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Posts Tagged ‘Mistakes’

It seems that the decision makers running the Fannie Mae and Freddie Mac government refinance programs did not learn anything from the current, and continuing, housing bust.  If bad loans got us into the current mess, why do Fannie and Freddie think that more bad loans will get us out?  In a recent press release it was announced that the two government-owned agencies will now refinance loans up to 125% of the current home’s value!

Does this spell trouble for the FHA home loans? All facts from the mortgage industry and government point to the fact that mortgage default rates take a huge spike upwards with high loan to value loans.

I would venture to say that many of the mortgage debtors (in trust deed states) may not realize that by refinancing through this program, they will be going from a non-recourse loan to recourse refinancing, in many cases.

My bet is that actions like this will give a false sense of recovery for awhile, only to have us fall further in the future, much like the stimulus money is currently doing.

In his statement FHFA Director Lockhart said, “The higher LTV refinancing will allow more homeowners to strengthen their finances.” Do you really believe this? If the government really wanted people to stay in their houses, they would allow them to go into foreclosure and help them find alternative housing. Moving them into a 125% LTV recourse loan is setting them up for disaster and setting taxpayers up to take on the resulting new losses.

Perhaps the government is not being 100% honest in their touting this 125% refinancing program as a way to help people stay in their houses. In reality, it may actually be a way to help banks keep from writing down assets while they earn enough money to increase their capital base.

Some folks like to say that where California goes, so goes the rest of the country.  The “tax and spend” government in California did not yet come up with a comparable plan and have been beat to the punch by the Feds.  California’s 26 billion (or more) deficit, the absence of a viable budget, and the need for issuing IOU’s rather than cash payments, is no excuse.  Only a few months ago California tossed out $100 million towards a credit to new home buyers for 5% of the purchase price (up to $10,000).  Now that the first pot of money is depleted, there are two new bills pending in Sacramento proposing to double or triple the original $100 million.

Real estate investment is perhaps one of the most lucrative forms of investment today. But it is also equally risk bound especially when one is not well versed with the trends and nuances of the real estate market. So if you are contemplating on investing in real estate, it is best to avoid costly mistakes in real estate investment especially when you invest your hard earned money into it. Knowing the most common mistakes made by real estate investors helps one steer away from making such mistakes in the future and ensures good return on investment.

Here are the top ten mistakes made by real estate investors, according to bankrate.com. Bankrate has put together the top ten mistakes after speaking to established, full-time real estate investors and other professionals involved in real estate investment such as bankers. Read on to know them and avoid them.

1. Not planning up ahead. Lack of a proper plan is the biggest mistake made by novice investors. Finding a house after forming a proper investment strategy is the right way instead of looking for a house to fit the plan. Many make the mistake of buying a house because it seems to be a good deal and then trying to see how they can fit it into their plan. Instead of buying a house and thinking one can plan in due course, investors should rather concentrate on the numbers and try to make offers on multiple properties. This will ensure a good property that not only matches their investment model but also works out well with the numbers they had planned for.

2. To believe you can make money quickly. The second major mistake that real estate investors make is to think it is very easy to get rich in real estate. This is only a myth and the reality is that investing in real estate is a long term project.

3. Doing it single-handedly. For becoming a successful real estate investor one needs to build a team of professionals who would assist the investor in his deals. This would ideally include a real estate agent, an appraiser, a home inspector, a closing attorney and a lender.

4. Making excess payment. One another reason that investors in real estate goof up in their investment is by paying too much for the properties they buy. Paying too much and locking up all the funds in the erred property deal will leave you with no money to redeem yourself.

5. Leaving out the groundwork. Not doing your homework could be a costly mistake if you were a real estate investor. Every field of business needs sufficient amount of homework to be done, and real estate investment is no exception. Learn the fundamentals and then venture into investing in properties.

6. Throwing caution to the winds. Investors have to exercise a certain degree of caution and take earnest efforts while making a deal. New investors often fail in this regard and sign a deal without doing adequate research on the property.

7. Miscalculating money flow. Investors whose strategy is to buy, hold and rent out properties need to ensure sufficient cash flow for maintenance. Property managers could be expensive and the owner has to incur more expenses such as mortgage, taxes, insurance, advertising costs etc. Investors have to allocate their budget such that all these expenses are taken care of, or end up having their asset turn into a liability.

8. Lowering the volume. A larger volume of deals or transactions helps in increasing the profits by reducing the impacts of marginal deals.

9. Getting trapped in your own deal. Having more number of options at hand for the property you buy is a wise strategy. This helps one to be prepared for fluctuations in the real estate market. Plans to rent out the house could go awry when the rental market slumps. Having alternative plans helps you cut down losses and tackle unexpected situations.

10. Making incorrect estimates. People who plan to rehab their house need to check if they will still reap the benefits at double the time that they had estimated. This ensures they do not miscalculate and lose money on the deal.