FHA Changes Broker Requirements

The Federal Housing Administration (FHA) recently announced plans to eliminate the net worth requirements mortgage brokers must meet in order to sell FHA loans.

Why should you care?  As we constantly remind you on the broadcast, appreciation is a product of the right mix of supply, demand and capacity to pay.  When the mortgage meltdown wiped out much of the private sector of the mortgage business, there was a big lack of capacity to pay.  People couldn’t get loans to buy properties!  And even though the Fed and the government made money available through increased FHA, Fannie and Freddie loan limits; and kept rates artificially low through aggressive Fed purchases of MBS (Mortgage Backed Securities) , there was one small problem:  most of the mortgage originators in the country weren’t set up to do FHA.  So even though the money was there, it couldn’t get to the market because the distribution channel was too small.

However, the industry rallied around the slogan that “FHA is the new sub-prime” and got themselves re-trained and re-tooled to sell FHA loans.  But with strict requirements about who was allowed to sell FHA, many mortgage brokers found themselves locked out. Even so, FHA loans now make up nearly 40% of the market.  It’s interesting that as the money found its way to the market, home sales began to pick up and prices began to stabilize.  Coincidence? Perhaps.  But with a big pullback on new home construction (decreasing the addition of new supply), population continuing to grow (increase of demand), it seems to us that as capacity to pay (availability of financing increases), this can only bode well for residential properties whose price falls under the FHA limits.

We think it’s a great time to meet with your mortgage broker and find out how FHA works and if it will work for you.  Then, look for residential real estate markets where there are strong sustainable market drivers, properties priced well under the FHA thresholds (lots of room for upside) and good rents relative to price (low GRMs – read Equity Happens if you don’t know what this is).  We still like to invest for equity, but make sure the property cash flows because you may have to wait several years to see the appreciation.

Again, anything that makes more purchasing power available to the real estate sector will be good for values.

9/27/09: The Real Estate Guys Answer Your Questions

Every day we get emails from our listeners.  Some like to tell us how awesome we are (oh, go on!), but most have questions.  We’re working on some new ways to be able to be more responsive.  So keep those emails coming!

For this week’s show, we decided to grab a few question out of the email in box and talk about them on the air.  Joining host Robert Helms in studio are his trusty sidekick, Russell Gray and “The Godfather of Real Estate” Bob Helms.

We kicked off the show  commenting on Ben Bernanke’s pronouncement that “technically speaking, the recession is over.”  Yippee! Right?!?

After having fun with that, we reached into the mail bag and pulled out a question about which U.S. markets are “best” for appreciation right now.  Our crystal ball wasn’t warmed up, so we chatted on this one awhile.  It’s a question that comes up all the time and though easy to ask, it’s hard to answer.  So we talked about the conditions we look for to cause appreciation, how today’s economic environment affect them, and some specific markets we’re watching.

Another question that is salient to the times was about the availability of financing in today’s market.  There are certain product segments and demographics that can’t find financing, while others have abundant financing available.  Obviously, when you know where the money is flowing and why, you can position yourself in its path and do well.  Having just been at the Rich Dad Real Estate Summit with Ken McElroy, Robert Kiyosaki and several veterans of investing and finance, we had some fresh insights to share.

The next question was also all too common in today’s economy.  “I have a property that is upside down with negative cash flow, what should I do?”  As Kenny Rogers sang, “You gotta know when to hold ’em, know when to fold ’em, know when to walk away, know when to run.”  Lots of people are struggling with the issue of “strategic defaults” and its ramifications.  (Side note:  The Real Estate Guys wrote a free 18 page report What You MUST Know Before Attempting a Loan Workout to help people in this situation understand their options.

The discussion of  what to do with an upside down negative cash flow property had us reflecting on the previous discussion of where’s the appreciation most likely.  It also lead directly into another topic:  The Price of Maintaining You Good Credit.  Good credit has never been more important, but if you have lots of negative equity and negative cash flow, how much is it really costing you to maintain it?  This is a very timely topic and we tossed around our thoughts on the subject.

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Garrett Sutton to Cruise with The Real Estate Guys!

Great news!  Rich Dad Advisor and Asset Protection Attorney Garrett Sutton has joined the faculty for The Real Estate Guys 8th Annual Real Estate Investor Summit at Sea!

Garrett has been a frequent guest on both The Real Estate Guys Radio and TV Shows.  He is an expert in Asset Protection, Estate Planning and Entity Strategies for real estate investors.  He is one of the longest tenured advisors to Rich Dad Poor Dad author Robert Kiyosaki.

Now, YOU have the opportunity to spend an ENTIRE WEEK with Garrett Sutton on The Real Estate Guys 8th Annual Summit at Sea. Just imagine attending classes taught by Garrett and the other Summit Faculty while sailing the beautiful Caribbean ocean on the way to Belize, Roatan and Cozumel!  Enjoy meals, cocktails and conversation with Garret and the other teachers and students.

This is a RARE OPPORTUNITY to enjoy extensive quality time with one of the most famous experts on asset protection strategies for real estate investors and business owners.  Best of all, it’s all included in the price of the Summit!

The Rich Dad Real Estate Summit

9/13/09 Scottsdale, AZ – Nearly 150 enthusiastic people gathered in Scottsdale for the 2 day Rich Dad Real Estate Summit hosted by best selling author Robert Kiyosaki and conducted by Rich Dad Advisor and real estate entrepreneur Ken McElroy. The Real Estate Guys were on hand to not only observe, but participate in this inaugural boot camp which is dedicated to teaching active and aspiring real estate investors how to succeed in the “new” real estate economy.

The event featured a host of highly qualified experts in various aspects of real estate investment including property management, financing, deal sourcing and analysis, and taxation. The event started at 9 am on Saturday morning and ran well into the evening. We didn’t get back to our hotel room (at the very nice Scottsdale Plaza Resort) until close to 9 pm, but even then we weren’t done! We had 5 different real life investment deals to review in preparation for the next day when we would divide into team and prepare and present offer letters to the panel.

Though it sounds intense, the Rich Dad team did a great job keeping the energy up with lively music, regular breaks with refreshments provided, and the trademark conversational breaks where we would discuss the topic at hand with other students sitting at our table. Not only did this break up the monotony of lecture, but it really helped reinforce our understanding of the material. Teaching is a very effective learning tool. In fact, when we were talking with Robert Kiyosaki during a recording session on Monday, he said one of the reasons he works so hard teaching is because he learns so much!

In the afternoon of the 2nd day, the crowd was divided into teams and each team was assigned one of the case study properties on which to write a Letter of Intent (LOI). It was like being on The Apprentice! The pressure was mounting to finish the analysis and craft an offer that would be strong enough to win, but without overpaying for the property. As the announcer counted down the time, the tension mounted. People were running to the front of the room to submit their offer before the time ran out!

A representative from each team was called up to sit with their competitors in front of the panel of judges. One by one, each had just 2 minutes to present the offer. Then the panel would begin to question and negotiate. Having been through this process many times ourselves, we can tell you is that very realistic!

There were far more lessons than could ever be contained in this short report, but even with all of the experience we have in the real world of real estate, The Real Estate Guys definitely discovered some new things. Plus, we made lots of new friends!

Overall, we thought it was a great event – well organized, well produced and lots of fun. We can’t wait to go to the next one!