The ML Editor

“Virtual Real Estate Investing” is a relatively new concept. Everything from using the internet as an avenue to make more money in real estate to online games such as SecondLife seem to be included in the popular definition of this term.

To separate fact from fiction, I asked Bryan Ellis for comments. He’s the man many consider to be the father of this new form of investing.

When I began using the term virtual real estate investing in the late 1990s, I did so because I saw clear parallels between the strategies used for profiting from physical real estate and those that would create income in the online world, said Ellis.

An example of the similar nature of “virtual” and “physical” real estate Bryan Ellis likes to point out is the methods of making a profit from domain names compared to physical real estate. “These types of assets - websites and physical real estate - can be monetized in very similar ways like buy lo/sell high, leasing/rental and advertising opportunities” he says.

The similarities really are obvious. After all, if you own a valuable piece of real estate, it’s “valuable” because other people are interested in that specific piece of property. Likewise, if you own a desirable domain name, others will find value in it because it serves their purposes. In either case, you could sell or lease the asset and turn it into cash.

In our next installment of this series on virtual real estate investing, Bryan Ellis will share the internet analogies to the physical concept of real estate development.

Property Index can help with overseas property investment, view the properties available for investment.

Regardless the fact that the Property Index service is seen as a new kid on the block business, (they were set up in March 2007), they have attained to expert status very quickly. In actuality they are a fairly simple business entirely concentrated on looking after everyone designing to rent, buy, sell or let real estate across the globe. What they promise is to offer you assistance to unearth squarely what’s looked for very quickly and, too, unproblematically. Realty is at your fingertips everwhere nowadays, one of the most exclusive areas being estate available in Spain. It should be no big challenge to list a slew of the glorious real estate on the market in Spain, the reason for investigating estate here is the houses and apartments for sale and the phenomenal opportunity of living surrounded by such a dynamical and optimistic people.

It’s one of the most fashionable regions of the world nowadays, and with the scenic beauty and agreeable sunshine surrounding you here, how could you say no…. Realty in Spain is very rich in history, culture and art, this area of the world has been and is still home to a number of indigenous civilizations. About 30 years back you’d find very few of Britons looking for real estate in Spain. Just ask about anyone who has emigrated to Spain and they’ll tell you the same thing. There’s many people who would are wont to call it a basically irrelevant fashion and others are wont to call it a close to a fixation. People that are willing to migrate to this area will typically range from young urban professionals keen on a new life perspective to retirees looking to settle down and enjoy themselves.

There could be setbacks when acquiring real estate overseas — expectably there will be a hundred differentiated steps be it when organising, sightseeing or purchasing. If you miss out on but a single minor procedure it may create wide-ranging setbacks not to forget, more importantly, loss in financial terms. Obviously and expectably with this trendy destination, real estate might be costly in this location which is naturally caused by the wide spread market pressure. Notwithstanding the homebuyer is spoilt for choice in such a location so wonderful in terms of sun soaked landscape. Doubtlessly it’s able to offer all, stock and barrel, property buyers might yearn for and more.

If you are getting involved with real estate you may have heard the term REO without really knowing what it refers to and how it could play a part in your current or future investments. REO is actually just an acronym that stands for real estate owned by the bank. REOs aren’t all that common because the bank doesn’t want them, but they do happen and you can really cash in as a result.

How a Property Becomes an REO

When a bank forecloses on a home or property owner, it is requires by law to hold a public foreclosure auction. Sometimes, because of lack of publicity or other reasons the home will not get any bidders at the auction, and the bank will end up owning the property. When the bank ends up owning the property it is then known as real estate owned by the bank, or an REO. An REO isn’t something that the bank wants, but many investors consider them gold mines.

Why the Home Wasn’t Bid On

There are a variety of reasons that a piece of property will become an REO. The mot common reason is that the property had very little equity in it. Many investors will not bid on a property that has less than 30% equity. In fact, statistics show that banks end up with most houses that do not have at least 30% equity. Many homes become REO when the property was simply in terrible condition. Most investors or individuals won’t invest in a home that is in poor condition because they see it as too risky. When a home that is in poor condition becomes an REO they are often gold mines waiting for the right investor to come along. Another reason that homes are not bid on at an auction is because there are IRS liens attached to the property. The problem with IRS liens is that there is a 120 period after the purchase of the home that the IRS has the right to take the property and refund the money that you have paid for it, but not the money you have put into the house updating it. For some investors, this 120 day redemption period is just too risky.

Why the Bank Wants To Get Rid Of REO’s

Banks do not want to own property, which is not what they are set up for. Basically, an REO is the sign of a bad loan that was given by the bank and the REO is a liability, not an asset. Every month that a bank owns a piece of property means they are losing money.

One of the biggest reasons that a bank does not want an REO is that their insurer will make them pay a full or partial settlement on the property. The bank is also aware that it doesn’t matter how much they sell the home for at an auction, they will probably suffer a loss. Banks are actually penalized for having too many REOs by the federal government, as they have to borrow funds from the government to stay in business. The federal government views the REO as a bad loan, and has a vested interest in making sure that a bank does not make too many bad loans. The bank will also have costs that are associated with the property such as taxes, insurance, sewer, water, and electricity bills, as well as homeowner association dues. The property must also be maintained and winterized, all of this costing the bank money.
Another problem for the bank is that it is not used to having to deal with the fixing and selling of property. Banks don’t have contractors and such on hand to do the repairs, so they are at the mercy of contractors that may charge them too much for the services due. It also takes time to make a house marketable, and all of this time they are paying the costs to upkeep the home, when they aren’t used to doing so. The bank will usually hand the big task of managing and selling an REO to someone that has another job, a more important job, and this will actually end up stressing out bank personnel until the home sells.

The bank will also pay to hire a real estate agent to sell the property once it has been repaired. While this may not seem like a big deal to most people, it can add up when the bank is expected to pay at least 6% of the sales price to a real estate agent for every REO! These costs really add up over time, so it’s plain to see why the bank simply does not want an REO.

Why Investors Are Attracted to REO’s

Most investors know that homes that need some work done to them usually are the biggest gold mines. Because of this, REOs are generally a very attractive business deal for these investors. The banks are willing to do just about anything to get rid of their owned property, which means that businesses or individuals can get the bank to make them a really nice deal so that they can buy the home, do the necessary repairs, and then sell the home if they choose, and still be able to make some money for themselves. For those that know how to do it right, there is a lot of money to be made in REOs.

REOs aren’t hard to find because banks want to get rid of them as quickly as possible, and advertise them to the best of their ability. Investors simply need to inspect the property to be sure it is something that they can repair and still profit from if they want to. Many homes become REOs because they are not in a desirable part of town, so the investor that is looking into an REO must be sure that the home is in a desirable part of town if they hope to get their money out of it.

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Foreclosures and East Bay Real Estate

Although most companies are very competitive with interest rates, Closing Costs can vary greatly between companies. Unfortunately, many consumers are not aware of the importance of understanding the good faith estimate and simply don’t know what all the charges and fees are for. Many people go to closing and sign their closing papers without full knowledge of all of their closing costs.

Listed below is quick breakdown of closing costs to help you understand some of the possible charges or fees you may find on your good faith estimate and how they affect your bottom line. Here is blank Good Faith Estimate for use when comparing mortgage companies.

Blank GFE

There are many mortgage ads on television, the radio and in print promising reduced closings costs, no closing costs, very low rates and much more. The bottom line is nobody will do your loan for nothing. Like any other business, mortgage companies need to make a profit too. Whatever the marketing technique, you will pay for your loan.

Some of the marketing techniques listed above are truthful but there are consequences. For example:

Little or no closing costs are usually accompanied by a higher rate to offset the closing costs or increased fees to the broker: There are always closing costs. If you don’t pay for them, the broker or lender will and increase the rate or fees to cover them.

Lower interest rates or a buy down is usually accompanied by points. A point is one percent of the loan amount. One percent on a $250,000 loan is $2,500 dollars. There are companies that advertise the low rates to get you in the door but the low rate is based on paying points. There is a time for points and a time not to pay points. Find out if you should pay points.

THE GOOD FAITH ESTIMATE:

In an effort to keep the explanation simple, the Good Faith Estimate or GFE is broken down into 3 parts: Closing Costs, Pre-Paids and Funds needed to close. Interest Rate aside, the sum of the closing costs and prepaids minus your down payment and any credits is what it costs you to close your loan.

CLOSING COSTS:

There are many items that make up closing costs, most of them are fees. Common fees are Origination Fees (points), Appraisal Fee, Credit Report, Broker fee, Tax Service fee, Rate Lock fee, Processing fee, and Underwriting fee. This is the area that can cause different mortgage companies to vary greatly on closing costs.

You need to be careful when getting quoted rates. By increasing fees, companies can increase profit and quote a lower rate. Customers that are not familiar with the GFE may pay dearly for the rate they receive! Be careful, there are always closing costs. Even if you pick a program that states no closing costs, you simply get a higher rate. If you don’t pay them at closing or add them to your loan amount, you will pay for them somewhere, either in the rate or in fees.

PRE-PAIDS:

Pre-Paids are items required by the lender to be paid in advance. Common pre-paid items are: interest, mortgage insurance, flood insurance & hazard insurance. These items, although they aren’t quoted exactly, don’t vary much.

ESTIMATED FUNDS NEEDED TO CLOSE:

As an example: On a purchase, funds needed to close is simply your purchase price + closing costs + prepaid items - loan amount - any deposits and credits.

IMPORTANT POINTS AND INFORMATION TO CONSIDER:

The average life of a loan is about 5 years. Here is an Example:

The difference on a $250,000 loan amount between an interest rate of 5.5 and 5.75 is $39.46/month or $2,367.60 over 5 years. 2 points at closing on the same loan amount would cost you $5,000. It would take you 10.5 years to pay off the 2 points! If you don’t plan on being there that long or plan on refinancing before then, don’t pay points!

You need to feel comfortable with the loan process, get a full explanation of the GFE, Interest Rates and the different programs available to you. There are many reputable mortgage companies out there. There are also some that aren’t so customer oriented. Do your homework and find a company that will take the time to explain everything to you.

DO NOT SIGN AN APPLICATION OR ENTER INTO AN AGREEMENT WITHOUT UNDERSTANDING THE GFE AND GETTING A COMPLETED COPY! - KNOW WHAT YOUR COSTS WILL BE!

David Bertolami Jr is the Owner of Belle Mortgage LLC located in Southern New Hampshire. Belle Mortgage is a family owned company servicing all of New Hampshire, Massachusetts, Maine and Connecticut. For more mortgage information, you can visit the Belle Mortgage website at
Belle Mortgage LLC

Demanding consumers

“Internet buyers tend to be better informed on market conditions and better prepared to act on the home they want when they start working with a realtor. Luckily for realtors, these changes don’t necessarily hurt, as long as they are able to adjust to the new relationship and realize that the new-style buyers value speed and efficiency over guidance when finding a home.”

- E-marketer, Internet Home Buyers Changing the House Rules

Thanks to the Internet and other technological innovations, more real estate information is freely available than ever before. As a result, consumers are demanding new choices, improved services, faster transactions and lower prices. According to a recent NAR survey, the number of sellers stating that they didn’t want to pay a sales commission fee rose from 46 percent in 2003 to 61 percent in 2004. In 2004, 23 percent of Florida home sellers opted to sell independently without an agent, up from 14 percent in 2003 and nearly double the 14 percent national average, according to Planet Realtor.

And Web-enabled consumers are demanding a high digital IQ when working with real estate professionals. In addition to being well-versed on their own industry-specific technology, real estate professionals now are expected to utilize laptops, mobile phones, digital cameras, personal digital assistants and global positioning systems to keep pace with Internet buyers and sellers.

Downward pressure

“If consumers are going to do their own home-shopping online, they expect to save some money, just as they would for using the self-service lane. That’s why they are susceptible to online discount brokers and the new affinity companies that are promoting lower commissions if only the consumers will use their agents. These business models promote the idea to consumers that they ought to be paying less money in commissions.”

Realty Times Columnist Blanche Evans

Traditional real estate commissions, typically around six percent of a home’s selling price, are facing downward pressure from consumers and competition. Some consumers claim traditional real estate commissions don’t reflect:

- Today’s home prices. Years ago, when median-priced homes sold for $25,000, real estate commissions were typically five percent, or $1,250. Today, with South Florida median home prices around $300,000, the cost of a six percent full-service real estate commission becomes $18,000. Some brokers even charge additional fees to cover administrative costs. When you consider that today’s average homeowner sells a home every five to seven years, real estate commissions can dramatically impact your personal savings and net worth.

- Owner equity. When selling properties, most homeowners calculate the cost of selling as a portion of sales price, though the commissions are paid out of owner equity. (Equity is the difference between the value of your property and amount of mortgages owed.) Consider this example: You decide to sell a property for $250,000 in which you hold 10 percent equity, or $25,000. After paying a six percent commission of $15,000, you are left with $10,000 before any applicable closing costs. In this example, the $15,000 commission is six percent of the selling price, but 60 percent of the $25,000 equity.

- Services performed. Under today’s commission structure, selling a $100,000 house at six percent typically costs $6,000, while selling a $500,000 house costs $30,000. Does selling the more expensive home really require five times more effort? Your cost is the same whether the agent spends one hour or 100 hours marketing your home. This is one reason many real estate consumers find fee-for-service real estate so appealing.
Developing alternatives

“Consumers want what they want, when they want it and will gravitate to the most cost-effective source to obtain it. Why? Because our “one-size-fits-all” approach to working with sellers and buyers is archaic and won’t allow consumers to access various segments of help they need in a timely fashion. That’s why .com Web start-ups are finding a receptive audience in real estate consumers and why for-sale-by-owners are burgeoning.”

Julie Garton-Good, Author of “Real Estate a la Carte: Selecting the Services You Need, Paying What They’re Worth”

Until recently, you have had few practical alternatives to the traditional full-service, full-commission real estate transaction with a broker. Most sellers paid a single commission fee for a full range of real estate services, whether they needed them or not. Now traditional real estate agencies face the challenge of identifying new services that have value to today’s sophisticated online and empowered consumers.

One result is an “unbundling” of traditional one-size-fits-all real estate services for consumers who want more control over real estate transactions and their associated costs. If you’re willing to take on some tasks traditionally performed by agents and brokers, you could receive lower transaction costs. You might benefit from the following emerging alternatives:

Fee-for-services

“Consumers want assistance from real estate professionals, but don’t want to pay for it in the form of traditional commissions,” says a la Carte real estate Pioneer Julie Garton-Good. Garton-Good has been preaching the fee-for-services gospel for more than 20 years. As the name implies, you can choose which tasks you feel comfortable performing and hire qualified real estate professionals to do the rest. Many traditional real estate brokerages are beginning to offer a more menu-based service plan. For example, you may not mind listing your home and holding open houses, but you may want assistance with contracts and closings.

One-stop shopping

In response to dwindling margins and the rising costs of technology and lead generation, some real estate companies are attempting to combine traditional and Web-based services to provide consumers a single source for all their real estate needs. One-stop shopping sites generally provide or partner with lenders, insurers, title companies, real estate attorneys and others to facilitate all aspects of buying and selling. In addition, some sites are adding home-improvement and related services to stay in touch with consumers between buying and selling transactions.

Web-based discounters

Although many Web-based real estate companies flamed out in the dotcom era, scores of new companies have emerged to take their place. By offering targeted services such as flat-fee MLS listings, buyer rebates and AVM tools, these sites are appealing to independent buyers and sellers who prefer to take a more active role in transactions. In addition to listings, some sites also offer how-to articles and advice for those who choose to go it alone.
Tradition + technology + turbulence = opportunities

So, given the trends, changes and ongoing industry evolution, what can independent buyers, sellers and investors expect in this new era of real estate?

• The Web and other technologies will continue to evolve and transform the $1.3 trillion real-estate industry. Technology will continue to reduce the time, expense and complexity of manual processes, and increasingly sophisticated search and valuation tools will play a more strategic role.

• Free and low-cost real estate resources will continue to be available and even multiply on the Web. In real estate, knowledge truly is power. Consumers will try to use their power to gain more control of the real estate process and subsequently expect to be compensated in the form of reduced and fee-for-service commissions.

• The role of traditional real estate brokerages will evolve as Web-enabled consumers become more knowledgeable. This likely will trigger some restructuring and consolidation of traditional brokerages, but will also drive the development of innovative new practices targeting online and empowered consumers. Real estate professionals will focus more on promoting their local knowledge and industry expertise, while consumers will perform some buying and selling tasks on their own.

• Traditional real estate commissions and profitability levels will continue to face downward pressure from various sources. The future will be profitable for brokerages that are able to extend their core expertise of neighborhood and industry knowledge into flexible new consumer-centric offerings.

• The traditional high-touch, full-service real estate agency is evolving, not disappearing. Real estate professionals who provide exceptional service and value to their customers will always be in demand.

You now can find more real estate knowledge, tools and resources on the Web than ever before, enabling you to buy and sell with increased confidence. For real estate professionals, reinventing the industry means making hard decisions, changing processes and managing new opportunities. But for consumers, reinvention in real estate is a winner, hands-down.

Learn more at www.homekeys.net

Charles Warnock is Marketing Communications Manager at Homexperts in Miami, Florida. Their Web site is http://www.homekeys.net. Charles writes frequently on real estate, finance, advertising and marketing communications.