Selling At A Loss Short Sales Explained Impact Of Foreign Business Act On Thailand S Property Market Real Estate Rentals Selling For More Home Sellers Avoid A Transaction Collapse
Sometimes in life we may face situations where it is best to cut your losses and run. If the loss is your home, it is likely that the decision to do this is understandably made almost too late. If you are in the unenviable position of having to sell up and downsize because of escalating costs, an efficient real estate agent can be your best friend.
If your home is now worth less than you owe on it, he/she will be familiar with procedures and will be able to guide you through the differing aspects of negotiating a short sale. The term ‘short sale’ simply refers to the fact that the current market value of your property is short of the actual figure that you owe on it.
Unfortunately, because of past financial practices that have largely been rectified by now, many thousands of home owners find themselves in this untenable situation. Three quarters of known housing markets in USA have suffered continuing price decreases. These figures are released by Global Insight, who quote that single family house prices have dropped for the third consecutive period in 262 out of 330 markets.
When mortgage rates increase in the same time frame that housing values decrease and world food and gas prices increase, it makes it impossible to live on the originally planned budget. If the only answer is to sell your home, you should be aware that a short sale is different to selling your home under normal conditions.
Usually, the lender may not even know that your home is on the market until your lawyer pays off the mortgage. However, with a short sale, the lender must be in on it from the beginning. There is also more paperwork for you to take care of with a short sale.
For instance, you must give permission, in writing, for the lender/bank to communicate with your real estate agent. An even more complex task is to document all the reasons why you cannot pay the amount that you owe. This is called ‘proving hardship’ and attached to your letter of explanation will be bank statements, credit card bills, W-2s and any other proofs of inability to pay.
This hardship statement does not absolve a home owner from responsibility for the debt owing – but it may. The attorney or title company that will be handling the paperwork for you can make the approach to your lender for ‘forgiveness’. Lenders do not wish to accumulate a mass of homes; they are in the money business. If the short sale route is accepted by your lender, it will save him time and money over the other alternative he has: a foreclosure on the loan.
Foreclosures are very expensive and time consuming for the lender; too many foreclosures on the books can also jeopardize the lender’s future loans from being insured. In short: a lender will prefer a short sale and if you are co-operating by offering one – what’s in it for you?
A short sale may still affect your credit rating, but if you could come out of it with the debt cleared (or ‘forgiven’), you could have a fresh start. If your lender ‘forgives’ you then a 1099 must be issued so that the amount of the excused debt is documented for you, the seller, to declare to the IRS at tax time.
All liens on the home will have to be released before it can be sold; this includes the lender’s lien. If you can work to keep your lender’s good will, or at least co-operation, a transaction may run more smoothly.
As in most walks of life, compromise and patience are also invaluable commodities in short sales.
Following the Thai government’s proposals to amend the Foreign Business Act which restricts the rights of foreigners to own or operate certain businesses in Thailand, CB Richard Ellis Thailand has been carefully monitoring the Thai residential, resort and office markets to judge the market’s actual response from news of the proposals to amend the law on foreign businesses and other recent events.
CB Richard Ellis has also looked carefully at the real effect of the current proposals in conjunction with major law firms and has considered the psychological effect and the perception of foreign businesses in Thailand and foreign purchasers of Thai property. The danger of these proposals is that they may be seen as a rejection of foreign investments with large potential losses for both the real estate and construction sectors of the economy and what might been seen as poor public relations or presentation of Thailand internationally.
According to the CB Richard Ellis Thailand Managing Director, Ms. Aliwassa Pathnadabutr, “Our first advice to all clients is that these proposals are not yet law. Secondly, detailed reading of the proposals shows them not to be as harsh as the headlines have presented them. Most businesses that will be redefined as foreign will be, by virtue of list three, largely unaffected and allowed to continue with time to amend their structure if necessary. Therefore, most office tenants should not be affected although demand from incoming tenants may well be reduced.”
There is strong overseas demand for luxury real estate, both condominiums in Bangkok and resort properties in the price range of US$ 350,000 and above. There is also strong demand in the mid range market with prices of US$ 100,000 and above for holiday and retirement homes in destinations like Pattaya, Hua Hin and Phuket. It would be a major loss for the Thai economy to lose this substantial and long term sustainable market to other tropical countries as noted by Ms. Aliwassa.
In conjunction with the government proposal to restrict nominee-structured companies from owning landed property, CB Richard Ellis would like to see positive steps to support the real estate industry such as 90 year leases for villas and an increase in the ratio of foreign buyers in condominiums from 49. Properties such as Laguna Phuket have never had significant local demand but are targeted specifically at foreign buyers, such developments are major contributors to foreign revenue inflow, the construction industry and local economies. Foreigners buying such properties contribute income not just on purchase, but continuously over the life of the properties through the purchase of local services.
For any current owner of a house or villa with a nominee structure, CB Richard Ellis advises owners to monitor the proposals and seek expert legal advice on how to amend the company’s structure and comply with any changes. The proposals allow a period of one year to amend or change a company’s status. If the Government did move on extending leases to foreigners to 90 years, this would be an obvious route for such villa owners to convert to leasehold.
Existing foreign owners and prospective buyers of Thai real estate should not panic or abandon their interest in purchase. They should focus on foreign condominiums quota and leasehold properties developed by well known and established companies. For example, CB Richard Ellis is proceeding with two overseas sales campaigns with the launch of Condominiums at The Cove in Krabi which will launch sales in late January in Stockholm, Sweden and in February the launch of Leasehold Pool Villas at the Shangri La Resort and Spa, a west coast Phuket beach project.
Despite recent events, there is still sustained foreign interest in Thai real estate. In confirmation of this, CB Richard Ellis Thailand points to sale bookings over Christmas and the first week of the New Year on multi million dollar leasehold villas in Phuket and continued condominium sales in Bangkok and Pattaya.
“We hope current uncertainties are quickly and professionally resolved so foreign investors know how to safely invest in Thai property. CB Richard Ellis very much hopes for and recommends longer 90 year leases and extended condominium ownership quotas. We believe, with confidence maintained, the Thai real estate market will continue to perform well and to rise on the back of sustained demand. Thailand is still a good real estate buy and foreigners’ preferred choice over other tropical countries,” concluded Ms. Aliwassa.
Selling real estate rentals isn’t like selling houses. You can paint a house, and get a little more because it looks nice. Rental properties, especially larger ones, are different, because they’re bought by investors, who look at income more than new paint. Raise the income, and you increase value to investors.
Time to learn about capitalization rates. If investors in your area expect a capitalization rate of .08 it means they want a net return (before loan payments and taxes) of 8% on the purchase price. So if your three-plex generates $12,000 net income annually, they’ll value it around $150,000 ($12,000 divided by .08). If you can make it generate $16,000, you make it worth $200,000.
More Income From Real Estate Rentals
Raising rents is the obvious way to boost income, if you can justify it. See what similar units are renting for. If your units are $60 below the going rate, you can raise the rents and not lose your renters. Increasing the rent $60 for three apartments means $2160 more net income annually. With a .08 cap rate, you just added $27,000 to the value of your property.
There are other ways to raise rents. Maybe your tenants will agree to $30 more per month if you have a carport built. That’s $1080 more net income annually, meaning roughly $13,500 more value added to your property. ($30 x 3 units x 12 months = $1080 divided by a .08 cap rate = $13,500) If you can build that carport for $4,000, that’s a good return on investment right? What else do they want?
Higher rent isn’t the only way to get more income. Storage sheds can be rented to tenants or you could put in a coin-operated washer and dryer. With a larger income property, you could install pop machines.
Reduce Expenses Of Real Estate Rentals
Could you add insulation to reduce the heating costs? If you’re paying $80/month for lawn care, will one of the tenants do it for $40? Could you buy cheaper insurance? Any way you can reduce expenses raises net income (unless it scares away tenants). A new $4,000 furnace that saves $800/year on heating costs means you just turned $4,000 into a $10,000 higher sales price.
This isn’t an exact science, and of course appearance and other factors matter. Increasing that net, though, is the surest way to get more for your rental properties. Make the changes at least several months before you try to sell the property (a year before, if possible). Also, learn how do the math – it really does matter with real estate rentals.
A home seller’s worst nightmare is selling to a buyer who disappears mysteriously at some point during the transaction. The deal never closes, leaving the seller in the lurch just before moving day.
Occasionally a buyer gets cold feet soon after his offer is accepted and backs out of the deal. This can happen if a buyer gets caught up in the frenzy of a multiple offer competition. When he realizes that he’s in over his head, he regrets his decision and asks to be released from the contract.
Although disappointing, the damage is usually minimal when a transaction collapses early on. In a multiple offer situation, the seller may have negotiated a back-up contract with another eager buyer. In this case, the seller moves directly from the primary contract to the backup contract without having to market the property again.
House hunting tip: Usually when a real estate transaction falls apart it’s for a good reason, and not due to the buyer’s whim.
Typical problems involve property inspections and financing. But with a good team of real estate professionals on your side, many of the problematic issues that arise during a transaction can be resolved. What’s the key? Try to anticipate what could go wrong. By anticipating potential problems, you can often safeguard against them.
Buyers can avoid most financing problems by getting Pre-Approved by a professional Loan Consultant. That’s where a buyer can find out about the financing they need to complete the purchase before they even make an offer to buy a home. A Pre-Approved buyer has already been approved for a mortgage by the bank. His credit has been checked and his employment and down payment funds have been verified.
Sellers who receive an offer they like from a buyer who hasn’t been Pre-Approved should include a provision in the contract for the buyer to be Pre-Approved within a day or two of acceptance of the contract. This way, if the buyer is unable to do so, you haven’t wasted much time.
Even with a Pre-Approved buyer, there’s always a chance that the property won’t appraise for the agreed upon purchase price. A low appraisal can put a transaction in jeopardy. If the buyer’s agent does not have a good working relationship with the appraiser, it can be a good idea for that agent to meet the appraiser at the property armed with recent comparable sales. This helps to insure that the property does appraise for the sale price.
The most common reason that real estate transactions fall apart is inspections. Buyers should include an inspection contingency in any home purchase contract. A home inspection will reveal material facts and potentially some property defects. Even brand new homes can have issues that may not meet the buyer’s expectations. If defects are discovered that the buyer can’t live with, and that the sellers are unwilling or unable to correct, the transaction can implode if other things cannot be negotiated to compensate.
Sellers are wise to disclose any known defects to the buyers before an offer is made. Most states have seller disclosure requirements that require sellers to disclose material facts. A material fact is anything that will effect a buyer’s decision to buy or the price he’d be willing to pay.
In addition, home sellers should consider having pre-inspections done before their home goes on the market. For example if the roof leaks, disclose it. Then take the next step and find out what it will cost to repair it, and make the estimate available to the buyers before they make their offer.
The closing: The more information the buyers have upfront about the property they’re trying to buy, the better. This minimizes the chances of the deal falling apart due to inspections.
Happy House Hunting!.
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