Northern Utah Real Estate Update

Prices Holding to Slightly Down,

Volume Falling

The Salt Lake Board of Realtors announced on April 28, 2009 the median home price in Salt Lake County sold through the Multiple Listing Service (MLS) fell by less than 1% when compared to Q1 2008. The median home price during Q1 2009 was $240,000 compared to $242,000 during Q1 2008. Volume was down by 24% compared to the same period in 2008.

The statics for Weber County, where Clear Day Capital does most of its lending, show a slightly upward trend in prices. The median home price, for homes sold through the MLS, in Weber County during Q1 2009 was $165,000, up from $164,000 during Q1 2008. Volume was down 28%.

Why are prices relatively stable when volume is down? Some possibilities:

• Seller Financing Transactions Are Up- These sales are often not recorded on the MLS
• People Don't Need To Move- Many moves in Utah are local moves to upgrade, update, or be nearer family. People are waiting instead of dropping price.
• People Are Renting Their Homes- Instead of panic selling, they are renting their residence.
  

Utah a Strong State

While the nation is heading towards double digit unemployment, Utah remains under 5% and business are still investing in Utah.

• Utah Ranked America's "Best State to Live"- Forbes Magazine ranked Utah #1 in it's March issue. "Residents reported a high level of satisfaction in several areas, including work environment, emotional health, and their local communities."
• Investments from Federal and State stimulus packages will create up to 60,000 jobs for Utahns, according to the Salt Lake Chamber.

FHA Seasoning Rules- Another Option?

Most of Clear Day Capital's borrowers deal with the FHA's "90-day" rule.  A property needs to be titled for 90 days before it can qualify for FHA financing.  The challenge is a good rehab professional can fix the house in 2-4 weeks, have it under contract in another 2 weeks and then sit for 45-60 days with the property under contract while the clock ticks.

New York attorney Kathleen Scanlon has analyzed the FHA rules and indicates that if a property is transferred into a trust the property never sold, it simpley changes the identity of the owner.  To read the full article in her blog, go to  http://realestatelaw.typepad.com/where_is_blackacre_anyway/2009/04/seasoning-.html

Could a Real Estate Trust be used as a vehicle to control property and then sell it inside the 90 time limit?  I'll be working with Ronn Dunn (dunnron@aol.com) to confirm if this can be done, and if so, exactly how.

Passive Income- The Investor's Dream

Passive income- that’s the name of the game for most real estate investors. Revenue exceeds expenses. Let’s look at revenue:

Maximize Rental Property Revenue
Maximizing revenue from rental properties is a function of monthly rental rate, vacancy rates, the impact of incentives for the tenant to perform and ancillary fees charged to tenants. The formula for a year’s revenue may look like this:

12 x Monthly Rent
+ Late Fees Collected
- Rent Discounts for Good Performance
- Lost Income from Vacancies
= Annual Rental Revenue

It’s easy to say, “I can maximize revenue by increasing rent every 12 months, hitting hard on late fees and being stingy on incentive discounts.” In real life, maximizing revenues is an art, not a science. Why? Your tenants are clients who buy a service-your rental unit.

Tenants will only be willing to pay so much until they go down the street and buy your competitor’s product, and then the “lost income from vacancies” goes way up.

Let’s look at the “rent maximization” components and see how we can optimize each:

Monthly Rent Maximization
The challenge here is to push your rent, without going over the top. The key is to know your competition and what they charge. How do you find your competition? Call them or just read what they publish on-line. The information can be found at:

www.craigslist.com
www.ksl.com
www.rentometer.com

An alternative is to list your properties at a certain rent level, even when it is occupied, and see if the phone rings. If you are flooded with calls from qualified renters your rent is too low. No phone calls? The listed rent is too high.

Raising the Rent
Some property owners are timid about raising rents. To overcome this, remember:
When costs go up, rent goes up when possible.

Do your homework. Think of the confidence you will have talking to your current tenant when you know you can make the phone ring.

Make it a reasonable rent increase, especially if they are good tenants. What is reasonable? 3-5% of rents or 5-10% in a strong market with low vacancy rates. Consider this: in order for your tenant to move out they will need to:

• come up with a month’s deposit for their new property
• take the time, effort, and money to find a new rental
• physically move- painful and expensive physically, emotionally, and often financially.

Bottom line: if the pain of the rent increase is less than moving, they will stay.

Sometimes you should make it an unreasonable rent increase! One property owner we know took over a rental and doubled the rent, from $400 to $800 (market rate). The unit was way under rented and she assumed that she would end up with a vacancy, as she usually did. Guess what? The tenant stayed, paying the additional rent month after month.

Next Blog: Penalties, Incentives, and Vacancies

Keep Learning with Peter Fortunato

When we talked to real estate investors, they usually fall into one of two classes:

1. They've read everything put have never gone to a good class
2. They've good to really expensive, general classes but have never been to a class where a master investor teaches.

Here is an invitation: attend a Creative Real Estate Workshop & Role Play by Peter Fortunato (www.peterfortunato.com) on July 7, 2009 at the Davis County Convention Center. He is a nationally know speaker and for $199 you get 8 hours of training, a workbook, lunch, and networking.

This is limited to 50 people!! About 1/2 the seats are already sold. For more information call Angel Bronsgeest at 714.679.3627.

Welcome to Clear Day Capital

Clear Day Capital is dedicated to providing bridge loan financing to professional real estate investors in Northern Utah. To accomplish this we work with accredited investors and give them an outstanding investment opportunity.

This bog will be dedicated to educating real estate investors and creating a comunity resource for real estate investors in North Utah.

Any questions? Call me at 801.747.6343 and we can chat. Better yet, post to the blog!