Ask a Broker: Where do I start if I want to invest in out-of-state real estate markets? [08/26/2006]

By Peter G. Miller

Q: I'm a novice wannabe real estate investor. I live in an area where the market has peaked. I'm interesting in investing in another state, but wanted to be able to hook up with a company that guides folks through the process and gives advice suggesting good out-of-state markets. Can you suggest any Web sites or companies that do this kind of thing?A: No. More importantly, allow me to suggest that you would be better off heading in a different direction.Real estate is a localized commodity. You know about local price trends, news and developments. If there's a problem with a property and you live 30 minutes away, the resolution can be handled directly. You likely know local brokers, plumbers, electricians and other specialists.The first thing you need before investing is sensible information. The quickest, cheapest and most productive way to get that information is to read the local newspaper daily and to sign-up for the course in your jurisdiction which is required to take the real estate license exam. Take the class - you are not required to take the exam, but you should. If you have a license you can start by working as an assistant to a successful broker or salesperson and learn the business from the inside.Also, the fact that a market is now in decline does not mean that will be the situation forever. In the period from 1989 through 1992 many U.S. markets produced woeful results because interest rates were at absurdly high levels. Then, as interest rates eased and populations increased, real estate values began again to rise. Markets that looked so awful just a few years earlier suddenly became the place for investors.So take another look at your local market. If it's slow today, consider how it might be in a few years with reduced construction and a growing population. Then consider that real estate investing typically is a long-term process, not something done overnight.Alternatively, if your local community really is in decline, then you may want to consider an entirely different strategy: Move. If you have a job that would allow you to earn a living elsewhere, then you could be among the millions of people who move each year.Before you go further, take that entry-level course for real estate salespeople. It will tell you a lot in real terms regarding how homes are bought, sold and financed in your area - the information you really need to be a successful investor.Q: I signed a loan in 2005 thinking I could use $40,000 in home equity to end private mortgage insurance. I found out last month that I couldn't use home equity to delete the PMI. Who do I talk to and what do I do?A: Private mortgage insurance is required by lenders when a property is financed with a first loan below 80 percent of the purchase price. The cancellation rules established under the Homeowners Protection Act of 1998 impact loans originated after July 29, 1999 and apply only to financing used for the purchase, construction, or refinancing of a borrower's principal residence.In basic terms, HPA provides that a lender must cancel PMI if a borrower has a good payment history and the original loan balance has been reduced 22 percent. Also, HPA says that borrowers can request cancellation once the loan balance has been reduced 20 percent. A cancellation calculator can be found at PrivateMI.com.HPA doesn't say anything about equity. The only yardstick it uses is the original loan balance. Thus it's possible to have a home with a huge increase in equity and yet owners still are required to maintain PMI coverage.However, given that mortgages can be refinanced with little or no cash required for closing, if the value of your home has increased substantially you may want to replace your current loan with a new mortgage. If you have more than 20 percent equity, PMI coverage would not be required.Refinancing also may produce another benefit: If you now have one of the new-fangled "non-traditional" loans that allows low payments during the first few years of the loan term and steeply higher payments thereafter then refinancing to a fixed-rate loan is a good idea anyway. In this situation you might get both a steady monthly payment plus a lower cost because PMI would no longer be required. Speak with lenders for details. CTW FeaturesPeter G. Miller is a veteran real estate columnist and the author of "The Common-Sense Mortgage." Have a question? Please write to peter@ctwfeatures.com.