Is history repeating itself?

Rapid price increases will not last forever.

The current growth in home prices is echoing the lead-up to the recession.  Is history repeating itself?

 

The answer is likely not, according to a recently released realtor.com® report.  Building is lacking in many markets—one hallmark 10 years ago was over-construction—and credit standards are more stringent, says Danielle Hale, chief economist of realtor.com.

“As we compare today’s market dynamics to those of a decade ago, it’s important to remember rising prices didn’t cause the housing crash,” Hale says.  It was rising prices stoked by subprime and low documentation mortgages, as well as people looking for short-term gains—versus today’s truer market vitality—that created the environment for the crash.”

In 2016, home prices (the national median home sales price) were 2 percent higher than they were in 2006, the report reveals. Pre-recession prices have returned in 31 of the 50 largest metropolitan areas.

In contrast with 2006, however, are today’s credit conditions. Currently, the median FICO score for a mortgage is 734; the median in 2006 was 700.

Builds and flips are also different from 2006—starkly.  The credit environment, among other factors, is keeping a lid on unfettered flipping and over-construction.  In 2006, one household formation generally equaled 1.4 single-family housing starts; in 2016, that number shrank to 0.7 single-family starts.  Flips accounted for 5 percent of sales in 2016; in 2006, they comprised 8.6 percent.

“Lending standards are critical to the health of the market,” says Hale.  “Unlike today, the boom’s under-regulated lending environment allowed borrowing beyond repayable amounts and atypical mortgage products, which pushed up home prices without the backing of income and equity.”

Additionally, economic indicators point elsewhere.  Employment was healthy then and is now, but inventory is limited more today—at a 20-year low.  Presently, the average months supply is 4.2; in 2007, the average months supply was 6.4.

 

Featured Listings:   Price Reductions

Beautiful one level brick 3 BD/2 BA complete w/incredible views of the Smokies & of a beautiful pond adj. to this property.  More info
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Resting atop 1.49 beautiful acres you’ll discover an architectural gem of 5000+ sq ft, 4 BD / 3 BA.   Views of Mt. LeConte & Clingman’s dome.  More info

Tools for Real Estate Investment 101: Self-Directed IRA’s and Your Real Estate Investment Needs

Real Estate Deals

As home prices continue their gradual trend of rising during 2013, there are various investment tools that can be utilized by potential buyers and/or sellers in considering whether or not to invest in real estate, especially here in the Great Smoky Mountain real estate market. Today, we will focus on one of these investment tools, which has gained popularity in recent years, namely that of the self-directed IRA (Individual Retirement Account).

A Self-directed Individual Retirement Account (IRA) is not your typical IRA since it allows the account owner to invest in a wider set of assets than those offered by custodians and trustees of traditional IRAs. This separates a Self-directed IRA from other types of IRAs since the account holder can decide what permissible investments to put his or her money into without having the custodian or trustee set a limit on what investments to pursue, hence the term “self-directed.” In other words, the account holder is limited only by the rules set by the Internal Revenue Service (IRS) and of course, his or her choice of investments. In addition, the custodian or trustee is also in charge of facilitating all other transactions that involve the Self-directed IRA.

Some potential advantages of using a Self-directed IRA include, but are not excluded to, the following:

1.) Having a Self-directed IRA allows an account holder to purchase properties anywhere that’s allowed by law. Almost every type of real estate is permissible such as residential and commercial property, real estate options, and the like.

2.) Purchasing property can also be done without paying all the required capital. For example, account holders can participate in a limited liability company (LLC) that directly invests in real estate.

3.) Many account holders have already taken advantage of the current buyers’ market where property prices are low and foreclosure rates are high. They can attest to how they’ve benefited from their diversified portfolio within their Self-directed IRA.

4.) Usually, real estate investments purchased within a Self-directed IRA are intended as long-term investments. This means that once an account holder buys a property, they will hold onto it until its value appreciates and is ready to be sold. In other words, the “buy-low, sell-high” concept is well suited for this type of IRA.

5.) Selling an IRA-owned home lets the owner avoid paying capital gains tax if the proceeds are rolled back into the IRA. This especially applies to those who rehab properties in rundown condition and flip them for quick profit.

However, there are limitations as to what a Self-directed IRA can do, including, but not excluded to, the following:

1.) The Self-directed IRA cannot purchase real estate from a “disqualified person” either directly or indirectly. It also prohibits a “disqualified person” from using a property purchased within a Self-directed IRA. A “disqualified person” includes, but is not excluded to: Your spouse, your lineal ascendants/descendants and their spouses, plan fiduciaries (including advisors, custodians, and administrators), an entity (i.e., estate, corporation, etc.) where you own at least 50% of the voting stock, directly or indirectly, and anyone providing services to the plan.

2.) The purchased property cannot be used by the account holder – not even for a night. Only qualified people may use it and this does not include one’s relatives. Unless the account holder is 59 and a half years old and retired, then living in the investment property is deemed illegal.

3.) Account holders and family members cannot buy or sell property directly from their IRA. Likewise, it is also forbidden to buy or sell directly from the companies or enterprises that they own.

4.) Borrowing or lending money from the IRA is not allowed, and the IRA cannot be used to lend money to family members or as collateral for any type of loan.

5.) IRA funds and personal accounts cannot be combined or co-mingled.

6.) Those involved in the servicing of the Self-directed IRA account are not allowed to participate in any transaction that involves the account.

With a Self-directed IRA, you will have to find a reliable custodian or trustee to open an account and comply with the IRS requirements, and set up the account with a bank or other financial institution. When an investment property has been selected, the account holder would then authorize the custodian to pay a deposit from the Self-directed IRA by signing an authorization form. After which, the account holder must complete the necessary documents and forward them to the custodian or trustee. The closing agent will then coordinate the remainder of the transaction and release any additional funds required.

Finally, Self-directed IRA’s, like any other investment in real estate, do involve a lot of risk. First, it is recommended that one invests only 25 percent at the most if you are not inclined to be a “risk taker.” With the prices of properties at their current levels, you can probably find one that you may like. Second, keep in mind that the Self-directed IRA is making the investment — not you or anyone else. You can’t simply take the cash flow that you earn from your investment property since the custodian or trustee is in charge of it through your IRA. Third, be sure to leave enough funds in your Self-directed IRA to cover unexpected expenses related to your property, such as tenant turnover, maintenance and repairs. This will put you in a safe position should you incur any “additional” costs. Finally, please always seek the advice of qualified real estate investment professionals that can help you find the properties that would be best suited for your overall retirement goals. Like anything else, always ask questions, and make sure to get as much as information as you can before using this investment tool, or any other investment tool, before deciding to act on it.

With this basic knowledge and understanding of a potentially powerful investment tool for real estate, why not see what the Great Smoky Mountains real market can offer you today? Please feel free to browse our available properties, and let one of our buyer specialists help realize your home ownership dreams today! Come and see what the Great Smoky Mountains can offer you today!

Here Are A Few of My Featured Listings:

Nice Ranch-Style Home in Sevierville! Beautiful, well-maintained, 1,300+ sq ft, 3 BD/2 BA ranch-style home located in Sevierville, is walking distance to the nearby Pigeon River, along with being mins. to Dollywood, Pigeon Forge, and downtown Sevierville! Type: Single Family Home Location: Sevierville,TN Price: $159,900 Get more information >
Beautiful Private Cabin w/City View Beautiful, private 4 Bedroom/3 Bathroom cabin located just below Ober Gatlinburg w/a 20-mile view! Type: Single Family Home Location: Gatlinburg,Tennessee Price: $195,000 Get more information >
Great Views & Privacy This three level cabin has consistently produced right at $30k a year in rental income every year since 2007! Located on a private lot it features a great view and a lot of windows and deck space for enjoying the scenery Type: Single Family Home Location: Pigeon Forge Price: $279,900 Get more information >


The Jason White Team
Century 21 Four Seasons Realty
1441 Wiley Oakley Dr
Gatlinburg, TN 37738
Toll Free: 877-678-2121
Fax: 865-436-7227
Email: jason@jasonwhiteteam.com
Website: www.SmokyMountainLifestyle.com