Real Estate Investing Resource

Archive for June, 2009

Unless you have been living in a cave for the past decade accompanied only by moss and creepy crawlies, you know what a foreclosure is and that the U.S. Housing Market is currently being ravaged by the sheer volume of houses going into foreclosure. A foreclosure occurs when a homeowner fails to make his monthly mortgage payments as agreed upon with the bank. As a result, the bank that issued the mortgage is forced to take the property back and sell it at an auction in an attempt to recoup its losses. A property taken back by the bank as a result of this default in mortgage payments is called a bank foreclosure property. Now, just in case you’ve been stuck in Jumanji for the greater part of the last five years, there it is in a nutshell.

A great number of these bank foreclosures are available in the market and are considered prime profit sources – that is if you’re not among the misinformed. Some investors stay away from bank foreclosures like plague simply because they don’t understand the money-making potential of these properties. Well, fear not. Here are the top three things you need to know about bank foreclosures:

1. A bank will usually sell for less

One of the best things about buying foreclosed homes is that the bank is eager to sell these properties quickly. Banks, after all are not in the business of owning homes. Furthermore, legislation provides that banks that foreclose on houses should set aside eight times the value of the property to cover for liability risks. This means that these banks that foreclose on properties won’t be able to use that amount set aside for the bank foreclosure property for investments or loans. This is a hassle that most, if not all, banks would not be willing to take so they will, in most cases sell them quickly and sell them cheap. This understanding alone gives you unbelievable leverage in getting banks to sell you these bank foreclosure properties at bargain prices.

2. Bank Owned Homes Aren’t A Mess

A lot of people hold the misconception that bank foreclosure properties are run down and generally in bad shape. While some are, the greater majority are actually not. They are in fact just like any other house you may look if you’re a buyer. The important thing you need to understand about these bank foreclosures is that they’re a great opportunity for you to buy a home cheaply with little or no repairs needed. You should of course still have the property thoroughly inspected, as well as appraised before you buy. The thing is, you don’t have to be biased against bank foreclosure properties. They may mean more money than meets the eye.

3. Regular Home Loans Work For Foreclosures

Another myth about these bank foreclosure properties is that they are available only to those who can afford to hand over a large amount of cash. This is not true. There are investors who buy foreclosed properties cash, simply because they can. But like the rest of us, most prefer to use their liquid assets elsewhere and simply purchase bank foreclosure properties for investment or otherwise using standard credit. Anyone can buy a foreclosure using a regular home loan. After all, there’s no sense buying a house cash if you’re simply acquiring it as an investment property especially if you’re planning to flip it right away. Might as well save your cash for more important purchases.
Although bank foreclosures are not exactly something to cheer for, they prove to be one of the more profitable areas of real estate investing.

At this time, you’re probably tired of all the brouhaha about the economy being in a tight spot and the real estate industry hitting rock bottom and all those doom and gloom horror stories that would give even, Hannibal Lecter nightmares.

At this time, you’re probably even “tired-er” of them so-called gurus saying, “Hope is not lost! I know the way, the truth and the right tools to earn you money! So whip out your credit card and let’s get to work!” In all fairness, some techniques work, some don’t. There are even times when the technique works, the advise is as good as it gets but the person who’s supposed to do the work is just too lazy or too busy whining.

Bottom line is that more than ever, we are trapped in a state of dog-eat-dog, survival-of-the-fittest kind of business atmosphere that is almost too primeval. And to survive, you don’t really need to go super-complicated or ultra-sophisticated in your strategy. Sometimes – better yet, most of the time, the simplest strategy is your best bet. Sometimes, you just have to go back to the basics. And to this effect, I have two words for you – Wholesaling and Foreclosures.

I know you know the concept of wholesaling. You take a property that’s worth a certain amount, get the owner to sell you the property at a bargain price, you re-sell the property to another person at a higher cost than what you had it for, and you pocket the difference. That’s it! It does not come any simpler than that. And the beauty of this is that it takes very little to get started with this. All you practically need is resourcefulness (learn to use search engines and real estate websites to spot possible prospects), more resourcefulness (scout the properties you find, take pictures, write down addresses, track down owners if possible and keep track of the goodies you come across), a lot of honey on your tongue (convince homeowners and get them to agree to the best possible price), a little bit acid in your veins (talk to angry homeowners and try to convert them) and the determination and drive to succeed (you got to do it over and over again especially if you hit several roadblocks early on).

The problem with some people who try to plunge into the real estate investment business is that they look and expect big results right away. As such, as soon as they get burned the first time, frustration already starts to creep in – and creep in strong. Soon enough, after just a few setbacks, they readily hang the towel and give up. Which brings us to another necessity in this business – or any other business for that matter – the right attitude.
It can not be denied that wholesale deals exist. They may be a lot tougher to find than before, but they’re there – probably around the next bend on the road, or over the next hill or on the next town or whatever. If you know where to look, and I have given you an option earlier, they’re there and you just have to find them.

On that same note, the current economic upheaval has left on its wake a trail of foreclosed properties. If you didn’t know better, you’d avoid these properties like a plague and pray you never come across one you can’t escape.
That’s probably one of the most common misconceptions about foreclosures. Truth is that, foreclosed properties have the tendency to become chests of gold and silver and all manner of treasures.

Now if you don’t know what a foreclosure is except for it being a situation in which a homeowner is unable to make principal and/or interest payments on his or her mortgage, so the lender, be it a bank or building society, can seize and sell the property as stipulated in the terms of the mortgage contract. Let me enlighten you a bit on how a foreclosed property can metamorphose into a vault filled with cash.

You see, banks or lending companies exist for basically one thing, to lend money at an interest so they can make a profit. They’re not interested in accumulating property. Besides, owning a property that the bank does not want in the first place is like living with your parents and your in-laws in one house – they don’t like it and would want to convert the property into cash the soonest possible time in order to settle accountabilities. Moreover, the government requires banks to reserve eight times the value of the house for liability risks – meaning the banks would not be able to use this money readily nor can it be lent out and all.

This just goes to show that banks and lending companies who foreclose on properties usually find themselves owning an unwanted piece of real estate.

In which case, these properties become prime candidates for wholesaling since most of these banks and lending companies would want to cash-in now on the property while they still can and/or to avoid losses in the future. You’d be surprised how many of these banks would be willing to sell these properties at bargain prices just so they can get rid of it and the headaches that come with it.

Also, homeowners in the verge of foreclosures also become perfect seller prospects as most of them would opt to sell the house quickly in order to be able to gather as much cash as they can to buy/rent/mortgage a more affordable residence.

This just goes to show that there are techniques and strategies in real estate that work no matter what the shape of the economy is. You just have to find your angle of attack and press on.

Indeed, as the old saying goes, when the going gets tough, the tough gets going. You don’t have to cry rivers of tears because you think that your real estate business is already kaput. You just have to learn to adapt to the situation and find profit potential where most people think there is none. Again, remember, in the survival of the fittest, it’s usually the simplest organism that has the upper hand. Same is true to this business. In times of difficulty, the simplest approach to solving the problem is to go back to the basics.

Why don’t you check these automated wholesaling real estate tool?

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Deadly Mistake #7: You No Longer Think You Have To Learn Anything New

Are you making the most money you can with the least amount of time invested? Are you taking advantage of many creative ways to do a deal? Is your investing style taking advantage of market trends? Are you aware of the new real estate laws?

At this point in his career, Joe is pleased with himself and the money he’s making. He makes offers every day. He has motivated sellers coming to him. His marketing plan is doing the work for him. He has a unique selling proposition that sets him apart from the crowd. He’s a member of the Community Real Estate Investors Association, so sellers know he’s legit. He knows how to explain the 8 most common ways to sell a house so sellers trust him enough to accept his creative offers.

But Joe has one problem…

…and he doesn’t even know he has it.

Like so many other investors, Joe has gotten to a point in his career where he has stopped learning. He has settled into his comfort zone. Deals have become routine.

So, what’s wrong with that?

The problem is that Joe is passing up on goldmines?and he doesn’t even know it.

Joe is settling for only one way of doing deals and isn’t bothering to make multiple offers.

He is losing deals (and money) this way. Plus, Joe isn’t keeping up with the latest changes in the law, and he isn’t following the rules in all of his offers or contracts which could lead to a lot of trouble down the road.

He’s also missing out on big paydays because he’ll sometimes sell a property too quickly instead of holding it a little longer to benefit from highly appreciating areas.

But Joe (and you) no longer need to worry about losing deals, missing big paydays, or running afoul of the law again.

DoDeals.com has a solution.

DoDeals.com has online real estate investing courses for continuing education in real estate. We uncover hot new markets and explain market trends. As new laws come out, we present up-to-date information on them to keep your deals from going south.

These priceless courses are for DoDeals members only and will make sure you get the most from each and every deal.

1. All Cash - Fastest and easiest method. Can close within hours. Requires larger discount.

This is the most straightforward, easiest and fastest method to sell your home. You simply agree on a price with the real estate investor, and he pays you the total in cash. Because of the limited availability of cash and the ability to close within days (or even hours if necessary), the investor will expect a larger discount on the sales price of the house.

2. Private Financing - Similar to All Cash. Can close within days. Requires larger discount.

With private financing an investor can purchase your home and close the sale within days. The investor gets financing from a private lender and pays you cash for your agreed upon price. Because of the costs associated with private money, the investor will expect a larger discount on the sales price of the house.

3. Owner Financing – Investor makes monthly payments to the seller in exchange for property title. Requires equity in the property.

You sell your house to the real estate investor (convey title), and the investor makes payments to you for your equity in the house. This is a great option if you don’t need the entire sales price now and would rather have a monthly passive income without doing any work. Since IRS treats this as an installment sale, you are only responsible for the interest and gain that you receive in the current tax year. You won’t receive all of your money upfront, but usually you will earn some interest on the equity in the house.

4. Subject to Existing Financing – Investor takes over monthly mortgage payments to the lender. Mortgage remains in seller’s name.

Real estate investors can take over your existing mortgage payment. This is a terrific option when there is an existing mortgage with good terms. The mortgage stays in your name, so timely payments by the investor help improve your credit rating.

5. Agreement for Deed - Investor makes monthly payments to the seller. Deed does not transfer until the amount is paid in full.

The real estate investor makes monthly payments to the seller. The seller maintains their current mortgage in the home and retains the deed until the payments are paid in full. This is much like a car loan in which the bank owns the title until the note has been paid. This method requires more paperwork because there are more state laws regarding this type of transaction. However, the investor will take care of these details for you.

6. Lease Option - Investor leases the property from the seller with the option to purchase. The investor is not required to purchase, but the seller is required to sell during the term of the option.

The real estate investor leases the property from the seller with the option to buy the property at a later time. The investor has the option to buy but not the obligation to buy. The seller is obligated to sell during the term of the option. While you will receive monthly payments during the term of the lease, you are not guaranteed a sale of the property. However, if you do not sell the home to the Investor, you get to sell the home with all of the accumulated appreciation during the lease term

7. Short Sale – Investor negotiates a discount on what is owed to the lender on the property. Used when the seller is behind on mortgage and owes more than the investor can pay for the property.

When a seller is behind on payments and owes more than the amount an investor can pay for the property, the investor can negotiate with the seller’s mortgage company to accept a discount on what is owed against the property. Part of the condition of the short sale is that the seller must not receive any proceeds from the sale of the property. This option has become more common because it is better to short sell than to suffer foreclosure on your property. While the lender has the right to place a deficiency judgment against the owner, the investor often can obtain a waiver from the lender, which helps protect the seller’s credit

8. Bank Financing - Investor obtains financing from a bank. Usually the investor is pre-approved, and the sale can close within two or three weeks.

Because of the amount of properties they own, many real estate investors can take advantage of good loan programs and get bank financing to purchase a property. Often, the investor is already pre-approved for a loan so the investor can still close quickly. This the transaction can close within two or three weeks.

Deadly Mistake #6: Not Clearly Explaining Your Offers So Sellers Think Your Creative Offers Are Illegal

After several months on the job, Joe knows at least eight creative ways to buy a house. He has tried each one, and each one has worked beautifully.

Still, some sellers are rejecting his offers.

Why?

Here’s a hint: It’s the #1 reason why sellers reject a creative offer.

It’s because…

…they don’t understand it.

The offer seems too good to be true (even though it is true). The offer seems too “out there” or unusual (It isn’t. Deals like this are done all the time).

Still, many sellers would rather walk away from their homes than agree to the offer.

Big mistake for them (and for you if you don’t find a way to change their minds).

Luckily, I have made a ready-made solution for this problem.

I will be publishing a professional consumer guide called “Eight Most Common Ways How Real Estate Investors Buy Houses” that you can hand to the seller in the next post.  So watch out for it!

This guide will explain in plain English exactly how the deals are transacted. Sellers will be able to easily understand how investors buy houses, and you won’t have to spend hours trying to explain how the deals work.