Real Estate Investing Facts

The Nationwide Affiliation of REALTORS (NAR) published most statistics that are precious to homeowners who are considering regarding selling a house. Of course its goal in compiling the statistics probably was not to inspire for sale by owner sales, but the facts speak for themselves. Any seller who is giving some thought to selling for sale by owner will want to pay attention to these statistics now, in order to see where potential buyers are looking for their new houses.

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Here’s a listing of the percentage of buyers looking for a new house by using the following methods in 2010: internet 74%, real estate agent 69%, yard sign 22%, open house 12%, newspaper 9% and house book or magazine 6%. Looking closely at these percentages I can see that my opinion is correct. I’ve said for a long time now that most buyers are shopping online for a house in their spare time, even though they might be working with an agent, too.

They appreciate the professional services of an agent for showings and obtaining financing, but they are looking at houses on their own as well, at least online. And you have to know that buyers might not email you or call you directly on your postings, preferring instead to give your contact information to their agent. That’s the moment you’ll have to consider if you are going to pay the agent a commission to sell your home or not due to the fact she can without doubt ask. Most agents are hitting immediately for the customer and paid by the client so it doesn’t have an effect on you as the seller.

If you are ready to pay a commission to an representative who brings you a buyer, it’s a good concept to possess the whole situation firmly determined in your thoughts before you get any phone calls from representatives. Naturally the necessary point is how significantly you are prepared to pay as a property commission, as a standard fee greenback overall amount or a percentage of the sale price tag, it’s seriously the choice. Don’t fear regarding an marketplace standard that you are mandated to pay, simply inform an agent which you’re prepared to pay and that’s that.

Immediately after the for deal by proprietor join is firmly planted in your yard and you’ve got the empty top line settlement forms on hand, as well as the psychological calculations of your inquiring cost and bottom-line promoting price, you’re prepared to sell. Actually, you possess a excellent luck of promoting the own home through your world-wide-web postings and your trusty yard sign these days.

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One strategy in buying distressed real estate is to acquire the defaulted note and then negotiate the acquisition of the property from the defaulting owner or foreclose upon the property. There are a number of benefits in this strategy as well some risks.The note holder is often willing to sell the defaulted note at a discount. After all, the note is in default and the holder is not receiving payments. The likelihood is that the holder will not be cashed out on foreclosure. He will probably get the property back, often in a condition that will require some renovation or repair before he can sell the property.

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The opportunity lies in the perception of the situation. The note holder sees nothing but problems. The note is in default; payments are not being made or the note has matured and the property owner is unable to refinance the note. In any event, the holder is faced with taking the property back. There may be a senior encumbrance and the holder is facing the prospect of having to cure any default and to start making payments on the senior lien. Instead of collecting his monthly payments, the note holder may have to come out of pocket to protect his position.

For the active investor, the distress of the note holder presents an opportunity. The note holder can cut his losses and sell the note at a discount. The investor can then step into the shoes of the note holder and deal with the property. Since he now holds and controls the note the property owner may be far more willing to deal with the investor and perhaps give the investor a deed in lieu to avoid a foreclosure. If a deal cannot be made with the property owner, the investor can foreclose.

Upon foreclosure, the full amount of the note and accrued interest can be credit bid. It is generally unwise to make a full credit bid, unless necessary to buy the property at the foreclosure sale. But the investor can bid the entire amount even though the note has been purchased at a discount. The amount of the discount represents potential taxable income, however. The investor’s basis in the note is the amount paid for the note, not the face amount of the note.

There are potential pitfalls in this strategy. The investor will be stepping into the shoes of the former note holder, and will need to perfect that position. First, the investor needs to do his homework to understand the position he is stepping into. Remember that defaulted notes come without warranties. A thorough inquiry must be made by the investor as to the condition of the property; the amount and status of any other liens; the state of the real estate taxes; and similar matters. Equally important, any claims the property owner could make against the former note holder can be asserted against the investor. For example: Did the note holder make any promises regarding an extension to pay or other restructuring of the note that might frustrate the investor’s ability to deal with the note. The note holder should make a representation as part of the purchase that no such promises or agreements have been made with the property owner.

The note in the hands of the investor retains the same character it had with the prior note holder. If the note is a purchase money note it remains a purchase money note. If a senior lien forecloses, the purchase money position is wiped out and there is no possibility of pursuing a claim on the note. A property owner cannot waive purchase money anti-deficiency protection even in a restructure agreement made subsequent to the note. It is therefore imperative that an investor has the ability to deal with any senior lien before buying a purchase money second.

Another risk of buying a defaulted note is that the property owner may seek the protection of the bankruptcy laws. Since the property securing the note will likely have little if any equity, the risk in bankruptcy is largely that of delay. While the bankruptcy court has broad powers to affect a creditor’s claims, it cannot deprive the creditor of his security. The buyer of the note will be subject to the automatic stay of actions against the debtor. The investor can still negotiate with the trustee, but, if an agreement cannot be reached with the trustee, the investor will have to seek relief from the bankruptcy court to proceed with the foreclosure.

In closing the note purchase, the investor will need to get the original promissory note, endorsed by the note holder. The endorsement should be on the note itself (either on the face of the note or on the reverse), although it is possible to transfer a note with a separate document known as an “allonge”. If the original is not available, be wary. It is possible to transfer a note without having the original, but you should proceed with caution. The delivery of the note duly endorsed automatically transfers the security for the note. As a practical matter, however, you will be unable to foreclose without a written assignment of the deed of trust. The assignment must be recorded in the recorder’s office where the deed of trust was recorded. The investor should also obtain from the note holder copies of any documents that the holder has pertaining to the property, including any correspondence with the property owner.

Buying defaulted notes at a discount presents a substantial opportunity to an investor who is willing to take the time to investigate the situation and assess the risks.

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It’s every Investor’s worst nightmare. You finally jump into your first “as-is” rehab purchase and find that special deal. You were even able to work in a good cushion for rehab and holding costs. Then you hire a general contractor who turns out to be, at best, incompetent or, at worst, a thief. You spend the next six months living in hell and wonder whether you can survive the project and not end up in court.

Unfortunately, it’s very easy for anyone (qualified or unqualified) to go into business as a general contractor or specialty contractor. This ease of access to the market sets the table for unscrupulous business people to victimize novice investors looking for low-cost construction services.

It is every rehab contractor’s worst nightmare. You spend years in the field learning the art of remodeling – which work pays best in which market. Through years of hard work, you build a reputation for work that looks good for a low cost. Your projects come in at-budget and on-time. You are known for your personal integrity. You are then contacted by investors who pick your brain for good ideas and then shop those ideas to the lowest bidder.

Or what’s worse, the investor hires to perform work for which they haven’t adequate funding. Despite performing to the letter of the contract, the investor requires you to wait until he sells the property to pay – if then.

Unfortunately, it’s difficult for most general contractors to pre-qualify their potential clients and determine if they are reputable people who pay their bills and work to avoid litigation. Given the sheer number of contractors in the marketplace, it’s possible for unscrupulous investors to victimize numerous general contractors in this manner and never get taken to task for their actions.

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Hmmm…… Two sides of the same coin. How do you avoid these problems, whether you are an unsuspecting investor or a reputable contractor?

I suggest treating any relationship between investor and contractor as a relationship between professionals. The investor and the general contractor must pay attention to more than the price to be charged. Treating the pre-construction services of a project similar to the actual construction phase gives both the investor and the contractor an opportunity to work with one another before construction is begun. It provides an opportunity for both parties to find out:

1. Can they work with the individual on a personal and professional basis? Are the contractor’s or investor’s personal or professional habits such that that you could never work with them under any circumstances? Pay attention to how the other person respects your position. Are they on time? Do they want to do work at the level you want it done?

2. What is the quality of written and verbal communications from this person? Are the investor’s or contractor’s verbal communications confusing and contradictory? Are their written communications incomplete and sloppy?

3. Does the person do what they promise? Did the contractor get the bid to you when promised and with the information requested? Is this investor going to work with the general contractor or are they only interested in plagiarizing the contractor’s best ideas for use by another contractor?

From the investor’s perspective, they get to try out the contractor before the contractor ever sets foot inside the home to do work. If the investor doesn’t like what they see before construction begins, it’s a good bet they won’t like the contractor any better once the work has actually begun.

Properties that can be funded by a hard money lender financing include residential non-owner occupied properties and commercial properties, including multi-family, retail, multi-use, office and others. Is your investing concentrated on these types of deals?  Typically, private hard money lenders are willing to fund 60% to 70% loan to value.  They are seeking properties that have a substantial quick sale value, meaning that the property itself could be speedily sold at market at a price near the principal amount of the loan. The quick sale value can be one of the most important factors that a private lender weighs when considering approval of funding.

Such properties are in good neighborhoods , they are in neighborhoods with comparatively low vacancy rates, and they are properties that are desirable and in demand by home buyers or commercial interests.  Not every property is workable for a private hard money loan.  hence the investor seeks properties that are uniquely situated from a value consideration and have a reduced LTV necessity for funding.  In other words, investors seek properties with minimal risk and substantial return. The investor’s exit scheme details how the property equity will be monetized.  Today’s investor typically seeks deals with a minimum of $10,000 net earnings potential.   Some profits can be realized in excess of $50,000 per deal in today’s REO property market.

Hardmoney lenders funds are made mainly for the function of purchasing property for resale. Many investors use private hard money lenders to fund these deals for a period of up to 12 months.  Lenders sometimes have programs to fund properties that need repair or rehab work and provide special funding for that purpose.  Otherwise known as rehab hard money the funding is designed for the purpose of enabling and investor to acquire, rehab, and resell the property for a profit.  

There are versatile means of repayment.  Many private hardmoney funders allow the investor to make interest-only payments and some permit the investor to make no payments for the duration of the loan, although interest is accumulated.  Most investors who rehab property are able to take vantage of the no-payment option and to instead concentrate additional funds into the repair or rehab expense budget.   The private hard money lender evaluates the investor’s loan package to decide whether or not to fund the property from a simple risk evaluation point of view. 

A real estate investor unique exit plan is carefully reasoned to realize that the private hard money lender is able to have the principal and interest of the loan returned within a reasonable time-frame and with minimal risk to the lender.  When an investor submits a loan package that is incomplete or inadequately documented, the lender cannot approve the loan for funding .  Therefore it is in the investor’s interest to ensure that the loan package is properly prepared and complete prior to submission.  By some lender accounts, approximately 50% to 70% of all loan packages are either uncomplete or improperly documented.    It is not difficult for an investor to remedy this problem if they follow the proper guidelines for loan package preparation.

Most investors now turn to the Private Money Lenders Source for investors because it details the top 300 private hard money lenders who loan on residential and commercial investment property, nationally, regionally,and locally.  Investors are able to evaluate and match their deals to the lenders programs and deal direct with the lenders.  The Private Money Lenders Source is the most cost-effective method to identify prospective funding sources for both residential and commercial hard money, saving investors literally hundreds of hours of time.  In addition, other resources are available to help investors source REO, bank-owned property and prepare loan packages as well as create a solid buyers list.

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Rein Canada

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To make money as a real estate investor, you really only need 2
things:

1. A motivated seller

2. Know how to do no-money-down deals

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Let’s deal with the first one. A motivated seller can be found in many ways. But some ways can be more effective than others.
Here are some places where you can find them:

1. For sale by owners (FSBO)

These are sellers who choose to sell their properties without the help of a realtor. Most of the time, these people want to save the realtor commissions.

These sellers find themselves overwhelmed by phone calls from
realtors who haggle them to list their properties with them.

So by approaching them as an investor (using some of my proven phone scripts) you can quickly find out whether they are motivated sellers and then proceed accordingly.

Where can you find them? Newspaper classifieds, craigslist, online classifieds, kijiji.com, “House For Sale” signs.

Disadvantages – finding a motivated seller in this category can be done, but it’s usually a hit and miss situation. Out of 100 FSBO’s you can be lucky to find 1 that is motivated enough to make a decent profit with.

2. Expired listings

These are properties that were listed on the MLS, but have not sold. And their listing contract with the realtor has expired which allows the owner to sell property on their own.

Well actually, under most listing agreements, the realtor who
had the listing is still entitled to his/her commissions up to 3
months or more after the listing has expired.

If you are looking for a motivated seller, it is actually quite
difficult to find one here because you have to consider why the property didn’t sell for so long in the first place.

And also, you have to fight with a bunch of realtors who are again haggling the seller to re-list their property.

3. Foreclosures

Foreclosures are found listed on the MLS.

Sometimes you can get a good deal from these. But if you have actually gone through the process of trying to buy one, it can be a complete nightmare.

As I explained on my site, foreclosures are owned by the bank, and must undergo a tedious legal procedure.

The lawyers cost money, not to mention the realtor gets paid commission which both cut into your profits.

Also, after you have done your inspections, appraisals, financing, made your offer and have your offer accepted… only after all that has been completed will you be able to have a CHANCE to buy the property.

Notice that I said only a CHANCE. That’s right, you
still are not guaranteed you will get the property – for 2 reasons:

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Reason #1 – other bidders can outbid you at the last second during the court hearing even if you have your offer accepted.

And #2 even though your offer is accepted by the bank, the judge has to approve of the sale (so if he thinks you’re getting too good of a deal, he won’t let you buy it).

And oh yeah, if you are lucky and take the whole thing to the end (which actually takes months), you will need to pay for the foreclosure in cash.

If you don’t have access to a few hundred thousand dollars to play the foreclosure game, then you can forget about it.

I’m not saying you can’t make money with Foreclosures, some people do and make 10-20% of the market value.

But considering the amount of work and resources needed to make a deal work, in the same amount of time, you could have done 3-5 preforeclosure deals, made MORE money on every single one of them and most importantly, done it without using any money.

4. Pre-Foreclosure listings

If you have read my site, you would already have an idea what pre-foreclosures are and how they work.

As you may expect me to say, this is the best source to find
motivated sellers.

And I’m not saying this just to promote my site, this is from my personal experience, because I have done almost every real estate strategy known to man, and working with pre-foreclosures is by far the easiest, fastest, way to put the most money in your pocket.

Have I found motivated sellers from FSBO’s, Expired Listings and Foreclosures? Yes, which allows me to ask, “Why make 10-20% in profits when you can make 25-50% profits while doing only HALF the work – in a FRACTION of the time?”

If you don’t believe me, then I encourage you to go ahead and try all the other methods out there to see what it is really like.

Then you will see what I mean. But then again, why bang
your head against the wall when I have already shown you door that leads straight to a real estate goldmine?

So decide for yourself.

Here’s what I suggest, go ahead and join as a Foreclosure Insiders Club member (while it is still open to new members).

I am so confident that you get more motivated sellers than you know what to do with that I offer a money-back guarantee.

It just doesn’t get any better than that.

Chances are, now that #1 is basically handed to you on a silver platter, all you need to do is #2 and BAM! You’ll get big fat real estate profit checks just like mine – perhaps even bigger.

My members are already doing just that!

Aiden Win

Mr. Foreclosure

P.S. In Part 2 of this series, I will uncover the ingredient #2 that you can start using instantly to bring in the cash without you needing any to start with!

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