Article 1 (Not All Real Estate Agents or Agencies are Alike!) Article 2 (Multi-Family Properties - A Lender's Perspective) Article 3 (This is How the Market Has Been Performing These Days!) Article 4 (The Fast Track To Building Equity...) Article 5 (Q&A with Michael Merrill )

 

Not All Real Estate Agents or Agencies are Alike! By David Friedberg, Sr. Vice President, Brookline Office of Hunneman-Coldwell Banker First of all, you should be working with a Realtor® when buying or selling a property. Having a qualified representative, who is your advocate, will assist you in all aspects of a purchase or a sale. A Realtor® is an agent that is a member of the local Real Estate Board and ascribes to the Code of Ethics of the National Association of Realtors® to work in an honest, fair and ethical way. Realtors® who take continuing education seriously will avail themselves of classes throughout their career and not simply to receive credit to maintain their license. Hunneman-Coldwell Banker is a member of many local Board of Realtors® and offers local and regional training continuously. Should you work with a Buyer Agent? This is a practice that is prevalent in most other parts of the country and is finally taking hold locally. A Buyer Agent will be your advocate - he or she will work for you to help you become educated about the process, the areas in which you are searching and specifically about the particulars of property you are considering. The Buyer Agent may point out issues that are not required to be disclosed, such as ones that may be personal to you, strategize the negotiations with you, or recommend financing that may save you money. In some parts of the country, buyer representation is required! Hunneman-Coldwell Banker proudly offers Buyer Agency. What price should I place on the property and what commission should I pay? Proper pricing of a property is critical in any market. You typically want the most money you are able to obtain in the shortest possible time and with a minimal amount of inconvenience. You do not want to under price your property and hope that you get the right price - buyers will feel awkward paying too much over an asking price, while pricing your property too high will not entice one or more buyers that may otherwise want to buy your home. You want to gauge the interest in the first week to 10 days and adjust the price if the market is not responding well. Be careful if an agent offers to adjust their commission if their company lists and sells the property - this means that they have an incentive to sell the property "in-house" and not widely expose the property to the market through the Multiple Listing Service (MLS). In addition, they may not advertise the property readily. Most buyers are working with agents and you want to make certain that your property really does get onto the market! The National Association of Realtors® claims that selling your property with a real estate agent will yield a higher sale price and should therefore bring you more money even after paying a commission. Think about it - a buyer who knows that because you are trying to sell your own home you are not working with an agent also figures they will save a commission! Hunneman-Coldwell Banker sold more real estate in Brookline, Newton and Brighton than any other firm and was again Massachusetts' #1 home-seller in 1998. We have programs to assist both buyers and sellers such as providing convenient and competitive home mortgages and warranty programs. Choose a Realtor® and most of all, choose a company that has been in business for decades, has the tools you need to make your home buying or selling experience pleasant and effective, offers a multitude of education for its agents, that sells more real estate than others locally.

Multi-Family Properties - A Lender's Perspective By Susan Erickson, Principal, Viking Mortgage Company You have found the right multi-family property. It my be an investment property or one you plan to live in. The numbers appear to work and your confidence level is high. Now you go to the next step – obtaining financing for the property. How will the perspective Lender view the property? Where you see the potential – will the Lender see "doom and gloom?" You can look at a property through the eyes of a potential Lender by knowing how you and the property will be evaluated. The property will fall into one of the following categories: Good to excellent condition – needing few to no repairs. Fair to moderate condition – needing some repairs but nothing major. Poor condition – requiring substantial work or a "gut renovation." Be objective about the current state of the property. This will determine the type of financing that you will require. Financing is available for all of the above property types but the Lender and loan package will not always be the same. A majority of the commercial / residential Lenders are willing to provide financing for properties falling into the fair to excellent condition. Lenders that specialize in construction loans may be willing to finance properties requiring major renovations. The following is a brief list of factors that should be considered when evaluating a multifamily property: What is the current and historical occupancy levels for the property? If the property currently rented at or below market level? If it is below market level; why have the historical rents been low and what do you need to do bring the rents to market level? What are the historical expenses and projected expenses for the property? The seller of the property should provide the historical information. You will need to develop projected expenses for the property. Evaluate whether the historical expenses are accurate. If you plan to maintain the property yourself, factor in the cost of your time and efforts as if you were hiring a contractor to do this work. What type of reserves should you plan on? Even if the property is currently in pristine condition, these will be normal wear and tear on the basic systems. Reserved for replacing or repairing items such as refrigerators, hot water heaters, electrical components, furnaces, and the roof should be built into your operating budget for the building. What is the projected debt coverage ratio (DCR) for the property? The DCR is calculated from the income and expenses for the property. All Lenders have a minimum DCR that a property must meet to obtain financing. Although vacancy has not been an issue in the greater Boston area for many years, it must be factored into a DCR for a property. Depending upon the Lender, the vacancy factor will range from 5 to 25%. How is the DCR calculated? The gross income for the property is generally based on the historical rents. Expenses and reserves for the property will be calculated from historical and projected figures. Typical expenses will include: decorating & painting, property insurance, janitorial services, management services, repairs, replacement reserves, supplies, real estate taxes, owner paid utilities, and additional miscellaneous expenses. The net operating income (NOI) for the property is the gross income minus the vacancy factor minus the operating expenses. The annual debt service for the property is the yearly principal and interest payment of the proposed mortgage on the property. Net annual income divided by the annual debt service is the debt coverage ratio for the property. The minimum DCR required by most Lenders is 1.0. A higher DCR indicates that the property should be able to sustain itself through downward economic swings. Example for a DCR for a 10 unit building with a proposed mortgage of $203,000 with an interest rate of 8.0% amortized over 15 years. Income: Monthly gross rental income: $5960 Annual gross rental income: $71,520 Vacancy Factor (5%): $3,576 Effective Gross income: $67,944 Annual Expenses: Decorating & Painting: $1,000 Property Insurance: $1,680 Repairs: $1,000 Replacement Reserves: $1,000 Real Estate Taxes: $3,210 Common Area Utilities: $420 Water and Sewer: $4,000 Total Annual Expenses: $12,310 Net Operating Income: $55,634 Annual Debt Service (principal & interest) x 12 months: $22,018 Debt Coverage Ratio: 2.53 The appraisal of the property will also contain income and projected expenses for the building. The figures provided by the appraiser will be used for the final DCR calculated for the property. In addition to the DCR for the property, your personal financial circumstances will be evaluated. The source of the down payment funds for the purchase of the property will be verified. Any past credit issues that appear on your personal credit report will require explanation. Your personal debt ratio will be calculated. Generally your total personal debt ratio, which includes your mortgage payment or rent for your primary residence plus all installment debt, should not exceed 40%. The personal debt ratio is determined using your gross income and minimum monthly payment for installment debt. Now that you have found the property, run your numbers to determine that the property will meet lending guidelines, you can begin the process of applying for financing for the property. The mortgage application process for a multifamily property is very similar to that for a single family home. You will be required to supply proof of income, assets will be verified through bank statements, a credit report will be pulled, and the earnest money you have deposited with the real estate broker will be verified. The Lender will require a property inspection and appraisal. The building inspection report will require a property inspection and appraisal. The building inspection report will provide the level and estimated cost of repairs that the property requires. Depending on the level of repairs outlined in the inspection report, the Lender may require the establishment of a repair escrow account. In this case, funds will be held in escrow until the repair work has been completed and verified by the inspector. Once the work is finished the funds are released to the owner of the property. The most asked question by people interested in getting a mortgage is: "How long is it going to take before I can close?" Generally speaking, the process will take 60 days from start to finish based on today’s business climate. As always, an early organized start is better than a later one. Good luck in your pursuit of purchasing a multi-family property.

This is How the Market Has Been Performing These Days! By Jay McHugh of RE/Max Affiliates Properties that many buyers have been waiting for to come on the market are selling the first day. Multiple offers on a home are not uncommon. Paying over the asking price for a home is something of the norm this spring! Why is this happening, many of my clients ask? The reason for the aforementioned is the great combination of factors that have been seen throughout the last 24 months. We all have seen how well the Dow Jones Index has performed as well as other broad indices. Moreover, many mutual funds have seen great increases. This is a major component of why prices have increased. For example, young home buyers who have the ability to tap into their respective 401K accounts can do so with virtually no penalty. And, of course, these accounts have grown greatly in the last few years. So now we have the ability to finance a home and live the American dream. Along with the ability to borrow from a retirement account, the benefits of the Federal interest deduction write-off make the investment far greater than saving another year for a down payment and continuing to rent at very high rent rates! Therefore, with this easy access to saved retirement money and excellent tax benefits, the housing market has exploded from the ground up. As many have seen, the surplus of first-time buyers in the market has caused growing families an opportunity to move up to the next level of home. This is the fuel that has continued for the last 24 months, which is allowing all sellers an opportunity to look at whether they want to move up or down! So why the tight inventory? My theory is that the refinancing boom that has passed us by created a comfort zone for many individuals who had upside-down mortgages. In addition, many have taken the savings per month and allowed themselves to re-think that addition over the garage. As one can see now, we have a great surplus of buyers with a low inventory of units to provide these buyers and consequently the market is growing ahead and appreciating at a very strong rate. What should one do in this market? Sit tight and wait it out or jump in and grab a historic low rate? The questions should be answered through your Realtor, who can assist you with a short-, medium-, and long-term approach!

The Fast Track To Building Equity Is Also The Key To Reducing Interest Costs But Increasing Monthly Payments May Not Be For Everybody By Rick Fedele, President, Summit Mortgage Record low mortgage rates have attracted a great number of homeowners interested in refinancing their current loan. Many are also making the move to arrange for a shorter term, reducing what was a 30-year mortgage, for example, down to a 15-year payment plan. The decision means making larger payments each month. But these bigger bills bring the advantage of reducing interest costs and building equity far faster than would be traditionally possible. Refinancing, for most homeowners, has been seen as a way to use low mortgage rates to reduce their monthly cost. But those looking at the bigger picture -- and who have at least $200 extra disposable income each month -- are willing to pay more each month for bigger benefits down the road. In some cases, that larger monthly expenditure can reduce the amount of interest paid over the life of a loan by half. In the case of a $100,000 mortgage, reducing the length of the loan from 30 to 15 years could save, depending on rates at the time, between $70,000 to $90,000 in interest payments over the life of the loan. Hardly small change. As an added bonus, you will be on the fast-track for building equity as your property increases in value. It is money you can borrow against or put towards a larger house in the future. Obviously, reducing the duration of a mortgage isn’t for everyone. The extra money required each month would be a budget buster for many and future expenses, such as college tuition, must be well planned for. There is also the fact that the less interest paid means smaller state and federal tax breaks. Once these incentives are factored in, your return may be no better than if you had invested that extra money in the stock market, 401K or mutual fund. But for those who can afford it, refinancing to reduce the life of a mortgage can offer substantial financial rewards in due time. Richard Fedele is President of Summit Mortgage, a Boston-based mortgage company that is affiliated with Pacific Guarantee Mortgage Co. (PGM), the largest mortgage broker in the U. S. For more information, call Summit at 617-859-0900.

Q&A with Michael Merrill of Merrill & McGeary, a real estate attorney. Q: I own a two-family house which I currently occupy as my principal residence. I would like to purchase a condominium, which is out of state, but due to its proximity I could also occupy it as my principal residence if I wanted to. When I applied for the mortgage on the two-family I applied on the basis the house was to be owner-occupied, now I also want to apply for the loan for the condominium and obtain an owner-occupied interest rate. I do not intend to sell the two-family house, but keep it as an investment. Will the purchase of the condominium affect my financing or interest rate on my loan for the two family house? T.C. Boston, MA A: Generally, when you apply for a loan and indicate you intend to occupy the property as your principal residence, there is no requirement in the loan documents that you occupy it for any particular length of time. At the closing a borrower usually signs a statement indicating he/she intends to occupy the property within thirty days. However, once occupancy has occurred, there are no other ownership requirements. Some first time home buyers programs with discounted interest rates may have other conditions for owner occupancy which could include an increase in the interest rate if the owner no longer lives in the property. I recommend you read the promissory note you signed at the closing as well as the supporting documents. If there are no restrictions, then you will be able to retain the same loan terms on the two family house even though you no longer intend to reside in the property. Another approach which you can discuss with your loan officer is to apply for a loan to purchase the condominium on the basis that it will be a second home. Often the interest rate for loans to purchase a second home are the same as those for primary residences. Michael W. Merrill Q: I am selling an investment property to a person who wants to move into the property. The property is currently occupied by a renter. The buyer wants to close mid-month, but the renter has the right to remain in the property until the end of the month. It seems logical to change the closing date until the end of the month, but my husband and I will be out of the country at that time. Therefore, the date is not good for use. What do you recommend? T.M. Brighton, MA A: Most buyers who intend to owner-occupy do not want to purchase property that is occupied by a renter. It is likely the buyer will only close when the property can be delivered vacant. If the renter has the right to remain until the last day of the month, I recommend the closing be scheduled for the first of the next month. You can then be sure the property is broom-clean and free of personal possessions on the closing date. While I understand you would like to attend the closing, it is not a requirement that you be there. Your attorney can represent your interests as long as you sign the deed before the closing and give your attorney a power of attorney. If the choice is to not be at the closing, but to be able to sell the property, the decision seems simple to me. Let your attorney do the work without you. Michael W. Merrill