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If you have been reading the financial headlines, you could reasonably think that nearly all lenders are going broke, nearly all mortgages are in default, and that no homebuyer or real estate investor stands a chance of getting a new loan or refinancing an existing mortgage.
Here's the Real Story
First, contrary to the dominant news stories, it's a promising time to be a creditworthy borrower. As property sales volumes have fallen, mortgage loan originations have fallen in tandem. Likewise, stricter underwriting standards for home equity loans and high existing LTVs among many property owners have reduced this potential market. So, many lenders are receiving too few loan applications relative to the amount of funds they would like to lend. Remember, to thrive and survive, lenders must loan. Loans are the products that lenders sell.
Therefore, if you are a creditworthy borrower, lenders are begging for your business - especially 80% LTV, 30-year fixed-rate mortgages. Do you have a good, stable income? Cash reserves? Credit score above 680, say? Lenders will offer you rates and terms better than any I've seen since 2004. And even if you do not present a perfect cash/credit profile, you can still look to FHA for excellent home financing. In fact, many sad borrowers who were lured into ill-advised subprime and option ARM products could have qualified for much superior, lower-cost FHA programs.
Third, some alternative products are worth investigating. If you'd like to build equity faster, pay off your loans sooner, and reduce mortgage-borrowing costs at the same time, now could be the time to act. Lenders are offering attractive rates on 15-year mortgages. Or investigate the 5, 7, or 10-year hybrids.
For a majority of potential borrowers, the doom-and-gloom news reporting signals opportunity, not despair. Falling interest rates and declining mortgage originations provide credible homebuyers and investors their best chance to borrow in several years.

If you buy into an organized co-op, condo, townhouse or subdivision development, a homeowners' association (HOA) will require you to live under its regulations and rules.
When pricing properties, sellers, sales agents, and appraisers frequently use price per square foot comparisons. For example, a 1,500-square-foot property listed at $350,000 would figure out at $233 per square foot.
The agent or seller then might toss in a statement like, "We got this house bargain priced at less than $235 a square foot. Nothing else in this neighborhood has sold for anything under $275 per square foot."
Okay, sounds good so far. But before you bite, check the facts.
Watch Out for Errors of Measurement
Appraisers, sales agents, sellers, and property tax assessors mismeasure properties all the time. In fact, sellers or realty agents often pull their square footage figures from property tax records. Yet in many areas of the country, property tax records are notoriously inaccurate. (That's one reason why the fine print on the realtor's property description flyers might say, "Data believed to be from reliable sources, but not warranted.")
Recently, an appraiser reported the square footage of one of my properties at 1,370 square feet, when it actually comes close to 1,750 square feet. The property tax records of another house I owned showed 2,460 square feet. But the house actually totaled over 3,200 square feet because the tax assessor had never adjusted his figures to reflect an 800-square-foot addition actually made by the previous owners 10 years earlier.
Of course, errors may also plague the reported square footages of comparable properties. The comp price per square foot could exceed or fall below the figures quoted.
Remember Too, All Space Doesn't Count Equally
The square footage of an attic that's been converted into a spare bedroom isn't worth as much as the square footage of the main house. A finished basement of 800 square feet isn't the equivalent of an 800-square-foot second story that's fully integrated into the house.
Don't compare houses or apartment units only in size; also compare the quality and livability of the finished space.
Remember this point not only when you're bidding on a property but also when you're making improvements. Too many amateur renovators create space through ill-conceived conversions that are cheapened by low ceilings, rooms without windows, weird interior traffic patterns or floor plans, and no ductwork for heat or air conditioning. To add the most value to a property, integrate the new space within the existing property in such a way that it blends smoothly and harmoniously.
Unappealing conversions and additions leave buyers or potential tenants with an overpowering negative impression. Quantity rarely pays off as well as quality!
So don't get "spaced out" and believe that a property you are buying is a bargain when it isn't. More importantly, make sure that every square foot of every investment property you buy will work its hardest to generate profits for you.

"Erase bad credit," the credit repair ads say. The Federal Trade Commission (FTC) says something quite different . . .
"Don't be misled by credit repair ads ... Promises to repair or clean up a bad credit file can almost never be kept."
How do these firms get away with making false promises? They just operate until the government shuts them down; then they open shop again under a new name.
In fact, many of the tactics used by these firms can land their victims in jail. For example, one trick they pull is to get you a new credit file under a different (false) Social Security number or business tax number. If you get caught (and you will likely get caught in our ever-more-automated, no-privacy world), the Feds can prosecute you for identity fraud or obtaining credit through fraudulent representations. Anytime you fib, deceive, mislead, omit, overstate, or understate to obtain credit from a federal- or state-regulated financial institution, you commit criminal fraud.
Is there such a thing as legitimate credit repair? Yes, but it takes time and financial discipline. It means repairing your credit report: correcting wrongful entries, adding legitimate entries, and careful credit management that complies with the law.

The recent foreclosure crisis has caused some experts to say that this is a very bad time to invest in residential properties. The market is flat, they say, and sure to remain so for the foreseeable future.
Don't listen to them. Since World War II, home prices have frequently jumped by 10 or 20 percent a year. It is true that on occasion, prices have held steady for as long as three to five years. There have also been times when certain cities have experienced severe downturns in their local economies, causing prices to fall temporarily. During the early 1970s, for example, large layoffs at Boeing drove Seattle home prices down by 20 to 30 percent. Yet Seattle recovered and home prices there are eight times higher than they were in 1971.
So before you put faith in so-called experts, take a quick trip through their faulty predictions from years gone by:
"The prices of houses seem to have reached a plateau, and there is reasonable expectancy that prices will decline." (Time, December 1, 1947)
"The days when you couldn't lose on a house purchase are no longer with us." (House Beautiful, November 1948)
"The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs about $28,000." (Business Week, September 4, 1969)
"The median price of a home today is approaching $50,000 . . . Housing experts predict that in the future price rises won't be that great." (Nations Business, June 1977)
"The era of easy profits in real estate may be drawing to a close." (Money, January 1981)
"In California . . . for example, it is not unusual to find families of average means buying $100,000 houses . . . I'm confident prices have passed their peak." (John Wesley English and Gray Emerson Cardiff, The Coming Real Estate Crash, 1980)
"If you're looking to buy, be careful. Rising home values are not a sure thing anymore." (Miami Herald, October 25, 1985)
"Most economists agree . . . [a home] will become little more than a roof and a tax deduction, certainly not the lucrative investment it was through much of the 1980s." (Money, April 1986)
"The baby boomers are all housed now. They are being followed by the baby bust. By 2005,real housing prices will sit 40 percent below where they are today." (Harvard Economist, Gregory Mankiw, "The Baby Boom, the Baby Bust, and the Coming Collapse of Housing Prices," Journal of Regional Economics, Fall, 1989)
"Financial planners agree that houses will continue to be a poor investment." (Kiplinger's Personal Financial Magazine, November 1993)
"A home is where the bad investment is." (San Francisco Exam iner, November 17, 1996)
"Your house is a roof over your head. It is not an investment." Everything You Know About Money Is Wrong, 2000)
"But the real question is, how will [housing prices] look longer term? As I've said in the past, I do not think that housing values will be higher five to ten years from now." (Yale Economist Rob ert Shiller, quoted in Newsweek, January 27, 2005)
Fortunately, the actual history of home prices and real estate investment returns has differed greatly from those recurring claims of "the end of real estate" as an investment. During the past 60 years, average home prices have multiplied 5, 10, and, in some areas, 20 times or more.
As our new century continues to unfold, we will undoubtedly look back to today's "high" home prices in cities such as Miami, San Diego, Boston, and New York. We'll say, "Boy, those were the days. Can you believe I could have picked up a three-bedroom, two-bath home in Clairemont for just $400,000?"
As always, today's a great time to invest in real estate - if you develop the right strategy. Foreclosures, REOs, distressed sellers, and of course, creating value remains a time-tested technique in down cycles. Just as promising, seek out those areas of the country (or the
world) that are steering clear of the overbuilding (and over-lending) that has temporarily dampened some widely-publicized markets. How can you capitalize on these emerging opportunities? Education and market knowledge.
Certainly, prudence pays off. Whereas, fear of action never places you on the path to wealth.

“When I started out, I spent a lot of time researching very detail pertinent to the deal. I still do the same today.” - Gary W. Eldred, PhD
Savvy entrepreneurs search beyond conventional wisdom, “facts,” opinions and fanciful dodges or assertions. They know that quality facts provide the ingredients for quality decisions. As you move forward in real estate (and life), use multiple data points and sources of information. Interpret, think, analyze, and verify. Avoid a rush to judgment. The world overflows with GIGO (garbage in, garbage out) decision making. But with verified facts on your side, you can outperform the crowd.
Say that someone tells you, “Vacancy rates in this area have jumped up to 9 percent. This isn't a good time to invest in rental properties.”
How should you interpret this information?
You have to distinguish fact from opinion. Opinions often masquerade as truth. Realize the difference. Even if the 9 percent vacancy figure is in some sense correct, the advice that follows - to avoid investing - may or may not hold merit. So beware! Much of the information you hear is really part fact, part opinion. Clearly distinguish between the two.
Nine Percent Vacancy: Fact or Fancy?
I call a fact a data point that you can reasonably incorporate into your analysis and decisions. For example, you can generally obtain facts about interest rates, apartment rent levels, real estate listings, property sales prices, time on market, population growth and the number of properties up for sale (unsold inventories) in any area.
Before you rely on any number, wisely ask questions such as the following:
Where are vacancy rates headed? Snapshots of the current situation rarely provide a full, dynamic view. You need trend lines and reasoned forecasts that look to the future.
What geographic boundaries specifically delineate the area studied?
How did the researchers gather their data? What sampling errors could distort it?
How does this 9 percent market vacancy rate differ among properties according to building size, unit mix, price ranges, amenities, features, condition, location, and so on? Maybe one large 400-unit property accounts for 40 percent of the vacancies in the area under study. Maybe studio apartments enjoy waiting lists. When you speak of vacancy rates, market segments and niches matter.
Sometimes "facts" are better characterized as fancy. For any number of reasons, the people you talk with (or read) may not know what they are talking about. Obviously, we all inadvertently make mistakes. On other occasions, sales agents (as do lawyers) give answers without facts so as not to appear ignorant. In some instances, people purposely mislead. Does that apartment manager really want to truthfully disclose to you that her building's rent roll turns over twice a year and that vacancies have climbed above 25 percent? I don't think so.
Remember that every market and every property display unique features and conditions. Before you apply any facts or rules of thumb to a property you are considering, be sure to verify their relevance to the property you are considering.
When I first began buying rental houses and apartment buildings, I could easily find properties that offered net unleveraged rental yields* of 10 to 16 percent. In some areas of the country, such as the Midwest, you can still achieve such favorable results. More typically, today’s rental properties yield four to eight percent.
You might tell me that four to eight percent doesn’t seem like a great rate of return. But relative to stocks and bonds, properties win hands down. Let me explain why.
Why Rental Properties Outperform Stocks
At present, the annual dividend (income) yield on the S&P 500 stock index barely reaches 1.8 percent, and just .45 percent on NASDAQ stocks. The Dow-Jones (DJIA) is somewhat higher, at around 2.25 percent. If you follow the advice that says you must diversify across a broad variety of stocks, you might achieve a yearly income of $15,000 to $20,000 (1.5 to 2 percent average yield) from a stock portfolio valued at $1 million. In contrast, a million in property value would return a rental income (net of expenses) of $40,000 to $80,000 a year.
So the message is clear. If you accumulate a million dollars in stocks and are determined to survive above the poverty level in the future, you’ll need to eat your nest egg. But accumulate a million dollars in property and, to live an average-to-above-average lifestyle, you’ll never need to eat your nest egg. And your net worth doesn’t diminish.
Why Rental Properties Outperform Bonds
Currently, long-term investment grade bonds yield about 4.5 to 6.0 percent. Without taking on much default risk, that means you could count on receiving $50,000 to $60,000 a year from bonds for each $1 million you invest. Bonds deliver income returns that approach the level of income offered by high-quality rental properties. Also, compared with a fully diversified portfolio of stocks, bonds clearly rank superior, but here’s the rub:
Your bond income will not increase as the result of inflation or economic growth and, as consumer prices go up, the buying power of your bond income will continuously erode. In terms of purchasing power, $60,000 of income today will equal $40,000 after just 10 years. In contrast, over time, both stock dividends and property rents tend to climb each year to higher levels.
So what’s the verdict? Stock income increases over time, but the puny yield produces too little income. Bonds return a better yield than stocks, but fail to offer the possibility of growth. Worse, in an inflationary economy, the real value of bond income declines.
So if history is any indicator, it is clear that you will achieve an extremely competitive yield, growth, and protection against inflation with rental property.
* Rent collections, less all cash expenses and mortgage financing. You calculate this figure by dividing the price of the property into its net income; e.g., $10,000/$100,000 = 10 percent yield.
For more ways to leverage more income from your money, be sure to read the new book Trump University Wealth Building 101: Your First 90 Days on the Path to Prosperity. Available soon from Trump University and all major booksellers.
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