Category Archives: Real Estate

Real Estate Bubble Is Bursting

If you own real estate or are thinking of buying real estate then you better pay attention, because this could be the most important message you receive this year regarding real estate and your financial future.

The last five years have seen explosive growth in the real estate market and as a result many people believe that real estate is the safest investment you can make. Well, that is no longer true. Rapidly increasing real estate prices have caused the real estate market to be at price levels never before seen in history when adjusted for inflation! The growing number of people concerned about the real estate bubble means there are less available real estate buyers. Fewer buyers mean that prices are coming down.

On May 4, 2006, Federal Reserve Board Governor Susan Blies stated that “Housing has really sort of peaked”. This follows on the heels of the new Fed Chairman Ben Bernanke saying that he was concerned that the “softening” of the real estate market would hurt the economy. And former Fed Chairman Alan Greenspan previously described the real estate market as frothy. All of these top financial experts agree that there is already a viable downturn in the market, so clearly there is a need to know the reasons behind this change.

3 of the top 9 reasons that the real estate bubble will burst include:

  1. Interest rates are rising – foreclosures are up 72%!
  2. First time homebuyers are priced out of the market – the real estate market is a pyramid and the base is crumbling
  3. The psychology of the market has changed so that now people are afraid of the bubble bursting – the mania over real estate is over!

The first reason that the real estate bubble is bursting is rising interest rates. Under Alan Greenspan, interest rates were at historic lows from June 2003 to June 2004. These low interest rates allowed people to buy homes that were more expensive then what they could normally afford but at the same monthly cost, essentially creating “free money”. However, the time of low interest rates has ended as interest rates have been rising and will continue to rise further. Interest rates must rise to combat inflation, partly due to high gasoline and food costs. Higher interest rates make owning a home more expensive, thus driving existing home values down.

Higher interest rates are also affecting people who bought adjustable mortgages (ARMs). Adjustable mortgages have very low interest rates and low monthly payments for the first two to three years but afterwards the low interest rate disappears and the monthly mortgage payment jumps dramatically. As a result of adjustable mortgage rate resets, home foreclosures for the 1st quarter of 2006 are up 72% over the 1st quarter of 2005.

The foreclosure situation will only worsen as interest rates continue to rise and more adjustable mortgage payments are adjusted to a higher interest rate and higher mortgage payment. Moody’s stated that 25% of all outstanding mortgages are coming up for interest rate resets during 2006 and 2007. That is $2 trillion of U.S. mortgage debt! When the payments increase, it will be quite a hit to the pocketbook. A study done by one of the country’s largest title insurers concluded that 1.4 million households will face a payment jump of 50% or more once the introductory payment period is over.

The second reason that the real estate bubble is bursting is that new homebuyers are no longer able to buy homes due to high prices and higher interest rates. The real estate market is basically a pyramid scheme and as long as the number of buyers is growing everything is fine. As homes are bought by first time home buyers at the bottom of the pyramid, the new money for that $100,000.00 home goes all the way up the pyramid to the seller and buyer of a $1,000,000.00 home as people sell one home and buy a more expensive home. This double-edged sword of high real estate prices and higher interest rates has priced many new buyers out of the market, and now we are starting to feel the effects on the overall real estate market. Sales are slowing and inventories of homes available for sale are rising quickly. The latest report on the housing market showed new home sales fell 10.5% for February 2006. This is the largest one-month drop in nine years.

The third reason that the real estate bubble is bursting is that the psychology of the real estate market has changed. For the last five years the real estate market has risen dramatically and if you bought real estate you more than likely made money. This positive return for so many investors fueled the market higher as more people saw this and decided to also invest in real estate before they ‘missed out’.

The psychology of any bubble market, whether we are talking about the stock market or the real estate market is known as ‘herd mentality’, where everyone follows the herd. This herd mentality is at the heart of any bubble and it has happened numerous times in the past including during the US stock market bubble of the late 1990’s, the Japanese real estate bubble of the 1980’s, and even as far back as the US railroad bubble of the 1870’s. The herd mentality had completely taken over the real estate market until recently.

The bubble continues to rise as long as there is a “greater fool” to buy at a higher price. As there are less and less “greater fools” available or willing to buy homes, the mania disappears. When the hysteria passes, the excessive inventory that was built during the boom time causes prices to plummet. This is true for all three of the historical bubbles mentioned above and many other historical examples. Also of importance to note is that when all three of these historical bubbles burst the US was thrown into recession.

With the changing in mindset related to the real estate market, investors and speculators are getting scared that they will be left holding real estate that will lose money. As a result, not only are they buying less real estate, but they are simultaneously selling their investment properties as well. This is producing huge numbers of homes available for sale on the market at the same time that record new home construction floods the market. These two increasing supply forces, the increasing supply of existing homes for sale coupled with the increasing supply of new homes for sale will further exacerbate the problem and drive all real estate values down.

A recent survey showed that 7 out of 10 people think the real estate bubble will burst before April 2007. This change in the market psychology from ‘must own real estate at any cost’ to a healthy concern that real estate is overpriced is causing the end of the real estate market boom.

The aftershock of the bubble bursting will be enormous and it will affect the global economy tremendously. Billionaire investor George Soros has said that in 2007 the US will be in recession and I agree with him. I think we will be in a recession because as the real estate bubble bursts, jobs will be lost, Americans will no longer be able to cash out money from their homes, and the entire economy will slow down dramatically thus leading to recession.

In conclusion, the three reasons the real estate bubble is bursting are higher interest rates; first-time buyers being priced out of the market; and the psychology about the real estate market is changing. The recently published eBook “How To Prosper In The Changing Real Estate Market. Protect Yourself From The Bubble Now!” discusses these items in more detail.

Louis Hill, MBA received his Masters In Business Administration from the Chapman School at Florida International University, specializing in Finance. He was one of the top graduates in his class and was one of the few graduates inducted into the Beta Gamma Business Honor Society.

Mr. Hill received his undergraduate degree from the University of Florida with a double major in Finance and Risk Management.

For the past several years he has been working in a South Florida commercial real estate lender that specializes in financing real estate developers. Mr. Hill has seen firsthand the challenges and pitfalls that real estate developers are experiencing, and how the real estate market has been deteriorating rapidly. He is also a professional consultant to professional real estate developers and investors.

Mistakes Rookie Real Estate Agents Make

Every time I talk to someone about my business and career, it always comes up that “they’ve thought about getting into real estate” or know someone who has. With so many people thinking about getting into real estate, and getting into real estate – why aren’t there more successful Realtors in the world? Well, there’s only so much business to go around, so there can only be so many Real Estate Agents in the world. I feel, however, that the inherent nature of the business, and how different it is from traditional careers, makes it difficult for the average person to successfully make the transition into the Real Estate Business. As a Broker, I see many new agents make their way into my office – for an interview, and sometimes to begin their careers. New Real Estate Agents bring a lot of great qualities to the table – lots of energy and ambition – but they also make a lot of common mistakes. Here are the 7 top mistakes rookie Real Estate Agents Make.

1) No Business Plan or Business Strategy

So many new agents put all their emphasis on which Real Estate Brokerage they will join when their shiny new license comes in the mail. Why? Because most new Real Estate Agents have never been in business for themselves – they’ve only worked as employees. They, mistakenly, believe that getting into the Real Estate business is “getting a new job.” What they’re missing is that they’re about to go into business for themselves. If you’ve ever opened the doors to ANY business, you know that one of the key ingredients is your business plan. Your business plan helps you define where you’re going, how you’re getting there, and what it’s going to take for you to make your real estate business a success. Here are the essentials of any good business plan:

  1. A) Goals – What do you want? Make them clear, concise, measurable, and achievable.
  2. B) Services You Provide – you don’t want to be the “jack of all trades & master of none” – choose residential or commercial, buyers/sellers/renters, and what area(s) you want to specialize in. New residential real estate agents tend to have the most success with buyers/renters and then move on to listing homes after they’ve completed a few transactions.
  3. C) Market – who are you marketing yourself to?
  4. D) Budget – consider yourself “new real estate agent, inc.” and write down EVERY expense that you have – gas, groceries, cell phone, etc… Then write down the new expenses you’re taking on – board dues, increased gas, increased cell usage, marketing (very important), etc…
  5. E) Funding – how are you going to pay for your budget w/ no income for the first (at least) 60 days? With the goals you’ve set for yourself, when will you break even?
  6. F) Marketing Plan – how are you going to get the word out about your services? The MOST effective way to market yourself is to your own sphere of influence (people you know). Make sure you do so effectively and systematically.

2) Not Using the Best Possible Closing Team

They say the greatest businesspeople surround themselves with people that are smarter than themselves. It takes a pretty big team to close a transaction – Buyer’s Agent, Listing Agent, Lender, Insurance Agent, Title Officer, Inspector, Appraiser, and sometimes more! As a Real Estate Agent, you are in the position to refer your client to whoever you choose, and you should make sure that anyone you refer in will be an asset to the transaction, not someone who will bring you more headache. And the closing team you refer in, or “put your name to,” are there to make you shine! When they perform well, you get to take part of the credit because you referred them into the transaction.

The deadliest duo out there is the New Real Estate Agent & New Mortgage Broker. They get together and decide that, through their combined marketing efforts, they can take over the world! They’re both focusing on the right part of their business – marketing – but they’re doing each other no favors by choosing to give each other business. If you refer in a bad insurance agent, it might cause a minor hiccup in the transaction – you make a simple phone call and a new agent can bind the property in less than an hour. However, because it typically takes at least two weeks to close a loan, if you use an inexperienced lender, the result can be disastrous! You may find yourself in a position of “begging for a contract extension,” or worse, being denied a contract extension.

A good closing team will typically know more than their role in the transaction. Due to this, you can turn to them with questions, and they will step in (quietly) when they see a potential mistake – because they want to help you, and in return receive more of your business. Using good, experienced players for your closing team will help you infinitely in conducting business worthy of MORE business…and best of all, it’s free!

3) Not Arming Themselves with the Necessary Tools

Getting started as a Real Estate Agent is expensive. In Texas, the license alone is an investment that will cost between $700 and $900 (not taking into account the amount of time you’ll invest.) However, you’ll run into even more expenses when you go to arm yourself with the necessary tools of the trade. And don’t fool yourself – they are necessary – because your competitors are definitely using every tool to help THEM.

  1. A) MLS Access is probably the most expensive necessity you’re going to run into. Joining your local (and state & national, by default) Board of Realtors will allow you to pay for MLS access, and in Austin, Texas, will run around $1000. However, don’t skimp in this area. Getting MLS access is one of the most important things you can do. It’s what differentiates us from your average salesman – we don’t sell homes, we present any of the homes that we have available. With MLS Access, you will have 99% of the homes for sale in your area available to present to your clients.
  2. B) Mobile Phone w/ a Beefy Plan – These days, everyone has a cell phone. But not everyone has a plan that will facilitate the level of use that Real Estate Agents need. Plan on getting at least 2000 minutes per month. You want, and need, to be available to your clients 24/7 – not just nights and weekends.
  3. C) Computer (Preferably a Laptop) – There’s no way around it, you have to have a computer & be savvy enough to use email. You would be wise to invest in some business management software, as well. If you’d like to save some money (and who wouldn’t) then you can get the client & email management software
  4. D) Real Estate Friendly Car – You don’t have to have a Lexus, but your Miata won’t do the trick. Make sure that you have a 4 door car or SUV that is comfortable and presentable. Keep it clean, and for God’s sake, don’t smoke in it! You’re going to spend a LOT of time in your car, and put a lot of miles on it, so if it’s fuel efficient, it’s a BIG plus. If you’re driving a sporty convertible, or still have your KILLER Jeep from college, it’s time to trade it in.

4) Lack of Proper Funding

If you’ve taken the time to create your business plan, than you should definitely have your budget, but I can’t stress enough the importance of having and following your budget. However, the budget alone doesn’t address the important aspect of funding. 90% of all small businesses fail due to lack of funding. Typically, new agents will want to have 3 months of reserves in savings before taking the leap into full time agency. However, money in the bank isn’t the only way to answer the question of funding. Maybe your partner can support you for a certain period of time. You can keep a part-time job that won’t interfere with your business as a Real Estate Agent. Many successful waiters make the transition to successful real estate agents with no money in the bank. When you start your new business, don’t expect to earn any income for, at the least, 60 days.

5) Refusing to Spend Money on Marketing

Most new Real Estate Agents don’t realize that the hardest part of the business is finding the business. Furthermore, they’ve just shelled out around $2000 for their license and board dues, so the LAST thing they want to do is to spend more money! Again, the problem lies in the lack of understanding that you’ve just jumped into the Real Estate Business, you haven’t taken a new job. And any good businessperson will tell you that how much business you GET is directly correlative to how much you SPEND on marketing. If you choose the right brokerage, then you will get some good inbound leads. However, don’t neglect a good, personal marketing campaign from the beginning to get your own name out as the Real Estate Agent to go to.

6) Not Focusing Their Marketing Efforts in the Most Effective Areas

One reason why many new Real Estate Agents who do begin spending money on personal marketing stop is because they spend it in the wrong place. The easiest place, and where conventional Real Estate tells you to spend your money, is in conventional print marketing – the newspaper, real estate magazines, etc… This is the most visible place to see real estate advertising, it’s where large offices spend a good part of their money, and so many new agents mistakenly spend their money here. This becomes very frustrating to new agents because of its low return. Large brokerages can afford to spend their money here because they’re filling two needs – they’re marketing their own properties for sale while creating new buyer traffic for their buyer’s agents. New Real Estate Agents should look to their own sphere of influence and referral marketing to see the most effective return on their investment. An agent can spend as little as $100/month marketing to their family, friends, and colleagues and see an incredible return. There are many great referral systems around that all focus on the same premise – that if you consistently market yourself to your sphere of influence as the Real Estate Agent to go to – then you will get more business. The key is to pick a system and to follow that system. You will see results.

7) Choosing the Wrong Brokerage for the Wrong Reasons

New Real Estate Agents choose their new broker for a variety of reasons – they have a good reputation, they offer the most competitive split, the office is close to their house, etc… While these alone aren’t bad reasons to choose a broker, they aren’t going to do a lot to help you in your success. The #1 reason to choose a broker, and the question to ask is, “What do you offer your new agents.” If the answer is, “The most competitive split in town” you should definitely keep looking. Remember, 100% of $0 is still $0. If you’re leaning towards the largest broker in town, who has a great reputation, remember this: You’re starting a BUSINESS not a JOB. While it might be fantastic to brag to your friends about landing a job at a prestigious company, it’s no accomplishment to hang your license on the same wall in the same office as other successful agents.

Your #1 concern when interviewing new Brokers is what they offer you as a new agent. Do they have incoming leads? What does their training program consist of? What’s their retention level? What’s their average sales price? Do they encourage their agents to promote themselves? A Broker’s purpose is to help new agents start successful careers and to help established Agents progress their careers to the next level. As a new agent, concern yourself less with commission split or agency name and more with specific programs and agency standards.

A new career in Real Estate is very exciting. Starting a Real Estate business provides the new Agent with opportunities for limitless potential and freedom. New Agents have a notoriously high failure rate, however, so a new Real Estate career can also be a very scary prospect. However, if you avoid the 7 Top Mistakes Rookie Real Estate Agents Make, then you’ll be far ahead of the competition!

The Real Estate Market In Panama

Most likely, you have heard of the recent real estate BOOM currently occurring in Panama. Perhaps, there are several internet sites you have read or visited searching for further information on the topic. Or maybe you are one of those persons that have taken the decision already of buying an apartment or a beach house, but you don’t know where to start or wish to start your own real estate project in Panama, yet still need more information. Well, I have prepared this article in a practical and simple way in order to guide you in our real estate market. You will find this paper helpful, whether it’ll be for the direct buying of a property or to start your own real estate project in Panama or simply to have a more complete notion of this rising real estate BOOM.

What is happening in the Panamanian Real Estate market?

What is going on in Panama is without any sort of precedent. The market is growing rapidly and such real estate development has never been experienced before in our country. Monthly, we are visited for hundreds of foreigners interested in buying real estates in Panama, in the City, the coasts and the mountains. The constant rising of the value per square meter is almost in a monthly rate. For example: in January, 2006 it was possible to find apartments in Panama City for around US$ 1,000.00 per square meter, which is nearly impossible nowadays (US$ 1,200 – US$1,400 and rising). This has generated the value per square meter to triplicate in the city and even to quadruplicate in the rest of the country. The main real estate broker associations have foreseen that the general value of the land in Panama could rise up to 30% to 40% in the next three years, due to this price increasing flow.

Extreme luxury towers of over 100 stories, residential houses of over a million dollars, yachts and marine clubs, huge luxury hotels, golf camps designed by well-known international specialists, as well as top of the line malls, are currently under construction or in process of delivering in the next couple of years; renovating the face of the city into an international and cosmopolitan metropolis. Promoters, private investors and international real estate companies, from United States, South America and even Europe, have started the construction of real estate projects of great impact. Also, a great number of international real estate broker companies are currently setting up businesses in our country per month. Specifically we could say that seven of the highest towers under construction in Latin America are being built in Panama City, within the areas known as “Avenida Balboa” (this area is projected as the skyscraper in front of the sea in the city). We could mention, among others: Aqualina, Aquamare, Vitri, Ocean Two and One, Los Faros de Panama and Ice Tower, ready to be delivered for the year 2009; besides the hundreds of apartment towers bring developed around the city. Great beach lot projects, island resorts, as much as in the Caribbean Sea (Bocas del Toro) as in the Pacific Ocean (Pearl Islands); as well as delightful retirement mountains (Boquete, Altos del Maria) are part of the avalanche of real estate projects that seems just to be starting.

Which are the real factors that caused this real estate boost?

We all know that after the hostilities occurred in Panama in 1989, the Panamanian real estate market remained hesitant and the small amount of inversions in this sector were led in its majority into commercial projects. Eleven years had to run by after this event (year 2000) for the leaders in the tourist sector of the Panamanian government (led by the well-known Panamanian singer Ruben Blades) to take action initiating a serious campaign for the enhancement of the country’s image. Panama was shown as “the path less traveled”, stressing not only in the advantages of being and international banking services and offshore center, but also in the social, tourist, ecological and geographic elements that until then were unknown to the rest of the world. This successful campaign was promoted worldwide in the main international television chains, in Europe as well as in the United States. Added to this, something that has to be acknowledged, for the year 2003 Panama comes back to the international field with the announcement that a young Panamanian lady (Justin Pasek) won the Miss Universe contest, situation that allowed by extension the range of advantages of our country as a tourist and commercial destiny. Between the years 2003 and 2005, little by little the number of visitors increased as a consequence of these two important catalysts.

Meanwhile, small groups of professionals (lawyers, brokers, and independent professionals) were offering seminars about the Panama’s advantages or organized small real estate tours to foreigners. Several articles published in international retirement magazines (generation known as “Baby Boomers”) and second residences abroad, started to acknowledged Panama as one of the best countries in the world to live at high standard levels, but with low costs; all of this caused due to excellent projects addressed to this market, as “El Valle Escondido” in Boquete – Chiriqui or “Altos del Maria” in Panama. One of the main triggering factors of this real estate boost in Panama occurred last April 24th, 2006, when Donald Trump announced in New York City the construction in “Punta Pacifica” area in Panama City of a 65-story tower branded as “Trump Ocean Club International Hotel”, with a cost of 220 million dollars. Further more, on October of the same year, the national acceptance for the enlargement of the Panama Canal was given, initiating construction works in the year 2009. Starting from this point, there is no doubt that Panama would become the centre and role model of real estate investments in the area, situation that has been increasing exponentially.

Which are then Panama’s advantages as a real estate destiny?

Well, let’s get into the subject. Let’s study those advantages that Panama offers and that will allow you, effectively, to take the decision to buy a property in our country, as many foreigners have done. From the real estate point of view, we could mention:

-*- Panama offers the best banking center in the region, with the use of the American dollar as legal currency and with top of the line banks (HSBC, CITIBANK, BBVA, etc.) which will facilitate the process of obtaining mortgages for foreigners, offering a fast international bank transaction process for deposits and reservation of properties.

-*- Panamanian immigration law has one of the best retirement programs in the world, which will allow you to become a “resident” in less than two months. This program offers several incentives as the possibility to import goods and personal values into your new properties free of import duties, as well as motor vehicles also free of import duties.

-*- An outstanding service, utilities and infrastructure system for properties, such as: high speed Internet (there are five of the main Internet interconnection Networks crossing through Panama), Cable and Satellite TV, public potable water, wide range of telephony offer, fixed and cellular.

-*- The opportunity to buy extreme luxury apartments with ample spaces to a price amazingly low compare with apartments of the same quality in USA and Europe.

-*- The opportunity to acquire properties exempt to the 0% of property taxes for a period of 5, 10, 15 and even 20 years (depending on the date of construction’s commencement).

-*- A vast variety of companies and bilingual professionals involved in the real estate market.

-*- If you are a businessman, Panamanian law has fiscal benefits to constructors and promoters that start real estate projects in the country.

Additionally, there are other advantages to take into consideration that even when you are not directly involved in the real estate business, they can become helpful at the moment of taking the decision of buying a property:

-*- Panama has been acknowledge for companies as Pinkerton Intelligence Agency as a high standard security country in contrast with the current situation in neighboring countries.

-*- You can hire house keeping services for a low cost (around US$ 150.00 per month)

-*- Up-to-date high standard technology available.
-*- The opportunity to acquire products from all over the world in the Colon Free Zone, due to the noticeable position of the Panama Canal and the transit of over 14,000 ships per year.

-*- The conditions of Panamanian taxation law allow the tax payer not to pay taxes on bank interests or even income taxes when the service and/or business are performed abroad.

-*- An exceptional geographic position to perform international commercial transactions, with fast access to the Pacific Ocean as well as to the Atlantic.

-*- Panama has a low-risk profile in regards to natural disasters, such as earthquakes and hurricanes.

These are some of the many advantages that Panama can offer if you decide to acquire a property in our country, whether it is to invest or simply to relocate and enjoy life.

Which are the most attractive places to buy properties?

To better answer this question, we have to divide our answer in four groups: Panama City, the mountains, the Pacific shore and the Atlantic shore.

Panama City

The main seaside view luxury condos are found in Panama City, distributed as follows: Balboa Avenue, Punta Pacifica and Costa del Este. The region known as “Avenida Balboa” has become the icon of real estate development in Panama. The reason for this is due to the current construction of luxury residential apartment towers with an outstanding architecture with a height of over 100 stories, to be concluded in the year 2009. Balboa Avenue offers quick access to the whole city, the banking area, as well as to the main avenues, given that it is the coast boulevard. One hundred meters away from this area you will find restaurants, bars, hotels and several facilities. European promoters, American and South Americans have foreseen the real estate potential in this area, equivalent to condos phenomenon occurred in Miami during the eighties. “Punta Pacifica” area was developed over the old City airport (for the reason that it was next to the pacific coast and inside the city). This region was designed specially to provide an answer to the upcoming real estate demand. The area offers beautiful projects and high standard apartment towers. You will also find in “Punta Pacifica” malls (Multiplaza Pacific), Hospitals (John Hopkins Hospital), corporate buildings and access to highways (Corredor Sur) which will grant you fast access to the international airport in 15 minutes. Is also in this sector where the Trump Organization and K Group will raise their promoted real estate project. Another of the desired areas for foreigners is Costa del Este.

The “other city” as is referred to was also conceived and designed for the development of apartment buildings and closed residential communities. It is the perfect place for a foreigner to completely relocate in Panama. This region has it all schools, malls, wide avenues; this sector offers several real estates with a gorgeous view to the sea or to the city, located five minutes away from the city and only ten from the international airport. It also important to stress out that this luxury tower’s development is not circumscribed to these few areas. There are also urban projects in the region of Punta Paitilla, Coco del Mar and San Francisco (all of them in front of the sea), as well as beautiful developed residential areas in the surroundings of the Panama Canal, such as Albrook, Clayton and Quarry Heights.

The Mountains

Gorgeous mountain projects with cool, fresh weather from 18Cº to 20Cº (64ºF to 68ºF) have been developed in the provinces of Panama, Cocle and Chiriqui. In the province of Panama, the most representative mountain project is found in the region of Sora, 75 minutes away from the City and known as “Altos del Maria”. This project consists of a well-organized foreigner’s community with utilities and spectacular landscapes. Another region of urban development can be found in what is known as “Tierras Altas” (High Lands) located in the province of Chiriqui (Volcan, Boquete and Cerro Punta). Among these places, Boquete has become one of the most relevant real estate centres in the whole country, given that it counts with a wide supply of real estate projects, residential houses in the mountains with amazing landscapes. Boquete has been recognized by specialist in the subject as one of the best places for retirement in the world, fact that has generated in this region the highest concentration of retired foreigners in the country. Finally, in the province of Cocle, you will find the region known as “El Valle”. Located in an extinguished volcano, El Valle offers the perfect weather, rivers, waterfalls and tourist attractions. El Valle is at present taking measures to become one of the most wanted regions in the field of mountain real estate properties, owing to its facilities and infrastructure, as well as to its proximity to Panama City (1hr. 45 mins.)

The Pacific Shore

The supply of lots in front of the sea starts in the pacific coast line of the Province of Panama, and it goes all the way until the mid-country provinces. Most Panamanian high-class families have their beach houses on this sector; due to its proximity to the City (45 minutes). This coast line offers residential areas such as Came, Coronado, Punta Barco, San Carlos, Gorgona, among others. Within these beach residential areas we have to remark the region known as “Coronado”, region which counts with one of the best professional Golf camps in Latin America, pools, beach clubs, equestrian clubs, several restaurants and great supply of houses and apartment buildings in front of the sea. Additionally, further on in the pacific coast line, we can find the region of Playa Blanca. Since the development of the macro hotel project known as “Royal Decameron” in the area, the infrastructure and general surroundings have grow significantly. In Playa Blanca, you will be able to find casinos, swimming pools, restaurants, bars and discotheques, beach clubs and a great variety of real estate projects just right next to the beach. Finally, we should also mention the recent development experienced in the seaside areas the provinces of Los Santos (Pedasi) and Veraguas, such as Playa Arenal, Punta Mala and Playa Venao, among others; which have become the new destiny for many foreigners (mostly Europeans) that are searching for great extensions of lands in front of the sea.

The Caribbean Shore

In this area, we can find a similar supply of real estate properties to the one found in the pacific coastline of the mid-country provinces. There are several properties in front of the sea, as well as vast extensions of hectares next to the beach. This region is located two hours away from Panama City and it offers the option to buy in the well-known Colon Free Zone. On the west side of the country, you will find in the Caribbean coastline, the spectacular region of Bocas del Toro, where properties next of the sea or in the middle of an island are simply astounding. A great variety of international real estate companies have started projects in the crystal clear waters of Bocas del Toro. Bocas is one of the most known tourist destinies in Panama, located only 1hr and 45 minutes away by plane. It offers an amazing night life, restaurant, hotels and tours around the different islands of the area. Bocas del Toro coastline has become the most wanted real estate choice for retired or pensioned foreigners in the Caribbean. Among the best areas of Bocas del Toro you can find Isla Colon, Boca del Drago, Red Frog Beach and Playa Larga. The residential project known as Red Frog is of renowned reputation in the international spheres, given that it offers an incredible exclusively designed development for foreigners in one of the most beautiful islands in Bocas del Toro, Bastimento’s Island. The project has marine clubs, restaurants, houses and a dazzling infrastructure.

Islands

The most notorious group of islands is found in Bocas del Toro, given that, as we already mentioned it offers a wide variety of real estate projects in the Caribbean, scenario of several TV series broadcasted around the world. The most important islands of the archipelago are: Isla Colon, Isla Bastimentos, Isla Solarte, Isla Cristobal, Isla Popa and Isla Zapatilla. Likewise, we can found several small independent islands for private projects. Bocas’ islands counts with an astonishing ecosystem for scuba diving, marine activities and bird watching. Another group of islands that is raising popularity is the real estate market found in the archipelago of Mosquito’s Gulf, in front of the pacific coastline of the province of Chiriqui. This Gulf has been granted by the Panamanian government the title of Ecological Reserve, as a consequence of the great diversity of marine fauna found in the area. Most of the islands have registered real estate titles, which allow its prompt buying. The surroundings of these islands are famous for being one of the best places in the world for Black Marlin fishing. The Pearl Islands are located within the Gulf of Panama, three hours away from the city in the open sea, offering a group of more than 35 beautiful islands with spectacular landscapes, surrounded by coral reefs and vast vegetation. The beauty of this area attracted the production team of the popular reality show “Survivor”, who has filmed several times in this region. Finally, you will find the island of “Coiba” in the Pacific Ocean, formerly a prison already abolished and currently a National Park. The main island and its small islands such as Isla Iguana have become in top destinies for scuba diving and water sports.

What should I and should not do when buying a property in Panama?

As a final tip, we will recommend you some practical advises in case you decide to buy a property in Panama:

Recommendation # 1 : You can visit the projects on your own, but it is advisable to be assisted by a professional who could properly introduce you to the promoters, avoiding the pointless increase on the price.

Recommendation # 2 : If you are not fluent in Spanish, you should ask the promoter to get you the contract both, in Spanish and in your native language, for all legal transactions to be performed.

Recommendation # 3 : Once you reserve your property, immediately ask for a receipt and the signature of the Promissory Purchase-Sale agreement.

Recommendation # 4 : Once you have signed this agreement, double-check the deadlines for the subsequent down payments of your property. If you miss one of these, you are exposed to lose the money already paid to the promoter.

Recommendation # 5: Try to take a quick decision on acquiring the property; given that once you reserve it, the price is then frozen. Due to the current demand in the market, prices on apartments rise at a monthly rate.

Recommendation # 6: Once you reserve your property, look for the professional advice of lawyers or real estate brokers, in order to verify all documentation and contracts are due to the procedure of registration.

Recommendation # 7: Think about the possibility of acquiring your property through a Panamanian corporation. They are of fast incorporation, considerably cheap and easy to manage. Using a corporation to acquire a property in Panama will ease a future transfer of it, if that’s the case.

Reasons That The Real Estate Bubble Is Bursting

If you own real estate or are thinking of buying real estate then you better pay attention, because this could be the most important message you receive this year regarding real estate and your financial future.

The last five years have seen explosive growth in the real estate market and as a result many people believe that real estate is the safest investment you can make. Well, that is no longer true. Rapidly increasing real estate prices have caused the real estate market to be at price levels never before seen in history when adjusted for inflation! The growing number of people concerned about the real estate bubble means there are less available real estate buyers. Fewer buyers mean that prices are coming down.

On May 4, 2006, Federal Reserve Board Governor Susan Blies stated that “Housing has really sort of peaked”. This follows on the heels of the new Fed Chairman Ben Bernanke saying that he was concerned that the “softening” of the real estate market would hurt the economy. And former Fed Chairman Alan Greenspan previously described the real estate market as frothy. All of these top financial experts agree that there is already a viable downturn in the market, so clearly there is a need to know the reasons behind this change.

3 of the top 9 reasons that the real estate bubble will burst include:

  1. Interest rates are rising – foreclosures are up 72%!
  2. First time homebuyers are priced out of the market – the real estate market is a pyramid and the base is crumbling
  3. The psychology of the market has changed so that now people are afraid of the bubble bursting – the mania over real estate is over!

The first reason that the real estate bubble is bursting is rising interest rates. Under Alan Greenspan, interest rates were at historic lows from June 2003 to June 2004. These low interest rates allowed people to buy homes that were more expensive then what they could normally afford but at the same monthly cost, essentially creating “free money”. However, the time of low interest rates has ended as interest rates have been rising and will continue to rise further. Interest rates must rise to combat inflation, partly due to high gasoline and food costs. Higher interest rates make owning a home more expensive, thus driving existing home values down.

Higher interest rates are also affecting people who bought adjustable mortgages (ARMs). Adjustable mortgages have very low interest rates and low monthly payments for the first two to three years but afterwards the low interest rate disappears and the monthly mortgage payment jumps dramatically. As a result of adjustable mortgage rate resets, home foreclosures for the 1st quarter of 2006 are up 72% over the 1st quarter of 2005.

The foreclosure situation will only worsen as interest rates continue to rise and more adjustable mortgage payments are adjusted to a higher interest rate and higher mortgage payment. Moody’s stated that 25% of all outstanding mortgages are coming up for interest rate resets during 2006 and 2007. That is $2 trillion of U.S. mortgage debt! When the payments increase, it will be quite a hit to the pocketbook. A study done by one of the country’s largest title insurers concluded that 1.4 million households will face a payment jump of 50% or more once the introductory payment period is over.

The second reason that the real estate bubble is bursting is that new homebuyers are no longer able to buy homes due to high prices and higher interest rates. The real estate market is basically a pyramid scheme and as long as the number of buyers is growing everything is fine. As homes are bought by first time home buyers at the bottom of the pyramid, the new money for that $100,000.00 home goes all the way up the pyramid to the seller and buyer of a $1,000,000.00 home as people sell one home and buy a more expensive home. This double-edged sword of high real estate prices and higher interest rates has priced many new buyers out of the market, and now we are starting to feel the effects on the overall real estate market. Sales are slowing and inventories of homes available for sale are rising quickly. The latest report on the housing market showed new home sales fell 10.5% for February 2006. This is the largest one-month drop in nine years.

The third reason that the real estate bubble is bursting is that the psychology of the real estate market has changed. For the last five years the real estate market has risen dramatically and if you bought real estate you more than likely made money. This positive return for so many investors fueled the market higher as more people saw this and decided to also invest in real estate before they ‘missed out’.

The psychology of any bubble market, whether we are talking about the stock market or the real estate market is known as ‘herd mentality’, where everyone follows the herd. This herd mentality is at the heart of any bubble and it has happened numerous times in the past including during the US stock market bubble of the late 1990’s, the Japanese real estate bubble of the 1980’s, and even as far back as the US railroad bubble of the 1870’s. The herd mentality had completely taken over the real estate market until recently.

The bubble continues to rise as long as there is a “greater fool” to buy at a higher price. As there are less and less “greater fools” available or willing to buy homes, the mania disappears. When the hysteria passes, the excessive inventory that was built during the boom time causes prices to plummet. This is true for all three of the historical bubbles mentioned above and many other historical examples. Also of importance to note is that when all three of these historical bubbles burst the US was thrown into recession.

With the changing in mindset related to the real estate market, investors and speculators are getting scared that they will be left holding real estate that will lose money. As a result, not only are they buying less real estate, but they are simultaneously selling their investment properties as well. This is producing huge numbers of homes available for sale on the market at the same time that record new home construction floods the market. These two increasing supply forces, the increasing supply of existing homes for sale coupled with the increasing supply of new homes for sale will further exacerbate the problem and drive all real estate values down.

A recent survey showed that 7 out of 10 people think the real estate bubble will burst before April 2007. This change in the market psychology from ‘must own real estate at any cost’ to a healthy concern that real estate is overpriced is causing the end of the real estate market boom.

The aftershock of the bubble bursting will be enormous and it will affect the global economy tremendously. Billionaire investor George Soros has said that in 2007 the US will be in recession and I agree with him. I think we will be in a recession because as the real estate bubble bursts, jobs will be lost, Americans will no longer be able to cash out money from their homes, and the entire economy will slow down dramatically thus leading to recession.

In conclusion, the three reasons the real estate bubble is bursting are higher interest rates; first-time buyers being priced out of the market; and the psychology about the real estate market is changing. The recently published eBook “How To Prosper In The Changing Real Estate Market. Protect Yourself From The Bubble Now!” discusses these items in more detail.

Louis Hill, MBA received his Masters In Business Administration from the Chapman School at Florida International University, specializing in Finance. He was one of the top graduates in his class and was one of the few graduates inducted into the Beta Gamma Business Honor Society.

Mr. Hill received his undergraduate degree from the University of Florida with a double major in Finance and Risk Management.

For the past several years he has been working in a South Florida commercial real estate lender that specializes in financing real estate developers. Mr. Hill has seen firsthand the challenges and pitfalls that real estate developers are experiencing, and how the real estate market has been deteriorating rapidly. He is also a professional consultant to professional real estate developers and investors.

Future of Commercial Real Estate

Although serious supply-demand imbalances have continued to plague real estate markets into the 2000s in many areas, the mobility of capital in current sophisticated financial markets is encouraging to real estate developers. The loss of tax-shelter markets drained a significant amount of capital from real estate and, in the short run, had a devastating effect on segments of the industry. However, most experts agree that many of those driven from real estate development and the real estate finance business were unprepared and ill-suited as investors. In the long run, a return to real estate development that is grounded in the basics of economics, real demand, and real profits will benefit the industry.

Syndicated ownership of real estate was introduced in the early 2000s. Because many early investors were hurt by collapsed markets or by tax-law changes, the concept of syndication is currently being applied to more economically sound cash flow-return real estate. This return to sound economic practices will help ensure the continued growth of syndication. Real estate investment trusts (REITs), which suffered heavily in the real estate recession of the mid-1980s, have recently reappeared as an efficient vehicle for public ownership of real estate. REITs can own and operate real estate efficiently and raise equity for its purchase. The shares are more easily traded than are shares of other syndication partnerships. Thus, the REIT is likely to provide a good vehicle to satisfy the public’s desire to own real estate.

A final review of the factors that led to the problems of the 2000s is essential to understanding the opportunities that will arise in the 2000s. Real estate cycles are fundamental forces in the industry. The oversupply that exists in most product types tends to constrain development of new products, but it creates opportunities for the commercial banker.

The decade of the 2000s witnessed a boom cycle in real estate. The natural flow of the real estate cycle wherein demand exceeded supply prevailed during the 1980s and early 2000s. At that time office vacancy rates in most major markets were below 5 percent. Faced with real demand for office space and other types of income property, the development community simultaneously experienced an explosion of available capital. During the early years of the Reagan administration, deregulation of financial institutions increased the supply availability of funds, and thrifts added their funds to an already growing cadre of lenders. At the same time, the Economic Recovery and Tax Act of 1981 (ERTA) gave investors increased tax “write-off” through accelerated depreciation, reduced capital gains taxes to 20 percent, and allowed other income to be sheltered with real estate “losses.” In short, more equity and debt funding was available for real estate investment than ever before.

Even after tax reform eliminated many tax incentives in 1986 and the subsequent loss of some equity funds for real estate, two factors maintained real estate development. The trend in the 2000s was toward the development of the significant, or “trophy,” real estate projects. Office buildings in excess of one million square feet and hotels costing hundreds of millions of dollars became popular. Conceived and begun before the passage of tax reform, these huge projects were completed in the late 1990s. The second factor was the continued availability of funding for construction and development. Even with the debacle in Texas, lenders in New England continued to fund new projects. After the collapse in New England and the continued downward spiral in Texas, lenders in the mid-Atlantic region continued to lend for new construction. After regulation allowed out-of-state banking consolidations, the mergers and acquisitions of commercial banks created pressure in targeted regions. These growth surges contributed to the continuation of large-scale commercial mortgage lenders [http://www.cemlending.com] going beyond the time when an examination of the real estate cycle would have suggested a slowdown. The capital explosion of the 2000s for real estate is a capital implosion for the 2000s. The thrift industry no longer has funds available for commercial real estate. The major life insurance company lenders are struggling with mounting real estate. In related losses, while most commercial banks attempt to reduce their real estate exposure after two years of building loss reserves and taking write-downs and charge-offs. Therefore the excessive allocation of debt available in the 2000s is unlikely to create oversupply in the 2000s.

No new tax legislation that will affect real estate investment is predicted, and, for the most part, foreign investors have their own problems or opportunities outside of the United States. Therefore excessive equity capital is not expected to fuel recovery real estate excessively.

Looking back at the real estate cycle wave, it seems safe to suggest that the supply of new development will not occur in the 2000s unless warranted by real demand. Already in some markets the demand for apartments has exceeded supply and new construction has begun at a reasonable pace.

Opportunities for existing real estate that has been written to current value de-capitalized to produce current acceptable return will benefit from increased demand and restricted new supply. New development that is warranted by measurable, existing product demand can be financed with a reasonable equity contribution by the borrower. The lack of ruinous competition from lenders too eager to make real estate loans will allow reasonable loan structuring. Financing the purchase of de-capitalized existing real estate for new owners can be an excellent source of real estate loans for commercial banks.

As real estate is stabilized by a balance of demand and supply, the speed and strength of the recovery will be determined by economic factors and their effect on demand in the 2000s. Banks with the capacity and willingness to take on new real estate loans should experience some of the safest and most productive lending done in the last quarter century. Remembering the lessons of the past and returning to the basics of good real estate and good real estate lending will be the key to real estate banking in the future.

Money-making investments in the real estate

The real estate market is one where a profitable investment is always to be found; somewhere amidst the foreclosure lists or lying dormant on a real estate agent’s desk. This guide aims to give you the background necessary to allow you to find profitable investment real estate.

The first key to profiting from real estate is to find a highly motivated and urgent seller. The idea is that to negotiate a lower price on a piece of real estate requires the seller to want to sell their house quickly or desperately. If you are talking to an unmotivated seller on the telephone then it will soon be very clear that you are not going to get a discounted price on this real estate. If the seller is unmotivated then you will be unable to negotiate a lucrative deal.

One counterintuitive aspect of real estate investment is that you normally make a profit when you buy real estate and not when you sell it. This means that, while there is often little you can do to increase the value of real estate; sellers are human and are often willing to negotiate their price. Saving money while buying real estate is the key to selling homes for a profit in the real estate market.

With that in mind, your first step is to develop a list of real estate properties that you are considering investing in. You are going to need to view around ten pieces of real estate before you careful choose which one will be your chosen investment.

One useful technique for sourcing profitable real estate properties is to interview real estate agents; the people that profit from real estate on a daily basis. Interviewing a real estate agent and finding out if they own any investment real estate they would be very useful. Remember, they will be more than willing to be interviewed because you are offering them your regular custom.

Real estate agents understand the market “inside out” and can be an excellent source of investment properties with low prices because others have not seen or understood the potential of them. After you create a good relationship with some local real estate agents you will typically receive a phone call every time they notice a good property reach their desk. Remember, they receive a lot in return for this relationship because the more real estate that they sell the more commission that they earn.

Another very useful method for sourcing great real estate deals is the use of foreclosure lists. All you have to do is to search Google for “foreclosure lists” in your local area. Typically, you will have to pay a subscription fee to access this but it is definitely worth the cost.

In order to profit from foreclosure lists easily and quickly, follow these steps:

* Firstly, buy the daily foreclosure list for your area and flip through the pages.
* Select the only the real estate that has been on the list for less than thirty days.
* Highlight the real estate that is within your budget.
* Look particularly for real estate that is located in nice surroundings or desirable neighborhoods and only select properties that are within fifty miles from where you live.
* Using the internet, access the local tax records and obtain the tax value of this particular piece of real estate.
* Also, search for the real estate in question on meritrealty.org. This website is also designed to give clues as to the value of real estate.

Once you have picked a few potential properties then ask your real estate agent to take you for a viewing. If you are happy with this real estate then hire a real estate property surveyor to make sure that the house is structurally sound. This step is necessary to ensure the value of your investment.

After this point you will be in a position to make an offer on this real estate and to attempt to “buy low” in order to “sell high”.

Admittedly, finding a profitable piece of real estate is usually the result of a small amount of hard work. However, this article has put you at a great advantage in the real estate market. Also, the rewards of finding valuable real estate speak for themselves. Buying an under priced piece of real estate can mean profits of tens of thousands of dollars.

Real Estate Leads

Working with a lead generation company has given me interesting insight into both real estate leads and agents. I dealt with both ends: the consumer and the agents themselves, and my job was to make them both happy. Yeah right. Easier said than done.

The consumer side is easy – real estate leads want a home value, they want information on the market, they want a real estate agent and we get them that. The real estate agents? Well that’s another story – they pretty much wanted everything under the sun when it comes to real estate leads. They wanted to be handed people ready to list their homes with them asap, with no work involved on the agent’s part. They want listings, not real estate leads.

Well, if I could provide that consistently, all the time, I’d either have a multi-million dollar company, or I’d be doing real estate full time myself. Get this through your heads agents: there is no magic service out there that will hand you listings for a low fee. Instead, these services provide you with real estate leads and it is YOUR job to turn them into clients. Got that? Real estate leads + you = clients!

YOU went to the classes, YOU studied up on sales and marketing techniques and YOU printed up all kinds of trinkets with your name and logo on them for your real estate leads. Ergo, YOU must convince your real estate leads to work with you. And if you’re not converting them, maybe you need to take a look at your own methods, rather than immediately blame the source of the real estate leads.

By now, I’ve probably heard every excuse under the sun as to why online real estate leads are bad or bogus. And that’s all it is, an excuse, a cop out to make you feel better about not being able to turn your real estate leads into listings. That being said, here are the top 5 cop-outs I’ve heard over the years about following up with real estate leads and my responses to them.

  1. I’m a new agent and no one wants to use a new agent.

Well, how do they know you’re a new agent? Did you announce it the second you spoke with your real estate leads? You don’t need to tell all your real estate leads that you’re new. If they ask, tell them, and be honest, but don’t just volunteer the information. And how to you know “no one” wants to use a new agent – sounds like a gross generalization to me. You won’t know until you get out there and try – convince your real estate leads that to be new means you’re cutting edge, the best thing out there right now, show them what an expert you’ve become, even if you’re new to the business. Just TRY to convert them. Assuming from the start your real estate leads won’t want to use you because you’re new doesn’t even give you a chance.

  1. Some real estate leads are on the Do Not Call Registry.

So? There’s no such thing as a Do Not Knock list. If your real estate leads are on the DNC Registry and you feel THAT uncomfortable risking a call, you should have your butt in the car, directions in your hand and preparing yourself mentally for your introduction once you knock at their door. And actually, as per the basic rules of the Do Not Call Registry, if a consumer on the lists makes an inquiry (which is what online real estate leads are!), you can contact them for up to 3 months after the inquiry. So you’ve got 3 months to get them on the phone, after that, there’s still always that door! Don’t use the DNC as a cop-out method with real estate leads. It’s a flimsy excuse.

  1. It’s unprofessional to go knock on someone’s door.

This is the line I usually got after suggesting stopping by the property. My thing is, who said so? Who told you it is unprofessional to go visit your real estate leads’ homes and drop off the information they requested? That is a matter of opinion and as long as your real estate leads don’t think it’s unprofessional, you’re good. And by showing initiative and going out of your way to meet your real estate leads, you may have just earned a client for life.

  1. These real estate leads are too far from my area, or it’s in a very bad part of town.

This is probably my favorite cop out, because it just sounds ridiculous to me. If your real estate leads are too far, why did you sign up for that area? Or, if you are getting some real estate leads out of your area, how far? Most of the time, agents complain about having to drive 30 minutes away. To me, 30 minutes of my time is DEFINITELY worth the fat commission check I could get. And if some real estate leads are too far, haven’t you EVER heard of a REFERRAL COMMISSION? Find an great agent in the lead’s area and send it on over. That way you’ll still get a portion of the commission AND you’ve saved 30 precious minutes of your time.

When real estate leads are in a bad part of town, it usually means it’s a very low-value home and is located in either a ghetto or backwater somewhere. It pisses me off when real estate agents say that the home isn’t worth their time. Guess what buddy? When you got your license, you gained knowledge that others don’t have, but will need at some point. You should be willing and open to share this with your real estate leads, no matter what the economic status of their home and income is. If you don’t want to help them, no one can force you, but you are a BAD agent if you’re not at least willing to find someone who will your real estate leads.

  1. If they wanted to be contacted, they would have given all their correct contact information.

This is a tough one, because on one level I do agree with this SOMEWHAT. Real estate leads who give a good name, number, address and email seems to be more approachable than real estate leads that have fake names, or fake numbers, etc. But again, this statement is really a matter of opinion. You have NO idea what’s going through the consumer’s head when they filled out their information. Maybe they’re not technologically savvy and thought if they put their phone number over the Web, everybody would get it. Maybe they mistyped something. Maybe they don’t want to be hassled daily by telemarketer calls but DO still want the information. Until you actually touch base with your real estate leads, you have no idea where their head is at. What would hurt worse, getting a phone slammed in your ear, or missing out on a $15,000 commission because you THOUGHT they didn’t need anything since they gave a wrong phone number?

  1. On a sunny afternoon in Florida, an energetic crowd gathers on the lawn of a high end luxury estate. A loud and eager banter between an auctioneer, a group of bidders and bidder assistants fills the air. For several minutes the auctioneer asks for the next highest bid and the bidders respond. Suddenly the bidders grow silent. The high bidder holds his breath in anticipation of winning the auction. The auctioneer calls for one more bid. In a loud clear voice which rolls over the audience he says, “Fair warning, last chance” the auctioneer pauses, “SOLD!” And in less than 10 minutes another multimillion dollar estate has changed owners.

Successful real estate auctions like the one above are happening all over North America and the Caribbean. Recently real estate auctions have been on the rise, the increase in popularity is partly driven by growing inventories and fading buyer confidence. Properties that were selling in weeks using traditional methods are now languishing on the market unable to attract buyers even as seller’s lower prices. Many say the real estate boom is over but savvy buyers and sellers are profiting from real estate auctions.

Real Estate Auctions Work in Up or Down Markets.

Regardless of trends or market cycles, real estate auctions provide an open and transparent process for buyers and sellers. Properly conducted real estate auctions attract ready and willing buyers and motivate them to act now.

The auction method removes the “wait and see” attitude which serves to further depress real estate values. Buyers are always concerned about overpaying. Buyers gain confidence with their purchases at real estate auctions because they can see what others are willing to pay.

When market demand is high and inventories low, real estate auctions can deliver selling prices well above what a willing seller would have accepted in a negotiated private treaty sale. In good selling climates many property owners using traditional real estate methods; negotiating with one buyer at a time, leave thousands of dollars of equity on the table. During up markets real estate auctions are the best way to establish top market price.

Evaluating Your Real Estate for Auction

Not every property or seller for that matter makes a good candidate for auction. First of all sellers must be ready to sell now and for the current market value. Also a real estate auction will not fix problems caused by a downturn in market value of your property, if you owe more than a willing buyer will pay, be prepared to come to closing with your check book.

Properties that do well in real estate auctions have a high uniqueness factor. Ask your self, “What makes my property different from most others?” Maybe you own a resort property or high end luxury home, commercial properties and land do very well at auction. Real estate auctions thrive on uniqueness. If your property is like everyone else’s, the best thing you can do is offer the most competitive price.

Most importantly sellers must be reasonable about setting a minimum bid. A seller must look at the lowest, most current comps and price below that to generate the interest and urgency necessary for a successful real estate auction. Once the auction begins and qualified bidders start competing against one another you can watch the selling price increase.

Locate a Qualified Real Estate Auctioneer

Start by checking with the National Auctioneers Association, the best real estate auctioneers belong to this organization. These real estate auctioneers are well trained and adhere to a standard of practice and a code of ethics. Many attend the annual International Auctioneers Conference where the latest techniques and innovations in the real estate auction industry are presented.

Find out if the company you are interviewing is a full time real estate auction firm. Many real estate agents are getting auction licenses yet have no experience with the auction method of marketing. Conducting a successful real estate auction is nothing like (private treaty) traditional real estate sales. Go with a real estate auction pro.

You’re probably better of with an auction house that specializes in real estate auctions. There are many qualified auctioneers who have generations of experience selling personal property; furniture, dishes, lawn equipment and the occasional rare painting. Selling real estate at auction is a complex matter that should only be attempted by full time experienced real estate auction professionals.

Commissions and fees may vary, sellers must pay all marketing expenses up front and buyers typically pay 10% of the sales price to the auctioneer of which a share goes to participating real estate agents.

Types of Real Estate Auctions

Auctions are effective because they create a seller’s market. Professionally conducted real estate auctions create urgency, a reason to buy today and competition for the property. Terms and conditions of sale are established ahead of the auction. Real estate auctions will follow one of these three approaches:

Absolute Auction

The property is sold to the highest bidder regardless of price- using this process often returns the highest sale price.

Minimum Bid Auction

Seller agrees to sell at or above a published minimum bid price – this method is useful for internet auctions.

Seller Confirmation or Reserve Auction

With a reserve auction, the seller “reserves” the right to accept or decline any bids usually within 48 hours of the auction. Reserve auctions are used when there is a lien on the property from a lender or a court ordered sale with a minimum selling price.

New York Real Estate

This article is designed to be a roadmap for the first time homebuyer or seller. Throughout, I’ll guide you through the many steps of purchasing or selling your property and explain to you in the process how to avoid the most common mistakes. You will also learn both the legal and psychological problems often encountered.

For most people, buying (or selling) a home is one of the biggest part of living the “American dream”. It’s also probably the biggest investments they will ever make. Not surprising then, that many find this experience to be very exciting but also worrisome at the same time. Achieving the final transaction and transfer of funds for the property (referred to as the “closing”) can leave many home owners feeling exhausted, even depressed. The same can be said for buyers. However, if the process is done correctly, it can also be both interesting and exciting for everybody involved. The ultimate outcome depends on many factors: time, energy needed to devote to the transaction, thoughtfulness and patience. All these traits are included in the process, and all can have an impact on your bottom line.

That’s why preparation is key in any successful transaction. The process, complicated by multiple transactions and waiting periods, can be quite confusing. Real estate transactions require expertise. Those wanting total control of the transaction with a do-it-yourself attitude can make many costly mistakes. So unless buyers and sellers have a solid background in Real Estate, they stand to lose thousands of dollars in any given transaction.

Saving on New York Real Estate Attorney Fees

Trying to save a few extra dollars on legal fees may sound like a nice idea, especially for those with large down payments. But this strategy may backfire. You may end up being penny-wise, but broke in the long run. There are many detailed procedures involved in the purchase process that the vast majority of consumers may overlook.

In one of the biggest purchases of your life, it’s simply not the time to “bargain shop”. Remember the key criteria: if you can’t afford to see the big picture in the transaction you probably aren’t ready to close the deal. The amount of legal fees charged should not be the deciding factor in hiring a particular New York Real Estate Lawyer. You retain a New York Real Estate Lawyer because you trust that they will represent your best interest in the transaction. The bottom line is that you want a New York Real Estate Lawyer you can trust, if trust becomes an issue you are well advised to seek another New York Real Estate Lawyer, no matter how low the fees are. For the most part, a New York Real Estate Lawyers aim to satisfy their clients and keep that satisfaction within the legal bounds of the law –all at the same time. The happier their clients, the busier the New York Real Estate Attorney will be with future clients. So it makes common sense as much as it makes dollars sense to retain a New York Real Estate Lawyer who aim is to achieve the client’s goal in the real estate transaction.
Real Estate transactions involve use of standard legal language. It is quite understandable then, if a buyer or seller do not understand the terms used in the transaction. First-time homebuyers have the worst experience. That is the reason why it makes sense to hire a New York Real Estate Lawyer who can represent your interest and can help you avoid pitfalls and unnecessary problems.
If not detected prior to closing, once a problem occurs, it can take time and money to correct the situation. An attorney with experience in New York real estate law can help steer a buyer or seller away from costly mistakes.

What kind of home fits my needs?

When buying a home, you have to determine what property will fit your needs. Picking the right kind of property to purchase requires careful planning, organization, and sacrifice. Since most people don’t have the time, real estate brokers can be extremely helpful in letting you understand the many issues you might encounter. The questions involved can be overwhelming. What matters need further inquiry? Which homes come with bad neighbors? There are many matters which you need to inquire about when you look at different properties that interests you. However, some issues are common to most real estate purchases. A simple tip is to determine what borough you like to live. If you plan on living in Queens, Brooklyn, Bronx, Staten Island, Manhattan or Long Island, you may want to deal with a broker in that borough.

Coop or Condos?

Cooperatives are the most popular property purchased in New York City. One reason for this is a trend away from expense-ridden properties where foreclosures are common. Another reason for coop popularity is convenience. Deals can be less expensive (about half the price of a condo) and may involve less paperwork in the closing. Less financial stress and fewer headaches might sound good, right? But what most buyers don’t know is that when you buy a co-op, you’re NOT buying the physical apartment. Actually, you’re buying “shares” of a corporation that owns the building which contains the co-op on its land. Also keep in mind that, just like any other company, a co-op has officers such as a president, a vice-president and a treasurer. And just like any other company they’re responsible for the well being of the coop. If the coop suffers a financial meltdown, you could lose your apartment investment altogether.

What happens if I do decide to buy a coop?

You receive a stock certificate and a proprietary lease.

The co-op requires that each coop owner pay a “maintenance fee”. If you own a condo, you’ll be paying a “common charge.” Usually, the monthly fee paid by a shareholder is almost double the fee paid by condo owners.

Sometimes a co-op only “owns” the improvements, and some other company or organization owns the land. This form of co-op is not the normal situation, but it does exist. Your New York Real Estate Attorney should be able to assist you in determining if you are purchasing such a property.

Where does the maintenance fee go? How is the money spent?

When an “entity” (i.e. some organization or other company) holds a mortgage of the co-op, the coop corporation must pay a monthly mortgage payment to the bank. The “maintenance fee” charged to coop owners helps the corporation offset this cost. By charging each shareholder a charge per share the “maintenance fee” helps pay the city taxes on the property as a whole and pay for the expenses in maintaining the property (such as the superintendent or doorman) The “common charge” for a condo helps offset the expenses associated with the maintenance of the building. Elevators, painting, cleanliness and any landscaping all require funding not to mention the common areas of the residential unit.

It is important to note that the monthly fee is not fixed. Just like rent, it can be increased. In buying a condo, however, you are buying a portion of the physical building in which the apartment is located. You then own part of the building and will receive a deed to the property that shows that you are the legal owner. The common charges for condos usually tend to be stable. Most co-ops require that a seller receive approval by the board before attempting to sell. Likewise, the buyer must also be approved by the board to make sure that the buyer will be a “responsible” co-op owner. One exception to this situation is when the coop has a special status as being a “sponsor unit”. That means that when the building was converted into a co-op, the co-op conversion plans allowed the sponsor of the building to reserve the right to sell unsold shares without board approval. If you are purchasing the co-op from the original sponsor, then most likely you will not need to get board approval. The same applies to subletting the unit. In most cases you’ll need permission. In some cases, purchasing the unit from the original sponsor, may entitle you to the same rights and privileges as the sponsor.

Recently after the cost of fuel skyrocketed, many co-ops and condos monthly fees increased. So when buying a coop or condo make sure that you understand the financial future implications. Ask for the financial information before signing on the bottom line.

Should I buy a single or multi-family residence?

One of the most common dilemmas encountered when purchasing a home is whether to buy a “single-family home” or “muti-family home”. Common sense dictates that a single-family home will cost you significantly less than a multi-family home, and will appreciate accordingly. What are the advantages? The peace that comes with it is enticing for some. Not having to deal with renting to strangers, and the headaches of hiring (or being) a landlord. However, on the other side of that argument, a multi-family home can be a financial plus: the rental income helps with the monthly mortgage payments and makes ownership less financially stressful.

How can a real estate agents help me?

Normally the first person you may have direct contact with in the purchase or sale of land or residence, is a real estate agent. Most people use them rather than do it themselves. The agent works for his or her supervisor, and they are called “brokers”. The kind of relationship you have with the agent can have a major impact on how well you as a buyer or seller, understand the initial process, and transaction. Two important points: Agents can normally provide good advice and suggestions regarding your purchase or sale. Since they’re well-educated in both the property markets and their field, they are can give you past performance for a particular property. However, although the agent may seem to work for you, unless expressly contracted for, they normally work for the seller!

What is a Binder? Why is it important?

A binder (otherwise known as an “offer to purchase”) is the first document secured by a minimal money deposit. You will normally sign a binder at the moment that you decide to make the seller an offer to purchase. This tells the seller that you are serious about making the purchase. Once the Binder Agreement is executed, the real estate broker or agent will present it to the seller. If accepted, the property will no longer be shown to potential buyers. It is important to note that the binder, unlike a contract of sale, is subject to a time limit. Unless the binder details the money to be refunded, it will be forfeited under most circumstances.

What should I know about the “Contract of Sale”?

The contract of sale is the first formal stage of the buying and selling process. When you have retained a New York Real Estate Lawyer and have made an acceptable offer, at this point in time, you and the seller will sign a contract of sale. The seller’s New York Real Estate Attorney will normally draft the contract and then the buyer’s New York Real Estate Attorney will review the contract to make sure that you are protected from any future problems (both legal and residential issues).

It’s also important to note that when the buyer signs the contract, a “Down Payment” is given to the seller for the seller’s New York Real Estate Attorney to hold in a special account called an “Escrow”. The seller’s New York Real Estate Attorney is required by ethical rules to do so. However, not to worry: the entire amount will of course, be credited to the buyer and applied to the final outstanding balance at “closing.”

The biggest mistake a buyer or seller can make is signing a contract of sale before getting adequate legal representation. A contract of sale is an agreement to purchase and sell the property. Once it’s signed, it becomes a legal document. If you change your mind and want to change the terms of the agreement or if you want out of the transaction altogether, then you will find yourself in an extremely frustrating legal bind. That’s why an experienced New York Real Estate Lawyer is necessary throughout the process, especially at the beginning stages. The contract of sale dictates exactly how the transaction will proceed. It says how payments will be made and collected, and contains all the important details. Tell your New York Real Estate Lawyer every detail which you think is important and essential to you intensions. For example, maybe you are selling another property while simultaneously buying a home. Since the sale of your property is a condition, that condition is a major detail that you should tell your New York Real Estate Lawyer since, the other “party” may have not accepted your offer had they known such a condition.

Another issue that sometimes comes up is the issue of occupancy. Generally a house is sold vacant. However, if you would like to keep the existing tenants, it is a good idea to tell your New York Real Estate Lawyer (assuming it’s not a new construction), and that by itself can save you time and hassle in the process of renting the property later on.

As a seller, should I have my home inspected?

Home inspections can sometimes make or break the deal. A New York Real Estate Lawyer can secure a condition in the contract of sale which allows the buyer to refuse to purchase the property if the home inspector determines that the structure is not physically sound. Termite problems or signs of other wood-destroying insects are great reasons for a buyer to opt out of the contract. In such cases the seller usually return the buyer’s down payment and everybody walks away from the table. Home inspections are relatively convenient, inexpensive and will save you a lot of time and money.

Finding a New York Real Estate Lawyer?

When looking for legal representation, most importantly, you want a New York Real Estate Attorney whom you feel comfortable with. If you don’t feel comfortable with a particular New York Real Estate Attorney, chances are that you will not have a good working relationship.

An experienced New York Real Estate Lawyer, who you feel comfortable with, can be greatly beneficial in explaining and reducing the mystery out of buying or selling real estate in New York. Your New York Real Estate Lawyer can review and prepare the contract of sale, order title insurance, and conduct key parts of the transaction. Making sure the property you are purchasing has no undisclosed liens. If they do exist, your New York Real Estate Lawyer can take care that they will be satisfied prior to the closing.

The last thing you need is to have doubts and questions about your transaction. You want to make sure that after all the documents are signed and notarized, that you understand what just happened and that you are confident that everything was done correctly.

When should I close the deal?

The closing is the climax of the transaction. The buyer’s New York Real Estate Attorney is normally the ringmaster who coordinates the time and place of the closing. The closing is where the parties meet to finalize the deal. Normally the parties you will see at the meeting are the seller and their New York Real Estate Attorney, the bank’s New York Real Estate Attorney, and the title representative. What occurs at the closing table can be broken down to three major steps:

The bank makes the loan to the buyer and in return the buyer gives the bank an interest in the property (Mortgage)

The buyer turns that loan over to the seller and in turn receives a deed from the seller

The title company makes certain that the seller does indeed own the property they are transferring

Unless there are any serious outstanding issues, the closing can take about 2-3 hours. At this stage, the buyer should have obtained homeowners Insurance prior to the closing. Since not all insurance companies charge the same prices for the replacement value of a house you might want to shop around before the closing.

Commercial Real Estate

Real estate has always been known as the safest of investments.

In fact, real estate investment completed after proper research into and evaluation of the property (to determine actual and future value), can lead to tremendous profit.
This is one reason many people choose real estate investment as their full time job.

Discussions about real estate tend to focus on residential real estate; commercial real estate, except to seasoned investors, typically seems to take a back seat.
However, commercial real estate is also a great option for investing in real estate.

Commercial real estate includes a large variety of property types.
To a majority of people, commercial real estate is only office complexes or factories or industrial units.
However, that is not all of commercial real estate. There is far more to commercial real estate.
Strip malls, health care centers, retail units and warehouse are all good examples of commercial real estate as is vacant land.
Even residential properties like apartments (or any property that consists of more than four residential units) are considered commercial real estate. In fact, such commercial real estate is very much in demand.

So, is commercial real estate really profitable?
Absolutely, in fact if it were not profitable I would not be writing about commercial real estate at all!!
However, with commercial real estate recognizing the opportunity is a bit more difficult when compared to residential real estate.
But commercial real estate profits can be huge (in fact, much bigger than you might realize from a residential real estate transaction of the same size).

There are many reasons to delve into commercial real estate investment.
For example you might purchase to resell after a certain appreciation level has occurred or to generate a substantial income by leasing the property out to retailers or other business types or both.

In fact, commercial real estate development is treated as a preliminary
indicator of the impending growth of the residential real estate market.
Therefore, once you recognize the probability of significant commercial growth within a region (whatever the reason i.e. municipal tax concessions), you should begin to evaluate the potential for appreciation in commercial real estate prices and implement your investment strategy quickly.

Regarding commercial real estate investment strategies it is important that you identify and set investment goals (i.e. immediate income through rental vs later investment income through resale) and that you know what you can afford and how you will effect the purchase.

It would be wise to determine your goals then meet with your banker (or financier(s)) prior to viewing and selecting your commercial real estate.

Also remain open minded and understand that should the right (perfect)
opportunity present itself, your investment strategy might need to be revisited and altered, sometimes considerably.
For example: If you find that commercial real estate, (i.e. land) is available in big chunks which are too expensive for you to buy alone but represents tremendous opportunity, you could look at forming a small investor group (i.e. with friends or family) and buy it together (then split the profits later).

Or in another case (i.e. when a retail boom is expected in a region), though your commercial real estate investment strategy was devised around purchasing vacant land, you might find it more profitable to buy a property such as a strip mall or small plaza that you can lease to retailers or a property that you can convert into a warehouse for the purpose of renting to small businesses.

So in a nutshell, commercial real estate presents a veritable plethora of
investing opportunities, you just need to recognize them and go for it.

Pop Quiz Commercial Real Estate

I read once that if you took all the real estate lawyers in Illinois and laid them end to end along the equator – it would be a good idea to leave them there. That’s what I read. What do you suppose that means?

I have written before about the need to exercise due diligence when purchasing commercial real estate. The need to investigate, before Closing, every significant aspect of the property you are acquiring. The importance of evaluating each commercial real estate transaction with a mindset that once the Closing occurs, there is no going back. The Seller has your money and is gone. If post-Closing problems arise, Seller’s contract representations and warranties will, at best, mean expensive litigation. CAVEAT EMPTOR! “Let the buyer beware!”

Paying extra attention at the beginning of a commercial real estate transaction to “get it right” can save tens of thousands of dollars when the deal goes bad. It’s like the old Fram® oil filter slogan during the 1970’s: “You can pay me now – or pay me later”. In commercial real estate, however, “later” may be too late.

Buying commercial real estate is NOT like buying a home. It is not. It is not. It is NOT.

In Illinois, and many other states, virtually every residential real estate closing requires a lawyer for the buyer and a lawyer for the seller. This is probably smart. It is good consumer protection.

The “problem” this causes, however, is that every lawyer handling residential real estate transactions considers himself or herself a “real estate lawyer”, capable of handling any real estate transaction that may arise.

We learned in law school that there are only two kinds of property: real estate and personal property. Therefore – we intuit – if we are competent to handle a residential real estate closing, we must be competent to handle a commercial real estate closing. They are each “real estate”, right?

ANSWER: Yes, they are each real estate. No, they are not the same.

The legal issues and risks in a commercial real estate transaction are remarkably different from the legal issues and risks in a residential real estate transaction. Most are not even remotely similar. Attorneys concentrating their practice handling residential real estate closings do not face the same issues as attorneys concentrating their practice in commercial real estate.

It is a matter of experience. You either know the issues and risks inherent in commercial real estate transactions – and know how to deal with them – or you don’t.

A key point to remember is that the myriad consumer protection laws that protect residential home buyers have no application to – and provide no protection for – buyers of commercial real estate.

Competent commercial real estate practice requires focused and concentrated investigation of all issues material to the transaction by someone who knows what they are looking for. In short, it requires the exercise of “due diligence”.

I admit – the exercise of due diligence is not cheap, but the failure to exercise due diligence can create a financial disaster for the commercial real estate investor. Don’t be “penny wise and pound foolish”.

If you are buying a home, hire an attorney who regularly represents home buyers. If you are buying commercial real estate, hire an attorney who regularly represents commercial real estate buyers.

Years ago I stopped handling residential real estate transactions. As an active commercial real estate attorney, even I hire residential real estate counsel for my own home purchases. I do that because residential real estate practice is fundamentally different from commercial real estate.

Maybe I do “harp” on the need for competent counsel experienced in commercial real estate transactions. I genuinely believe it. I believe it is essential. I believe if you are going to invest in commercial real estate, you must apply your critical thinking skills and be smart.

POP QUIZ: Here’s is a simple test of YOUR critical thinking skills:

Please read the following Scenarios and answer the questions TRUE or FALSE:

Scenario No. 1: It’s Valentine’s Day. You are in hot pursuit of the love of your life. A few weeks ago, she confided in you that all she ever dreamed of for Valentine’s Day was that her lover would show up at her door, dressed in a white tuxedo with tails and a top hat, and present her with a beautiful bouquet of flowers. You’ve rented the tuxedo, but now you are concerned about how much money you are spending.

TRUE OR FALSE: Since flowers are pretty much all the same, it is OK for you to skip the roses and show up with a bouquet of fresh yellow dandelions.

Scenario No. 2: For several years you eyesight deteriorated to the point where you can barely see your alarm clock. You are now considering corrective eye surgery so you won’t need glasses. Your sister-in-law had corrective eye surgery and has had spectacular results. She recommends her eye surgeon, but mentions the cost is about $5,700 for both eyes and that the surgery is not covered by insurance. A few years ago, you had surgery to correct your hemorrhoids and it cost you only eight hundred bucks.

TRUE OR FALSE: Since surgeons all went to medical school and are all medical doctors, you are being frugal and wise by asking the surgeon who performed your hemorrhoid surgery to perform your corrective eye surgery.

Scenario No. 3: Several years ago, when you first got married, you asked a former classmate who is a lawyer to represent you in the purchase of your townhome. The cost was only $375. A year later, you started a family and decided you needed a Will. The same attorney prepared Wills for you and your wife for a total cost of $700. You started your own business and your attorney friend formed a corporation for you and charged you only $600 plus the cost of the corporate minute book. Years later, when your son was arrested for misdemeanor reckless driving, your attorney friend handled the criminal case and got your son off with supervision for only $1,500.

Your business has been successful and you have built a pretty sizable nest egg, but you are tired of working for every dime and want to try investing in real estate. You have your eye on a strip shopping center. It includes a grocery store, bank, hardware store, dry cleaners (on a month to month tenancy), a couple of fast food restaurants, a gift shop, dental office, bowling alley (with a lease about to expire), and wraps behind a gas station/mini-mart on the corner. The purchase price is $8,000,000, but the net operating income looks pretty good. You figure if you turn the bowling alley into a full service restaurant/banquet facility, and convert the dry cleaners into a 24-hour coin laundry, the net operating income will increase and the shopping center will turn into a spectacular investment. You plan to pull together much of your life savings and put down $2,000,000 to buy this strip shopping center, borrowing the balance of $6,000,000. You remember that your lawyer friend handled the purchase of your home several years ago, so you know he handles real estate.

TRUE OR FALSE: Commercial real estate is the same as residential real estate [Hey, its all dirt, isn’t it (?)], so you are being a shrewd businessman by hiring your lawyer friend who will charge much less than a lawyer who handles shopping center purchases several time a year. [What is this “due diligence” stuff anyway?]

ANSWERS:

If you answered “TRUE” for any of the foregoing Scenarios

STOP!

The Quiz is over.

Please find a quite place to reflect upon your life and consider whether the decisions you make consistently give you the results you desire.

If, on the other hand, you understand that the answer to each of the foregoing questions is FALSE, I am available to help you in Scenario No. 3.

For Scenario No. 2, you should follow your sister-in-law’s suggestion and contact her eye surgeon, or some other eye surgeon with equal skill.

For Scenario No. 1, you are on your own. [But, if you answered TRUE for Scenario No. 1, you may be FOREVER on you own.]

Investing in commercial real estate can be profitable and rewarding – but it requires good critical thinking skills and competent counsel.

You have a have a brain. It is strongly recommended that you use it.

  1. Kymn Harp is a seasoned attorney based in Chicago, Illinois with 30 years experience representing commercial real estate investors, lenders and developers. He is a frequent speaker at continuing education seminars, and is a widely published author on commercial and industrial real estate topics including due diligence, entitlements, commercial real estate financing, and Brownfield development and financing.