Before shopping for a home even if you have “A” credit and good income the first step is to speak with a mortgage lender and get pre-approved.  If it was more than three years since you applied for a mortgage get ready… the rules have changed and the days of easy mortgages are over… no more stated income loans or no verification loans… They will want you to document everything.  For self employed borrowers they will want two or three years of tax returns with all schedules. In spite of how hard they make it for you to get a loan, there are still 100% loans for certain areas and FHA loans that will loan 96.5% of the purchase price.

If you are interested in purchasing a bank owned property/REO they will require that you provide proof of funds if making a cash offer or a pre-approval letter if obtaining a mortgage.  You don’t want to be scrambling to get approved when the perfect foreclosure home deal comes along.  A days delay can cost you the deal.

Zillow reported interest rates this week on 30 year mortgages dropped to 4.33%, the lowest in 25 weeks. I don’t think you can count on rates going lower nor staying this low for long.  Keep in mind that you can buy $10k more house for the same payment if rates drop only .325 of a point and the reverse is true if they increase.

I recommend you use a local lender so that you can meet with them in person.   Local lenders know market and the nuances of the market as well as the attorneys, inspectors, and appraisers.  They can navigate through any issues or challenges that may come up along the way to getting closed.   If you would like a recommended list of some excellent local lenders in the Brunswick-St Simons area then give me a call, 912.222.4403, or email me, tom@avalonpropertiesgroup.com, and I will send it to you along with some tips to get the best rate and closing costs.

Roughly forty percent of the homes for sale on today’s market are short sales and foreclosures!
Distressed properties are well known for their value (a reputation which is sometimes accurate, and
sometimes not), but they also have a reputation for causing buyers to become distressed too.
Transactional snafus, last-minute surprises and long, drawn-out escrows that never close seem to
be par for the course.
Instead of avoiding these properties altogether, get educated about the most common dramas that
go down in these deals, and how you can avoid falling victim.

1. Run On Escrows
When you’re buying a home (or selling one, for that matter), time is absolutely of the essence.
Buyers reasonably expect that the big time suck in real estate is in the house hunting process itself.
It seems like once you find a home you want to buy and the seller agrees to your price and terms,
things should move pretty quickly, right?
Not so much, when it comes to some distressed property sales. We’ve heard of the occasional,
swiftly-moving escrow on an REO (real estate owned – by the bank), but for the most part, these
transactions take anywhere from a few days to a few weeks longer than “regular” sales, because of
the extra signatures, supervisor-level approvals and even investor involvement required to seal the
deal.  Banks don’t have the same sense of urgency individual home sellers do, and it’s not
uncommon for the people who need to sign on the dotted line to be on vacation or scattered
across the country, adding days or weeks worth of time to the escrow.
Short sales are also an entirely different animal when it comes to escrow timelines. While a standard
sale from an individual seller to an individual buyer might take 45 days from contract to closing, a
short sale can take anywhere from 45 days to 6 or 8 months after the seller has accepted the
contract to get the deal closed.

A v  o  i  d   t  h  e   d r ama by:

Expecting your escrow to run long, and being pleasantly surprised if it doesn’t.  Expectation
management is everything. Make sure you take these extended timelines into account when you’re
working with your mortgage broker on the issue of when to lock your interest rate, and how long
your rate locks will last. You might even need to plan on and/or set aside an allowance for the cost
of extending your low interest rate if rates are rising rapidly during the time you’re waiting for the deal
to be done.

2.  Bank Won’t Take a Low Ball Offer
Banks owe their shareholders and investors a duty to get as much as they can for these properties.
Just because you see it’s on the market and listed as a short sale or a foreclosure doesn’t mean
they’re going to give it to you for a fraction of its worth. The bank’s goal is to get a purchase price as
close as possible to the home’s fair market value, as determined by the recent sales prices of similar,
nearby homes, with some adjustments made for the property’s condition.  Fact is, many banks
would rather see the listing agent reduce the price by a moderate amount, and wait to see what
offers come in, than to accept an offer 30 percent below the asking price just because there are no
other offers on the table.

A v  o  i  d   t  h  e   d  r  a  m  a   b  y  :
Working with your agent to make a realistic offer, based on recent comparable sales in the
neighborhood, not just on what you think you can get away with.  You can waste a lot of time, spin a
lot of wheels and lose out on a lot of properties making lowball offer after lowball offer on distressed
homes. Sit down with your broker or agent, review the ‘comps’ and make a smart offer that reflects
a good value for you, is within your budget and is not bizarrely out of the realm of the fair market
value of the property.

3.  Last Minute Postponements and Cancellations
These transactions have an uncanny way of being delayed at the last minute – or never going
through at all, through no fault of the prospective buyer. You signed docs yesterday, put your dog in
the crate this morning and just hopped in the moving truck, only to get a text from your broker that
the deal didn’t close because the escrow company which was selected by the bank flubbed the
checkboxes on a single sheet of paper (it happens). Or, you’ve been in contract (with the seller) on a
short sale for four months, and the bank refuses the sale entirely because the seller refuses to kick
even $1 of their own cash into the deal, despite having a flush savings account

A v  o  i  d   t  h  e   d  r  a  m  a   b  y  :
Staying as flexible as possible with your moving plans as long as possible.  Best practice is to plan
on some overlap between the time you can be in your last place and your scheduled move-in date.
Also, if you’re in contract on a short sale, you should take the point of view that you don’t have a firm
deal until you get the bank’s approval of the transaction. Don’t even think about starting to make
moving plans or paying for home inspections and appraisals until you know the bank has given a
green light to the deal and that the purchase price and terms they’ve approved work for both you
and the seller.

4.  The Banks Black Box

Make an offer on a normal home and you’re likely to know what the outcome will be within a few
hours or a few days, at the outside. If things take longer because the seller is out of town or some
such, the listing agent tells you that, and you at least know what’s going on.
Make an offer on a bank-owned property or a short sale?  It could be days, but could also, easily, be
weeks or months before you know what’s going on.  No amount of calling, pleading, prodding or
nudging is likely to get you much information on how your offer or the seller’s short sale application is
being handled or what (if any) progress is being made.  That “black box” into which your offer
disappears at the bank level can be very frustrating.
A v  o  i  d   t  h  e   d  r  a  m  a   b  y  :
Continuing your house hunt until you have an answer back.  Maniacally pestering the listing agent for
answers or harassing your buyer’s broker into spending hours on hold with the bank is highly unlikely
to get you any insight. (With that said, it does make sense for your agent to check in regularly -
sometimes even daily -  with a short sale or REO listing agent to stay updated on any developments
with the property and to make sure your offer/transaction stays in the front of their mind.)
Most of the angst in these situations arises when a buyer feels they passed on properties that would
have really worked for them when they pinned their hopes on a distressed home.  You can only
control your efforts and activities, not the bank’s.  Consult with your own broker or agent about
staying proactive in viewing and even pursuing other properties until you have a firm “yes” from the
bank on your short sale or REO offer. Until that time, and usually for a short time after you get the
bank’s approval, you have the right to back out of the transaction if you need to (make sure your
broker briefs you on precisely when your right to rescind your offer or exercise contingencies – i.e.,
bail – will expire).

5.  Double Standards

In a “regular” equity sale with no bank involvement, both buyer and seller are obligated to meet
various timelines.  Seller has to provide disclosures by X date, open the property to inspections
- with utilities on – by Y, and close and move out by Z.  REO and short sale buyers, on the other
hand, are often dismayed to find that even though the bank might take weeks or months to
sign or handle its deliverables, the bank will insist that the buyer show up, sign or send a check
quick-like.
A v  o  i  d   t  h  e   d  r  a  m  a   b  y  :
Chalking it up to the (admittedly irritating) way things are – the price you pay to buy from the
bank.  Realize that working with the bank on the bank’s terms is unavoidable when you buy a
distressed property. Then, go into the deal with realistic expectations – including the expectation
that the bank will drag its feet, despite expecting you to keep every deadline – and you’ll be less
frustrated, and less likely to make poor decisions out of frustration.
Also, make sure you do respond in a timely manner to the bank’s requests and your obligations
under the contract.  I’ve seen banks capitalize on buyer delays in returning signatures and
removing contingencies to accept higher offers they received in the interim.  Don’t lose your
home on a technicality because you assume that the bank’s lackadaisical timelines apply to you
as well.

Source: Trulia

According to Kiplingers Georgia is ranked amongst the best 10 states for low taxes for retirees….. One more very important and great reason to buy a home in Georgia and especially in the Brunswick-St Simons-Sea Island area.

The Peach State is a peachy tax environment for retirees. Social Security income is exempt, and so is up to $35,000 per person of most types of retirement income, including pensions, annuities, rental income and investment income for residents 62 and older. Retirement income above the exclusion amount is taxed at ordinary rates that top out at 6%. Beginning in 2012, taxes on retirement income will be phased out. The statewide sales tax is 4%, but local jurisdictions can add up to 4% of their own taxes. Food and prescription drugs are exempt. Real estate taxes may include a combination of county, city, school and state taxes, depending on location. Full-time residents qualify for a homestead exemption of up to 40% of the fair market value of their house, and residents 65 and older may qualify for additional deductions. There is no inheritance or gift tax, and a limited estate tax.

STATE SALES TAX
4% (food and prescription drugs exempt). But local taxes may add an additional 4%.

INCOME-TAX RANGE
1% – 6%

EXEMPTIONS FOR RETIREMENT INCOME
Social Security is exempt. Taxpayers who are 62 years of age or older, or permanently and totally disabled regardless of age, may be eligible for a retirement-income adjustment on their Georgia tax return. Retirement income includes income from pensions and annuities, interest income, dividend income, net income from rental property, capital-gains income and income from royalties. For married couples filing joint returns with both members receiving retirement income, the maximum adjustment for the applicable year may be up to twice the individual exclusion amount. Retirement income exceeding the maximum adjustable amount will be taxed at the normal rate. The retirement-income exclusion for the tax year is $35,000.

PROPERTY TAXES
A homeowner may pay a combination of county, city, school or state taxes depending on location. Homeowners 62 and older who earn $10,000 or less, will find that up to $10,000 of their property’s assessed value is exempt from school taxes. Persons 62 or older whose family income does not exceed $30,000 may qualify for an exemption from state and county property taxes equal to the amount by which the assessed value of the homestead exceeds the assessed value for the preceding tax year. For those 65 and older who earn $10,000 or less, $4,000 of their property’s value is exempt from state and county taxes as well. The state offers homestead exemptions to persons that own and occupy their home as a primary residence. Many counties offer homestead exemptions that are more beneficial to the taxpayer than the exemptions offered by the state. Homestead exemptions are filed with the county tax commissioner or the county tax assessor’s office. The homestead exemption is deducted from the assessed value (40% of the fair market value) of the home. Then the millage rate is applied to arrive at the amount of ad valorem tax due. Individuals age 65 and older get additional deductions.

INHERITANCE AND ESTATE TAXES
There is no inheritance tax or gift tax and only a limited estate tax, which is an amount equal to the amount allowable as a credit for state death taxes under Section 2011 of the Internal Revenue Code. In effect, the estate taxes paid to Georgia may be used to reduce the estate taxes due the IRS.

State tax data courtesy Retirement Living Information Center. Visit RetirementLiving.com for a complete rundown of taxes in Georgia.

Read more: http://www.kiplinger.com/tools/retiree_map/index.html?map=&state_id=11&state=Georgia#ixzz1LxpTvO16

You have heard it before. The first three rules of real estate are Location, Location, Location, and this is no different when buying rental property. If you are in the market to purchase rental property real estate, you need to know your market. Below is a series of steps you can take to fundamentally understand your real estate market and determine the best areas in which to purchase your buy and hold properties.

Establish Where the Rental Markets Are
Here is a systematic way to figure out which rental markets in your area will have the highest potential returns.

1. Have a realtor put together a list of properties that have sold in your area. You are going to want to find sales data on “bread and butter” rental properties – properties with 3 bedrooms, 1 bathroom, 800sq ft – 1200sq ft with a basement and a garage.
2. Take the list of properties and sort them by sales price.
3. Once you have the properties sorted by price, break them up into 3 groups – the lower third by price, the middle third by price, and the upper third by price.
4. Next, take a map and start to plot out the three groups of properties. For each group use a different color marker on the map.

Once you have the map populated with, you should start to see trends on the map. The properties priced in the lower third will likely have the potential to generate the highest return. These are the areas you are going to want to investigate further. If you have lived in the area, you probably have a general idea about these areas, but you need to set that aside for now because to truly know the market you need to complete the next steps.

Drive the Targeted Market
Once you have established a few areas, you are going to want to get in your car and drive through the neighborhoods. When you do this, you need to take note of the things listed below. Please keep in mind that you should be looking for trends in the area. You may see one house that is particularly good or bad, but you are really trying to look at the neighborhood in general, so look for trends.

What is the condition of the homes in the area?
Do you see solid homes, with good roofs and freshly painted trim, or do you see you see old dilapidated homes with broken windows?

Are the properties kept up?
An easy way to tell this is by looking at the condition of the landscaping. Do you see mowed lawns with flowers planted all around, or do you see long grass and overgrown weeds? The condition of the landscaping can provide a great deal of insight about the people living in that neighborhood.

What does the neighborhood look like?
Look at the streets, are they clean, or is there trash strewn around. Look for sidewalks. If you are driving around outside of school hours are kids playing in the streets? Or in contrast does the neighborhood give you the creeps. You are really looking to answer the question “Do my tenants want to live here?”

Talk to People in the Neighborhood
It is really a good idea to speak with people in the neighborhood. If you see someone walking down the street, stop and let them know you are looking to buy real estate in the area and ask them about the neighborhood. Or, you can stop in a local business like a market or a gas station and talk to the guy behind the counter about the area.

Once you have established your target markets, and driven the areas, you should be able to quickly see which markets you want to invest in, and which markets you do not. To document this you can easily take a map and highlight the streets where you will consider investing.

Determine the Returns
The next step is to look at the potential returns you will generate. This is a very simple thing to do, and you can follow these steps.

1. Speak with a local property management company about the rental rates for a 3 bedroom, 1 bath home with a garage and a basement in the area you have selected. The property management company should be able to give you a very good idea of the rental rates and also give you some more feedback about the area in general. You should also inquire with them about their rates for property management.
2. Look up the taxes on a few properties to establish what you can expect to pay in taxes for properties in the area you have selected.
3. Speak to an insurance agent about the cost of insurance for a property in your target market.
4. Calculate your net income. To do this, simply take your rental income expected for the year and subtract the taxes, insurance, and property management expense.
5. Calculate your return. To do this simply divide the net income you calculated in step 4 by the price you will be paying for the property.

With this information you should be able to see what kinds of returns you can generate for your targeted area. An interesting exercise to perform is to also calculate your return on areas where homes are selling at a higher price. What you will find is that the neighborhoods may be a bit nicer, but your returns are going to drop quickly.

Putting it All Together
The analysis above is exactly what is done at Michigan Turnkey to evaluate rental markets in Southeast Michigan. Currently Michigan Turnkey is targeting specific areas in the city of Pontiac, Michigan and the city of Detroit, Michigan. Using this analysis, Michigan Turnkey has been able to find very nice neighborhoods in Pontiac and Detroit with low price points that generate annual returns in the range of 14% – 20% on a cash basis.