Next Tuesday, July 10th from 6pm to 8pm. Rocket is officially launching Rocket Ed with a seminar on how to get approved for unsecured, stated-income, business lines of credit that don’t even show up on your credit report. They don’t even care how you’ll use the funds (as in, you could use them for down payments on properties if you’d like). About the easiest and most flexible form of OPM there is. A banker from Wells Fargo will begin speaking at Rocket at 6pm. Hope to see you there!

Over the past year or two, most of the down payment assistance (DPA) programs have been shut down by the IRS. These pseudo-non-profits only existed in the first place due to what was destined to be a short-lived legal loophole: allowable, unsourced, unseasoned gift-funds on FHA programs and/or creative HUD-1 Settlement Statement slight-of-hand worked by title companies and other file closers. Recently, one of the only remaining DPAs, Neighborhood Gold, was finally shut down as well, with their last day in business to be July 3rd. The fact that Neighborhood Gold, one of the biggest and most reputable, has now closed, I doubt there will be any left standing at all before too long. (I’m not sure if there are any left at all anymore, but I don’t have any sort of comprehensive list to cross-check.)

What does this mean for investors? Well, in the short term, it won’t do any good for house values, as the supply of first-time homebuyers is cut ever so slightly. However, we’ve already seen the bulk of the effect that the loss of these programs will cause, because many of these programs have been gone for a year or more.

On the other hand, one could argue that down payment assistance was a quasi-legal workaround that simply inflated home values by 3% per transaction, and the elimination of DPAs will create a more stable market. Theoretically, that’s a good thing, but I think this is a pretty minor effect among a sea of much bigger market influences floating around out there.

Much more important to investors is the fact that a larger barrier to entry into homeownership increases the numbers of renters in the market. This boosts rents and decreases vacancies, which in turn stabilizes rental property profits and lifts values on multi-unit rentals, despite what it has already theoretically done to SFR values. I tend to think that is a natural market correction that is somewhat needed right now, seeing as how values of rentals and other property types have far exceeded the proportional rents needed to support and justify those values. In other words, cap rates have fallen over time–due in part to the availability of high-LTV, low-interest, low-credit financing–and perhaps this is a correction that will help boost long-term returns. Guess we’ll have to wait and see.

Cities go through circular cycles of about 8-10 years, sometimes shorter, sometimes longer. They go from buyers’ market to sellers’ market and back in roughly that period of time. True to form, Denver saw crazy annual appreciation (10-30% and higher) in the late 90s, when it was one of the hottest sellers’ markets in the country. Then Denver went very flat (1-5% appreciation) for the past six to seven years, as a long period of buyers’ market. Essentially, we missed the boom that the rest of the country saw. Now, we’re starting to see job creation, hot high-end commercial development, city rejuvenation, lots of infill projects, expanding public transportation, ultra-low vacancy rates, and other signs that support the swing back into a sellers’ market soon. The timing is right, and we’re already beginning to see some big gains in certain pockets around the city. Certain types of listed properties are getting bidding wars, and things are finally heating up and getting fun for us.

Denver has averaged 8% annual appreciation consistantly for many decades. Any extended flat periods are always bracketed by sharp increases in values, and that trend is true for nearly any real estate market anywhere. Now, after six to seven years of 1-5% appreciation per year, we’ve finally been seeing 3-5% appreciation per quarter in many zip codes within one or two miles of downtown Denver. In other words, the latest data matches what the historical trends predict: fast and furious appreciation in Denver in the coming months and years.

Personally, I have several properties that have gone up over 20% in value each of the last two years, based on recent appraisals vs. older appraisals and/or original purchase prices. And it’s only getting better and better at this point in the game. Don’t let your Eeyore attitude, what-ifs, and paralysis analysis keep you from getting in the game. We’re clearly in the early stages of a buyers market, and buyers’ markets make millionaires.

Consider this is the unofficial launch of Rocket Ed. Rocket Ed is an ongoing series of seminars and classes on varying topics of interest to real estate investors. Our next class will be: Unsecured Business Lines of Credit, and How to Use Them to Support Your Investing Strategies. (FYI, they’re super-easy to get and don’t even report to your personal credit report!) We will host these short informational evening sessions once a month as an extension of The Astronauts: A Real Estate Investors Club, followed by some time to network with other investors. The date for this seminar will be set within the next couple days, so make sure to check back in and RSVP. Oh yeah, they’re totally free, and there are snacks and beverages to be had, so what’s to lose?

Also, we have created the Rocket Ed Calendar. This calendar lists every class, workshop, seminar, or event about anything remotely related to property investing, offered by anyone in entire metro area. In short, this is your continual MBA in real estate investing. Feel free to email me with events to add to the list. It’s currently far from exhaustive, but we gotta start somewhere. Here is the link:

http://www.google.com/calendar/embed?src=jenniedurant%40gmail.com

Rocket is now hiring for the position of real estate broker. Working as a mortgage broker or real estate broker with a focus on investment properties is the best way to jump in with both feet and become a true real estate expert in a matter of months. OK, the second best way, behind actually buying investment properties. But even if you already are buying real estate, this will dramatically accelerate you down the path. Want to retire in less than ten years like Ryan in the earlier post? This is the way to get there.

If that wasn’t enough of a teaser to get you to call us, how about this: We pay a 100% commission split to our brokers, and there is no desk fee. We only require a small admin fee for every closed file. It’s quite possibly the best compensation package in the city. 

If you’re interested, send us an email with your resume to: rocket@rocketmortgage.net

Recently, several nationwide 1031 Exchange companies have stolen a lot of money from their investors. A lot meaning upwards of $100 million or more. Many of these defrauded investors are located right here in Denver. Basically, the scam goes like this:

Investors, like you or me, needing a Qualified Intermediary (QI) place the proceeds from the sales of their real estate into escrow with a QI (these are the 1031 exchange companies). The investors identify the new properties they want to purchases within the required 45 days. Then, when it comes time to close on these new properties upwards of six months later, they find that the funds are no longer there, the QI has filed for bankruptcy, and the QI principals you were dealing with may not even be in the country anymore. Not only were your hard-earned real estate profits stolen, but now your 1031 exchange will expire, and you’ll have to pay taxes on profits you no longer have. A lot of taxes. And the IRS is not letting these innocent investors off the hook.

Because of the loss of equity and the inability of pay a large tax liability, these 1031 frauds are forcing a great many innocent and otherwise successful investors into immediate bankruptcy. Some individual investors have even lost tens of millions of dollars. Your only real recourse is to sue the QI, but good luck ever retrieving your funds. This is big news, and it is scary.

The lesson here is not to avoid investing in real estate, nor is it to avoid doing 1031 exchanges. The lesson is to research the 1031 exchange company, call their references, and only do business with established and reputable firms that set up individual holding accounts for each exchange. Then, make sure to periodically check the balance on that account.

The frauds were occuring within firms that set up one large bank account to hold all the funds for everyone. Because 1031 exchanges take so long to execute and there was no way for investors to check on their own funds, it became easy for the QI hide, for a long time, the fact that they were stealing enormous quantities of money. Stealing becomes very difficult to pull off when there are individual, trackable accounts. Also, odds are good they’ll get caught long before they get a chance to steal very much from very many.

Keep your eyes open and do your homework, and you should be OK. Here are a couple other articles on the subject:

http://www.lasvegasnow.com/Global/story.asp?S=6048364

http://www.sonorancity.com/sonoran_city_news/2007/02/1031_exchange_c.html

For those ambitious investers out there, you may have already come up against the barrier of how many mortgaged residential properties that lenders will allow you to possess. Traditionally, that number was 20 total properties, and some lenders allowed even fewer. Any more than that, and you could not easily finance any new purchases. Well, with the shift toward conservative underwriting that many banks have undergone in recent months, very few lenders are allowing even 20 anymore. The limit is now often seven or ten total mortgaged properties.

One way around that limit is to replace your individual mortgages with one blanket mortgage. A blanket mortgage is a giant loan that pays off all your individual mortgages, often at better rates than the smaller mortgages were, and collateralizes the whole portfolio. This also makes paying bills and bookkeeping much easier. For example, if you have 30 properties, each with two mortgages, you could refinance into a single blanket mortgage, paying off all sixty liens and collateralizing all 30 properties. If you want to sell one or two properties, you still can, as you can set up partial releases from the blanket for each property within the portfolio.

The blanket often will not even report to your personal credit report, and it will certainly help you qualify for new puchases differently than all the individual mortgages will. Also, the bank may even consider adding new properties to the blanket. Many large banks, such as WaMu, Wells Fargo, and Chase, will offer blanket mortgages. Talk to your own personal banker to find out more.

Time for another Cashflow 101 game night and meeting of The Astronauts real estate investors club. It’s scheduled for Saturday, May 23rd from 5-9pm. It’s at the Rocket office at 1402 W. 38th Avenue, Denver. This is the SW corner of 38th and Mariposa, just a few blocks west of I-25.

As always, pizza, snacks, and beverages will be served. Beginners welcome, bring a friend. Please RSVP so we can plan food and drinks accordingly.

Here is the link for more details:
http://realestate.meetup.com/429

See you then

If you have a Denver business and are considering buying a commercial space, the City of Denver may just lend you up to 50% of the funds you need to acquire and renovate your building, and at interest rates between 3-6% and flexible terms. Amazing.

It’s called the Neighborhood Business Revitalization Loan Program. There are some requirements, such as job creation and restricted locations, but if you qualify, this loan program could help you into a great commercial building in one of several hot areas with minimal cash out of pocket.

http://www.milehigh.com/business/financing/nbr-loan-program

Similarly, there is another program called the Revolving Loan Fund Program that provides up to 25% of total project costs for real estate projects that support the arts in some way.

http://www.milehigh.com/business/financing/rlf-loan-program 

Again, three are some job creation and location requirements, but if your project qualifies, you can get into a commercial building with minimal out of pocket. More importantly, you will be providing a great service to the community, which is why the city created these programs, and why I’m such a fan of them. 

Talk to your accountant about itemizing the depreciation schedule on your investment properties. While the improvements (i.e. buildings) can only be depreciated over 27.5 years on residential rentals and 39 years for office buildings, many of the smaller items like appliances, furniture, and fencing can be depreciated over a shorter period. And if you do truly have to replace them periodically, you do not have to recoup those depreciation “losses.”

Local investors, Robert and Sue Ann Kelly, are featured in a Forbes.com article detailing how this works. It’s worth reading. Here is the link:

http://www.forbes.com/free_forbes/2007/0604/174.html