Bill O'Rafferty's daily info of importance

I keep a spare tire in my car and pray I never need to use it, I have air bags in the steering wheel and pray they are never deployed, the unibody construction of my car has been tested for front end, rear and side collisions and I pray I never need to know how it proved out. All of these items are for the worst case scenario. There is nothing unethical/wrong about me knowing how my car tested on these various aspects and nothing wrong about me refusing to purchas a car that tested poorly on these tests, as opposed to a car that performed well.

My point is that we should always endeavor to be honest and forthright, complying with all obligations we under take. Sometimes things happen beyond out control. What if the bank calls the note due immediately and you cannot finance the property - not likely, but possible. At that time you own the property, not the mortgage holder and you have a right and responsibility to oversee and manage the property until you either sell it or it is take from you. The practical issue, of course, is the former owner was in foreclosure and you saved their credit by catching up the back payments and renting it out. If in the unlikely event the home is foreclosed upon under your ownership, you own it and rent it out until it is taken from you. Once the loan is called due, the bank will not accept a payment. Or you could immediately abandon it and let the yard die and homeless folks break in and it becomes a public nuisance. I think the former is preferred by everyone.

This scenario is possible, but I cannot imagine the banks will refuse to accept payments for a loan and instead call the loan due at great cost to them. Of course, we are in a bad financial situation because banks acted badly so anything is possible. I hope in your life the best case scenario always comes forth, but in my life it has not and I always want to know the best and worst case scenarios so I can be prepared.

Your real estate agent earns a living by selling homes. I see on these blogs that for many of you, realtors are a wet blanket, they will not do the work required for you, they crush your dreams, etc. I bet this is all so true. But let me tell you what a new, budding investor is to a real estate agent. They (new investor) want to take time to search over properties, put in multiple offers - like 50 at a time, drive around with the realtor using his time and expense, gaining the education about the market in the area such that we know what is a good deal, great deal and no deal, etc. The question here is, what is in it for the realtor? If a realtor invests 25 hours into each would be investor, and has to work with 4 investors to make a sale, and then the comission on the sale is $3500 and the realtor gets $2500 of that, pays expenses and self employment tax, etc., he is not making minimu wage. You would not work with the realtor for less than minimum wage would you?

If you are to have a good relationship with a realtor, you must work with them to set up a system such that you can gain knowledge, view properties, put in offers, do the leg work, and both of you must be able to make a living doing it. I am meeting a DG would be investor today at 10:00 AM - 90 minutes from now, and he wants to view properties over a 40 mile area. His investment plan is using his uncle's money, if the uncle agrees to each deal. He has great interest but no real understanding of the housing market in the area, he seems like a great young guy, but how will I pay my office costs, assistant's salary, travel expense and monthly bills if I give him 4 hours of my day to help him explore the dream he has of becoming an investor? To be followed up by more time and more time and more offers and more offers and then if we get a hit, his uncle will want to check it out before he sends out the money to purchase, but the uncle does not have an understanding of the market and he thinks the home is worth less or is not in a good area or whatever and drags his feet on the deal. Is my point coming through?

I will be offering an hour of my time to this young man, offering him many properties to review and offers to follow up on with him once he has driven around looking at these properties. Then I will offer to let him come in my office and show him how to print out offers. I will review them and have my assistant fax them in. I will limit my time with him to 3 hours rather than 25 hours until I see if this is likely to go anywhere. I am not saying I will not work hard with him and for him, but I am saying what every realtor says, I have to pay my bills and make a living and I cannot do that chasing someone's dream. Investors usually do this (real estate investing) as a side deal in addition to their regular income stream; this is my income stream. I and other realtors want to work with investors and will spend time teaching, educating, etc. But this is our job and we need regular pay for our work or we will be homeless.

Work with your realtor to develop a system that allows you to access their knowledge and data information, yet minimizes their investment of time as you learn. Step up and do the grunt work with the agent and when he/she starts to see commissions from your joint efforts, you will see more and more of their time coming to your interests. Many realtors can help you with your interests, but work out a way for both parties to get what they want and need from the relationship.

you make a great point. i am a new realtor and want to help investors, as well as invest myself. how do i work this out where i'm using my time wisely and yet not making the client/investor feel like i'm not interested or don't want to do my job??? thanks.

I my self have purchased several properties at my local tax sale. Prior to my education now (The Success Academy), I only purchased empty lots. I still have to wait 4 months ( a total of 1 yr an 1 day) but I will just hope for the best. I am always looking for deals. I went to the FDIC (Federal Deposit Insurance Corporation) for seized assests in my area and I found a nice 3/2 sfm. No pricing information was listed just the address. I began to retrieve information from my local tax office and found out that the home was valued at $55K. I drove by the residence and saw a realtors sign out and they have the property listed for $99K. Now... did this particular realtor buy directly from the FDIC and marked up this property, and is the value of the home from the tax office a retail or wholesale price? I was inspired to ask you this when I was reading your post on "Sheriffs Sale..." Thanks in advance. You are a wealth of knowledge.

I will guess that the home is listed for sale by the individual that is losing it - or was for sale by the person that lost it and the sign has not been taken down. Realtors hold out hope for individuals long after the song begins. The agent might be hoping if he/she gets it in escrow before the tax sale, the sale will be put off until the sales goes through - Just a guess. Call the realtor and ask or go on line and check it out - most counties list all kinds of public access info on line - go to the county treasurer and I bet they will tell you?

Thank you for your very informative posts. I look forward to each and every one. I have learned a lot from you in a short time. Great explanations in laymans terms. I hope you keep posting and thanks again for the 3rd party release form.

i like the idea of using a hard money lender. you broke it down to a simple form. i think i want to use harm money lenders on my first deal, providing that i can find a profitable property.

Flippers are those who buy homes needing repair, do the repairs (or pay for them to be done) and then sell the home at a profit. Any flipper will tell you that a 10% profit on the flip (of the gross sales price) is a good flip. I have made more and I have made less, but mostly more. Here is the difference in margins on flips. I have one under way right now and I have done a little work but mostly act as my own contractor and have qualified technical folks do the work as I direct. If I did all the work myself, I would have a lower margin (could pay more for the home) than the guy that just hires a contractor who hires subcontractors to do the work. In the first case, I need to be paid for what I do - the work. In the second case, I want to get paid as the principle, the contractor has to be paid and the sub-contractor/workers need to be paid. One of these deals requires more profit than the other. In the first case, I might be able to pay 110K for the home and still make a profit, and in the second case, I might not be able to go above 95K and make a profit because more folks are looking for money out of the sale. I see folks at auctions make huge mistakes watching these folks bid on homes. These 2 investors have to top out at different pricing on the home because of the business plans they have.

There is another issue with flips and that involves the source of your money. Flips almost always require cash for both the purchase and repair, hard monies work some times too but bank loans do not. (the home is too trashy for a bank to loan money on it) If I use my own money to purchase and do repairs, I require some profit for the use of my money. If I use hard money for the flip, my costs are much greater for the financing. Maybe I want a $1,000 profit on just the use of my money and the hard money guy charges 3 1/2 points and 12% interest so my financing cost with my money is $1,000 (paid to myself) and my financing cost with hard money is $5,500. One of these buyers can pay $4,500 more for the home and make his profit than the other buyer.

The key here is to do your research and make a solid budget, then bid to your limit and no more.

Keep it up!

I wrote a nice little diddy yesterday about short sales and tried to post it and it just went away - what is up with that IT folks? I will try again.

A short sale is where the bank holding a note on a property allows the home to sell, receiving less than the amount of the note. (Property sells SHORT of the mortgage) This is done when homes are worth less than the note and borrowers have experienced a hardship such that they cannot pay the terms of the note. Banks do not want to allow short sales and will only do so if it appears they will fare better (receive more money) in the short sale than if they foreclose. In general, short sales sell 10-15% less than fair market value, a kind of payment to the buyer for putting up with the uncertainty and 3-5 month time lag for the purchase. Do not be sucked in by the real estate agent (usually new and inexperienced) who lists the home for 50% of value. You will spend 3 months messing around with the deal and the bank WILL deny the short sales saying, “Dude, we can get more by foreclosing.” Short sale denied and everyone loses. The other reason short sales are denied is that the seller will not present their total financial circumstances to the lender. Sellers that CHOSE to sell short will not be allowed to do so in general. It must be show that the seller has experienced a hardship that gives them no option but to sell short – they cannot pay the payments. Saying, “hey, I am upside down on this deal and want out,” will get you a denial as well from almost every lender. Giving the lender your complete financial circumstances indicates you must give the bank copies of all pay check stubs, bank accounts, etc. If you are 3 months into a short sale and the seller says he will not do this, (fearing the bank will try to garnish wages or attach bank accounts or whatever) the deal falls out and time is lost. Again, usually the fault of the listing agent that should have done their homework and made sure seller would cooperate. I note this most often happens with realtors that are new (ink is still wet on their license) and are so anxious to get a deal they get ahead of themselves. The deal is good experience for them but a big waste of your time.

A few good things to know are: The bank is no one’s client. Listing agents represents the seller and buyer’s agent represents the buyer and no one represents the bank. The bank does not get a say in the contract, sales price, commissions, etc. The bank only get to make one decision: will we let this home sell short to this buyer for this amount of money. That is it for the bank. Loss mitigators (representative for the bank) might try to get the commissions reduced or suggest the chances of approval would be better if the price was higher or they might ask to have several offers submitted such that they choose which they will approve, but that is not their role and in some states that may violate the law or public policy. The bank has NO ownership interest in the property at that point. Seller owns the property and the bank has a note secured by a deed of trust. If seller does not pay the note, the bank can ask the court to sell the property to satisfy the note. If the property sells for less than the note, the bank owns the property. Now they have a financial interest and can make decisions, but not until after the sale. Their only part up to foreclosure has to do with the note.

What is in the deal for you as an investor? Short sales are great for assignment because you are dealing with a real person. If you want to purchase the home 15% below market value in a time when prices are very low, short sale are great as you can use any type financing, you get to choose the escrow and title company, etc. I think the best thing about short sales is you get to have access to sellers that are upside down. If their home is not very far under water, these are the deals that make perfect hostile takeovers (assumptions). Read how in my #2 info of importance. If the seller ultimately loses the home but still has a great job or income, perhaps you can do a lease option with them on a different property. You have accesses a potential client for future business.

Your explanations are so easy to understand, especially with all the examples you present ... thank you. I'm keeping a printed log of your posts so that I can easily refer back to them. I need repeat readings cause I forget more easily these days. Thanks Bill!

To submit a short sale package the following must be presented to the bank by either the seller or a licensed agent - I do not know why you could not help the seller do this as long as they do not pay you for it - then you would be in violation of real estate regulations. Using an agent for this is a good thing as they get paid by the bank any way and you get some points with an agent who will in turn spend a bunch of time chasing down leads for you - quid pro quo.

1) authoriztion to convey info to a 3rd party (agent)
2) accepted offer
3) Listing agreement
4) HUD (settlement statement from escrow of charges and costs)
5) pre-approval of buyer for loan
6) Last year's taxes
7) Hardship letter (why you cannot pay mortgage)
Financial worksheet with monthly income and expenses
9) Copies of 2 most recent pay stubs
10) Copy of 2 month's bank statements

Do not be afraid to ask the listing agent if they have received and submitted the list above (some banks will want a little different but this is most common. If the agent has not received these items, your short sale will most likely be an academic exercise and not be worth your time. IF sellers will not cooperate at the beginning, it never gets better later in the deal.

Best Wishes.

Probate sales are a great opportunity and you either get someone that is getting something for nothing and wants fast money such that you get a great deal or someone that is getting something for nothing and no matter how much you offer, it is not enough. Grab the first ones and let the second ones go.

With probate sales, the first offer sets the price and a subsequent offer needs to be $1,000 plus 5% higher, then the next offer must be 5% above that and so forth. None of this raising the offer by 100 bucks like an auction does. Often, in order to bid higher, you must go to probate court on the day of the hearing to make higher bids and many folks do not know how it works and great deals slip by. On trasher properties, cash is required, but most the time you can use financing of any type. Make a lowball offer, set the price and assign the contract before it goes to court. Often the property goes to the first bid which is usually a geat deal. At court you can ask the judge for 30-60 days to close the escrow. If you find a probate listing, look up that person's name at the county and if they have more than one property, jump on the next one, through the listing agent, and get your lowball offer in before it hits the market. Assignments, wholesales or purchase yourself. Do some research on probate properties and sales of probate sales in your state and this could be your piece of the market?

Hello Bill,

It appears we have similar thoughts on the condo market. I think they are picking up steam as I scroll thru the "housing wanted" section of craagslist. Singles and couples unable to come up with a DP, looking for something quick to rent and could make great lease options.

Thanks,
Bruce

Per your question, I think condos are a great purchase right now, not just for the reasons your suggest, but in this past cycle they rose in price at a higher percentage thatn single family homes. One reason is affordability but the big reason is the retiring baby boom generation likes condos. Not the converted apartments, but the townhouse type condo where they can leave home for 3 hours or 3 months and everything is taken care of for them. In this next cycle, more baby boomers means more condo sales and the fact that they are so expensive to build means few built these days. Grab them while you can.

I just put in an offer on a Probate, have to wait 6 - 8 weeks for the results. I have put in the back of my mind to pursue them more.

We miss you Bill...are you coming back soon?

i'm with Chris. i hope you come back soon.

I have a hot item for Carol and others that are doing assumptions (hostile takeovers). When a deed is recorded that is not insured (no title policy and escrow at the transfer, just a deed from one person to another) title companies will be reluctant to insure the property in the future (when you go to sell it). Many will require you to obtain a bond or go back to the one who transferred the property to you and get a special form that says they did intend to transfer the property to you. (Declaration of uninsured deed) Seems redundant but this can cost you some money. Purchasing a bond is expensive and what if the former owner will not sign a transfer form without a little "something - something" for them? Best to get the form signed when you get the deed signed. You can get the declaration signed at the same time but it must be notarized by a different notary than the one that notarizes the deed. Trying to prevent fraud and loss is the name of the game here and being on top of things with the right forms will save us $ down the road.

If you want a copy of the declaration, send me an email and I will forward one to you.

I am new to all this so dont stop . I am becoming a spounge so Bill please do not stop. Many thankyou's for your knowledge and time.

...we sure missed you!

Short Sales - get them while they are hot. At a Bank of America conference in southern California last week, the vice president from the east coast said BofA wants to do more short sale and fewer foreclosures as the foreclosures cost much more to process. This means asset managers are under the gun to approve short sales. Start making offers on short sales that are 20-25% below the market and then sell or assign it for 10% below market. Many areas like southern CA have so few listings this stragegy could net some bucks for buyers. Hard money guys will loan 75% of fair market value - use their money - the margin is not huge but I will take 10% of a 275K home and not cry a bit that the one I sell it to get a deal as well. I am not greedy, just hungry for the deal. 27K to me for making some offers - oh, yea - I will let you know how it goes.

Bill,

I hear BofA makes you hold the property before you can resell it. Did that come up at all?

Chris

Great to see you back - congrats on the new grandson! Very exciting Also glad you had a nice vacation. Always appreciate your knowledge and inputs here - they are priceless! Nice to know short sales are going to be more negotiable. Better all the way around for everyone! Thanks again for taking the time to share with us.

A month long vaction is nice. Bill thanks for your post and congrats on the new grandchild.

To avoid the due on sale clause kicking in when you take title to a property you can put the title in a land trust.Under federal law the due on sale clause cannot kick in if you have a land trust.

I have received a couple questions on seasoning for short sales (above) and I have only seen this with Fannie Mae properties and the hold is only 90 days. No issues with short sales at all although sometimes the lender wants to know that the buyer has no intention to immediatley re-sell the property. Always be honest, but how would they know and I suspect that would not be an enforce-able contract provision anyway unless there was a restriction on the deed and then you might not be able to get title insurance and then the property could not sell - see where this leads?

I am more cautious in my older age, but as a youngster, I would have said, let it roll - ask forgiveness not permission. Now I try to always avoid even the appearance of improper deals - even the appearance. If someone get a burning for you they can make the good look bad and the bad look worse. Better to miss the deal than have folks think you are a schmuck. God blesses integrity and so do most folks out there. You will also work with the same folks over and over if you have a rep for being straightforward.

Another nugget to add to the tool belt!

Thanks for the great info Bill!

WE ARE IN THE EARLY STAGES OF RECOVERY

Orange County California started to fall in late 2005 with the eastern part of the state and northern part following in 2006. Actually July 2006 was the all time high and by early 2007, we knew we were in trouble. We now have builders turning out new tract homes by the dozens. Four tracts have opened in the Riverside area in the past month. Guess what that means?

Builders do not built until they can make a profit. Homes have been selling for far less than the price to build them. Builders spend lot of money asking economists and planners and statisticians when to build. Builders bought developed lots out of bankruptsy courts and are building on them. Builders expect to make profits. THE MARKET HAS STARTED TO RECOVER - BUY, BUY, BUY

Thanks for sharing your knowledge!

Not so sure things have turned in my part of the world yet, we always seem to be the last ones out. But will keep my ear to the ground!