This Week's Carnival Of Real Estate Investing

This is my first time hosting the Carnival of Real Estate Investing and I am pretty excited to be participating. I went to the Penn Relays in Philadelphia this weekend to watch some of the best Track and Field athletes compete in sprints, field events, and distance running. As I watched the events, I couldn't help but find a link between real estate investing and the races.


I watched the sprints and noticed that the athletes trained to give a maximum effort for 10 - 45 seconds and then the event was over. This is similar to the real estate rehabber. They acquire a property, renovate it for 1 year or less and then try to sell for maximum profit.


The field events showcased athletes that combined athletic ability with very specific technical skills. This is similar to the real estate investor that specializes in short sales or preforeclosures. They rely on learning specific techniques and approaches to create their success in real estate.


The long distance runners train hard to increase the stamina and endurance that would allow them to finish their 1 mile to 3 mile race ahead of the pack. The long-term landlord is very similar to the distance runner. They have the buy and hold mentality that leads to real wealth in real estate.

Now for the results of this week's Carnival of Real Estate Investing. After reading all of the entries for the week, I struggle between two post for this week's best but decided to choose Robert Phillips presents How to Handle Sellers in PreForeclosure posted at REAL ESTATE INVESTING. I liked it because it gives a great practical example and short script to use when approaching homeowners in preforeclosure. So this week the "field event" wins the Carnival of Real Estate Investing!

Fred De La Riva presents Don't Let Your Clients Fall Prey to the Gurus posted at Working with Real Estate Investors was a very close second. It is a great post that highlights the pitfalls that newbie investors may fall for when listening to so-called "Gurus".

Here are the other 9 honorable mention posts in no specific order:

Joshua Dorkin presents What was your biggest fear or concern in starting real estate investing? posted at Real Estate Investing For Real | A BiggerPockets Investment Property Blog.

Anesia Springborn presents Improve Cash Flow With Last Month's Rent posted at TheLandlordBlog.com.

Paul presents Real Estate Vs Stocks - Again posted at ExtremePerspective.

John Barker presents John Barker's Mortgage Blog: How does the Subprime Crisis Affect My Home? posted at John Barker's Mortgage Blog.

edithyeung presents How to Analyze Real Estate: Single Family Homes (SFH) posted at Stewart Hsu.

Nigel Swaby presents Real Estate Investing - Is It Time to Adjust? posted at Salt Lake Real Estate Blog.

Silicon Valley Blogger presents Stocks Vs Real Estate, Winning Investment Strategies posted at The Digerati Life.

Jeff Brown presents An Example ? How To Answer A Client?s Question posted at BloodhoundBlog.

James Klobasa presents My Friends All Thought I Was Breaking The Law?And Going To Jail?Until They Saw The Cheques Rolling In! posted at Real Real Estate Investing Blog.

Possible ARM Swapping????

I recently read an article on Money Magazine's website that addressed the possibility of the government and lenders allowing some borrowers with ARMs to swap them out for fixed rate mortgages.

Speakers at a Congressional hearing of the House Financial Services Committe called for restructuring ARM loans to help solve the subprime crisis.

A Congresswoman from Ohio (which apparently leads the nation in the foreclosure rate) recommended the following three-prong approach:


- Establish a rescue fund for short-term problems casued by illness, layoffs, or other one-time events.

- Create a bond fund to pay for switching borrowers out of unaffordable ARMs.

- Refinance loans for victims of predatory lending.

These measures also calls for lenders to agree to modify the terms of existing loans to prevent the higher costs of foreclosing on properties. This suggestion may work because it costs more to foreclose on a property than to accept lower returns on existing investments. According to the article 10 to 15 percent of the value of a property may be eaten up by the foreclosure process.

If it could be pulled off, this may be very helpful for the housing market as a whole as well as the economy.

Here is the link to the original article Subprime solution: Swap ARMs for fixed-rates.

MyCommunity Mortgage: A Subprime Alternative

MyCommunity Mortgages: which are sponsored by Fannie Mae and is designed to assist low and moderate income families, public service employees, and disabled people to realize their dream of owning an affordable home. This program allows for 100% financing and little to no money required into the transaction for those who qualify.


I can't stress enough how great this Fannie Mae sponsored program is. It allows certain borrowers to qualify for a home with no money down and less than perfect credit. It is a great alternative to some of the subprime loans that are now disappearing from the marketplace. The best feature of this loan program is that it offers a low interest rate that is fixed over 30 or 40 years, not just 2 - 3 years like the average subprime mortgage. Most subprime borrowers aren't getting in trouble because of their initial interest rate. Most of the trouble comes when these short-term ARMs reset and payments skyrocket by $300-$500 per month.

A sensible borrower can combine this loan with some of the techniques that I cover in my How To Afford a Home with Little Money blog and should be able to comfortably afford the home of their dreams.

Professional Stagers Help Home Sales

I recently commented on the increase in business for the home inspector in this buyer's real estate market. The professional home stager is another real estate business that is seeing a resurgence in activity.

This Spring will see an increase in homes on the market and each seller needs to get every competitive advantage available to them. The setup, look, feel, furniture, smell, and lighting of your home could have a more positive effect on a potential transaction than a lower sales price. Homes that are cluttered with children's toys and/or pet odors or hair may be hurting their chances of getting an interested buyer. With so much inventory on the market, it is easy for a buyer to move on to the next property.


Sellers may consider hiring an accredited professional stager (ASP) who can help them direct a potential buyer's attention to the highlights of the home. For an average cost of less than $2,000, a home stager will make sure items that could be seen as objectionable to potential home buyers are noted and addressed. They are also able to stage your home based on your target audience. A large home with many bedrooms and bathroom should be staged for a buyer with a family. A smaller home or condo should be staged to appeal to a young professional or empty nesters. Homeowners with young children should try to neutralize the smell of diapers by utilizing effective deodorizers, don't just mask the smells, deodorize them.

In addition to using a professional stager, hire a professional cleaning service to thoroughly clean the home to its optimal potential. Professional cleaning services have also seen a huge rise in business. In this new buyer's market the first impression will have a lasting effect and if it isn't good, it may take another few months to get another interested buyer.

Subprime Woes Affect Us All

We all know that the woes of the subprime market has now made it difficult for a good number of the population to obtain mortgages. Most of the 100%, no money down, no credit needed financing are now disappearing.

Those of us with good credit may be thinking that "this won't affect me". Or maybe you are laughing at the people that took these loans and are now suffering the consequences of 2 year ARMs that are increasing by over 3% in interest rate. To make matters worse, these homeowners can't even refinance their homes because similar subprime loans are no longer available. In addition, their credit is not good enough to go "prime", so for many the only option is foreclosure.

Well, the demise of the subprime market has some ripple effects on the rest of the market. For one, the tightening of the subprime standards has also resulted in tightening of prime standards. So even if you have a 720 credit score, most lenders are not offering 100% financing in any form. They are also padding interest rates to offer extra insurance in the event of a loan defaulting. The subprime market offered high margins and now with that profit going away the prime loans will begin to become more expensive.

Even if you already have a 30-year fixed principal and interest mortgage your home value may be affected. Your neighborhood may contain a few homeowners that have subprime mortgages and may be facing foreclosure. Each foreclosure sale in a neighborhood inherently bring the total property value of the neighborhood down. Hopefully the casualties of the subprime meltdown will not be too bad. I guess the silver lining is that the buyers able to qualify for home mortgages will be in a much better position to negotiate prices.

Seek an "Educational" Mortgage Broker

There has been plenty of news on the demise of the subprime market and how certain unscrupulous loan officers/lenders preyed on the following individuals:

1. Elderly
2. African-American
3. Low or Fixed Income
4. Women

In my opinion, these loan officers/lenders are a disgrace to the business and make it harder for the honest ones that truly have a passion for real estate and helping others. The best piece of advice that I can offer a consumer is too seek a mortgage broker, loan officer, or lender that is dedicated to educating you on the product that they are selling you. If it seems like they are too eager to close the deal quickly or have a sudden sense of urgency, then they may not have your best interest at heart.

A good mortgage broker will take the time to thoroughly explain anything that you may not understand. They should also offer a solid contingency plan if you acquire a short-term ARM or other so-called "exotic" mortgage product. A mortgage can be key to systematically building your wealth if used properly, otherwise it can be an equity-stripping, wealth-reducing nightmare.

I think this video from CNN sums up a lot of what has been going on during the last couple of years. Click here to view the video.