Coastal Property and Sea Level Rise - Why Coastal Real Estate May Soon Be Washed Out

Never before have Australians been more aware of the threat of Sea Level Rise. But this awareness isn't sparking widespread concern, because despite threats of a devastating 1m rise in sea levels over the coming century, the coastal property market continues to boom.

A recent study found that long before rising seas cause any significant damage, there are already three key reasons that the coastal property market may be left high and dry.

1: Development restrictions:

Property appreciation has long been considered one of the safest ways to make money. Last year Australia's highest selling residential property, a Perth waterfront mansion sold for $57.5 million - the same block was bought in 1992 for a mere $400,000. However property appreciation is based on development and growth. What happens to the coastal property market when development is restricted?

In 2008 the Victorian Civil and Administrative Tribunal blocked the development of several coastal properties in the small coastal town of Toora, on the grounds of climate change induced flooding. A Toora real estate agent estimated that the affected properties lost 70% of their value overnight. Encouraged by this landmark case, many more coastal developments are likely to be knocked back on the grounds of potential sea level rise.

For areas where development is still approved, regulations are getting increasingly more complex. Raising floor heights, building relocatable structures or having non-living space on the ground floor can add tens of thousands of dollars to the cost of development.

It's not just residential development that is being carefully scrutinised- long term public infrastructure such as sewer, water, roads and power will all need to be carefully considered. Cash strapped councils will have to justifying the expense of building or maintaining public infrastructure in areas that could potentially be at risk. This neglect may see coastal towns stagnate long before rising waters are felt.

2: Insurance and rate hikes

Insurance companies are taking pre-emptive action to ensure they are not left footing the cost of sea level rise. Most insurance policies don't cover damage to properties from salt water flooding. Of those that do, properties are hit with an added premium based on their perceived risk. Without adequate insurance banks will begin to refuse finance, leaving home owners well and truly unprotected.

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Local government will also be looking to pass on the expense of repair and maintenance of infrastructure to rate payers. It may either come as a local government area wide increase, or be an additional tax to properties located just within the hazard zone. Some councils have already been approved to charge a 'Sustainability Levy', where additional rates money is taken from the residents and spent on reducing the impacts of climate change.

3: Liability sits with the home owner

The Government has made is clear that it does not take any responsibility to safe guard properties against rising sea levels. The NSW Sea Level Rise Policy Statement states 'Government does not have, nor does it accept specific future obligations to reduce the impact of coastal hazards and flooding caused by sea level rise on private property'. Without the government or insurance agencies taking responsibility for damage from sea level rise, it seems clear that the liability remains with the home owner. This will certainly have an impact on consumer confidence in the coastal property market.

Despite these reasons, it's not yet bad news for coastal home owners. In a report prepared for the Australian National Sea Change Taskforce it was found that the coastal strip is surging ahead, despite a relatively subdued market nationally. The drive is the 'sea-change' baby boomers, looking to retire to the coast.

The property market is driven by what people want today - seemingly with little regard for tomorrow. Home owners should get an assessment done on their block and be well informed of any potential risk to their asset. Unfortunately many Australian home owners will be eventually left with a property they can't develop, occupy or resell.

Article Source: http://EzineArticles.com/?expert=Heather_Stevens

Is Transactional Funding Really Necessary?

Much has changed in the ability of investors to complete short sales and REO (Real Estate Owned) purchases when funding is needed to complete the buy side of the transition. The homeowner/seller or asset manager/seller wants to cash out of the property and move on his way. The purchasing investor wants to buy the property but not use any of his own money to do it -the dilemma becomes can an investor make money without having any money?

This transaction is called an "A" to "B" sale when the seller ("A") sells the property to the investor ("B"). However, there is no profit in just buying properties, only when they are re-sold as quickly as possible for a profit. I understand that some investors buy to rent but the return of their money requires a long time to get back. The average investor can't make a living getting an extra $500/month income by investing $70,000 at a time.

So the "B" investor-owner of the property must re-sell the property to another buyer, here designated as "C". The transaction will end up looking like A sells to B who sells to C and all in the time frame of a couple of hours in one day. The investor (B) will hopefully walk away with a profit and A will be out of his headache property and C will be the new owner of the property. Literally, this transaction has been done for hundreds of years.

However, in the past few years, the lending institutions have made catastrophic business decisions such as their sub-prime lending debacle, targets of mortgage fraud, and to make things worse - a severely declining real estate market. So now many of the usual and customary transactions that investors used for years have come under scrutiny and are no longer allowed, sometimes by state and federal law, but most often by policy changes at the lenders.

Transactional funding of a closing for a few hours, or simply putting up the money for the A to B leg of the closing transaction, has become very common when it is necessary to overcome the problem of the B to C leg being funded by a conventional lender. Conventional lenders are banks, FHA (Federal Housing Administration, FNMA, and Freddie Mac as examples. Lenders don't like using their money so real estate investors can make a profit on the "flipping" of a property. The funding of the closing between B and C by using the lender's money to fund the purchase from the original seller has been deemed to be illegal and is being prosecuted nationwide.

The solution is to use the transactional funder's money to buy the property and re-sell it to the end buyer. The investor now has money in the deal and so avoids the no-money illegal nature of the transaction when he re-sells to the end-buyer to get his profit. The cost to borrow the transactional funder's money for a few hours is usually two percent (2%) of the gross amount borrowed plus fees. For a $100,000 loan, these costs could be $3,000. If the investor's potential profit in the transaction is large enough, it's a good deal, if not large enough, he can't close the transaction.

If the end buyer is a cash buyer, some closing agent will still require the investor-buyer to have money in the escrow account to close. But it generally is not illegal to use a cash buyer's fund to close the A to B leg of the transaction. If the closing agent tells you it is, ask him why if you are going to do a double or simultaneous closing. It is probably more likely a policy decision on his part or his title insurance company.

Before you get all the way to the closing table and can't close, consider this alternative to buying the property. Instead of putting the property in your name or an entity's name, put it in a land trust - and designate this buyer on the original Purchase Contract. Have your end buyer come to the closing and bring a cashier's check for the amount due on the HUD-1 Statement and another check for your profit. At the closing, use his money to buy the property in the land trust and you immediately transfer the land trust to the end buyer by transferring the trust's Beneficial Interest to him and immediately resigning as Trustee.

There are other "Last Minute" transfers at the closing table such as a Quit Claim Deed or Limited Warranty Deed but these will require additional costs. In any of these cases the end buyer must be in the informational loop and understand the entire transaction before the closing. One last hint, get additional title insurance for the actual purchase price the end buyer pays for the property in case of a title issue later. Your closing agent should gladly cooperate since he gets 70% to 80% of the title insurance fee as a commission.

Article Source: http://EzineArticles.com/?expert=Dave_Dinkel