The Structure of a Collateralized Debt Obligation

Collateralized debt obligations (CDOs) are asset-backed securities formed from bundles of residential mortgages. These structures provided the capital delivery mechanism that helped inflate the Great Housing Bubble. CDOs are merely a tool. If used appropriately, they can speed the delivery of capital and create a more efficient capital market. If used inappropriately, they can be a financial weapons of mass destruction, and they can threaten our entire capitalist system.

Collateralized debt obligations, like other asset-backed securities, are divided in segments known as tranches (rhymes with launches). These tranches are typically titled: senior, mezzanine and equity based on their risk exposure. There is no single structure or formula for a CDO, and many contain numerous subdivisions resulting in more segments than the three described.

Similar to the lien order of mortgage obligations, these tranches are paid in order of priority. The senior tranche is paid first, the mezzanine tranche is paid next, and finally the equity tranche is paid any remainder. Since these obligations are paid in order, the senior tranche has the least risk exposure and lowest returns, and the equity tranche has the highest risk and greatest potential for return. To further lessen risk (and make the transaction even more complicated) insurance policies are often issued to insure the buyer of a senior tranche against loss. These policies known as credit default swaps were a very lucrative business during the Great Housing Bubble. It was such good business that many insurers took excessive risks and lost a great deal of money when house prices declined.

The real magic of structured finance is its ability to take assets of low investment quality and turn it into something viable. George Soros aptly titled his book, "The Alchemy of Finance." Like the alchemists of medieval Europe, modern investment bankers try to turn lead into gold. The syndicators who create and manage collateralized debt obligations assess the risk of loss on the underlying asset and break it down into three categories corresponding to the three tranches.

The equity tranche in a CDO assumes the expected risk of loss. For example, if subprime loans expect an 8% loss from defaults, then the equity tranche will be 8% of the CDO. The syndicator typically keeps this equity tranche as part of their incentive fee, but practically speaking, the discount would be so steep it is hardly worth selling. If defaults losses are less than 8%, they see tremendous profits, and if it is over 8%, they see nothing.

The Mezzanine tranche assumes the risk beyond the expected risk. If the average default loss is around 8%, and the highest default loss ever recorded is 24%, the mezzanine tranche exists to take on this risk. There is a very good chance they will see most or all of their money because the average default loss is being absorbed by the equity tranche.

The senior tranche is supposed to have no risk from default loss. The line between mezzanine and senior is at or beyond the highest default loss rate ever recorded. This is not to say there is no risk, but it would take an unprecedented event to see any losses in this tranche: something like the collapse of the Great Housing Bubble.

By Lawrence D Roberts

Lawrence Roberts is the author of The Great Housing Bubble: Why Did House Prices Fall?

Learn more and get FREE eBooks at: http://www.thegreathousingbubble.com/

Read the author's daily dispatches at The Irvine Housing Blog: http://www.irvinehousingblog.com/

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Why Different Mortgage Loan Types Can Make Or Break You When Refinancing

What mortgage loan types are there for people who want to realize the American dream of home ownership? There are several to choose from, and there are advantages to each. The major mortgage loan types are conventional, FHA, and VA. Conventional mortgage loans are the most simple to understand and the most basic. When you get conventional mortgage financing for your home, you simply borrow a certain percentage of the price of the home (the sale price and fees minus any down payment) and agree to pay it back via monthly payments for a certain number of years.

FHA and VA loans are loans that are backed by the Federal Housing Authority and the Veterans Administration, respectively. These two groups both have the goal of helping more Americans realize the dream of home ownership. They work in cooperation with certain lenders and provide those lenders with mortgage insurance in case you have to default on your loan. Generally, these types of loans have a lower down payment, may have lower interest rates, and may be easier to qualify for. Also, with FHA and A mortgage loan types, the FHA and VA themselves set a lot of the parameters of the loan, such as how much of a down payment is needed, how much interest can be charged, inspections of the property in question, and so on. That is why not all lenders prefer to deal with FHA or VA mortgage loan types. The lenders have more control with conventional mortgage loan types.

Another major difference in types of mortgages is whether the loan is a fixed-rate or variable-rate loan. A fixed-rate loan has one interest rate that is set and remains unchanged throughout the life of the loan. Some people prefer to have a fixed-rate loan, especially during times of a "buyer's market" such as we have now. Rates as well as housing prices tend to be lower right now, so it makes sense to get the lower rate and keep it forever, as interest rates are more likely to climb in the future, rather than decrease in the future. Also, knowing how much your payment is going to be helps you budget your finances more easily.

However, it can sometimes be more difficult to qualify for a fixed-rate loan, so some folks go with the adjustable mortgage loan type. Adjustable mortgages begin with one interest rate, but it is not necessarily going to remain the same throughout the life of the loan. Periodically, the interest rate can be adjusted to suit market conditions. Depending on what is happening in the economy and on what the prime interest rate is, if you have an adjustable mortgage loan type, your interest rate (and payment) can go up or down.

There are also ways of financing that are known as unconventional mortgage loan types. There are a variety of such types of loans, and they are relative newcomers to the home lending industry. You can find interest-only mortgage loans, balloon mortgages, and even reverse mortgage loan types. When you are searching for financing to make your dream a reality, be sure to look into all mortgage loan types to see which is the best fit for you and your family's circumstances.

By Richard A Cox

Good Advice is Essential When you consider any Large Loan. For up-to-date, Free Advice, Visit http://allaboutforeclosures.blogspot.com/

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Free Course in Real Estate - Enhancing the Appearance

To inspect the building exterior, move back at least 50 to 100 feet. Place the building in perspective with the site and with other properties in the neighborhood. Does it fit in? Does the architectural style give the property an appealing uniqueness, or is it a simple rectangular box design with no windows on either side? Have a half dozen other apartment buildings in the neighborhood been built with the same bland design? What improvements can you make to the building that will enhance its appearance and favorably set it off from nearby properties as well as other buildings? The roof. Is it discolored? Are leaves piling up? Are plants growing on the roof or out of the rusty gutters? A roof can influence the exterior aesthetics of a building because it frequently occupies 30 percent or more of what you see when you face a building. Clean it up so that it shows as little wear as possible.

If your remedial efforts can't improve the appearance of the roof-and you're planning to quickly flip the property-consider replacing it. As the late real estate expert Bob Bruss pointed out, a new roof probably won't give you a dollar-for-dollar payback, but it will enhance the property's marketability. On occasion, such loss leader repairs can work synergistically to create an overall effect that will help your property rent or sell for a higher amount.

Can you imagine ways to enhance the building's appearance with shutters, flower boxes, dramatic front door(s) and entryways, new or additional windows, fresh paint, a contrasting color for trim, or accenting the design with architectural details? How well does (or could) the property's exterior distinguish it from other comparably priced rental properties? Do you rate its appeal as great, so-so, or awful? List other possibilities for profi table improvements. Think of features that set your property apart from its competitors. Look for features that wow your target market and passersby. To avoid too many loss leader repairs, hire a professional inspector to detect potential problems with any property you offer to buy. Generally, though, you won't order an inspection report until after you've signed a purchase contract that includes an inspection contingency clause.

By Raymond Pedersen

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Get Bank REO Listings Fast

With the real estate market declining and the number of foreclosed homes climbing, experienced agents are looking for ways to get bank REO listings fast. The problem is that the typical Real Estate marketing tactics don't work when you're trying to pick up REO listings. Instead, you'll need to change your mindset and your marketing plan.

If you've been a producing real estate agent in your market, you've probably been doing all of the typical marketing activities associated with most agents. While marketing methods such as postcards, open houses and internet ads work well for generating standard resale listings, if you want to get bank REO listings fast, you'll need a entirely new strategy.

First, Identify Your Target Market's Needs:

If you're going to list REO properties, your target market will change and it will change drastically. You are no longer trying to influence a homeowner struggling with a change in their personal residence and all of the emotional and financial decisions that go along with that change. Instead, you are targeting a group of people that make their decisions for much different reasons: Asset Managers.

Completly understanding how asset managers think and make decisions can have get bank REO listings fast and turn you into a top REO agent quickly. To understand how asset managers think, you need to understand their biggest concerns:

• Asset Managers Hate Babysitting Agents: When you market to banks and their employees, draw attention to your experience and how you can get the job done and get it done without having to be watched over.

• Asset Managers Hate Being In The Dark: Make sure your marketing material highlights any and all communication measures you take to keep your clients informed. Tell them about weekly updates you give, bi weekly market stats, etc.

• Asset Managers Love Numbers: Most of their day is spent staring at spreadsheets and financial data. Include plenty of data and numbers highlighting your accomplishments (days on market, list price versus sold price, etc).

Second, Identify Your Target Market's Location:

Listing resale homes is easy. You simply get a mailing list for the neighborhood you want to market to and then start mailing. Finding banks and asset managers can be much tougher. An asset manager in charge of a home in your neighborhood in Cleveland may work in Orlando. No matter how well known you are in your market, they've never heard of you and you've never heard of them. You need to change that.

First, you need to get both a mailing list and an email list. THIS IS CRITICAL. While your marketing campaign to banks should include handwritten, mailed pieces, the bulk of your marketing will be done by email. While tangible postcards and thank you notes are effective, a weekly email report on your market will go a long way to cementing you as the real estate agent of authority in your area. In addition, email costs virtually nothing and as long as your emails contain valuable information to the asset manager, you won't be considered spam.

Finding a good list of banks and asset managers is a little difficult. You can't just open the phonebook and find them. You need to find a solid provider that specializes in REO Bank lists. I've compiled a list of the top suppliers of these lists on my review site. Most of these lists are under a $100.

If you can get a strong bank list and are able to understand what asset managers need in a real estate agent, you'll be able to get bank REO listings fast and become a top REO agent in your area.

By Brian Anthony

My team lists over 100 REO properties each year and we know how you can get bank REO listings fast. Follow the tips, tricks, blog and REO/BPO system reviews here.

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Home Prices to Fall and Fall and Fall

I just read an article forecasting more trouble for real estate in 2009. The author seemed to be incredulous about the possibility, saying that some markets were even approaching Pre-Bubble price levels as though that was an organic impossibility.

If you check you will see that the last 2 real estate booms in the 70's and 80's resulted in prices dropping back to pre-boom levels before they took off again. That is what statisticians refer to as a "regression to the mean" falling back to the historic trend line.

There are even more significant troubles for real estate in 2009 and beyond than are perceived by many interested in real estate.

These troubles will continue to drive prices down even further. Although some markets are in fact approaching pre-boom prices, the pendulum may not stop at mid point and may actually swing all the way past pre-boom prices. Have you ever known a pendulum to stop mid way through its swing?

Here are some additional factors to consider:

The credit crisis is forcing banks to husband what little capital they have which is why they will restrict lending to the Very qualified.

How many prospective home buyers have 750+ FICO or Credit scores And 30% in cash for down payment, closing costs and bank mandated cash reserves? Especially since the US savings rate has been hovering around zero for the past decade.

Fewer buyers equal lower demand which means lower prices.

Also, how many more homes will be deserted by home owners who are Underwater, owing more than they owe? It is estimated that nearly 16% of owners with mortgages or about 8 Million home owners are in this situation. These desertions will add greatly to the bloated inventory of homes weighing down the market.

Finally, the only bright spot in housing will probably be extinguished in 2009 as interest rates will skyrocket once China is forced to stop buying our debt because of our dwindling purchases from them.

One report I read said that rental of a typical space on a freighter delivering goods to the US fell from $236,000 for the trans Pacific crossing to $5,000!

Once China stops buying our Treasury Bonds, we will have to lower prices on them to attract other buyers, which will jack up their yields or interest rates as they move inversely to prices.

Our mortgage rates will then soar because they are pegged to the 10 year Treasury Bond yield.

So, despite the optimistic predictions of many rose tinted, shade wearing real estate "professionals" the likelihood of a rebound in housing is probably further away in 2009 than at any time since the real estate bubble burst.

By Bill Young

Copyright 2008 Bill Young. Bill is offering a free, one year course for people who want to know how to quit living pay check to pay check and how to become financially free developing multiple streams of income from real estate and home based business assets. Register here: http://HowtoSolveYourMoneyProblems.Com

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How to Pass the LEED Exam

Are you a building professional who wants to ride the increasingly large sustainability wave? Well becoming a LEED Accredited Professional is a lot easier than you think! Passing the LEED exam will make your self look that much better, not only on paper, but also in practical terms.

Ever since the United States Green Building Council appeared, people have been becoming more and more serious about building green. The USGBC created a rating system to help set industry standard levels of green building. Green buildings are appearing everywhere. Many owners know the benefits of building green and require that the architects achieve certain LEED ratings. Some counties and cities are requiring that all buildings over a certain size threshold be LEED certified. Many public projects are also incorporating LEED into their buildings.

There is no question that if you want to survive in this industry, you are going to have to go green. With energy prices on the rise, fossil fuels becoming more and more scarce, and the earth's natural resources being slowly finished off, you better go green or go home. This world won't be able to sustain itself unless there is a huge push to go green.

The LEED Rating system might be a little overwhelming at first glance, but once you start digging into it, you realize it is not as difficult as you had imagined. I passed the LEED exam over a year ago, and I didn't really start studying until one week prior to the exam. When I started studying, I didn't think I would stand a chance. There were so many credits and just so much to learn about every single one that I didn't think it would be possible to retain enough information to pass. After spending a lot of time in a panicked state of overwhelm, I organized my studying approach, and was able to pass the test without breaking a sweat.

The first thing that you do when you start studying, is obviously begin by reading the LEED manual. I tried to start by the darn thing page by page. That really didn't work. After reading a few credits, I was so overloaded with information, I figured the test would be impossible. I decided to change my approach. I went ahead and tried to memorize all of the 50+ credits. The only thing I needed to memorize was what the goal of the credit was, and if not that, at least the name. The intent of the credits are pretty straight forward; they make logical sense and you can understand what the point of the credit is without having to think too much. In no time, I was able to list every single credit from memory. It helps to break them down into the six sections (sustainable sites, water efficiency, etc).

Once you lay the foundation down, it is time to dig into each credit. A lot of the time, there is more info than you need to know in the reference manual. Just try to get a good understanding of how each credit works. You will notice that each credit is explained in a similar way (intent, approach, references, calculations, etc). It really helped me to set up a spreadsheet summarizing everything about each credit. I chose a small font, printed mine out on a few sheets of paper and carried it everywhere I went.

When you get into the exam room, you are given a few sheets of paper and put in front of a computer. You get two hours from the time you click "ok" on the computer. Before I touched the computer, I went ahead and wrote down all the credits on my scratch paper. Even though I already memorized them, I referenced this sheet a whole lot during the exam.

Go through and choose the best answers to each question. Your gut instinct is usually right, so go with your first intuition. Make sure to skip any questions you are unsure of; there is a feature on the computer that allows you to go over any skipped or flagged questions. Use the entire two hours, and submit just before the deadline. You will find out if you passed or not about 20 seconds after you submit!

Best of luck on your LEED Exam!

By Tom Noonan

Author, Tom Noonan is a LEED Accredited Professional, helping people pass the Leed Exam with his website: http://www.LEEDExam.org

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Real Estate Investment in a Recession

Have you ever noticed how buyers flock to purchase property in droves when real estate prices are at their peak, yet buyers are relatively scarce when prices are most affordable? Notwithstanding the fact that this occurrence defies the generally accepted investment strategy to "buy low and sell high", one can't help but wonder why attending social gatherings during the real estate boom years of 2005 and 2006 would inevitably lead to engaging in a conversation about someone's real estate investment and the promise of future profits to be derived from the venture. It's not all that surprising that many of those recently boasting about their real estate exploits have softened their tone while seasoned investors, dormant for the past six or seven years, have begun to once again start purchasing lucrative investment property. Despite news about the recent real estate and financial industry tribulations that the public is seemingly bombarded with every day, the last few months of 2008 provided a relatively quiet, yet dramatic, surge in real estate sales.

The National Association of REALTORS® (NAR) has reported that residential home sales have increased by an astonishing 115% when the last quarter of 2007 is compared against the same period for 2008. Have the experienced investors purchasing all of this property been ignorant to the steady stream of media reports warning of declines in real estate values? The answer is no, they have simply been waiting for the right time to emerge like a small swarm of locusts to steadily reap houses for sale like crop. In fact, their buying presence has been so prominent that national housing inventories of homes for sale have significantly decreased during 2008's final quarter, a reliable sign that demand is beginning to once again catch up with supply.

But how do these brave souls know precisely when they are buying at the bottom of the market? Do they throw caution to the wind and simply force themselves to muster the courage to purchase property despite the fact that values may continue to decline in the future? The simple answer is that savvy real estate investors do not purchase property with the expectation of immediate appreciation in value. Rather, investment real estate should be purchased based on the property's potential for positive cash-flow. Positive cash-flow occurs when a property's rental income exceeds the owner's costs to maintain the property. Consequently, when a property provides a positive cash-flow, a decline in real estate prices is of little concern since the owner can simply enjoy the income his property generates until the market revives and the property can be sold for further profit.

During the real estate boom years our nation became blindly infatuated with the appreciation of real estate prices, which represents the amount of value that a property will gain over time. So called house "flippers" brazenly leveraged money to buy numerous properties with the expectation that their values would increase, thus enabling them to sell the properties for handsome profits in a short period of time. These novice real estate quasi-moguls, often addicted to HGTV and other television shows created to promote the industry like Flipping Out and Flip This House, regularly failed to consider property cash-flows prior to making their purchases. Why bother when real estate values will always continue to appreciate, thereby alleviating the need to hold properties for long? After the housing bubble burst, many of these speculators realized that they shouldn't have built their investment houses out of sticks, and social gatherings became pleasant once again.

Seasoned investors build their investments out of bricks by carefully and conservatively analyzing a property's cash flow potential prior to purchasing. The primary reason that these investors have been sitting on the sidelines for many years is that most real estate prices have been far too high to generate positive cash-flows and a reasonable return on investment. It hasn't been until recently that both residential and multi-family housing prices have retreated to levels where rental income will cover monthly mortgage payments and other operating costs. Further, with the construction of new housing and apartments decreasing to a virtual halt, a still rapidly growing local population, and many families displaced from foreclosed properties, an investment property's owner is free to choose from a tenant base that is now stronger than ever. One can clearly see why a decline in real estate sales prices typically accompanies an increase in monthly rental prices.

No matter what the year 2009 holds in store for real estate investing, it is essential to remember that investing in real estate should always be considered over a long term. Although the opportunity for a "quick flip" may present itself, the distinguishing benefit to sound real estate investments is their ability to provide income no matter what the economy throws your way.

By Brian Icenhower

About the Author:
Brian S. Icenhower, Esq., BS, JD, CRB, CRS, ABR, a California Association of Realtors Director, practicing real estate attorney, a real estate expert witness and litigation consultant, a prosecution consultant of Tulare County District Attorney Real Estate Fraud. He may be contacted at bicenhower@icenhowerrealestate.com, or http://www.icenhowerrealestate.com.

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The Real Estate Outlook For 2009

To say that real estate took a beating in 2008 is a kin to saying a great white shark has some interesting teeth - it is a minor understatement. For many people, the question is whether 2009 will be any better for the real estate market?

If you lined up all the gurus in the world, you would have a line and not much more. In the world of real estate, the relevant gurus are predicting everything from a continued down turn in housing to an absolute turn around come the first quarter...no, second quarter...no, third quarter...well, you get the idea. Every guru has a different opinion, which means one will eventually be right and the others will have to ignore the fact they gave the wrong advice! In short, don't believe them.

So, what can we realistically expect in the real estate market in 2009? Nobody really knows, but there are two potential scenarios that seem the most likely. The first is not so good - the market continues to correct after the real estate bubble. The second predicts a bit rosier outlook in which the market turns around near the end of 2009. Let's take a closer look.

The "El Doom and Gloom" prediction is, unfortunately, supported by a number of basic truths. The first is it is not going to be easier to borrow money. At best, the banks are going back to closely scrutinizing borrowers. At worst, they will only give loans to the best of the best. Either way, this cuts down on the borrowing populace and, in turn, the number of buyers active in the market. Fewer buyers means less demand, which means prices continue to drop.

The second problem arises when we look at the current mortgage portfolios on the market. Everyone knows the nightmares spawned by the subprime and no doc loan failures. Well, guess what. There are a bevy of loans coming due in 2009 and 2010 that have to be refinanced or homeowners will be unable to pay them. This partial ARM loans are the monster in the closet nobody really wants to talk about. If a large percentage of them go into default in mass, it is going to be just as ugly as the subprime mess and would mean that 2011 would probably be the first time we would see the housing market recover in mass.

The second common prediction that 2009 will be the beginning of the turn around is rooted a bit in fact and a bit in politics. The fact element has to do with the Federal Reserve. The Fed, led by Chairman Bernanke, has gone all out fighting the current market problems. The recent lowering of the short term borrowing rate to essentially zero percent is a sign of a Fed that is ready to do whatever it takes. We can count on that attitude continuing into 2009.

Politics is the second element of the positive outlook. We have a pro-government President coming in with a Democratic Congress. Whatever your politics, this portends action by the government. Look for "New Deal" types of proposals to bolster the housing and banking industry. This is a President who clearly intends to hit the ground running, so you can expect action that will help in the short term. Whether it is good for us in the long term is, of course, another question. The overall debt of the country is huge, but it is generally agreed that action must be taken now to overcome the current crisis.

So, what do I believe 2009 will actually end up looking like for real estate? Unfortunately, I think it is going to be rough. That being said, I do believe certain parts of the country will see their markets stabilize a bit. Then again, my prediction is hardly any more accurate at this moment than any other real estate guru! Check back in a year to see who was right!

By Stephan Teak

Stephen Teak is with CommercialLoanStop.com - your resource for commercial hard money loans for creative projects.

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What If I Owe More Than My Home is Worth?

If you owe more than your house is worth, you might say "upside down" or "under water." And you are not alone. Before you resolve yourself to foreclosure and walk away from your home, consider some of the following options.

Loan Workout/Loan Modification/Loan Rework--Banks are becoming more willing to do loan workouts, also called loan modification or loan reworks. Banks are not in business to sell homes. They would much prefer that the homeowner stay in the home and pay their mortgage. Even if you have received a foreclosure notice, there still may be time to save your home and your credit. Below are the different options for reworking your loan:

1. Loan Reduction. This is simply a process by which the lender reduces the amount you owe on your home. If you can show proof that homes like yours in your area have recently sold for less than what you owe on your home, the lender may agree to lower your loan amount. Lower loan amount equals lower the monthly payments. To get started, call your lender and ask for the loss mitigation department.

2. Extension. This loan modification (also handled by your lender's loss mitigation department) extends the term of your loan. Your payments are lowered and spread out over a longer period of time.

3. Interest Rate Reduction. This option is especially favorable if you have an adjustable rate mortgage that has risen so high that your payment is no longer affordable. Often, the bank would rather reduce the interest rate than foreclose.

NOTE: DO NOT, at any point, stop communicating with your lender. This makes them more likely to move forward with foreclosure proceedings.

Forbearance
If you are a couple of payments behind, but are expecting a lump sum of money (yearly bonus, insurance payout, or tax refund) that will catch you up, consider requesting a forbearance. The lender agrees to allow you to temporarily stop making payments. But you must bring the payments up to date by a specified date and start making your payments at that time. Resuming the payments is called reinstatement.

Repayment Plan

This is a plan that your lender agrees to, where you make your monthly payments and add on a little extra. The extra amount will be applied to your overdue balance.

Rent/Lease Your Home

If you have no hope of being able to pay your mortgage, you may be able to rent out your home. There are a lot of people who are looking for a home to rent. If the house will not rent for enough to cover your payment, it will probably be worth making up the difference yourself. You can find a cheap place to rent in the meantime. These are hard times, and it won't be forever. Once housing sales recover, sell the house then. You may even make a little money on it.

Short Sale
If you've been devastated financially, you may not be able to pay for your home at all. A short sale may be the best way to avoid foreclosure. In a short sale, the house is put on the market at a price that is less than you owe. Sometimes the bank will accept the reduced amount. Other times, they will expect you to pay part of, or all of the difference. They will work out a payment plan for you to pay them the shortage.

Loan Assumption

If you have a reasonable interest rate and loan amount, you may be able to sell your home to a buyer that can assume your loan-that means they take over the payments for you. Work closely with your lender on loan assumptions. Scammers have tricked some into thinking their loans are being assumed. In the end, the sellers gave up their homes but still owed the mortgage.

Deed in-lieu-of mortgage

A deed in-lieu-of mortgage is one step above foreclosure. This is a process by which you voluntarily surrender the home to the lender. A deed-in-lieu-of mortgage is less damaging to your credit than a foreclosure.

A foreclosure on your record says that you breeched a legal contract on life's most important financial obligation. It further says that you breeched it in a way that forced the bank to sue you. It gives the impression that you are not honest.

Foreclosures follow people for years, even for the rest of their lives. Once you lose your home, you will need to live somewhere. When you apply to rent property, the landlord will probably check your credit. Did you know that employers often check credit before hiring or promoting? Knowing that a foreclosure on your credit makes you look dishonest, do you want that on your record?

Foreclosure should be avoided at all costs.

By Lyn Collier

Learn from Lyn Collier's years of Real Estate experience.

Read simple, to-the-point articles about avoiding costly mistakes and what to do if you owe more than your home is worth at http://www.e-home-mortgage-loans.com/index.html

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The Key to Real Estate Sales Success

One of the first steps toward success is to know what you want out of your real estate career, and "financial independence" is not a specific-enough answer.

I've been in real estate, either in direct sales or teaching, speaking, training, writing, or coaching people, for nearly 20 years. I've met tens of thousands of agents and nearly every one started selling real estate with the same goal of financial independence. Countless times I've asked the same question: "Tell me, how do you define financial independence?" What I usually hear in response is some variation of the answer, "So I don't have to worry about money anymore."

The key to eliminating money worries is to establish a financial goal - an actual number ¬¬- that you need to accumulate in order to achieve the quality of life you want to enjoy. Financial independence boils down to a number. Set that number in your mind and then launch your career with the intention to achieve your goal by a specific date.

With your financial goal in mind, you'll have a clarity that will see you through the valleys and hard work that lie ahead of you. When you have to endure the rejection, competition, disloyal customers, and challenges that are inevitable along the way, your knowledge about the wealth you're working to achieve will help you weather the storms of the business.

Pathways agents follow in search of success

Agents follow one of these four basic approaches in the quest to achieve real estate success:

1. Become a workaholic. More than 80% of agents who generate a reasonable income achieve their success by turning their careers into a seven-day-a-week, 24-hour-a-day job. They answer business phone calls day and night, they make themselves constantly available to prospects and clients, and they work on-demand with no restraints.

2. Buy clients. The second-most frequent pathway to success is to buy business through massive marketing campaigns. Some agents buy or "brand" their way to the top level of real estate by investing in billboards and bus benches, thousands of direct mailers, expensive ad schedules, and all kinds of promotions. Others buy their way to the top by discounting their commissions. By offering themselves at the lowest prices, these agents eliminate the need to emphasize their skills, abilities, and expertise.

3. Take the shady road. Another avenue to real estate financial success is to abandon ethics and just go for the deal and the resulting money. Unlike the vast majority of agents who advise and advocate for their clients, agents who take this route choose not to be bound by the ethics and code of conduct of the National Association of REALTORS. They put their own needs first and their clients' best interests in distant second place. Fortunately, these agents are few and far between.

4. Build a professional services business. The fourth and best pathway is to create a well-rounded, professional services business not unlike that of a doctor, dentist, attorney, or accountant. Fewer than 5% of all agents follow this route, yet the ones that do are the ones who earn the largest sums of money ¬- some exceeding $1 million annually while also having quality lives and time for friends and family. Plus, when they're ready to bow out of the industry, they have a business asset they can sell to another agent. This is the route I urge you to follow.

By Dirk Zeller

Dirk Zeller is an Agent, an Investor, and the President & CEO of Real Estate Champions. His company trains more than 250,000 Agents worldwide each year through live events, online training, self-study programs, and newsletters. He's the widely published author of Your First Year in Real Estate, Success as a Real Estate Agent for Dummies®, The Champion Real Estate Agent, The Champion Agent Team, Telephone Sales for Dummies®, and over 300 articles in print.

Real Estate Champions is a premier coaching company. Training covers a wide spectrum from new agents, to seasoned, as well as those interested in real estate marketing or real estate investing.

You can get more information at Real Estate Coaching, Free Resources for Realtors

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The Biggest Real Estate Myth

We all think we are in the real estate investing business. This is a fundamental mistake! It's true that we have checks written to us in exchange for services of buying and selling houses, so it's understandable to think we're in the business of real estate. When someone at a party asks what we do, we naturally say "I'm in real estate" So when we look at growing our businesses, we look at what we do for the levers. And that's the mistake.

You're not in Real Estate!

You're in the business of "MARKETING YOUR real estate ABILITIES"

When you really understand this, a whole new world of possibility opens up.

Here is the TRUTH:

1. When you move marketing to the center of your business, your view changes dramatically.

2. Realize that what you do - the tasks specific to providing the service - should be viewed as marketing itself. From the very first interaction a prospect has with your business, whether it's an online ad or a phone call or whatever else, you're creating an experience. That experience is a core marketing function. Is the experience you provide worth talking about? How do you make them feel?

3. 95% of the people in real estate don't know marketing. The first step to breakthrough success is to clear your mind of 'how it's always been done' and to look at the problem of marketing with fresh eyes.

That is why real estate investor must wake up and realize that only by using a precision marketing plan is it going to get them more leads and deals. Internet marketing is the new medium for doing business. Savvy real estate investors can now dominate their markets and send profits soaring by using online marketing. However, there are some very important online fundamentals that you must learn that will create the desired effect.

I would like to suggest to you to start to take notice of everything within a perspective of marketing. The whole world will become your classroom. Do you notice how the hotel offered you a rewards program? That's marketing. Do you think that's effective? If so, how do you use that idea?

The other day, at the airport parking lot, I was surprised and delighted by the fridge of free water bottles placed next to the machine where I feed my ticket as I pulled out. Amazing! How does that make me feel? How can I apply that lesson?

When you're a lifelong student of marketing, and take action on ideas you will begin to see opportunity everywhere you look. I would suggest you seek out the trainers who clearly understand this new way of doing business and mirror those methods!

By Duncan Wierman

Bio: Software CEO turned Real Estate Investor and Marketer. Duncan Wierman shows you how to use creative online marketing methods to do more deals online.

http://www.duncanwierman.com

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Issues Related to Appraisals For Condemnation

When a property is being taken by the state, a local government body, or a statutory body, the property owner is usually sent a letter that says in effect that they will be taking your property and further stating that they have had the property appraised. The condemnor will usually make an offer to the owner for the appraised value. However, the detail from the appraisal itself is typically limited to raw transactional data with limited or no analysis included in the letter. Sometimes the appraised value and subsequent offer will be fair as the appraised value might have been generated giving significant weight to the Fair Market Value detailed above. However, usually, the owner of the property being taken under eminent domain laws has little evidence of the property's value beyond that being stated by the condemning party. This makes it very difficult to determine if the offer is a fair one?

Any discussion of appraisals in the eminent domain arena should be understood with a few definitions in mind. Thus, we direct the reader to the following Definitions:

Eminent Domain: The right of government to take private property for public use upon the payment of just compensation. The Fifth Amendment of the U.S. Constitution, also known as the takings clause, guarantees payment of just compensation upon appropriation of private property. (Source: The Dictionary of Real Estate Appraisal, 4th Edition, Published by the Appraisal Institute)

Condemnation: The act or process of enforcing the right of eminent domain. (Source: The Dictionary of Real Estate Appraisal, 4th Edition, Published by the Appraisal Institute)

Condemnation Blight: A diminution in the market value of a property due to pending condemnation action. (Source: The Dictionary of Real Estate Appraisal, 4th Edition, Published by the Appraisal Institute)

"Fair Market Value" - Used in Eminent Domain Cases: The fair market value of the property taken is the highest price on the date of valuation that would be agreed to by a seller, being willing to sell but under no particular or urgent necessity for so doing, nor obliged to sell, and a buyer, being ready, willing, and able to buy but under no particular necessity for so doing, each dealing with the other with full knowledge of all the uses and purposes for which the property is reasonably adaptable and available. (Source: Code Civ. Proc. § 1263.320(a), State of California)

In California, recent changes to the law require the plaintiff (the body exercising its right to condemn the property under eminent domain laws) to give the defendant (the party who's property is being condemned) $5,000 for appraisal fees. Other changes in the law also make it harder for the condemner to take the property without having first agreed to the value of the property. These two combined changes in the law should make negotiating with the plaintiff an easier process, as the defendant now has the money to pay for an independent appraisal as well as the power of time given by the requirement that a financial settlement much be reached before the property will be handed over to the plaintiff.

But even with these changes, it is our opinion that in most cases the defendant should seek legal representation, avoid negotiating with the condemner directly and avoid hiring the appraiser on their own.

We have three reasons for these opinions:

1) The appraised value provided to the condemner was written by an appraiser who in all likelihood would act as an expert witness for that side in the event of a trial. As such, it is quite possible that they have not taken to heart the definition of fair market value above (I strongly suggest reading it!). I have been involved in situations where the municipality's appraised value was almost one half of the actual value.

2) Even if you use the $5,000 for your own appraisal, you then have to negotiate with the body yourself. This is an arduous process and you would be dealing with skilled negotiators. Moreover, the appraisal you engage will become part of the record, either in the form of the copy you give the other side, or via the process of discovery before trial. This leads to the third reason to hire an attorney.

3) Most importantly, your attorney should hire the appraiser directly. The appraiser can be hired as a consultant and issue the appraisal in a restricted format. If you and/or your attorney do not like the appraisal, the appraiser, or the results, your attorney can hire a new appraiser without the previous appraisal making it into the court record. That is because it is protected by attorney client privilege.

What to Expect From Your Appraiser

Once you hire your attorney they will likely engage an appraiser that they are comfortable with. Once engaged the appraiser will inspect the property and behind their search for the appropriate comparable sales and rental datum. If the highest and best use is an alternate use, the appraiser will likely be searching for land sales, whereas, if the highest and best use is for continued use, sales will be of similar improved properties. If the property is income producing, or has the potential to be income producing, the appraiser will also likely conduct an income approach. Either way, the appraiser should be looking for the "highest price on the date of valuation that would be agreed to" between a buyer and seller (see definition of Fair Market Value above).

By law the appraiser is an independent third party and this does not change in eminent domain cases. Most appraisers guard their independence vigorously, so it would not be a good idea to try and push or sway the appraiser in the direction you are hoping for. Furthermore, your attorney is hopefully experienced in the field of eminent domain and condemnation law, so you would be well suited to let the attorney handle all but the most tertiary discussions with the appraiser. However, in the event that you disagree with the appraiser's results, you can always ask the appraiser, through your attorney, to revisit the analysis with whatever new information you provide.

Your other option is to hire a new appraiser and keep the original appraisal in the attorney's files. This will protect the appraisal in the event that the case goes to court and the appraisal will not be discoverable.

By James A. Stein

Los Angeles; Orange County Appraisal

Article Source: http://EzineArticles.com/?expert=James_A._Stein

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How to Search Efficient Real Estate Agents

Finding an efficient real estate agent can be a daunting task as they are relatively few in numbers. It is often said that 20% of the real estate agents do 80% of the business. The agent best suited for you must be an experienced professional who will listen to you, carry out the tasks in an ethical manner and knows your requirements.

All Realtors are licensed to sell real estate and function as an agent but not all real estate agents can be called realtors. Only registered realtors can display the Realtor logo. Registered realtors® belong to the National Association of Realtors and are bound by the Code of Ethics, a comprehensive list containing 17 articles and underlying standards of business practice.

It is a fact that most real estate agents remain in business because their satisfied clients refer them to friends, family, neighbors and colleagues. You can therefore ask the people known to you who they hired and ask them to describe their experiences various real estate agents. Successful agents make customer satisfaction their number one priority. Try to find agents who go above and beyond their responsibilities. You can even ask other real estate agents for referrals. Agents are happy to refer buyers and sellers to associates, especially if the service you need is not a specialty of the agent who is referring you.

There are plenty of Web sites that will refer agents to you though there is no assurance they will be competent. It is likely that the agents they refer are those who have paid the Web site owners a fee to be listed in their directory. Instead it is better to Google the top real estate companies in your area, visit those Web sites and look up profiles of individual agents and their customer testimonials.

Attending open houses will enable you to meet real estate agents in a friendly working environment. Collect their business cards and make notes on them. Pay attention to the listing signs in your neighborhood. Make note of the day they go up and when the sold sign appears. The agent who sells listings the fastest might be the one you should engage. If an agent is result-oriented, he is understandably the more efficient and better organized agent.

Get a copy of the agent's production record. From the agent's production record, you can find out how many homes the agent has sold per year, how much they were sold for and where they were located.

Knowledgeable consumers interview potential real estate agents before finally deciding on whom to hire. A few of the questions you can ask him to assess his worth are:
-How long have you been in the business?
-What is your average list-price-to-sales-price ratio?
-What is your best strategy to meet my needs?
-Will you provide references?
-What are the few things that separate you from the other agents?

A good agent will not hesitate to answer these questions.
-May I see copies of the forms that I will be asked to sign?
-How much do you charge?
-What kind of guarantee do you offer?

By Sarah Jose

Sarah Jose is a Copywriter of Wilden.She has written many articles in various topics related to Kelowna real estate. For more information on Okanagan real estate and any other queries visit real estate Kelowna.

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Real Estate Agents - Choosing a Broker That's Right For You!

In an industry like real estate, where being an agent is an unsalaried position and the business experiences so much turnover, which broker you choose to hang your license with becomes an important consideration for your career.

A vital part of your success will depend on your broker and your broker has a responsibility to support your growth and profitability, so that you will do well. Choosing the right broker involves more than supplying leads, or offering the best commission splits and lowest desk fees!

We encourage you to speak to our agents and see that our environment enables you to make real money! Realizing you made the best decision gives you peace of mind. It is important that a broker understands that it's comforting to know you'll have support when you need it, in addition to technology, and a market presence with a broker that the public wants to do business with!

For new agents, the industry poses many challenges. Almost 85 percent of new real estate agents "drop out" after less than one year in the business, and 15 percent of the remaining don't renew their licenses. We want to make sure you're not one of these statistics. Successful real estate agents are self-starters and go-getters. The beginning of a real estate career often involves lots of rejection. But it's only temporary. As a real estate agent, you are more than a person who shows properties, you become a trusted advisor and your clients look to you for your knowledge and expertise. Buying a home is the most expensive (for most people) transaction of their lives.

By Mitra Karimi-Paydar

Mitra Karimi, President
Crestico Realty
http://www.cresticorealty.com

Article Source: http://EzineArticles.com/?expert=Mitra_Karimi-Paydar

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Price-To-Rent Ratios As a Measure of Residential Real Estate Value

Price-to-rent ratios represent the cost of a dwelling unit relative to the cost of a comparable dwelling unit. This ratio is also subject to the same variability exhibited by the price-to-income ratio. This is not surprising considering rent is generally paid out of current income, so incomes and rents tend to track one another fairly closely.

The ratio of rent to income has stayed within a range from 13.6% to 16.5% from 1988 to 2006. This demonstrates renters have been putting roughly the same percentage of their incomes toward housing for the 18 years period of data examined. The evidence from the sudden and dramatic changes in the price-to-income ratio and the price-to-rent ratio points to a housing bubble. If these two measures of value had been supported by a rise in the rent-to-income ratio, the increase in prices might have been explainable by a shortage in dwelling units causing all consumers of housing to see an increase in the percentage of their income going toward housing. Evidence from the rent-to-income ratio is to the contrary.

Buyers were never forced to buy; it was always a choice. During the market rally, greedy buyers motivated by rising prices and fueled by loose lending standards were able to bid prices up to ridiculous levels. The exotic financing was not a result of high prices; it was the cause of high prices. Lenders were keen to offer these products because they were not taking the risk, and it allowed them to keep transaction volumes high which is how they were making money.

By late 2007, the market balance had shifted from favoring sellers to favoring buyers. The once greedy buyers were becoming desperate sellers: their dreams of riches from perpetual appreciation were in tatters. Many were forced to sell due to their inability to make their mortgage payments. Those that hung on were homeowners with 50% or more of their income going toward paying off an asset which was declining in value. It was not a set of circumstances to be envied. The crushing debt service burdens when combined with falling prices prompted many of these borrowers to voluntarily default. This predatory borrowing exacerbated lender losses as the bubble deflated.

The Great Housing Bubble saw an unprecedented rise in the price-to-rent ratio. This was strong evidence of the housing bubble. When the bubble began to deflate this ratio dropped down to near its historic norm.

By Lawrence D Roberts

Lawrence Roberts is the author of The Great Housing Bubble: Why Did House Prices Fall?

Learn more and get FREE eBooks at: http://www.thegreathousingbubble.com/

Read the author's daily dispatches at The Irvine Housing Blog: http://www.irvinehousingblog.com/

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