Wednesday, March 4, 2009

What's Working Now in Real Estate

With the current economy, we have had to adjust our buying model almost daily. Creativity is the key word today. I know it is a word from the past, but one that applies today. You need to be creative to adjust to all the changing markets. Flexibility is another word I would use to describe how we are working today. One day you may use direct mailings and the next you are looking at Foreclosed homes. You can't set you self up in one part of the market for long and hope to continue to grow.

The two markets that are working for us are Foreclosed house & high equity. Foreclosed because when you live in the foreclosure capital of the world you have to look. After a year of making offers to bank who are trying to sell homes that need $25k in repairs for retail, we are starting to see banks make an effort to move properties. House that we made offers on a couple of months ago only to be rejected are cutting prices to below our original asking price. A side note: I find it interesting that listing agents of these properties do not call investors back that made offers on the properties to see if they still want them. I think I would do that before I lowered the listing price, Hmmmm. Oh well that's just me. So we are going back to properties that we made offers on several months and seeing if the property is still available. If they are we recheck the comps (usually lower) and resubmit a price (usually lower). Our market is still dropping from 2 to 5% each month.

High equity homes can be really fun if the seller can wait for their money. Our definition of high equity is 60% and above (i.e. a house worth $100,000 and the owner has a loan on for no more than $40K). We have purchased many homes from sellers who need to sell but can't find a buyer and will provide owner financing. We frequently get that owner financing at 0% interest. How? By asking them for it. When that happens you can pay a higher price for the property because every payment is paying down principle.

Using this deal structure we frequently put a small 1st Deed of Trust, from a private lender, to pull money out of the property to run our business. The seller is in the 2nd position. Again you ask why would the seller do that, because we asked. So our private lender is in a very secure position, the seller is getting payments on a house they could not sell and we have a property that because of the deal structure we can repackage and offer owner financing to a buyer or a Lease Purchase Option (see previous post) and still make a positive cash flow. Throw in substitution of collateral and you have a sweet deal (But I will save that for another post).

See Ya,
Follow me on Twitter:


Keith Young said...

I just got an email from another investor doing a short sale with Countrywide. He sent me the letter they sent him and he had 2 things highlighted. The first said there would be no transfer of property within 30 days of closing of the transaction. Escrow instructions must contain a clause that if such a transaction takes place then the title/escrow company must notify Countrywide.
I see this more and more with lenders making it more difficult for investors to get paid.
The second clause in there basically said that the purchaser of subject property must not be related to borrower. Any relationship between agent a participating broker and the borrower or purchaser must be disclosed and approved. This transaction may not involve any third party who receives a deed from the seller at,prior to or after this closing and before recording of deed to purchaser. The borrower named above must convey title directly to purchaser named in sales contract.
I don't know what all this means other than it is getting harder for investors to get paid and provide the beneficial services they can provide. Investors are sometimes the best solution out there and they are being treated like vultures hovering above a carcass. There are some investors out there taking advantage of people just like in every other business or disaster. Every time a hurricane comes through we had stores price gouging. Don't lump all investors the same. There are a lot of honest ones out there providing a great service

Mike from California said...

Thanks Keith,
You need creative people in the market place to take the risk of buying a property that is decreasing in value like we have in California to reduce the supply of foreclosed homes and the lenders continue to throw up barriers to the transaction. I do not think it will stop investors from buying, but I know I will lower my price for the foreclosed home to account for the holding cost. Which will depress prices even more.

The way I look at it. If Countrywide spent as much time research the original loans as they are doing now for reselling foreclosed homes they would not be in the mess they are in.

I have a copy of the letter Keith talks about. If anyone would like to see it email me and I will forward it.

Keith Young said...

Are you working the foreclosure market? If so I just saw a telecast that people are using to stop or temporarily stops the foreclosure process. Three simple words can stop or temporarily stop the foreclosure. The three words are, "produce the note."
You can ask the lender to produce the note for you to see. Here is what it does. Most mortgages gets resold and resold in packages to other lenders. Your original note with the original lender might have got sold to some other lender. Then that lender might have sold it to another lender who buys packages of notes and so on and so on. So by the time the current lender has your mortgage the original note might have got lost or still with another lender. So if someone is in foreclosure, they can ask the lender to produce the note. What you are asking them to do is to show you they have the right to foreclose and take your house away. A lot of times the lender doesn't have the note and they have to back track and find the lender that does have the note. This could take months or sometimes they can't find it. Check with an attorney to see what can be done if they can't produce the note as they might not be able to foreclose at all if they can't prove they own the note. Always check with an attorney to see what legally can be done but this does work and the lender has to legally produce the note if you ask.

Petra Housing Solutions