How the Fiscal Cliff Affects Homeowners

January 7, 2013 by Michael Borger

Aloha, friends. Apologies for the time away, but holidays call and yours truly got engaged(!). But time waits for no one and there’s much to discuss. The biggest news upon us now has been the dreaded fiscal cliff that we narrowly avoided. President Obama was in and out of Hawaii, alternating between vacationing with the First Family in Kailua and presiding over some of the most delicate negotiations to hit Washington in quite some time. And when it appeared that we were all about to go over the cliff like Thelma and Louise, the elephants and donkeys of Congress cut a deal.

But where does the Fiscal Cliff deal leave Hawaii’s homeowners?

Great question. The biggest advantage that many people are talking about is the one-year extension of the 2007 Mortgage Forgiveness Debt Relief Act, which was set to expire December 31 2012. To recap: when a house is sold as a short sale, the difference between the sale price and the mortgage balance is called the deficiency. The banks will normally waive the deficiency to help facilitate the short sale (and avoid a costly foreclosure). However, the IRS considers debt forgiveness to be income, so while the homeowner will largely be off the hook for the deficiency, they would still owe taxes on that amount according to their tax bracket. The 2007 Act allowed the short selling homeowner to waive that tax liability as well, essentially making a short sale free.

The looming fiscal cliff threatened to let that policy expire and, with it, the hopes of many homeowners with underwater mortgages who weren’t able to close a short sale before the end of the calendar year. Now, with the extension through 2013, anyone closing a short sale this year will still be able to take advantage of the tax waiver on their deficiency. That’s THOUSANDS OF DOLLARS in savings when you look at the average deficiency of a mortgage for a short sale in Hawaii! I’ve personally spoken with owners who have been underwater over $500,000. Do the math on the tax savings, even at the lowest bracket, and you’ll see the impact of extending the policy another year.

However, it’s not just about over-leveraged mortgages. The fiscal cliff deal did not really address the nation’s growing debt load which continues to steadily rise. Nor did it help from another tax angle — payroll taxes. You may have noticed this already. Furthermore, the deal postponed any discussion on spending cuts for another two months.

So while a crisis may have been averted, it’s safe to say that there’s more work yet to be done.

NEW Short Sale Guidelines in Effect TODAY

November 1, 2012 by Michael Borger

Do you need a short sale but don’t think you’re eligible? THINK AGAIN! Starting today, November 1 2012, NEW guidelines go into effect to allow homeowners to start a short sale — even if they’re current on their mortgage!

The traditional criteria for short sale included a hardship and having missed a certain number of mortgage payments. This is not unknown to Hawaii. Well before the 2011 moratorium on non-judicial foreclosures, Hawaii was ranked 11th in the state in foreclosure rates. No doubt this is welcome news for many underwater homeowners here in the islands.

Now, let’s be clear as to new guidelines. After all, you still need to qualify. This is not a free pass for anyone to rocket a short sale through the system and come out the other side all sayonara, never to be seen again.

NEW Short Sale Guidelines

1. This is ONLY for Fannie Mae and Freddie Mac issued loans. If you’re not sure, talk to your mortgage servicer. This will constitute a large percentage of borrowers, but I wanted to make sure you understood this first and foremost. Fannie and Freddie only.

2. You still must have an eligible hardship. Just because your payments are high isn’t going to cut if if you have the income to still comfortably make the payments. However, “eligible hardship” is a loosely-defined term. You might be able to…uh…. get creative on this one. Death, divorce, etc. If you have to relocate 50 miles away for work, you’re in like Flynn.

3. Reduced paperwork. Short sale realtors rejoice.

4. Fannie and Freddie will, in some cases, waive deficiency judgments in lieu of a cash contribution at closing or promissory note. Case by case basis.

5. If you’re in our military (salute, salute) and get a Permanent Change of Station (PCS), this works for you.

6. Up to $6,000 to cover junior lienholders (second mortgages). Believe me, this is huge for some of the short sales I’ve seen here in Hawaii. Your junior lienholder can be a real stick in the mud and completely sabotage your short sale if they don’t want to play ball. This helps feed them a bit at closing.

Click here for the official guideline document.

If YOU need a short sale on your property, then I want to earn the opportunity to help you. When you sell your house as a short sale, you’ll need a buyer. Guess what? That’s me. Let me put one of my top realtors on it (the bank will pay your realtor and closing costs) and let’s get this done to help you move forward.

Just CLICK HERE to get started on your FREE short sale.

2012 Mid-Year Hawaii Housing Status

July 31, 2012 by Michael Borger

Aloha! Ok, we’re about a month past midyear 2012 but it still works as it can take a while for those troublesome stats to kick in. What a first half of the year it’s been for housing and real estate in Hawaii. Let’s look at some key points:

Inventory is tightening up just about everywhere and prices have creeped up. Homeowners are in many instances holding on to properties whereas before they may have considered selling. Is this a sign that the housing bottom is behind us? Perhaps….
….but others still clamor that the banks are holding back about 90% of their foreclosed inventory and we’re about to get whacked back down again, maybe sooner than we thought. Do you agree?
I can tell you from my own experience running my real estate investment company that many homeowners today are also choosing to turn properties into rentals to either cash flow or at least break even and wait out an expected price appreciation to sell down later on the road for more gain.
The controversial Oahu rail project continues on, despite calls for its removal both in and out of the mayoral race.
Speaking of the Honolulu race for the mayor, who do you think is the best candidate for Hawaii’s homeowners? Cayetano? Carlisle? Caldwell? (Apparently your last name needs to start with a “C” to be mayor…)
The banks continue to foreclosure through the courts (judicial) and Hawaii homeowners who were in mortgage default for a year or even longer (yes, it’s happened all around us) are finding out that the time has come to decide how best to move on

It’s my opinion that the temporary tightening of inventory in Hawaii is just that — temporary. Sure, the banks can’t open up the faucet on wide of their shadow inventory and flood the market — we all know that will depress the local housing market to levels possibly even lower than they were a few years ago. But they have to figure something out and that REO pipeline will stay open for, as some estimators predictor, 3 to 5 years.

But here’s thing — it’s still very much tied to JOBS. And while Hawaii’s unemployment rate is very favorable compared to those of our mainland cousins (thanks to encouraging recent tourist numbers), we’re still connected to the national system and all its wonderful nuances.

STAT TIME

Let’s look at some interesting stats courtesy of RealtyTrac…

As this bar chart surely shows, the key point of interest is the steady decline in properties in Preforeclosure. In case you’re not familiar with the term, “Preforeclosure” generally means homeowners who are in default but have yet to be officially foreclosed upon. In other words, they are still the homeowners on title.

To the point, I have a hard time believing that the numbers of homeowners in default went from just under 500 in January to under 100 in June — as is many times the case, stats can be deceiving and not tell the whole story. I suppose there could be a logical reason for this, some mix of increased refinancing and/or successful loan modifications (the latter unlikely). Anyone care to shed some light?

In this chart we can see, unsurprisingly, that the vast majority of homes either headed for foreclosure or already past that point fall in the 300-400K category. Unfortunately, these numbers include all housing types (SFH, townhouse, condo) so making a clear inference is a bit difficult, but it would appear that most homeowners in Hawaii needing help are in the lower end of the price spectrum when compared across the state. However, interestingly enough, the high end luxury homes are represented as well — I guess some people bit off more than they could chew in the good times!

By the way — completely unrelated — but is anyone else enjoying this year’s flowers as much as me and my girlfriend??

Source: via Michael on Pinterest

Hawaii Real Estate Investment Opportunities

May 10, 2012 by Michael Borger

Hawaii Real Estate Investment Opportunities

The recent ups and downs of the housing market, both nationally and locally here in Hawaii, have put both current and would-be homeowners in a pickle. If you’ve been hit by the economic downturn, maybe even put in an underwater mortgage situation, then you’ve either had to seek help, such as a short sale or loan modification, or be forced to ride out the wave until the market picks up.

However, for real estate investors, there’s no denying that the doldrums of the market the past five years have presented unique investment buying opportunities. The old adage of “Buy low, sell high” certainly rings true when a bottom falls out, whether it be in stocks, baseball cards, cars or, yes, real estate.

The drop in prices combined with very low interest rates present unique buying opportunities for savvy real estate investors in Hawaii, especially with inventory starting to shrink to normal levels. Of course, not all investors are the same and the type of investor one is determines what, where and how one views these opportunities and ultimately invests. Let’s look at a few examples:

The House Flipper – Today’s investors who flip houses (such as my company, Big Rock Investments) can find opportunities in Hawaii today in niches such as short sales and preforeclosures. It wasn’t too long ago that Hawaii’s foreclosure rate was in or near the top ten nationwide. While the moratorium on non-judicial foreclosures for most of the past year brought that “deal source” to a crawl, there were still judicial foreclosures being processed. These are homeowners who need options, and the investor who can have a short sale processed can pick up great properties at discount prices. Most of these are centered in the Ewa and Kapolei areas on Oahu, but neighborhoods across Oahu and all Hawaii (ex. Kihei in Maui) have all had distressed properties hit the auction block. Now, with the expiration of the moratorium set for this summer, these homeowners won’t have that protection anymore and will need a helping hand.

The Landlord – For the savvy real estate investors who love the idea of cash flow (who doesn’t?), picking up properties in Hawaii now to buy and hold for the long haul is a great idea. Buying houses and condos now before prices increase allow you to capture rent checks monthly in addition to market appreciation – passive income now with a long-term upside. While Hawaii has, no doubt, been a difficult place to cash flow compared to other states in the country, there are good deals out there. Look to multi-family properties in neighborhoods of Honolulu such as in Kalihi, Kaimuki and Moiliili and out west in Maili and other parts of Waianae. You can also pick up plenty of cheap studios, 1 and 2-bedroom condos in Waikiki and Kihei that you can use as vacation rentals for international visitors. Guess what? They’ll pay well if it looks good!

The Property Buyer – Some people just love to own property because they know that real estate is almost universally a sound investment – if acquired strategically and wisely. Hawaii is at the top of many lists for these types of real estate buyers and with good reason: it offers year-round wonderful climate, it attracts international visitors and is easily rentable if desired. The sand, sun and surf sure help as well! These types of investors usually have a very long timeframe in which they view their investments, and the aforementioned low interest rates with low housing prices make now a good time to pick up a house or two while the opportunity is there. How about a house in Poipu, a multi-family house in Kailua or a couple condos in Lahaina? All good bets right now.

The “Hands Off” Private Lender – If you’re not familiar with private lending, please check out our full-length explanation video at http://bigrockinvestments.com/smart . Basically, private lending allows a wise investor to park their funds in one of our short-term rehabs with a fully collateralized and recorded lien while they earn 10% or more on a fixed rate promissory note. Since the value of the property is always worth significantly more than the loan, the investor is always in an equity position while they passively earn a very high interest rate. No volatility of the stock market, no susceptibility to unforeseen market events and no miniscule returns of savings accounts. If you like the idea of collateral and high fixed interest but don’t want to do the actual ‘heavy lifting’ of a house flip, you can align with a local investor company like us who can put your funds to use, all held by a third-party escrow company. You can even use a Self-Directed IRA to earn the interest tax-free or tax-deferred – ask us how.

As you can see, the Hawaii real estate market offers opportunities to a diverse array of savvy buyers. With the anticipated summer expiration of the non-judicial moratorium, there will be more distressed properties hitting the open market. While this increase in supply may, in the short term, prevent a large uptick in prices it will also present more properties to be had with upfront equity at closing since these types of properties – primarily short sales and REOs – tend to be sold off quickly at discounts to move them through the pipeline.

If you’re a Hawaii real estate investor, no matter the type, who wants to get into the market while the time is right, don’t spend too much time on the sidelines. There are great deals to be had, but it remains to be seen how long they will be available.

Aloha,
Mike