INVESTMENT OPPORTUNITIES IN DURANGO COLORADO

As I have discussed in several posts, the lower-end market in the Durango and Bayfield area is not real strong. In particular over in Bayfield where there are two new subdivisions, some of the builders are getting a little nervous. Unlike big cities where US Homes and Pulte Homes often times come in and build 300 to 500 homes per year, we don't have that here. Here's how it works here. Carpenter Fred builds two or three homes per year; carpenter Mark may build two or three homes per year, etc. We don't have mass building. And for Carpenter Fred and carpenter Mark, their ability to hold and sit on these homes after they're built is not the same as Pulte’s ability. Some of these builders are a little bit nervous. With Labor Day just around the corner and plenty of $200-$300,000 homes still on the market and those buyers being few and far between right now, this could be a great opportunity for an investor to pick up a brand-new home and use it as a rental. Conservative person that I am, I recommend a 30% down payment for rental properties and with that type of down payment you should be able to find something that would cash flow or maybe have a very small feed. Remember that that low-end buyer no longer qualifies for a loan and as such has been put back into the rental market so rents have been firm and vacancy rates are lower.

If the residential rental market is something new to you, please give me a call and I would be happy to mail you a copy of my 25 page white paper on Single-Family Residential Investing. This paper walks you through what is the best time to have your leases end, special clauses to be sure to include your lease how many bedrooms is the best amount and much more.

STATE OF THE DURANGO REAL ESTATE MARKET

Much has been written and publicized all across the country about the condition of the real estate market. We hear stories of prices dropping on many homes, builders giving huge discounts or incentives in order to get their properties moved and a rise in foreclosures. I think it will be helpful to let you know what is going on here in La Plata County.

It is true that there are a decreased number of units being sold in our market. We have not seen a drop in the sales price of these homes, however. In homes priced at approximately $500,000 and up, that market has been pretty steady. While there is a slight decrease in the number of units sold the average sales to list price still remains high and there are buyers out there for those types of properties. The $200-$350,000 home is a different story. People buying the $200-$300,000 homes tend to be first-time homebuyers and as such do not have large down payments. Many first-time homebuyers are younger and may have lower credit scores than the lenders would like. These are the very candidates who are getting the sub-prime loans or the Alt-A loans that I've spoken about before. Since the mortgage lenders have tightened up so much on these loans, the potential buyers are finding that they no longer qualify for a loan. That takes that buyer out of the market and puts them into the market as a tenant or a renter. This last year has seen rents rise in both Durango and Bayfield and vacancy rates fall. At the same time the person who was the seller of the $200000-$350000 home that has not been able to sell, was going to be the buyer of the $400-$500000 home. That's the idea of trade up buying. Since trade up buying has not occurred, we see a lagging market in the $200,000-$500,000 price range. In the over $500,000 price range, those buyers are still coming to Durango and are still buying. These tend to be Baby Boomer buyers who have been saving up for years knowing that Durango was where they wanted to retire. Many of these buyers pay all-cash or take out very small mortgages so the sub-prime issues don't affect them at all.

I'm kind of a numbers guy who enjoys analyzing sales statistics and then trying to determine the trends and the historical significance of what just occurred. For the most part I accumulate these numbers every month and also keep year-to-date figures. This kind of information certainly helps me to get a good feel for the Durango real estate market and I would be happy to share that information greater detail with you. Please give me a call.

MORE ON THE ANIMAS LA PLATA PROJECT

Work is continuing on the construction of the dam, the lake, the pumping station and pipeline. The big concrete buildings along the Animas River that we've watched being built over the last several years are finally getting roofs put on them. The dam is well over 200 feet high and is expected to be finished this year. The pipeline from the Animas River to the lake is buried all the way from the pumping station to as far as the public is allowed to go. The lake should start to fill up in 2009 and it will take two years to fill. There are still some pipelines to be built afterwards delivering water to the Navajo nation down in the Shiprock area.

This will be a large recreational lake and it is being built just south and a little bit west of Durango. If you know our area, it is almost due west of the Office Depot store. The current County Road 211, which starts at Office Depot on the east end, and ends by Trappers Crossing on Wildcat Canyon Road, will be rerouted and rebuilt with its western terminus just west of the entrance to the Rafter J subdivision. The lake will hold approximately 125,000 acre feet of water but to make it easier to understand, it is only 25 surface acres smaller than Vallecito Reservoir north of Bayfield. There will be boating and fishing and swimming allowed on the lake, however the recreational contracts have not yet been let by the Bureau of Reclamation. Homes will not be allowed to be built around the lake.

People interested in acquiring property near the lake or with views of the lake should give me a call as there certainly are some available. We recently listed a five acre parcel that fronts on Wildcat Canyon Road that will be less than one quarter of a mile from the new entrance to the lake. Although this property will not have a view of the lake, it will have a terrific location and is priced at just $189,000. Properties in Shenandoah and Trappers Crossing may offer views of the lake. Whether they can see the lake or not, they certainly will have close proximity to water recreation. Both Shenandoah and Trappers Crossing contain larger parcels of land with a minimum of three acres in Shenandoah and probably seven acres+ in Trappers Crossing. Many high-end homes are in these two subdivisions. For doctors and other emergency service personnel that need to be within 15 minutes of the new Mercy Medical Center, when the new County Road 211 is built it should be pretty easy to get to work on time.

The Animas La Plata Project is certainly going to have an impact on Durango area estate. The $500mil-$600mil already spent has certainly had an impact on a short to mid-term basis, but the long-term effects will be substantial with the addition of a beautiful recreational lake literally at our doorstep. Those in the know are already acquiring property on the west side of town and I'm absolutely certain that in a few years people will be saying to themselves “I wish I would've bought over by the new lake years ago." Please feel free to give me a call now to be happy to let you know about available properties.

STATUS OF THE MORTGAGE MARKET

We've all heard a lot of press lately about sub-prime loans and the failures in the mortgage industry that that those loans are causing. In addition you may have heard about Alt-a loans as well. Let's start with some definitions. A loan is considered sub-prime if any of the following characteristics are true: 1 the borrower has a low FICO score; 2 in order to qualify for the loan, expanded debt to income ratios are used in; 3 if in order to verify income, the borrower provides documentation of a non-standard type. An example of a non-standard income verification would be providing copies of bank statements to show cash flow but not providing W-2s to verify the source of those cash flows. As it pertains to debt to income ratios, lenders like to see the PITI (principal interest taxes and insurance) payment be not more than 28% of the borrower's gross monthly income and the borrower's total debt payment (house payment plus car payment plus credit card payments etc.) to be not over 36 to 38% of gross monthly income.

An Alt a loan is a type of sub-prime loan where the borrower has a very good FICO score but has no ability to verify income through the normal W-2 process. A good example might be a self-employed person who does not yet have two years worth of records to verify income. It could be a doctor right out of college or it could be a person changing careers to become self-employed. It could be a divorcee who received a lump payment but is not yet established monthly income. Another example could be a person who has just retired and has a home to sell. They are very comfortable that home will sell and fully intend to use the entire proceeds of the sale to pay off the new home. All are pretty good reasons, but the point is there is no traditional means of verifying income.

The recent announcement from American Home Mortgage that they are filing for bankruptcy certainly sent a shockwave through the mortgage industry. Countrywide, which is one of the nation's largest mortgage lenders, needed to borrow $11.2 billion in order to fund loans. In order to obtain that line of credit, Countrywide needed to work with 40 banks around the world. One of the important things to notice is that neither one of these companies are banks. That is these companies rely solely on income from the mortgage industry. Banks on the other hand have a more diversified lending portfolio with car loans, business loans, personal loans etc.

If you are a buyer right now, it's very important for you to be certain that your lender is going to be able to close and fund your loan. The fact that you have a loan commitment letter from your lender won't mean a thing if they file bankruptcy. If you are a seller, is just as important to you become aware of where the buyer is getting their loan. I think it'll be much more common to have sellers counter-offer asking for more information on the lender, and that certainly has not been an area often discussed in the past.

We are pretty lucky here in Durango because our foreclosure rate is so low. At Team Lorenz we do very few sub-prime loans but we have done a number of Alt-A loans. I believe that in the Durango real estate market we have a large number of very financially capable clients that have shown they are fiscally mindful of their financial obligations.