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$20,000 in Property Tax and Other Revenue Lost to Each Foreclosure

One of the consequences of building a business model on the assumption of perpetually rising housing prices is that, when those values stop rising and actually begin falling, it becomes increasingly difficult to stay in operations at the previous bubble level. Local governments are finding this out the hard way, as they struggle to generate revenue through property taxes in the midst of high foreclosure rates.

Homeowners who end up facing foreclosure can expect to pay an average of over $7,000 if they get back on track. This includes administrative fees the bank charges, late fees, legal fees, foreclosure costs, accelerated interest, and whatever other junk fees the bank can come up with. While this seems like a large amount of money, it is a small sum compared to how much the typical foreclosure costs the local government.

When a house goes into foreclosure and the lender ends up purchasing the house back at the auction, it often sits empty and falls into a state of disrepair. The longer it sits on the market with no buyers, the more it will deteriorate and the more drag it will have on local property values. The government will also be expected to provide services to the property even though it is generating little, if any, property tax revenue.

Just to keep up on the property, including utilities, sewer and water services, upkeep and maintenance, and property taxes, local governments lose an average of $20,000 per foreclosed house. During the boom, these same properties may have generated thousands of dollars per year in taxes and service charges while requiring no government involvement in maintenance or upkeep.

Local governments, therefore, should be expected to do whatever they can to attempt to change this new outflow of funds and loss of tax dollars when homeowners are unable to stop foreclosure. Unfortunately, instead of cutting back on salaries or staff and cutting tax rates to encourage new buyers to purchase these foreclosed homes, counties and cities have turned to coercion and violence to make up budget shortfalls.

Thus, there are more speed traps to hand out tickets to drivers putting no one in danger but operating a vehicle in a manner contrary to bureaucratic opinion. Parking meters in large cities are more expensive, run fast, and fill up sooner, while drivers receiving parking tickets anyway. Property taxes stay the same, if not rise, during the depression, which discourages properties in the area from being sold.

More rules, regulations, fees, fines, taxes, and stimulus packages will not encourage a turnaround in the housing market or the economy. These just increase the burden private people have to bear to fund varying levels of government that are running out of money anyway. While all of us have to get by on less income and save more, politicians and bureaucrats believe that they can solve all the problems just taking and making more money.

But the more government services weigh down communities and the nation as a whole, the longer it will take for business and people to recover. The less money we all have to spend on the things we want, the fewer businesses will be able to provide those goods and services and the more unemployed people we will have. This is unfortunate, and the nation needs to shake off the burdens of government to recover.

How to Buy Apartment Buildings and Create Wealth in Today’s Economy

Too many investors are under the mistaken impression that real estate is no longer a viable vehicle for their money. The reality is multi-family apartments can be an excellent addition to an investment portfolio. In these troubled financial times many families are being forced from their single-family dwellings, going from homeowner to renter and apartment buildings are more in demand than ever before.

With foreclosures coming at a record pace in this country, many people are finding it difficult to find affordable housing to replace their homes they can no longer afford with rising mortgage costs. Additionally, refinancing their existing home has become more difficult with tighter controls over mortgage loans, making it more difficult to secure funding for getting out from under their heavy debt. Many real estate investors shy away from owning rental properties, with visions of the perceived problems often associated with apartment ownership.

The idea of spending their free time maintaining rental properties and chasing down late rents has many investors turning to other form of investments to round out their portfolios. However, the return on an apartment building investment, especially in today’s volatile housing market, should provide the savvy investor more reasons to consider this type of investment. Understand that no matter the condition of the economy, people will always need a place to live.

Consider the opportunity to buy other forms of investments, such as stocks and bonds, with 20 percent down. There are very few opportunities for this to happen with most investments. On the other hand, an investor that can put down 20 percent of the purchase price for an apartment building has a good chance of securing the needed funding to purchase the property. Buying an apartment building offers investors millions of potential renters and provides a better return on their money than buying into foreclosed homes in an already depreciating market. In fact many people use owner financing and actually buy apartment buildings with no money down at all!

When looking for apartments, caution must be used to ensure the property has been cared for and can be purchased at the current market value instead of an inflated price. Many existing properties, that have been well maintained, can offer the opportunity to receive higher rents that can compete with newer apartment complexes, without the higher initial purchase price.

With any investment in real estate, the main benefit of ownership is being able to leverage the investment. With most lenders willing to loan 80 percent of the property’s value, any valuation increase will not only increase the property value, but will also improve the return on the buyer’s initial investment. Apartment owners can count on the cash flow from their investment, that is money left over every month once all expenses have been deducted from the rent income. This cash can be placed into an interest-bearing account to add to the return on the investment.

An apartment building in the right neighborhood can also improve the overall property values in the neighborhood with appropriate maintenance and an owner that considers the property as an investment vehicle as opposed to looking at it only as an income generator. Most apartment owners have found that if they take care of the property, as well as their tenants, the return on their investment will take financial care of them for the future.

The Protection of Buildings and Contents Insurance

You might have watched it aghast on the television news, you might even have lived in a street where fire ravaged a neighbouring house. The fact is that catastrophic accidents may happen to anyone’s home, destroying both the fabric and its contents in one major disaster. Furthermore, fire is just one of the perils covered by buildings and contents insurance, which – depending on the policy chosen – may typically also protect the owner against such risks as flooding, damage caused by water or oil leaking from burst pipes or tanks, storms, subsidence, vandalism, riots, falling trees, aerials or satellite dishes, and even impact damage caused by vehicles or animals.

The protection offered by building and contents insurance, therefore, may cover a valuable home and all of its contents against a huge range of risks.

  • How much cover do I need? – the amount of cover needed is likely, of course, to depend on the value of the property and its contents. This might seem completely self-evident and a simple matter of common sense. It is surprising, though, that some home owners are either under- or over-insured when it comes to buildings and contents insurance. The problem often stems from the way in which the valuation of the building and contents has been made and the need to take into account the actual cost of rebuilding from scratch or replacing lost or damaged contents;
  • Re-building and replacement – in matters of insurance, it is generally prudent to take the worst case scenario. Specifically, in this case, that means the total destruction of the insured buildings and their contents (fires, floods, and other calamitous events may not be widespread, but neither are they that uncommon). The insurance cover, therefore, may need to be sufficient to rebuild the destroyed property and to replace the lost or damaged contents.

Rebuilding costs, of course, are unlikely to be the same as the price at which the home was bought (especially if that was a number of years ago) and is likely exclude the price of the land on which re-building needs to be done. Professional valuations of those rebuilding costs as time goes by, therefore, may prove sensible.

Similarly, the valuation of the home’s contents also needs to be realistic and kept up-to-date. When considering contents insurance, it may be important to recognise that some forms of cover are restricted to compensation based on a “fair wear and tear” basis, so that the compensation in the event of a claim diminishes over the years as the insured items become older, whilst other buildings and contents insurance packages provide for the actual replacement of lost or damaged possessions. In either event, however, it is important that the whole of the insured contents are accurately valued, since any under-estimate may result in your receiving only partial compensation in the event of a claim;

  • Additional features – the market in home buildings and contents insurance is keenly competitive and some insurers offer more extensive and wider ranging cover than others. Some of the additional features which it may be worth considering, therefore, include those that cover the cost of alternative accommodation (in the event that the insured building becomes uninhabitable until rebuilding or refurbishment), the contents of any sheds or outbuildings, together with garden plants and furniture, and cover for any business equipment that may be kept or used in the home.