Archive for July, 2009

Memphis real estate investors are wary of this bank approach…..

I have to admit, I was completely new to the term “extend and pretend” when I first heard it a couple of weeks back.  I was reading an article in my local newspaper and was shocked at what I read.  I was so dumbfounded after reading the article that I had to do some research on it before commenting here.  To be honest, I had forgotten about it until today.

Then low and behold, I’m here in Orlando, FL. at the 1-800-SELL-NOW real estate investor event talking about the great opportunities to invest in Memphis real estate, and the topic turns to the failed bank strategies that are actually extending the housing crisis.  Extend and Pretend was one of the leading strategies that everyone agreed was hurting the market the worst.

If you are not familiar, I’ll break it down for you.

Banks are actually extending loans that are in default for borrowers on properties that they know have lost value.  They do this on the hope that the properties will actually go up in value and at THAT time, they can either call the note due or re-work the loan to terms more favorable to the bank.  That re-work will usually include a principle buy-down which the borrower cannot fulfill and the property goes into default and foreclosure.  Do you see the problem here?  Today’s problems are being put off until tomorrow or worse – next year and the year after.

Now this approach is definitely more prevalent with commercial properties than it is with residential.  But the simple fact that banks are ignoring what is a growing problem (delinquent commercial loans), obviously should concern us all.  It will lead to less liquidity in the market and less flexibility on the part of banks to work with residential investors like us.  It’s that hidden, ticking, time-bomb that will end up delaying the recovery of our banking system.

Extend and pretend is a banking business model that we should all be aware of and hope that it is a “rare” tactic.  If it’s not, this bank meltdown will be around a little longer and the credit squeeze will continue.  The best we can do as real estate investors, whether buying in Memphis or anywhere else,

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Memphis Invest getting ready to speak at the Real Estate Investors Conference in Orlando, FL

Memphis Invest is one of lead speakers this weekend at the 1800SELLNOW Real Estate Investors Conference in Orlando, FL.

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News Coverage of “Wealth Building Seminar and Bus Tour” assists real estate investors from around the county with building quality portfolios of investment properties. Learn to invest in Memphis real estate.

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Don’t throw out the bike for the bump in the road!

I love expressions like this.  The speak to the real emotions that people face everyday and carry that folksy remedy that our parents parents used as an approach to tough situations.

Today, real estate investors are facing more and more tough situations and some are tougher than others.  It seems that every day we are having the road gets a little bumpier just as things appear to be going smoother.  The bumps are getting a little bumpier too!

So here’s my advice – don’t thow out the bike for the bumps in the road.  It’s not the bike’s fault – it’s not the rider’s fault – heck, it’s not even the road’s fault.  There are so many things happening right now in the real estate world which are completely out of our control (until the next election cycle).  With the squeeze and pressure from the economy as well as the continued shrinking of the job market, the lending industry and rules they apply seem to be in constant turmoil.  The reality is, for qualified investors, especially investors who have good credit, good reserves and cash to invest in real estate, the returns are tremendous and far outpace most traditional investment accounts today.

The bumps that all invesotrs face today will continue and sometimes will even get deeper and harder to navigate.  But, the road will straighten and smooth out and investors will find it easy once again to navigate.  Those lucky enough to still ave their bikes will ride into the sunset with some fantastic properties and all the hard work will pay off when it comes time to cash in.

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New home appraisal rules stir industry backlash

03:38 PM CDT on Tuesday, July 14, 2009

Associated PressFrom:  The Dallas Morning News

Less than three months after new rules for home appraisers kicked in, the real estate industry is in uproar.

Realtors, homebuilders, mortgage brokers and the appraisal industry itself all agree the rules are causing problems. Some are backing a bill in Congress to kill them.

The new guidelines essentially put a firewall between lenders and home appraisers. They also ended the practice of lenders using their in-house staff for initial home appraisals and prohibit the use of appraisal-management companies owned or controlled by lenders.

But since they went into effect May 1, the rules have created a slew of unintended consequences that critics say are causing delays in closing sales, or undermining sales because botched appraisals are coming in too low.

“This thing is not only preventing the housing market from recovering, it’s destroying the housing market,” said Marc Savitt, president of the National Association of Mortgage Brokers. “We’re eliminating competition, and we all know what happens when you eliminate competition: Prices go up.”

After a homebuyer and seller agree on a price, the buyer applies for a mortgage. The lender then orders an appraisal to ensure the value of the property, because if the borrower defaults the property will be sold to satisfy the debt. The appraisal fee, which can run between $250 and $500, is usually paid by the buyer.

To determine what a home is worth, the appraiser compares prices of similar homes that were recently sold in the area and makes adjustments for different features, such as a swimming pool or extra bathroom. If the property appraisal comes in below the agreed upon price, the buyer usually has to make up the difference and may instead walk away.

Suzanne Wilhelm, who has been trying to sell her home in Henderson, Nev., for six months, blames an appraisal done under the new rules for scuttling what had been a done deal with a buyer several weeks ago.

The appraisal valued her four-bedroom, 2,000 square-foot house at $190,000 – $45,000 less than the price the buyer agreed to pay. Wilhelm, who paid $187,000 for the house in 2001, believes the appraiser based his estimate on the sale of several foreclosed homes in the area but ignored sales of regular homes that would have reflected a higher price.

“It’s very unfair that we’re put into the same bracket as those people who were so irresponsible in buying their homes,” said Wilhelm, a teacher.

The rules, dubbed the Home Valuation Code of Conduct, are meant to eliminate conflicts of interest that created pressure on real estate appraisers to inflate the value of a property. Lenders, agents and brokers have been known to pressure appraisers to “hit the number” that the homebuyer and seller agreed on so the deal would close and everyone could collect their fees. Inflated appraisals were partly blamed for fueling the housing bubble.

But under a settlement last year with New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac agreed only to buy loans from lenders that don’t directly hire appraisers. The move sent shock waves through the industry because Fannie Mae and Freddie Mac own or guarantee about half of all U.S. home loans.

So lenders started giving more business to appraisal management companies, which critics say draw appraisers from a pool of candidates willing to do the job for less money and who, in some cases, may be unfamiliar with a neighborhood.

Paul Conforti, a broker with Prudential Douglas Elliman in Merrick, N.Y., said he’s seen appraisers based as far as Maryland, about 200 miles away, come into New York’s Nassau County to evaluate homes there.

“If you’re appraising a house, all you really have to go on is the” recent sale of similar properties, Conforti said. “If the person doesn’t know the area … they end up using comparables from another town. It doesn’t make sense.”

Almost 60 percent of builders are reporting that inadequate appraisals are causing serious problems in the market, often comparing newly built homes to foreclosures without considering the money needed for property repairs. Of those reporting appraisal problems, more than half said the appraisal amount was actually less than the cost of building the home, according to a survey released this week by the National Association of Home Builders.

Cuomo’s office maintains the rules are necessary, and that critics are using the appraisal rules as a scapegoat for a declining housing market made worse by the recession.

“With homes prices falling and foreclosures rising, this complaint is simply wrong and risks returning us to a corrupt system filled with conflicts of interest that promoted artificially inflated values,” said Emily Browne, a spokeswoman for Cuomo.

Browne added that there’s no evidence of a spike in appraisal delays in the two months that the rules took effect.

“Even if there are some delays, there is no reason to think the (rules are) the cause, as opposed to the unrelated, nationwide drop in home values which has made the appraisal process more complicated,” she said.

But the real estate industry is coming out against the rules in force.

The National Association of Mortgage Brokers went to court in February to block the changes, which it claims limit competition. Since then, other key industry groups, including the Appraisal Institute, have voiced their opposition to all or elements of the home appraisal guidelines.

Last week, the National Association of Realtors urged members of Congress to support a bill that would impose an 18-month moratorium on the new appraisal guidelines. The measure is still working its way through Congress.

The Realtors said the new appraisal guidelines are hurting the real estate industry. It contends that appraisers hired by appraisal management companies are not hired “for their competency and qualifications, but for their turnaround time and price.”

Freddie Mac tried to address some of those concerns last week when it issued new home appraisal “best practices” guidelines for lenders.

Among its recommendations, the mortgage finance company said appraisers must be certified or licensed in the state where the property being appraised is located and be familiar with the local market.

Fannie Mae issued similar guidelines in April.

“We’re optimistic that the push to quality will in fact solve some of the problems,” said Ken Chitester, spokesman for the Appraisal Institute. “If consumers are demanding that qualified appraisers perform the valuation on the properties, then that’s a big step in the right direction.”

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“Best” time to Invest in Memphis real estate?

“With foreclosures mounting every week, is it time to enter into the Memphis investment real estate field and purchase properties at discounted pricing?”

This is a question I get asked on a daily basis from first time investors looking for advice on when to enter the investment real estate market in Memphis, TN.  Most are facing some sort of self-made obstacle from information overload to wanting to wait for the “best” time.

The simple answer is there is no “best” time.  It’s like finding a needle in the haystack.  It will take years before we will be able to reflect and pinpoint the narrow time frame when purchasing in a particular city was most advantageous.  Still, when you narrow down a buying decision to a particular part of a city, a particular neighborhood and even a specific street, there will never be a clear cut “best” time to invest.

Tennessee, and Memphis in particular, continue to run middle of the road as far as the foreclosure crisis is concerned when comparing numbers of foreclosures with other states and metropolitan areas.  Tennessee is not ranked in the top 10 as far as states with the highest rates of foreclosure.  While we continue to have higher than normal numbers of foreclosures in Memphis and this leads to excellent investment opportunities, no one believes that the end of the foreclosure crisis is anywhere near.

For investors who have a long-term investment strategy and are planning to hold their investment for longer than 5-7 years, simply purchasing in the near future is a wise investment.  Establishing your goals for price, return and risk as far as neighborhood goes will all go a long way to making an investment a good one.

While there is no “best” time, there is no end in sight to this foreclosure crisis in Memphis or anywhere else, so now may be a “very good” time to get started investing in Memphis real estate!

You can contact me at with questions and comments anytime.

Best of luck in all of your investing endeavors.

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Memphis Invest speaking about real estate investment success!

We’ve made it official and accepted an invite to speak at the “Real Estate Success Summit” in Orland, FL. from July 24-26.

Check it out here!

Ok, Ok, so it wasn’t that big of a stretch to expect us to speak there.  It is, after all, being promoted by someone I am familiar with. Kent Clothier, Jr., founder of REI Marketing, LLC which owns and operates 1-800-SELL-NOW.

The cool thing though is that we are speaking because of the demand from investors around the country to hear from REAL investors who are actually closing transactions and not just talking about the newest way to make money.

Memphis Invest has assisted clients the past few years to develop positive monthly cash flow through the acquisition of Memphis real estateInvesting in Memphis real estate has always come naturally to the Clothier family (the owners of as they currently own over 150 single family homes and multiple commercial spaces around the greater Memphis area.  Sharing our story has been a joy for us and I am the lucky one who gets to travel the country and do the sharing!

Now Kent told me about the line up he had for his Orlando event and I about fell out of my chair!  Some of these names are people that I have read about in national publications and even WATCHED on TV!

See The Line-Up of Speakers Here…..

So if you are interested….

It’s free to attend for you and a guest and located in a world class city, Orlando, FL.  I will be there talking about our history, our experiences and how you can take advantage of a fantastic investment real estate market like Memphis, TN.

Best of luck with all of your real estate investing and I hope to see you in Orlando!

Chris D. Clothier

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