The Collected Works of Author and Blogger Larry Roberts

Archive for 2009

Regulatory Solutions The regulatory solution proposed herein is simple, yet far reaching. It comes in two parts, the first is to limit the amount lenders can loan to borrowers with a rather unique enforcement mechanism, and the second is to increase the penalties for borrowers who commit mortgage fraud. The following is not in legalese, but it contains the conceptual framework of potential legislation that could be enacted on the state and/or federal level. A detailed discussion of the text follows: Loans for the purchase or refinance of residential real estate secured by a mortgage and recorded in the public record are limited by the following parameters based on the borrower’s documented income and general indebtedness and the appraised value…[READ MORE]

What is Rental Parity? Rental Parity is a mathematical relationship between rental rates and property values where rent is equal to the monthly cost of ownership. There are many assumptions and variables that impact Rental Parity -- so many that it takes a spreadsheet to try to explain it. (We have a calculator that provides the total cost of ownership on a monthly basis to compare to the cost of renting. What is perhaps more useful to buyers is the ability to run the calculation in reverse -- If you know what you spend on rent, you can estimate how much house you can afford.) The fluid relationship between rents and prices provides a conceptual understanding of value. Rental rates…[READ MORE]

Unlike the heyday of the Great Housing Bubble when 100% financing was readily available, it now takes cash to close a real estate deal. If you have no cash, you get no house. So how much cash does it take to close a deal? and how much cash do you need to have available to get through the process and still have a life? The actual cash demands during the process come from four main areas: Downpayment -- 3.5% - 20%+ Closing Costs -- 1% - 3% Inpsection Contingencies -- 0% - 5%+ Furnishing and Move In -- 2% - 5%+ The down payment is the largest and most obvious use of cash in the homebuying process. Down payments are…[READ MORE]

People buying for cashflow are not concerned with resale value because they do not intend to resell. Profit and loss for a cashflow investor is determined by its income not its resale costs decades into the future. The Federal Reserve with the blessing of the Treasury Department of the US Government is orchestrating 4.5% interest rates to entice cashflow investors back into residential real estate. Without cashflow investors this mess will never get cleaned up. If prices fall low enough, and if interest rates drop low enough, returns to cashflow investors become very large. In fact, they come to be greater than all competing investments in the marketplace. Under those circumstances, money will flow back into residential real estate, and…[READ MORE]

Negotiating the sale of residential real estate is no more difficult that negotiating for any other product of service that does not have a fixed price; however, due to the colossal cost of houses, the process is more important financially than negotiating for other big-ticket items like automobiles. A mistake made while buying or selling a house could cost as much as a new car; sometimes such mistakes could pay for many cars. Skilled negotiators can obtain favorable pricing and terms without the assistance of a broker, but the novice who is inexperienced at this process often will not. Novice negotiators can benefit from using a professional real estate agent. Perceptions and Motivations of the Negotiators When two parties enter…[READ MORE]

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