Article 1 (Residential And Commercial Financing - What's the Difference?) Article 2 (It's About Time!! "The Proposed Revenue Procedure On Reverse Exchanges") Article 3 (June Real Estate Round-Up) Article 4 (Q&A with Michael Merrill) Article 5 (Rent vs. Buy) Article 6 (Young Buyers See Homeownership Benefits) Article 7 (The Facts and Myths About Home Inspection)

Residential And Commercial Financing - What's the Difference? By Eric Erickson, partner in Viking Mortgage Company. He has been helping homeowners and real estate investors close their mortgage transactions for the past 8 years. He can be reached at 1-888-738-3350. Many owners and potential owners of rental property don't seem to know the difference residential and commercial property from the mortgage industry's perspective. In this article, "commercial property" will refer only to multi-family homes or apartment buildings. The mortgage industry defines a residential property as a one to four unit dwelling. These properties do not contain business units or tenants. Properties that contain commercial use tenants are termed "mixed-use" properties and are in a category by themselves. Given this, residential properties with more than four units are defined as commercial properties. Why is this distinction so important? Mortgage financing! In the mortgage industry there are two very different and separate worlds -residential and commercial. The residential world is built around the concept of home ownership for everyone. The major agencies Fannie Mae, Freddie Mac and Ginnie Mae rule this world. Residential mortgage products and guidelines have been defined by these agencies. These agencies were the ones that defined residential properties as those containing one to four residential units. These agencies also have defined the type of mortgages that they will buy from the lenders. The agencies are constantly changing their definitions of loan types they will purchase and have recently relaxed some of the criteria for borrowers who want to purchase rental property. Fannie Mae and Freddie Mac have made a recent push to loosen their guidelines for the investor borrowers. Both large and small banks created the commercial world. In the beginning investors wanting to purchase buildings with more than four units were forced to seek these bank's loan products. Today other lenders and mortgage bankers have seen the need to add new mortgage products to compete with the old banks that controlled commercial world. Keep in mind, this applies only to apartment buildings and generally speaking smaller apartment buildings. So what are the differences between these worlds? First and foremost - loan to value (LTV) calculations - the amount of money needed for down payment and secondly how the properties are primarily viewed. In the Boston area, there are numerous five or six unit buildings and most people don't view these properties as "commercial". As such, the potential buyer / borrower begins to look for financing and the 10% down investment property mortgages are extremely appealing. Here's the rub. Since a 6 unit building falls into the commercial world - the 10% down mortgages are not available. Most commercial loans require a larger down payment, generally at least 20%. Also the commercial lending requirements weight the property's income and condition more heavily than the property's market value. Residential loans are based mainly on the borrower's financial condition and the property's potential income and condition are important but not the deciding factor on loan approval. There is a lot to understand about each of these diverse worlds. So take time to learn about each world's rules & processes before you decide which world you want to inhabit as an investor.

It's About Time!! "The Proposed Revenue Procedure On Reverse Exchanges" By Robert HB Buckner, New England Division Manager for Asset Preservation, Inc., a subsidiary of Steward Title Company. Questions regarding exchanges can be directed to him at 877-845-1031 or hbbuckner@earthlink.net. A reverse exchange is needed whenever an Exchanger must close on a replacement property before closing on the sale of the relinquished property. In the past, the IRS has not taken an official position concerning reverse exchanges, thus many tax and legal advisors were cautious in recommending this format to their clients. This is about to change! REVERSE GUIDANCE IS COMING... According to the recent comments of the IRS's Kelly Alton, Special Counsel to the Assistant Chief Counsel-Income Tax and Accounting to the American Bar Association, a revenue procedure for reverse exchanges should be finalized sometime in the near future. Although the final details of this revenue procedure are not known at this time, key elements submitted by a task force of well-known attorneys & CPAs provide a loose overview of what may be finalized by the US Treasury Department. AN OVERVIEW OF SUGGESTIONS SUBMITTED BY THE TASK FORCE Reflected below is a brief summary of key language proposed by the task force: -The IRS should not challenge a reverse exchange if the "accommodation titleholder" (i.e. the "Qualified Intermediary") held property in a "qualified exchange accommodation arrangement." -Legal title to the property is held by an entity (the "accommodation titleholder") who is not the taxpayer or a disqualified person as defined. -Within two years of the date in which the exchange accommodation titleholder acquires legal title to the property, (1) if the property is intended to be used as replacement property, the property is transferred (either directly or in directly through a Qualified Intermediary) to the Exchanger or (2) if the property is intended to be used as a relinquished property, the property is transferred to a person who is not the Exchanger or a disqualified person. -The exchange accommodation holder agrees to be treated as the beneficial owner of the property for all federal tax purposes. -The procedure could specify a maximum time period to complete a reverse exchange. Note: This does not reflect all the text submitted by the task force. Please e-mail me at hbbuckner@earthlink.net to be placed on our list to receive a complete summary of the IRS's final revenue procedure on reverse exchanges as soon as it's available.

June Real Estate Round-Up By Jay McHugh, RE/MAX Affiliates, 2077 Centre Street, West Roxbury, MA. Questions should be directed to Jay at 617-323-5050 or faxed to 617-323-4040. E-mail JAYMCLB@aol.com or visit www.jaymchugh.com. No June Rate Increase The Federal Reserve's decision at the end of June not to immediately raise rates is expected to have a calming effect on the housing economy, which has seen boom years in 1997 and 1998 because of mortgages rates in the 6 and 7 percent range, and then a drop off in 1999 and this year as rates moved above 8 percent. At its June meeting, the central bank said it was satisfied -- for the moment -- that the overall economy had cooled enough to offset the likelihood of rapid inflation. The bank warned, however, that additional rate hikes may be in store later this year if the economy once more begins to overheat. Some economists say they expect another nudge as early as the Fed's Aug. 22 meeting. The prime lending rate currently stands at 9.5 percent, its highest level since January 1991. Mortgage rates are hovering around 8.5 percent. Homes Sales Up Again The National Association of Realtors reports that home sales are on the rise again, primarily because more homes are being put on the market. According to NAR economists, sales of existing homes rose by 4.3 percent nationwide in May. If that pace continues, almost 5.1 million homes will change hands this year. NAR officials say that one of the key reasons home sales had been slipping in the past several months was that consumers just weren't interested in moving. Demand was high, say the officials, but inventory was low. More homes came onto the market in May, however, helping satisfy the demand. The national median existing-home price was $137,200 in May, up 3.3 percent from the same month a year ago when the median price was $132,800. Beach Front Warning The Federal Emergency Management Agency, whose job it is to prepare Americans for disasters and then help clean up after them, is worried that natural beach erosion along the coastlines could damage or destroy as many as 87,000 beach front homes and businesses in the next 10 years. FEMA says about 1,500 homes are lost per year due to coastal erosion, with an annual loss that exceeds more than $500 million. FEMA managers note that a major ocean storm can wipe away as much as 100 feet of beach front in one day. While some of that can be recovered through restoration work, not all of it can be replaced. Summary Lately I have been asked when will the prices start to level off. While there are many different opinions on this subject ranging from NAR economists to paid fortune tellers, I believe that a simple look at what is driving the market can explain the rise in prices very simply. For example, entry level buyers who are being offered high competitive salaries and bonuses from today's corporations purchase a starter home. From here that seller will have the equity to then purchase a larger home at a perceived premium price. Eventually, this paradigm continues upwards throughout the marketplace regardless of the characteristic of the client. Therefore, until we see a slow down in the entry level pay scale or a combination of layoffs and/or hiring freezes, the market is going to chug along with 3%, 5%, and even 10% gains a year! If and when this happens is talk for the so-called experts who are honest to say that even they cannot predict phenomena with accuracy. Of course other factors play an important role in this appreciating market but this reasoning is thought by many area brokers to be a plausible assessment of the market today!

Q&A With Michael Merrill By Michael Merrill, of Merrill & McGeary, a real estate attorney. Questions should be mailed to his attention at Six Beacon Street, Boston, MA 02102 or call 617-523-1760. Q: My wife and I own a small single family house. Our family is growing and as a result we need more living space. Due to the prices of houses, it will be difficult financially for us to move from our current house to a larger house. We would like to add on to the house and construct a new kitchen, family room, master bedroom and bath. Since the lot is small we were told by the building inspector we cannot build the addition without going through a planning process in the city and appearing before a local Zoning Board of Appeals. What does this entail? Should I have an attorney assist me? D.T., Cambridge A: Cities and towns have zoning codes to control construction in various zoning districts. The zoning code, for example, requires construction to be set back from the lot lines certain distances. Height and density also are restricted. If you intend to proceed with the addition, you should initially informally discuss your plan with the building inspector or zoning officer for your area. If the feedback is positive, then you will be required to provide a site plan and building plans for the zoning officer to review. This plan should be prepared by an architect who is familiar with the zoning code and the size of addition which is likely to be approved by the Board of Appeals. The zoning officer will then determine what violations of the zoning code are created by the proposed addition and what relief in terms of special permits and variances is required. Thereafter, you will have to appear before the Planning Board and the Zoning Board of Appeals in order to have your project approved. This is a complicated process which has many potential pitfalls. I recommend you retain a local real estate attorney who regularly appears before the Zoning Board of Appeals in order to guide you along the path. Michael W. Merrill Q: I am considering converting my three family house into condominium units. Is this a complicated and expensive process? Please tell me what I would need to make this happen. J.B. Boston, MA A: Converting a three family house into condominium units is not as difficult as you might think. The actual conversion requirements are contained in Massachusetts General Laws, Chapter 183A, the state's condominium statute. You will need an attorney to assist you in drafting the condominium documents, which include a master deed, declaration of trust, rules and regulations, unit deeds, and other related documents. In addition, you will require the services of an architect to draw plans depicting the boundaries of the common areas and the units. The architect's stamped plans together with the lawyer's condominium documents when recorded in the Registry of Deeds create the condominium. While the requirements to create the condominium seemingly are not overly complex on their face, you should be aware that there are a number of other issues which you must deal with, including your existing financing, relationships with your tenants, and capital gain taxes on the proceeds of the sales. I recommend you contact a real estate attorney who has experience converting buildings into condominiums several months before you intend to market the units for sale. With proper assistance you should be able to convert your building and sell the units successfully. Michael W. Merrill

Rent vs. Buy By Sara Rosenfeld, Sr. Vice President, Co-manager of the Brookline office of Coldwell Banker-Hunneman. 617-731-2447. This time of year, many in search of a place to live have a September 1 deadline. If you are still in search of a place to live in Boston by September 1, here are some suggestions. If you are looking to rent and have found nothing suitable in your price range, you are not alone. The Boston area continues to have one of the tightest rental markets for available apartments and you need to be very proactive in your search. Don't expect a rental broker to call you back! You must be the "squeaky wheel" and constantly call them to find an available apartment. You must take the initiative! The other option to consider is a purchase of a condo. Look at your monthly payments and determine whether it makes any sense for you to purchase a condo instead of renting. The easiest way to do that is for a representative from a mortgage company or bank to complete a Rent Vs. Buy Analysis for you. They will use your monthly rent figure and then determine how much of a mortgage you can obtain using the same monthly amount. For instance, if you are looking for a 2 bedroom apartment for $1,500 per month, the comparable mortgage payment would allow you to borrow approximately $155,000 (calculations based on using $350 for taxes and condo fee, and PMI and an 8% 30-year mortgage). If you are going to rent an apartment, many choose to work with a rental agent who charges a fee of one month's rent (in this example, $1,500). To sign a lease, you may need a first and last month's rent, security deposit, and rental fee. For the $1,500 per month apartment, this could be as high as $6,000, of which only the security deposit will be returned (hopefully). As of July 16, 2000, there were 15 two bedroom condo units available on the MLS computer for all of Boston in the $125,000 to $150,000 price range. They are in a variety of buildings in many convenient locations. If you use the $6,000 for a down payment for the purchase of a $150,000 condo, then you would be looking for a mortgage of $144,000 (assuming a no point, no closing cost mortgage program). If you are confused by all of these numbers and terms, a good mortgage representative will take the time to review each one with you! How much income is needed to support this payment? The income requirement depends on your credit, work history, and monthly debt. If you are a student, then it will depend on your parents? information. In most cases, an income of a least $45,000 per year is needed to support the total monthly payment. The more money that is used for a down payment, the lower the monthly payment. Obviously, you can also look for a less expensive unit!

Young Buyers See Homeownership Benefits By Shari Marquis, GRI Marquis GMAC Real Estate. 384 Washington Street, Brighton, MA 02135. 617-782-1234, e-mail smarquis1@aol.com. Director of GBREB, MLS-1 & MAR Chairman Technology Committee, MLS-1 Realtor of the Year, Greater Boston Real Estate Board and the Massachusetts Association of Realtors. Young people make up a significant part of today's housing market. In fact, first-time buyers accounted for 42 percent of all home sales in 1999, contributing to a new record year for the housing market. The impact of this particular group in the housing market has been great. Without this strong level of entry-level buyers, people would be unable to sell their existing homes to meet growing family needs, or trade down to smaller, easier-to-maintain properties as lifestyle preferences change. According to a recent survey of home buyers and sellers by the National Association of Realtors (NAR), the typical first-time home buyer in 1999 was 32 years old and earned a median income of $49,700. The NAR survey found that these first-time buyers were able to purchase a starter home costing $104,000, and on average were able to afford a down payment of $5,000 (4.8 percent of the home's price). According to the NAR survey findings, the top factors that influence purchase decisions for home buyers included neighborhood and home price, followed by considerations regarding work and school, as well as family and friends. The survey found factors that influenced young buyers especially included a desire to own a home of their own, to have more space and for the long-term investment considerations. If you look at the period between 1976 and 1997, before the influence of widely swinging technology stocks, the variance in stock returns was more than 13 times the variance in home-price appreciation. That variance is even greater today, Although most people don't expect housing to be a quick-in, quick-out investment and homeownership may not offer the potential windfall of some stocks, over time prices generally increase at the overall rate of inflation, plus one-to-two percentage points, although here in the greater Boston area, we have seen equity in homes appreciate at a higher rate than the rest of the country. While it is true some markets experience occasional price declines, over the typical ownership period of seven years, these cycles tend to smooth themselves out. In fact, most people are able to trade-up to a larger home within three to five years. Another huge factor influencing the decision to purchase a home is the ability of consumers to educate themselves about the housing market, the buying process and investment considerations at their own pace and convenience on the Internet. Web sites such as Realtor.com give them instant access to information their parents never dreamed about when they first entered the housing market. The NAR survey also identified tax savings and the ability to build equity over time, which can eventually lead to the opportunity to trade-up to a larger home, as other influencing factors in the decision to purchase a home by buyers in 1999. Anyone thinking about buying a home should consult a real estate professional to assist them in determining how much they can afford and if they qualify for any of the numerous programs targeted to first-time buyers to help them overcome the down payment obstacle. A real estate professional can help you examine your personal financial situation and help you learn how to get started on the road to homeownership.

The Facts and Myths About Home Inspection By Steven Petitpas, NCARB, ACSE, Aesthetic Images Homes Inspection Division, 617-323-4955. He is a Boston based registered architect who also performs home inspections. He has over 20 years of experience in residential and commercial construction and is also a licensed builder. He is an active member of the National Council of Architectural Registration Board and American Society of Civil Engineers. Myths: The home inspection industry is regulated by the state. You currently need a license or registration to inspect homes. Being a member of a national organization means you're the most qualified. Finding a good home inspector is easy. All home inspectors are knowledgeable about building codes and construction practices. The basic home inspection only takes an hour. Newly constructed homes do not need to be inspected. Home inspectors are qualified to do termite and lead paint inspections. The home inspector can look for termites while doing the basic inspection. If the inspector goes on the roof or has to travel more than an hour I should expect to pay more. A home inspection is just a formality, so just hire the least expensive inspector. All houses are built the same way. It?s obvious if there is something wrong with the house. If you think any of the previous statements are true, you're wrong. Facts: Starting in May of 2001, all home inspectors will have to be licensed. However, to date the only requirement in Massachusetts for home inspectors is that they can spell "home inspection." There is no substitute for an opinion by someone who is actively involved in the building industry such as a licensed builder, registered architect, or professional engineer, all of whom are regulated and licensed by the state to protect public safety and welfare. The ordinary home inspector is not regulated in this manner. Finding a home inspector can be a job in itself and may be as important as finding the right home. The phone book is a good place to start. Next, ask friends who they used in the past. Ask to see the written report they got. Real estate offices may have promotional literature from local home inspectors that you can look at. However, a good inspector's promotional material may not be retained by a realtor, for obvious reasons. Look for advertisements of inspectors in local papers that tell you what you get for the service. If the inspector has some kind of additional license or registration regulated by the state, that's a definite plus. Every home buyer should have their prospective purchase inspected by a home inspector who is experienced in current building codes and practices. Certain building practices have been abolished and your home inspector should be able to tell you if your new home contains such outdated practices and inform you of the current requirements. That information alone is worth the price of the inspection and could possibly save a life, when dealing with electrical or heating systems. Most national inspection associations require that their inspector does not give out building code information, because states regulate that only registered and licensed professionals such as architects and builders are qualified to do so. A basic home inspection for a single family house should take on average two hours and should contain a visual inspection of all building systems and components contained within the house itself, such as the structural, plumbing, electrical, heating, exterior finish, and roof systems. Even newly constructed homes should be thoroughly inspected. It's common to hear about people who purchased brand new homes and thought that they were exempt from problems - basic problems that a home inspector would have seen. Every home should have a termite inspection and a lead paint inspection if small children are going to be living there. Termite and lead paint inspections should only be performed by licensed inspectors because these types of services are regulated by the state. Beware of any individual inspector who says that those types of inspections are part of their basic inspection service. It is next to impossible to perform these multiple inspections with only one inspector. Most good inspectors associate themselves with specialty inspectors and may be able to coordinate these other inspections for you for an additional cost. Beware of inspection companies that charge extra for distance or for going up onto the roof, or who refuse to tell you the cost of the inspection until you tell them the location of the house. "Walking the roof" is part of any basic inspection and there is no limit to any good inspector's territory. The lease expensive is by no means the best. A low price may mean low experience.