable to obtain the price they want, renting their property
• - newly constructed condo developments converting to rentals
• - foreclosures on the market as rentals
• - unstable economy
• - inflation

Today’s investor is expecting the return to come from actual cash flow, rather than appreciation. With an unstable economy it’s no wonder why investors are not comfortable relying on pro forma market rents. What matters now is the actual income the property is achieving. Once again investment properties are just that…investment properties.

Beginning August 1st, 2008 the following changes will go into effect:

1. A borrower may not have more than four financed 1-4 unit properties, including the subject property.
2. For cash out refinances the borrower must own the property for at least six months prior to refinancing.

For a complete update on new Freddie Mac guideline changes go to:

http://www.freddiemac.com/sell/guide/bulletins/pdf/bll042208.pdf.

What does this mean to the investor?

Under current guidelines for Freddie Mac and Fannie Mae an investor is allowed to have up to 10 financed properties. This change will prevent an investor who has more than 4 financed properties from obtaining a mortgage with lenders who sell their loans to Freddie Mac.

Currently Freddie Mac and Fannie Mae do not have loan seasoning requirements on investment properties. The second guideline change would affect investors purchasing properties with hard money loans, lines of credit or cash with the intent of refinancing to pull cash out. Under the new guideline an investor would have to wait 6 months in order to process a cash out refinance.

Fannie Mae and Freddie Mac are for-profit, privately capitalized government-sponsored enterprises that purchase the majority of conforming loans. Most all conforming lenders now underwrite strictly to Fannie/Freddie guidelines.

What about Fannie Mae?

Even though Fannie Mae has not given any indication if they will follow suit and make similar guideline cuts, it is very likely as Fannie Mae is often seen as the more conservative of the two entities.

Such a change by Fannie Mae would make it impossible for an investor with 4 financed properties to obtain financing for the purchase of additional properties through any lender conforming to Fannie/Freddie guidelines. An investor with five financed properties would not be able to refinance regardless of credit, income, assets or desired loan to value.

What can be done about these changes?

Aside from writing letters to your congressman, there is very little that can be done. Since lenders have few choices but to sell their loans on the secondary market to Fannie Mae and Freddie Mac, they are stuck following their guidelines for the time being.

If you are considering a purchase or refinance loan and have 4 or more financed properties, we strongly recommend starting the process immediately. Due to these guideline changes it is likely that the industry will see an increase in turn times and additional lay-offs by lenders nationwide. This means that it is possible to see longer underwriting times and stricter conditions. Do not hesitate to contact us directly for assistance with your current financing needs.

Author
Reina USA: Source

I have obtained a duplex through a foreclosure proceeding. The property is located in Los Angeles and would be subject to rent control. The tenants are paying very low rent. Since I took ownership through a foreclosure, am I subject to rent control limitations? I would like to raise the rent to market level.

Answer:

Unfortunately the tenants are protected under rent control. You can only raise the rent in accordance with rent ordinance. I have seen cases where an owner, who is going through foreclosure, purposefully make a “sweetheart” deal with a tenant. If you are buying a foreclosure in a rent control area, you should be very cautious.

Author
~Dennis Block: Source

CCIM Magazine. May.Jun.08

My property is in the city of Los Angeles and is subject to rent control. I know that the rent increase for July 1, 2007 was 5%. Has the city decided what the increase will be for July 1, 2008?

Answer:

Yes they have. The City, in their ultimate wisdom, has decided to lower the rent increase to 3% effective July 1, 2008. This decision was made behind closed doors without any discussion from the apartment industry.

Author
~Dennis Block: Source

The answer is not a clear Yes or No.
Most mortgages are originated at banks, which in turn sell them to secondary markets. Therefore, the ultimate factor for what rate borrowers pay is investor demand for mortgaged-backed securities – and that demand is influenced highly by fears of long-term inflation. In simply terms, if investors think inflation will accelerate, mortgage rates (and other long-term interest rates) rise.

So what’s going on with the market right now?
Well, it’s no secret that this country is in the middle of a credit crisis. And while the Fed’s recent rate cuts may help stave off a recession, they have also increased fears of inflation. So under these conditions, more big rate cuts by the Fed could actually mean higher mortgage rates.
But it’s not all bad news. Recent actions by the government to help struggling investment banks, and its move to reduce the capital requirements of government-backed mortgage lenders Fannie Mae and Freddie Mac, has helped drive mortgage rates lower.

It’s important to keep in mind that mortgage rates are still at historical lows – and many stand to gain from falling real estate prices. Bottom line: if you are a qualified borrower, now is the time to get some great deals on real estate.
Here is a summary of multifamily rates (5+ units):
3-year fixed: 5.5%
5-year fixed: 5.7%
10-year fixed: 6.15%
$500,000 & up
30-year term/30-year amortization

~Sam Nelson, Venture West Funding: Website