Let's assume you have run an ad geared toward generating calls from sellers.
The first question is, How is the call answered? I don't know about you, but I don't have time to sit around waiting for my phone to ring, so my phone is answered by voice mail. The caller is required to leave a message if he wants to tall to me.
To me this accomplishes two things. First, it will help to determine motivation level. If they are motivated, they will leave a name and number. Now some people may call and not leave a message. And that's OK with me. I figure that the people who don't leave messages have their reasons. One might be they are not motivated. Another might be that they were tire kickers. They may also have a penchant for secrecy, so that even if I managed to get their number, when I try to call the SECOND time, they may well screen the call. So again, I don't worry about the people who call and don't leave a message.
Wednesday, June 30, 2010
Monday, June 28, 2010
Making Real Estate Money-A Real Estate Mentor is What You Need
There are a lot of new, energetic, and enthusiastic investors today. They are so full of aspirations and dreams and they want to make them come true by investing in real estate. It is nice to see bright faces beaming with vigor, but reality speaking, most of them will quit after a month or two. Why? It is because their energy is not enough to make a successful real estate career. What they need is knowledge. A common investor's mistake is being so complacent after one successful deal. Learning while earning is very important. If you want to invest in your knowledge, a real estate mentor is what you need.
A real estate mentor is someone who has the expertise, knowledge, and experience in the real estate investing business. He is willing to share his ideas and understanding so you too can be successful in this field. Finding the right real estate coach can make a lot of difference. You can find inspiration, motivation, and a lot of information.
Real estate lessons are usually in the form of manuals, pamphlets, articles, video, and audio materials. The danger with these materials is that some of them have vague and abstract information. A good real estate coach uses materials that are reader friendly and comprehensive. For beginners in the investing realm, it is important to learn the definition of common terms. A good reading material should be easy to read. However, it takes the initiative of the learner to ask his real estate mentor the things that he finds complicated. The learning process should involve an open communication between the investor and the mentor.
A real estate mentor should teach you how to really make money in the real estate business. It is not that easy of course, but at least he can offer you a step-by-step procedure on how you're going to deal with your real estate transactions. He must provide you with clarity and not confusion.
Make sure that your money is worth the knowledge you are getting. Trust only the best. You can check the credibility of your real estate mentor by reading his works and knowing about his background. Don't be deceived by fancy talks or discounted mentoring prices. You should get more benefits from him and not the other way around.
Read more: http://www.articlesbase.com/real-estate-articles/a-real-estate-mentor-is-what-you-need-2737236.html#ixzz0sCQip6cS
Under Creative Commons License: Attribution
Sunday, June 27, 2010
Making Real Estate Money-The Difference Between Cash and Equity
People spend cash on real estate for a variety of reasons. Probably the most common reason for spending any cash at all is that the bank making a new mortgage on the property requires a cash down payment or it won't approve the mortgage.
Some people make the biggest cash down payment they can to keep their monthly mortgage payments lower. Others try to pay with as much cash as possible because they don't want to pay interest on borrowed money. And some folks, especially those who remember the Great Depression, prefer to own their property free and clear of any debt.
However, what most cash-paying real estate buyers don't realize is this: Equity in real estate and cash are not the same thing. There is a fundamental difference between the two. While cash goes into the equity market at full value, equity comes back out into the cash market at a discount. Equity is not a liquid commodity and does not move very quickly. Cash is absolutely liquid. It is important to understand this difference.
To illustrate this dynamic difference, let's assume we have $100,000 in cash to buy a piece of property. We find a well-priced home for that amount. We pay cash for it, close escrow and it's ours free and clear. Now, can we break off a piece of the roof and buy groceries with it? Can we take the front door and use it to pay our doctor bill? The answer is "no" because cash is not the same as equity.
We've converted our cash from the cash marketplace, at full value, into $100,000 worth of equity in the real estate market. Soon after the purchase, however, a financial emergency arises. Having no other cash in reserve, we must convert our equity back into cash immediately. We have to sell the property today.
To convert our equity into immediate cash, we need a buyer for the property right now. Finding a buyer willing to pay full cash value for the equity might reasonably take 60 days to six months. Add to that another 30 to 60 days to close the transaction and, when we total it up, it's going to take a long time. And that's if everything goes smoothly.
But we need immediate cash not maybe in six months. To get immediate cash, there are two options available to us. First, if we structure the offer attractively enough, someone will buy our property today. The most obvious way to do that is to reduce the price to an amount that no serious buyer could refuse.
Depending upon the stability of the real estate market, that could mean discounting the price by as much as 35 to 50 percent. That's 50 to 65 cents on the dollar! Now, would you take your dollar bills to the bank and trade them in for the same number of fifty-cent pieces? Would you trade in 1,000 dollar bills for $650? Most likely, you would not. Yet, that's the price we have to pay to convert our equity into cash right now.
Our other option is to refinance the property. We can refinance and get some of our cash out that way. Here again, the full $100,000 equity will not be converted into the same amount of cash.
If you have excellent credit, you may be able to borrow as much as $80,000 against the property. If you have less than excellent credit, or poor credit, you won't get a mortgage for anywhere near $80,000. If your credit is really bad, banks won't loan you a dime on your property.
In both instances, we are faced with the same problem. Everyone agrees the equity in the property is worth $100,000. To convert it to cash, though, we must discount that equity.
Now that you understand the difference between cash and equity, you should always think twice before you exchange very much of your liquid cash for real estate equity. Knowledgeable investors use a variety of creative methods to overcome this dilemma.
Some people make the biggest cash down payment they can to keep their monthly mortgage payments lower. Others try to pay with as much cash as possible because they don't want to pay interest on borrowed money. And some folks, especially those who remember the Great Depression, prefer to own their property free and clear of any debt.
However, what most cash-paying real estate buyers don't realize is this: Equity in real estate and cash are not the same thing. There is a fundamental difference between the two. While cash goes into the equity market at full value, equity comes back out into the cash market at a discount. Equity is not a liquid commodity and does not move very quickly. Cash is absolutely liquid. It is important to understand this difference.
To illustrate this dynamic difference, let's assume we have $100,000 in cash to buy a piece of property. We find a well-priced home for that amount. We pay cash for it, close escrow and it's ours free and clear. Now, can we break off a piece of the roof and buy groceries with it? Can we take the front door and use it to pay our doctor bill? The answer is "no" because cash is not the same as equity.
We've converted our cash from the cash marketplace, at full value, into $100,000 worth of equity in the real estate market. Soon after the purchase, however, a financial emergency arises. Having no other cash in reserve, we must convert our equity back into cash immediately. We have to sell the property today.
To convert our equity into immediate cash, we need a buyer for the property right now. Finding a buyer willing to pay full cash value for the equity might reasonably take 60 days to six months. Add to that another 30 to 60 days to close the transaction and, when we total it up, it's going to take a long time. And that's if everything goes smoothly.
But we need immediate cash not maybe in six months. To get immediate cash, there are two options available to us. First, if we structure the offer attractively enough, someone will buy our property today. The most obvious way to do that is to reduce the price to an amount that no serious buyer could refuse.
Depending upon the stability of the real estate market, that could mean discounting the price by as much as 35 to 50 percent. That's 50 to 65 cents on the dollar! Now, would you take your dollar bills to the bank and trade them in for the same number of fifty-cent pieces? Would you trade in 1,000 dollar bills for $650? Most likely, you would not. Yet, that's the price we have to pay to convert our equity into cash right now.
Our other option is to refinance the property. We can refinance and get some of our cash out that way. Here again, the full $100,000 equity will not be converted into the same amount of cash.
If you have excellent credit, you may be able to borrow as much as $80,000 against the property. If you have less than excellent credit, or poor credit, you won't get a mortgage for anywhere near $80,000. If your credit is really bad, banks won't loan you a dime on your property.
In both instances, we are faced with the same problem. Everyone agrees the equity in the property is worth $100,000. To convert it to cash, though, we must discount that equity.
Now that you understand the difference between cash and equity, you should always think twice before you exchange very much of your liquid cash for real estate equity. Knowledgeable investors use a variety of creative methods to overcome this dilemma.
Making Real Estate Money-The Best Way for Real Estate Investors to Handle Calls
Staying in control
The second thing answering by voice mail does is give you a name and number you can call on your own terms, at your own time. What I mostly don't do is to answer my phone. Why?? When you answer your phone the caller controls the conversation at the outset. You're unbalanced because you don't know what the caller is calling about. When you get good at handling the telephone this is easy to handle, but for beginners it's much easier to collect calls on a voice mail.
Now you have a name and number of someone who called an ad designed to produce sellers. You're ready to call back. What do you say?? I would start something like this.
Now you have a name and number of someone who called an ad designed to produce sellers. You're ready to call back. What do you say?? I would start something like this.
Mr. Smith, my name is Jim Piper. You called on an ad in the Metropolitan newspaper that said "I Buy Houses." How can I help you?
What does this do? It throws the ball to the seller. He's now required to give you an answer to an open-ended question. In other words, he can't answer by saying "Yes" or "No." He's required to talk. You're now firmly in control of the conversation. The next thing you do is shut up and listen! Allow the seller to take the conversation where he wants to go. Don't interrupt!
Your agenda
Just because the seller is now talking doesn't mean you don't have an agenda. You do. Here's your agenda. You want to determine if the seller has a property for sale. If he does, you want to determine the details of the property such as location, number of bedrooms and bathrooms, garage, basement, and overall condition. You want to determine the details about the existing financing on the property. What type of loan is it, what is the loan amount, what is the interest rate, when was the loan originated, what are the monthly payments, is the loan current, etc. You want to determine the seller's perception of the value of the property, how quickly he needs to sell. You want to determine the motivation level of the seller. This is your agenda.
Until you know the answer to these questions (and others) you can't know whether there is a deal, or have any clue as to how to do the deal.
Until you know the answer to these questions (and others) you can't know whether there is a deal, or have any clue as to how to do the deal.
Get answers before you look at the property
The above agenda should be firmly in your mind as the phone conversation begins. If you can't remember it, have your questions written down on a piece of paper next to your phone. Your goal is to get the answers to all of these questions BEFORE you make a decision to get up out of your chair to go look at the property.
If you run into a problem and forget what you want to ask....DON'T PANIC. Simply tell the seller you have another call coming in, and place the seller on hold. Now you sit quietly at your desk and review your notes. When you're ready get back on the line with the seller, apologize, tell him your phone has been ringing off the hook today, and ask your next question. As a matter of fact, this will help to strengthen your stance. Everyone likes to do business with someone who is busy. You might try putting people on hold for that reason alone.
Here's where the call gets more complicated. The seller is talking but he may not be talking about what you want to know, or in the order that you want the information. That's OK too. Take notes on what the seller is saying. Periodically summarize. Then ask your next question. "Mr Smith, so you have a 3 bedroom, 2 bath home and the roof leaks. How old is the furnace?" Your questions are a track to run on, a place to come back to when the seller strays. "Mr. Smith, coming back to the financing for a second, does that monthly payment include taxes and insurance?"
During the phone call the seller may ask you questions. It's OK to answer a question, as long as you reestablish control following the question.
Example: "Do you charge a commission?" "No, Mr. Smith, I don't. I'm not a real estate broker. I simply buy houses as real estate investments investments. (Pause) How did you determine that particular value for your property?"
Example: "What would you pay me for my house?" "Mr. Smith, it would be impossible for me to know that right now before I know your situation completely and before I have seen the property. What were you wanting for the house?"
If you run into a problem and forget what you want to ask....DON'T PANIC. Simply tell the seller you have another call coming in, and place the seller on hold. Now you sit quietly at your desk and review your notes. When you're ready get back on the line with the seller, apologize, tell him your phone has been ringing off the hook today, and ask your next question. As a matter of fact, this will help to strengthen your stance. Everyone likes to do business with someone who is busy. You might try putting people on hold for that reason alone.
Here's where the call gets more complicated. The seller is talking but he may not be talking about what you want to know, or in the order that you want the information. That's OK too. Take notes on what the seller is saying. Periodically summarize. Then ask your next question. "Mr Smith, so you have a 3 bedroom, 2 bath home and the roof leaks. How old is the furnace?" Your questions are a track to run on, a place to come back to when the seller strays. "Mr. Smith, coming back to the financing for a second, does that monthly payment include taxes and insurance?"
During the phone call the seller may ask you questions. It's OK to answer a question, as long as you reestablish control following the question.
Example: "Do you charge a commission?" "No, Mr. Smith, I don't. I'm not a real estate broker. I simply buy houses as real estate investments investments. (Pause) How did you determine that particular value for your property?"
Example: "What would you pay me for my house?" "Mr. Smith, it would be impossible for me to know that right now before I know your situation completely and before I have seen the property. What were you wanting for the house?"
Who, what, where, when, why and how
Remember the 5 B's? Who, what, where, when, and why. Add to these the word "How" and write them down by your other questions. These are powerful words. These are probing words that enable you to find out more information about the seller's comments. Use these frequently.
"Why do you need to sell so quickly Mr. Smith?" "Where will you be moving if you sell you house, Mr. Smith." "Why do you say that Mr. Smith"? "How did that happen Mr. Smith?"
Notice that these words force open-ended answers….in other words the seller can't answer with a simple "yes" or "no." Open-ended answers ALWAYS produce more information than the answer to a close-ended question.
Your job is to ask all the questions necessary to get a complete picture of the property, together with financial information regarding the property, and a psychological picture of where the seller is at. Keep asking questions until you have this complete picture. Then, and only then, will you know whether the pre-conditions for a deal exist.
Depending on the answers, you may wish to make an appointment to see the property. Or you may wish to handle it differently. "OK, Mr. Smith, here's where we go from here. I'll need to do a little homework on my end to figure out if your property meets my criteria. If it does, I'll need to see the property. When would be a good time to call you back?" This buys you some time to evaluate whether it is in your interest to go look at the property. But don't take too much time with this process because, if the seller is motivated, he will sell the property quickly.
"Why do you need to sell so quickly Mr. Smith?" "Where will you be moving if you sell you house, Mr. Smith." "Why do you say that Mr. Smith"? "How did that happen Mr. Smith?"
Notice that these words force open-ended answers….in other words the seller can't answer with a simple "yes" or "no." Open-ended answers ALWAYS produce more information than the answer to a close-ended question.
Your job is to ask all the questions necessary to get a complete picture of the property, together with financial information regarding the property, and a psychological picture of where the seller is at. Keep asking questions until you have this complete picture. Then, and only then, will you know whether the pre-conditions for a deal exist.
Depending on the answers, you may wish to make an appointment to see the property. Or you may wish to handle it differently. "OK, Mr. Smith, here's where we go from here. I'll need to do a little homework on my end to figure out if your property meets my criteria. If it does, I'll need to see the property. When would be a good time to call you back?" This buys you some time to evaluate whether it is in your interest to go look at the property. But don't take too much time with this process because, if the seller is motivated, he will sell the property quickly.
The perfect phone call
The perfect phone call is one where the seller is talking, and you're listening. The perfect phone call is one where your questions are giving you information, and the questions are leading the conversation to it's conclusion. The conclusion of the perfect phone call is either setting an appointment to view the property, or informing the seller that you have no interest in the property. The purpose of the perfect phone call is not to make a verbal offer. Last time I looked, an offer can't be signed over the telephone. The perfect phone call elicits information which enables you to determine whether you want to pursue the deal.
Making Real Estate Money-Great Ideas for Finding Pre-Foreclosures and REOs
These are the tools and techniques I've used successfully when looking for pre-foreclosure and REO properties. I hope other investors find them as useful as I have.
Pre-foreclosures
The availability of pre-foreclosures depends largely upon the type of debt instrument recorded against property titles in each state, mortgages or deeds of trust (also called trust deeds or TDs).
TDs contain a "power of sale" clause that basically allows lenders to exercise their right to repossess collateral (in this case, real estate) for a loan in default WITHOUT having to file a lawsuit; mortgages do not.
Generally speaking, we prefer mortgages because TD foreclosures move too quickly (whereas lawsuits are slow and cumbersome) and provide limited visibility (mortgages have more public records associated with them, therefore they're easier for us to find).
To make it confusing, some states require lawsuits for ANY foreclosure, regardless of the debt instrument recorded; that's okay- -it's the suit itself that gives us time to be able to work with the property owner, so those statutes actually work in our favor.
You'll probably want to do some due diligence just to make sure you're not wasting your time trying to go down an avenue that turns out to be a dead end.
To find out if pre-foreclosure is an option for you, call the County Recorder (or Recorder of Deeds) and ask them what type of debt instrument is recorded against a property's title when someone takes out a loan to make a real estate purchase.
If the answer is "a mortgage," you're on your way; if the answer is "a deed of trust" or if you don't get a clear answer, you'll need to do some additional research into state laws to find out what the foreclosure process is.
Try looking for statute, code, administrative law, etc. in Primary Materials under the "U.S. State Resources" section ofwww.findlaw.com. (Excellent material, and all FREE).
TDs contain a "power of sale" clause that basically allows lenders to exercise their right to repossess collateral (in this case, real estate) for a loan in default WITHOUT having to file a lawsuit; mortgages do not.
Generally speaking, we prefer mortgages because TD foreclosures move too quickly (whereas lawsuits are slow and cumbersome) and provide limited visibility (mortgages have more public records associated with them, therefore they're easier for us to find).
To make it confusing, some states require lawsuits for ANY foreclosure, regardless of the debt instrument recorded; that's okay- -it's the suit itself that gives us time to be able to work with the property owner, so those statutes actually work in our favor.
You'll probably want to do some due diligence just to make sure you're not wasting your time trying to go down an avenue that turns out to be a dead end.
To find out if pre-foreclosure is an option for you, call the County Recorder (or Recorder of Deeds) and ask them what type of debt instrument is recorded against a property's title when someone takes out a loan to make a real estate purchase.
If the answer is "a mortgage," you're on your way; if the answer is "a deed of trust" or if you don't get a clear answer, you'll need to do some additional research into state laws to find out what the foreclosure process is.
Try looking for statute, code, administrative law, etc. in Primary Materials under the "U.S. State Resources" section ofwww.findlaw.com. (Excellent material, and all FREE).
Finding properties in pre-foreclosure
Here are three ways to find properties in pre-foreclosure:
1. Try contacting your local county court. Ask if Notices of Default (NODs) have to be recorded as court documents. If the answer is "yes," find out how you can search the new filings; if the answer is "no," try one of the other options below.
2. Find out if the County Recorder has data available online.An easy resource to use is www.netronline.com. Simply click on "Property Data Online," select the state you want, then click on the county, and voila! You'll be able to see what (if any) info is available over the Internet through the various real estate-related offices in that county.
This is my preferred method because the county I live in makes title abstract data available on the web. Plus I can do what's called a KOI (Kind of Instrument) Search and look specifically for NODs that were filed on or after a certain date.
I do most of my research this way because it's easy and convenient, it's FREE (I love that word!), and I can also see any other liens or judgments that are be recorded against the property that could adversely affect the deal. If this option isn't available in your county, try option #3.
3. Look in the "legal notice" section of the newspaper. Look for properties that are coming up for sale at public auction (sheriff's sale, trustee sale, whatever), jot down the addresses, the property owners' names, and the tax ID, or at least as much info as you can get from the ad.
Then go to the County Recorder's office to look up those properties, find the NOD on the title, and see who recorded it; you're looking for a title or abstract company that you can work with. They provide you with a list of the NODs they've recorded, and when you close on any of those deals, you use their services for closing ("you scratch my back, I'll scratch yours"). I've also used this approach in the past with great success as well.
1. Try contacting your local county court. Ask if Notices of Default (NODs) have to be recorded as court documents. If the answer is "yes," find out how you can search the new filings; if the answer is "no," try one of the other options below.
2. Find out if the County Recorder has data available online.An easy resource to use is www.netronline.com. Simply click on "Property Data Online," select the state you want, then click on the county, and voila! You'll be able to see what (if any) info is available over the Internet through the various real estate-related offices in that county.
This is my preferred method because the county I live in makes title abstract data available on the web. Plus I can do what's called a KOI (Kind of Instrument) Search and look specifically for NODs that were filed on or after a certain date.
I do most of my research this way because it's easy and convenient, it's FREE (I love that word!), and I can also see any other liens or judgments that are be recorded against the property that could adversely affect the deal. If this option isn't available in your county, try option #3.
3. Look in the "legal notice" section of the newspaper. Look for properties that are coming up for sale at public auction (sheriff's sale, trustee sale, whatever), jot down the addresses, the property owners' names, and the tax ID, or at least as much info as you can get from the ad.
Then go to the County Recorder's office to look up those properties, find the NOD on the title, and see who recorded it; you're looking for a title or abstract company that you can work with. They provide you with a list of the NODs they've recorded, and when you close on any of those deals, you use their services for closing ("you scratch my back, I'll scratch yours"). I've also used this approach in the past with great success as well.
Finding REOs
First of all, keep in mind that most lenders list with realtors for a specific reason (cost-effectiveness, driven by several different factors), so we should respect that business decision and not try to work directly with the bank on REO properties until the realtor becomes more of a hindrance than a help (happens more often than not, unfortunately). But try these steps, not in any particular order:
1. Most lenders these days have web sites. They may have a list of their REOs posted along with contact info for the realtor listing the property for them.
Every lender's web site is different, of course, so you'll just need to nose around a bit; sometimes those listings are buried in some obscure corner of the web site. If I'm poking around on some lender's site and can't find what I'm looking for in less than an hour, I try a different approach.
2. Call lenders and ask to speak to someone who handles their foreclosures. (or REOs, or repos, or their real estate portfolio, or whatever they call them). Ask that person for the names of the realtors they use to list foreclosed properties. If he says anything like "Sorry, we don't have any foreclosures," I find it very hard to believe that in this economy they haven't had to foreclose on any of their mortgages.
So it's more likely that I've reached a branch office and those repossessed properties aren't handled locally; they're all sent back to their corporate office to be managed at a central location, or they've been farmed out to an asset management company. Again, ask for the name and phone number of the person at Corporate who handles foreclosures.
3. Pay attention to business signs! Believe it or not, there's a realtor's office on one of the main streets in my town whose marquee says: "FREE FORECLOSURE LISTING, NO OBLIGATION, CALL TODAY" I did, and got another list to start working on and a good contact to boot.
4. Check newspapers Check not only the local dailies, but also the "cheapie papers" like the Thrifty Nickel, Penny Saver, Green Sheets, etc. for ads posted by realtors with REOs they're trying to sell:
1. Most lenders these days have web sites. They may have a list of their REOs posted along with contact info for the realtor listing the property for them.
Every lender's web site is different, of course, so you'll just need to nose around a bit; sometimes those listings are buried in some obscure corner of the web site. If I'm poking around on some lender's site and can't find what I'm looking for in less than an hour, I try a different approach.
2. Call lenders and ask to speak to someone who handles their foreclosures. (or REOs, or repos, or their real estate portfolio, or whatever they call them). Ask that person for the names of the realtors they use to list foreclosed properties. If he says anything like "Sorry, we don't have any foreclosures," I find it very hard to believe that in this economy they haven't had to foreclose on any of their mortgages.
So it's more likely that I've reached a branch office and those repossessed properties aren't handled locally; they're all sent back to their corporate office to be managed at a central location, or they've been farmed out to an asset management company. Again, ask for the name and phone number of the person at Corporate who handles foreclosures.
3. Pay attention to business signs! Believe it or not, there's a realtor's office on one of the main streets in my town whose marquee says: "FREE FORECLOSURE LISTING, NO OBLIGATION, CALL TODAY" I did, and got another list to start working on and a good contact to boot.
4. Check newspapers Check not only the local dailies, but also the "cheapie papers" like the Thrifty Nickel, Penny Saver, Green Sheets, etc. for ads posted by realtors with REOs they're trying to sell:
Lists of properties that the realtor has: The ad will mention "bank owned," "foreclosure," "free list," etc. and will have a person's name or the name of a realty company and a regular phone number.
NOTE: I do NOT like ads that are only for government foreclosures (i.e., nothing but FHA, HUD, VA, FNMA-owned properties); I don't know who I'm calling, there's a "free 24/7 recorded message" or a toll-free number with an extension. These are usually subscription services, and more often than not, I find that their data is very limited, out-of-date, and over-priced.
Individual foreclosure properties: Look for listings with key words like "bank owned," "foreclosed," "REO," "repo," etc. If that realtor has one foreclosed property, most likely he's got others.
5. Attend the next public auction. Not to buy property, but to make note of what DOESN'T sell. Jot down the addresses, then a couple of weeks later, drive by to see if there's a sign in the yard. That's probably the realtor who's selling the property for the lender. And again, if he's got the one foreclosure, he's most likely got others.
Regarding option #3 for finding pre-foreclosures and ALL of the research options for REOs, these aren't necessarily ongoing processes; they're just groundwork. Once you have those foundations laid and those relationships built, you probably won't have any need to continue to do these things. Always remember: Be polite, but firm, and be persistent. Hope this helps…Best of luck!
Regarding option #3 for finding pre-foreclosures and ALL of the research options for REOs, these aren't necessarily ongoing processes; they're just groundwork. Once you have those foundations laid and those relationships built, you probably won't have any need to continue to do these things. Always remember: Be polite, but firm, and be persistent. Hope this helps…Best of luck!
Making Real Estate Money-Is Foreclosure Investing for You?
If you are new to real estate investing and considering buying foreclosure properties, you need to be realistic about what you are facing. If you feel more sober about foreclosure investingafter reading what I have written below, I will have accomplished my goal.
Foreclosure investing is not a good investment approach for beginners. I recommend that you have at least a couple of years' experience with more traditional real estate investing first.
The profits from foreclosure investing can be huge. That makes foreclosures attractive. There is an awful lot to know in order to avoid the problems that can occur. If you don't know what you are doing, one disastrous foreclosure investment can wipe out your capital and your enthusiasm for all real estate investing.
Foreclosure investing is not a good investment approach for beginners. I recommend that you have at least a couple of years' experience with more traditional real estate investing first.
The profits from foreclosure investing can be huge. That makes foreclosures attractive. There is an awful lot to know in order to avoid the problems that can occur. If you don't know what you are doing, one disastrous foreclosure investment can wipe out your capital and your enthusiasm for all real estate investing.
Three ways to buy a foreclosure property
There are three basic approaches to buying properties in foreclosure depending on the stage of the foreclosure process: buying pre-foreclosures, buying at the foreclosure auction, and buying from lender after the foreclosure sale.
If you buy from the delinquent property owner before it goes to auction, you have bought a pre-foreclosure deal. Buying at the auction is self-explanatory. If nobody bids, the lender ends up with the property.
Buying from the lender after the auction is called buying REOs (real estate owned) or Repos, (repossessions). Sometimes you will see them referred to as "corporation owned" or, my favored term, "lender owned."
If you buy from the delinquent property owner before it goes to auction, you have bought a pre-foreclosure deal. Buying at the auction is self-explanatory. If nobody bids, the lender ends up with the property.
Buying from the lender after the auction is called buying REOs (real estate owned) or Repos, (repossessions). Sometimes you will see them referred to as "corporation owned" or, my favored term, "lender owned."
REOs are the least risky way to buy foreclosures
You may have more risk than you would in a regular real estate transaction, but REOs are less risky than in buying at the auction. Since REOs are somewhat similar to a regular sale, they can be pretty safe. You might not get a seller's disclosure.
In California, a lender who acquires a property through foreclosure does not have to offer a disclosure to you as a buyer. But, if there are problems after you buy the property, you might be able to sue the lender who sold you the property, or at least threaten to sue them, and they might make things right or pay part of the cost. There's a good chance they will still be around after the sale.
In California, a lender who acquires a property through foreclosure does not have to offer a disclosure to you as a buyer. But, if there are problems after you buy the property, you might be able to sue the lender who sold you the property, or at least threaten to sue them, and they might make things right or pay part of the cost. There's a good chance they will still be around after the sale.
The risks of buying pre-foreclosure real estate
The next riskiest foreclosure purchase is the pre-foreclosure. If an owner of a pre-foreclosure disappears, you risk not getting anything from him after the sale. A pre-foreclosure seller might be desperate and lie to you about the condition of the property and the neighborhood.
There might be liens on the property that the seller "forgot" to mention. The big utility bills become the buyer's responsibility if the pre-foreclosure investor failed to check them out. Ditto for unpaid property taxes. There may be another person on title who did not sign the deed, and so on.
In California and, I believe, some other states, there are special laws related to dealing with and buying a property from a homeowner occupant who is in default on a loan.
If the contracts and the sale are not done according to the law, the seller has the right to rescind the sale and could, long after the sale, sue to have the sale reversed. There are extreme penalties for violating the law. Remember, "Ignorance of the law is no excuse." You need to know the state law when you do pre-foreclosure investing.
Can the seller can legally deed the property to you? What if the seller is already in bankruptcy? The deed is likely not valid unless it has gone through the bankruptcy court. You have to call the local bankruptcy court to check for a possible filing. And, of course, the seller could have filed bankruptcy in another bankruptcy court that you did not call.
And, even if the seller does not file bankruptcy until after your purchase, you may have to deed the property back to the seller up to three years after you bought it.
If selling the property made the seller destitute, and the seller sold for much below market value--which you hope he did so you could make a good profit--the bankruptcy trustee can require you to deed the property into the bankruptcy estate on the grounds that the sale was a "fraudulent transfer," wherein the seller deprived his creditors of an asset which could help pay the debts.
At that point, you become a creditor of the bankruptcy estate. Is this really what you planned when you bought the "great pre-foreclosure deal"? A lot of pre-foreclosure buyers may forego some of the inspections because they are hurrying to buy before the foreclosure auction.
Sometimes the buyers will give money to the owner, get a deed, and record the deed themselves in the land records office of the county. The pre-foreclosure buyer has to be very alert to a lot of possibilities and check them out. You must have superior knowledge of real estate investing before you start doing pre-foreclosure investing.
But, if you sign a proper sales contract with the owner, get appropriate inspections, go through an escrow with a knowledgeable escrow agent, and look at the property yourself, you probably will not be at great risk. If you use the safeguards above, you are going to have less risk than in most foreclosure auction buys.
There might be liens on the property that the seller "forgot" to mention. The big utility bills become the buyer's responsibility if the pre-foreclosure investor failed to check them out. Ditto for unpaid property taxes. There may be another person on title who did not sign the deed, and so on.
In California and, I believe, some other states, there are special laws related to dealing with and buying a property from a homeowner occupant who is in default on a loan.
If the contracts and the sale are not done according to the law, the seller has the right to rescind the sale and could, long after the sale, sue to have the sale reversed. There are extreme penalties for violating the law. Remember, "Ignorance of the law is no excuse." You need to know the state law when you do pre-foreclosure investing.
Can the seller can legally deed the property to you? What if the seller is already in bankruptcy? The deed is likely not valid unless it has gone through the bankruptcy court. You have to call the local bankruptcy court to check for a possible filing. And, of course, the seller could have filed bankruptcy in another bankruptcy court that you did not call.
And, even if the seller does not file bankruptcy until after your purchase, you may have to deed the property back to the seller up to three years after you bought it.
If selling the property made the seller destitute, and the seller sold for much below market value--which you hope he did so you could make a good profit--the bankruptcy trustee can require you to deed the property into the bankruptcy estate on the grounds that the sale was a "fraudulent transfer," wherein the seller deprived his creditors of an asset which could help pay the debts.
At that point, you become a creditor of the bankruptcy estate. Is this really what you planned when you bought the "great pre-foreclosure deal"? A lot of pre-foreclosure buyers may forego some of the inspections because they are hurrying to buy before the foreclosure auction.
Sometimes the buyers will give money to the owner, get a deed, and record the deed themselves in the land records office of the county. The pre-foreclosure buyer has to be very alert to a lot of possibilities and check them out. You must have superior knowledge of real estate investing before you start doing pre-foreclosure investing.
But, if you sign a proper sales contract with the owner, get appropriate inspections, go through an escrow with a knowledgeable escrow agent, and look at the property yourself, you probably will not be at great risk. If you use the safeguards above, you are going to have less risk than in most foreclosure auction buys.
The risk of buying at the foreclosure auction
Buying at the auction is the riskiest foreclosure purchase. At the auction you have no real estate agent to lead you through the process. You have no escrow and no title report let alone title insurance.
In most jurisdictions it is an all cash sale. In some states you may have a week to a month to come up with the full purchase price. If you do not raise the money, you lose your deposit.
At the auction the people conducting the sale will announce that the successful bidder will receive NO WARRANTY OF ANY KIND. You have no assurance that there are not other liens or loans on the property.
You do not have any inspections by contractors, roofers, pest inspectors, building inspections, water well, or septic system experts. You get no disclosure from the seller as to the condition of the building or what is happening in the neighborhood.
Usually you cannot see the inside of the building; perhaps not even the back of the outside. You know nothing about the electrical system, the plumbing, the heating, or air conditioning.
If you buy an occupied property, you have to do an eviction, which, in some states, can drag out for a while, preventing you from getting into the property quickly to prepare for resale. Sometimes the occupants, if they are former owners, will vandalize the properties before leaving or steal items, such as cabinets, doors, fixtures, lamps, etc.
If you are buying to resell the property quickly for a profit, you had better know if your buyer can readily get title insurance when buying your foreclosed-upon property.
When you get a very good deal at a foreclosure auction, you may find that the former owner files a lawsuit to attempt to overturn the sale. So be prepared to hire an attorney and fight for your profit.
In most jurisdictions it is an all cash sale. In some states you may have a week to a month to come up with the full purchase price. If you do not raise the money, you lose your deposit.
At the auction the people conducting the sale will announce that the successful bidder will receive NO WARRANTY OF ANY KIND. You have no assurance that there are not other liens or loans on the property.
You do not have any inspections by contractors, roofers, pest inspectors, building inspections, water well, or septic system experts. You get no disclosure from the seller as to the condition of the building or what is happening in the neighborhood.
Usually you cannot see the inside of the building; perhaps not even the back of the outside. You know nothing about the electrical system, the plumbing, the heating, or air conditioning.
If you buy an occupied property, you have to do an eviction, which, in some states, can drag out for a while, preventing you from getting into the property quickly to prepare for resale. Sometimes the occupants, if they are former owners, will vandalize the properties before leaving or steal items, such as cabinets, doors, fixtures, lamps, etc.
If you are buying to resell the property quickly for a profit, you had better know if your buyer can readily get title insurance when buying your foreclosed-upon property.
When you get a very good deal at a foreclosure auction, you may find that the former owner files a lawsuit to attempt to overturn the sale. So be prepared to hire an attorney and fight for your profit.
Experience and knowledge build your foundation
Now do you begin to understand why I recommend that beginners not start investing in foreclosures? Start with simpler buying approaches and get some experience with properties, laws, ordinances, deeds, and loans, and so on to provide a foundation.
Learn to do title searches as fast as the professionals. Get to know intimately the government offices that have property records and tax assessment rolls. Get to know the property values in an area where you invest.
Learn about the problems with properties in different neighborhoods, such as bad soil, poor construction in certain subdivisions, problems with septic systems and wells, and soil contamination.
When you have learned all that, start studying up on foreclosures. Study the foreclosure laws in your state. Study law books on the priority of liens, bidding at auctions, title insurance, and bankruptcy. When you fully understand foreclosures, start buying them.
I am not trying to stop you from investing in foreclosures. They can be profitable for those who can practice it well. But, few beginners can do it well. I'm telling you to be realistic and get the background that will allow you to be successful in foreclosure investing.
The field is rife with risk. You can easily lose your whole investment if you make a single mistake. Please believe me, even with all my years of real estate investing experience, it has happened to me.
Learn to do title searches as fast as the professionals. Get to know intimately the government offices that have property records and tax assessment rolls. Get to know the property values in an area where you invest.
Learn about the problems with properties in different neighborhoods, such as bad soil, poor construction in certain subdivisions, problems with septic systems and wells, and soil contamination.
When you have learned all that, start studying up on foreclosures. Study the foreclosure laws in your state. Study law books on the priority of liens, bidding at auctions, title insurance, and bankruptcy. When you fully understand foreclosures, start buying them.
I am not trying to stop you from investing in foreclosures. They can be profitable for those who can practice it well. But, few beginners can do it well. I'm telling you to be realistic and get the background that will allow you to be successful in foreclosure investing.
The field is rife with risk. You can easily lose your whole investment if you make a single mistake. Please believe me, even with all my years of real estate investing experience, it has happened to me.
Making Real Estate Money-How Investors Can Benefit from a Real Estate License
If you could easily and cheaply acquire a tool to turbo blast your real estate investing career, wouldn't you do it?
I started investing in real estate about 10 years ago. I found an agent who was willing to comb the MLS listings everyday, set up showings for me to view properties, and work for very little commissions from my low-ball offers. And I thought that worked out all right.
But I soon came to realize that I was depending on someone else to be on the look out to scoop up the good deals as soon as they hit the market. Now my agent was good, but why was I depending on someone else in my quest for real estate wealth?
Good question. And besides, a smart agent would probably keep the best deals to herself--I would! So, I decided to get a license myself. It is fairly easy, relatively cheap, and requires very little time. I did four weekends a month, while I was still working my full-time job, or "trading my precious hours for dollars" as I call it.
Doctors need at least 10 or 12 years of education and training and usually start their practices owing hundreds of thousands in student loans. Lawyers must go to school at least 7 years.
But you, a real estate investor, can get a real estate license in a little more than a month with about a $1,000 investment. Now you may not make what a doctor or lawyers makes. Then again, maybe you can. But the initial investment is a whole lot more enticing!
With a real estate license, I was able to unearth some very goodcreative financing deals that netted me at least $500 per month in cash flow. I also got a property management contract from an investor in California.
I had made an offer to lease option their apartment complex. They did not accept, but in the course of the conversation they expressed that they were very dissatisfied with their local property manager. Ding, ding, ding, I am a property manager.
I had never managed anyone else's property, but I had managed my own, and that qualified me as a property manager. I told her, "Hey, I do that, too." So we got a lucrative contract managing their properties.
We also made money rehabbing their properties, and we made more money (real estate commission) when I sold them another property, which of course, I will make more money at managing their new property. See how it all fits so beautifully together. But the license was the key, that started the whole thing.
What does a real estate license do for you? Most importantly, it gives you access to the MLS. Not only can you find out what is currently available, you can find out information about properties listed in the past, the expireds, the withdrawns, and the solds. This gives you the permanent parcel number, important when you are doing research on potential deals.
The active listings are really the easiest way to find investment deals and the most prolific. You may think that the MLS lists only the "nice" and "pretty" properties. Not so. The repos, fixer-uppers, estate sales, short sales, and the plain, old junkers are almost always listed on the MLS.
And part of the property information contained in the MLS listing is the method of purchase, such as cash, conventional, FHA, and VA.
However, now more than ever, due to the crisis in the housing industry, (always the best time to buy investments) many listings are being offered on land contract, lease option, or some other form of creative financing. Made to order for the serious investor. Is that you?
OK, now you have access to the MLS. What else can a license do for you? Well how about legitimizing yourself? You have put yourself out there as an expert. The premise of Real Estate Investing 101 is the market value of a property--the "comps." Hey, you have access to the "comps." Kind of gives you an advantage doesn't it?
As a real estate agent, you are out there moving around in the circles that will naturally spawn more opportunities for the smart investor. You are a "Player."
You will be surprised at all the paths of opportunity that open up for you when you have that valuable tool, a real estate license. That license will take you places you never even thought of. It will change your future, it changed mine. Please email me atdianeleeprice@msn.com. I will be glad to answer any questions.
I started investing in real estate about 10 years ago. I found an agent who was willing to comb the MLS listings everyday, set up showings for me to view properties, and work for very little commissions from my low-ball offers. And I thought that worked out all right.
But I soon came to realize that I was depending on someone else to be on the look out to scoop up the good deals as soon as they hit the market. Now my agent was good, but why was I depending on someone else in my quest for real estate wealth?
Good question. And besides, a smart agent would probably keep the best deals to herself--I would! So, I decided to get a license myself. It is fairly easy, relatively cheap, and requires very little time. I did four weekends a month, while I was still working my full-time job, or "trading my precious hours for dollars" as I call it.
Doctors need at least 10 or 12 years of education and training and usually start their practices owing hundreds of thousands in student loans. Lawyers must go to school at least 7 years.
But you, a real estate investor, can get a real estate license in a little more than a month with about a $1,000 investment. Now you may not make what a doctor or lawyers makes. Then again, maybe you can. But the initial investment is a whole lot more enticing!
With a real estate license, I was able to unearth some very goodcreative financing deals that netted me at least $500 per month in cash flow. I also got a property management contract from an investor in California.
I had made an offer to lease option their apartment complex. They did not accept, but in the course of the conversation they expressed that they were very dissatisfied with their local property manager. Ding, ding, ding, I am a property manager.
I had never managed anyone else's property, but I had managed my own, and that qualified me as a property manager. I told her, "Hey, I do that, too." So we got a lucrative contract managing their properties.
We also made money rehabbing their properties, and we made more money (real estate commission) when I sold them another property, which of course, I will make more money at managing their new property. See how it all fits so beautifully together. But the license was the key, that started the whole thing.
What does a real estate license do for you? Most importantly, it gives you access to the MLS. Not only can you find out what is currently available, you can find out information about properties listed in the past, the expireds, the withdrawns, and the solds. This gives you the permanent parcel number, important when you are doing research on potential deals.
The active listings are really the easiest way to find investment deals and the most prolific. You may think that the MLS lists only the "nice" and "pretty" properties. Not so. The repos, fixer-uppers, estate sales, short sales, and the plain, old junkers are almost always listed on the MLS.
And part of the property information contained in the MLS listing is the method of purchase, such as cash, conventional, FHA, and VA.
However, now more than ever, due to the crisis in the housing industry, (always the best time to buy investments) many listings are being offered on land contract, lease option, or some other form of creative financing. Made to order for the serious investor. Is that you?
OK, now you have access to the MLS. What else can a license do for you? Well how about legitimizing yourself? You have put yourself out there as an expert. The premise of Real Estate Investing 101 is the market value of a property--the "comps." Hey, you have access to the "comps." Kind of gives you an advantage doesn't it?
As a real estate agent, you are out there moving around in the circles that will naturally spawn more opportunities for the smart investor. You are a "Player."
You will be surprised at all the paths of opportunity that open up for you when you have that valuable tool, a real estate license. That license will take you places you never even thought of. It will change your future, it changed mine. Please email me atdianeleeprice@msn.com. I will be glad to answer any questions.
Making Real Estate Money-Discounted Cash Flows | Beware on "Silent" Seconds
The key to making money when buying discounted cash flows is to be able to find the best notes at the best discounts with minimal to no risk. In other words, the key is to "sift the wheat from the chaff." This advice is especially important when buying a second.
Many of us have purchased and profited from buying second mortgages. However, as with any investment, you want to avoid any pitfalls. You should be on the look out for what FNMA calls "Silent Seconds."
These are notes created from the sale of real estate with a seemingly good down payment, a new first loan and the second trust deed or mortgage note. However, the first lender is unaware of the second note, which is where the name "Silent Second" comes in. These notes are usually kept silent because the buyer cannot qualify for a large enough first loan.
Many of us have purchased and profited from buying second mortgages. However, as with any investment, you want to avoid any pitfalls. You should be on the look out for what FNMA calls "Silent Seconds."
These are notes created from the sale of real estate with a seemingly good down payment, a new first loan and the second trust deed or mortgage note. However, the first lender is unaware of the second note, which is where the name "Silent Second" comes in. These notes are usually kept silent because the buyer cannot qualify for a large enough first loan.
An example...
Let's take a look at a real-life example. The buyer purchases a single family home for $135,000. The first lender agrees to make a loan of 80% or $108,000. Therefore, the buyer has to come up with $27,000, right? Normally this would be correct, but not in this case!
The buyer and the seller make a side agreement to create a note outside of escrow and without the knowledge of the first lender. They claim the buyer has put down $27,000, but in reality he only puts down $15,000. The buyer gets the first loan for $108,000 and gives the seller a "Silent Second" for $12,000 which is the remaining balance.
The first lender is unaware of both the smaller down payment and the second note for $12,000. If the lender knew about these factors, it would have never approved the loan. Is this practice illegal? You bet it is! Do you want to buy these type of notes? NO!
The buyer and the seller make a side agreement to create a note outside of escrow and without the knowledge of the first lender. They claim the buyer has put down $27,000, but in reality he only puts down $15,000. The buyer gets the first loan for $108,000 and gives the seller a "Silent Second" for $12,000 which is the remaining balance.
The first lender is unaware of both the smaller down payment and the second note for $12,000. If the lender knew about these factors, it would have never approved the loan. Is this practice illegal? You bet it is! Do you want to buy these type of notes? NO!
Always examine the closing statement
So how can you tell if you have a "Silent Second"? One way to tell is to look at the closing statement which should include when the note was created. If the second you hold or are thinking about purchasing is not shown on the closing statement, then it's probably a "Silent Second."
But, here's another problem...What if the closing statement you have received from the note seller has been forged? What if the note seller has added in the second note to the original closing statement?
Always cross check your documents with the documents from the title or escrow company before closing the transaction. This way you will be able to check whether the figures and signatures are correct.
But, here's another problem...What if the closing statement you have received from the note seller has been forged? What if the note seller has added in the second note to the original closing statement?
Always cross check your documents with the documents from the title or escrow company before closing the transaction. This way you will be able to check whether the figures and signatures are correct.
A widespread problem
Many buyers and sellers of real estate enter into these types of "side" transactions without realizing that this practice is illegal. If deliberate fraud is involved (and what kind of fraud isn't deliberate?) then the penalties are severe. This is a very widespread problem. If you are careful, you can avoid this pitfall.
So, in short, always do your homework when buying any note! If it's a second trust deed or mortgage note, do a little more work! When you call or write to the senior lender to check the loan balance, also ask him if he is aware of a second note that exists.
So, in short, always do your homework when buying any note! If it's a second trust deed or mortgage note, do a little more work! When you call or write to the senior lender to check the loan balance, also ask him if he is aware of a second note that exists.
Making Real Estate Money-Buy Real Estate Notes with Almost No Competition
Do you feel like it is impossible to find good real estate notes? Does it seem like you are competing against hundreds of others every time you make an offer to a note holder? All of us dream of the opportunity to buy good notes, earning great yields, with almost no competition.
Well, dream no longer! There is a very nice little niche in the private paper industry where you can purchase a heaping helping of all the good notes you can handle without fighting for your place in the bread line.
Well, dream no longer! There is a very nice little niche in the private paper industry where you can purchase a heaping helping of all the good notes you can handle without fighting for your place in the bread line.
That niche is mobile home paper
"But those aren't real estate notes!" you say. So what! Actually, some mobile home notes are real estate notes too, but it really doesn't matter. There are enough similarities to make the crossover easy for any investor or broker, and they are an excellent fit.
Does the idea of having a crack at 43,000 or more notes each year (ones that hardly anyone else is looking for) appeal to you? Bounce this thought around inside your head for a minute: Roughly 900,000 used mobile homes are being resold every year in a market with limited financing.
Although I haven't seen any research to verify it, I believe it is safe to assume that at least forty percent of those resales can be attributed to used mobile homes in parks. And you thought the notes weren't out there anymore?
The mobile home note arena is a marketplace that is vastly overlooked and somewhat mysterious for most note brokers and investors. And when I speak of mobile home paper, I am primarily talking about notes that are secured by mobile homes located in mobile home parks.
These notes are not real estate notes, but they are negotiable cash flow contracts secured by residences, so they do have a very common bond with real estate paper.
Does the idea of having a crack at 43,000 or more notes each year (ones that hardly anyone else is looking for) appeal to you? Bounce this thought around inside your head for a minute: Roughly 900,000 used mobile homes are being resold every year in a market with limited financing.
Although I haven't seen any research to verify it, I believe it is safe to assume that at least forty percent of those resales can be attributed to used mobile homes in parks. And you thought the notes weren't out there anymore?
The mobile home note arena is a marketplace that is vastly overlooked and somewhat mysterious for most note brokers and investors. And when I speak of mobile home paper, I am primarily talking about notes that are secured by mobile homes located in mobile home parks.
These notes are not real estate notes, but they are negotiable cash flow contracts secured by residences, so they do have a very common bond with real estate paper.
More similarities than differences
"But it's not real estate!" you say. Well, while mobile homes have traditionally remained personal property (not permanently affixed to and owned together with land), they exhibit many of the characteristics of real property.
They are year-round, single-family dwellings. They have long-remaining physical life spans similar to site-built structures. More often than not, they are never moved from an original delivery site. The major difference is that there is no land title involved.
Strangely enough, what little difference there really is makes for a BIG difference in the profits--averaging more than double the returns available for similar real estate deals. And if bought right, these notes are no riskier than any of the other type of notes.
Mobile home notes are bought and sold with very similar analytical procedures and title transfer protocols as real estate paper with only slight variation.
Lien perfection, recordation, orderly foreclosure processes, assignments of interest, insurance coverage, lender in possession, etc. all run along the same lines as the more traditional real estate notes. S experienced note players should be able to do both kinds of note transactions fairly easily.
They are year-round, single-family dwellings. They have long-remaining physical life spans similar to site-built structures. More often than not, they are never moved from an original delivery site. The major difference is that there is no land title involved.
Strangely enough, what little difference there really is makes for a BIG difference in the profits--averaging more than double the returns available for similar real estate deals. And if bought right, these notes are no riskier than any of the other type of notes.
Mobile home notes are bought and sold with very similar analytical procedures and title transfer protocols as real estate paper with only slight variation.
Lien perfection, recordation, orderly foreclosure processes, assignments of interest, insurance coverage, lender in possession, etc. all run along the same lines as the more traditional real estate notes. S experienced note players should be able to do both kinds of note transactions fairly easily.
The advantages
The most notable difference? Competition! There are not many major players in the mobile home note field, either as investors or as brokers. The investor or broker who knows how to get in there and deal with buying and selling these mobile home notes will have virtually the whole market to himself in any given community.
Not only can the used mobile home note niche make a huge difference in the success of your note business, but you will find that it can be a very lucrative specialty all by itself. And it offers the added advantage of giving you more deals to close. Never overlook this power of momentum.
Besides putting meat on the table, closing deals is what we live for. Each closing builds on itself, reinforcing our spirits and our desire, stoking our competitive fires to move forward toward closing more deals!
Having a steady diet of mobile home notes to work with can give you a never-ending series of small victories . . . and occasionally you will have the opportunity to work on larger portfolios of these notes, which can generate huge profits.
In fact, the gentleman who got me into this part of the note industry, Terry Vaughan, just recently made $76,000 on a mobile home portfolio transaction, and two years ago, he had the good fortune of picking up a $25,000 note on a double-wide mobile home, for only $5,000! Hmmm . . . I wonder what he had to pay in taxes?
Not only can the used mobile home note niche make a huge difference in the success of your note business, but you will find that it can be a very lucrative specialty all by itself. And it offers the added advantage of giving you more deals to close. Never overlook this power of momentum.
Besides putting meat on the table, closing deals is what we live for. Each closing builds on itself, reinforcing our spirits and our desire, stoking our competitive fires to move forward toward closing more deals!
Having a steady diet of mobile home notes to work with can give you a never-ending series of small victories . . . and occasionally you will have the opportunity to work on larger portfolios of these notes, which can generate huge profits.
In fact, the gentleman who got me into this part of the note industry, Terry Vaughan, just recently made $76,000 on a mobile home portfolio transaction, and two years ago, he had the good fortune of picking up a $25,000 note on a double-wide mobile home, for only $5,000! Hmmm . . . I wonder what he had to pay in taxes?
More advantages
What are some of the other advantages of working notes on mobile homes in parks? The real biggie, in my mind, is that you have three extra layers of protection for the notes:
Free park management that is keeping an eye on things for you everyday, whether they know it or not.
Less isolation than most mobile homes on land, so less chance for vandalism or owner waste to the property.
Parks want monthly lot rent, and this will usually keep you more up to date on default situations than private second real estate mortgages, so you can move faster to protect your interests.
There is a whole plate full of other advantages as well:
A lot more notes available proportionately in mobile home areas because there are not many lenders financing this kind of loan, particularly for older manufactured homes.
Captive markets in the form of mobile home dealers and park managers who also have a vested interest in the ability to obtain mobile home financing to protect their own businesses and cash flow.
Significantly larger yields on invested funds due to the limited playing field, and due to the higher degree of perceived risk by both the public and the institutional lending markets
Ability to enhance yields due to more opportunity for restructuring note payment rates to speed up the receipt of the discounted yield spread premium, or through partial purchase, split funding options
High frequency of early payoffs, providing further opportunity for overall yield enhancement through quicker receipt of discounted yield spread premium
Many smaller notes to work with, which allows you to spread your risk over a broader base and makes them easier to resell to private investors
Less expense in titling, escrow, recordation, transferring, and repossessing the security
More geographic concentration of notes and note holders, so you have an easier job of marketing to get the notes in the first place
They say that "money doesn't grow on trees," and they are right. But if you look closely enough, you'll discover that there sure is an awful lot of it hiding in the bushes!
If a note player decided to get out and shake the bushes a little bit, does it seem sensible to conclude that he would find there are likely to be at least another 350,000 private notes coming into the marketplace every year, in the form of used mobile home financing?
Can a reasonable person conclude that the odds are high that at least one in eight of those notes are available for sale at any given time? So I'll put the question to you again: Does the idea of having a crack at 43,000 or more notes each year (ones that hardly anyone else is looking for) appeal to you?
The notes are there. But you have to get out there and find them! So what are you waiting for?
If a note player decided to get out and shake the bushes a little bit, does it seem sensible to conclude that he would find there are likely to be at least another 350,000 private notes coming into the marketplace every year, in the form of used mobile home financing?
Can a reasonable person conclude that the odds are high that at least one in eight of those notes are available for sale at any given time? So I'll put the question to you again: Does the idea of having a crack at 43,000 or more notes each year (ones that hardly anyone else is looking for) appeal to you?
The notes are there. But you have to get out there and find them! So what are you waiting for?
Making Real Estate Money-Discounted Notes | No Money Down--Cash Back at Closing
This article will suggest the most creative way to buy real estate with discounted notes. It is a wonderfully intriguing method. Even if you cannot do this exactly, you will still have the very real possibility of trading notes you bought at a discount for full face value on a piece of property. These ideas come from such innovators as Joe Land, Pete Fortunato, and others.
The scenario
First, consider that there is a $160,000 duplex for sale with a $40,000 first trust deed on it. The owner of the property, Sally Seller sells the duplex to Paul Payor. Paul puts down $40,000 cash, he assumes the $40,000 first mortgage, and Sally agrees to carry back an $80,000, 30-year second mortgage. She is happy with the extra income from the second mortgage, and the $40,000 cash down payment.
Second, consider the older, conservative home owner who owns his home free and clear, Harry Homeowner. He decides to sell the home. He does not need all the cash but would like to have a steady income for retirement. Their home is worth $100,000., so Harry and his wife advertise that they will sell their home with a 20% cash down payment, and they are willing to carry an $80,000 first mortgage.
Third, reconsider Sally Seller who has been receiving payments on her $80,000 note. She is offered a chance to buy a share in a restaurant with a friend. She is excited about the opportunity, but has spent all of her money including the down payment she received. She is not able to borrow the cash to invest.
The only asset she owns is the $80,000 note. She calls you, Ned Notebuyer (or Nancy Notebuyer). You offer Sally Seller $48,000 for her long-term $80,000 note, which she gladly accepts after you skillfully explain to her the discount she must take on this very long-term note.
Second, consider the older, conservative home owner who owns his home free and clear, Harry Homeowner. He decides to sell the home. He does not need all the cash but would like to have a steady income for retirement. Their home is worth $100,000., so Harry and his wife advertise that they will sell their home with a 20% cash down payment, and they are willing to carry an $80,000 first mortgage.
Third, reconsider Sally Seller who has been receiving payments on her $80,000 note. She is offered a chance to buy a share in a restaurant with a friend. She is excited about the opportunity, but has spent all of her money including the down payment she received. She is not able to borrow the cash to invest.
The only asset she owns is the $80,000 note. She calls you, Ned Notebuyer (or Nancy Notebuyer). You offer Sally Seller $48,000 for her long-term $80,000 note, which she gladly accepts after you skillfully explain to her the discount she must take on this very long-term note.
Buy a $100,000 house for $68,000
Think for a moment about this situation. You have Harry Homeowner who wants an $80,000 note and Sally Seller who wants to sell her $80,000 note. The only person missing from the picture is you, Ned (or Nancy) Notebuyer!
Your obvious solution to helping the two parties is, perhaps, shortsighted. You are saying, "Great, I will buy the note from Sally Seller for $48,000 and trade it to Harry Homeowner for the full $80,000. If I give Harry Homeowner $20,000 cash down, and he agrees to accept Sally's note, I will have bought a $100,000 house for $68,000." ($20,000 down plus $48,000 for Sally's note.)
"Terrific," you say, "but this costs a lot of money". You would need $68,000 in cash. Can you think of a way to consummate this transaction with no cash??
Your obvious solution to helping the two parties is, perhaps, shortsighted. You are saying, "Great, I will buy the note from Sally Seller for $48,000 and trade it to Harry Homeowner for the full $80,000. If I give Harry Homeowner $20,000 cash down, and he agrees to accept Sally's note, I will have bought a $100,000 house for $68,000." ($20,000 down plus $48,000 for Sally's note.)
"Terrific," you say, "but this costs a lot of money". You would need $68,000 in cash. Can you think of a way to consummate this transaction with no cash??
Make a great deal even better
First, you must convince Harry Homeowner to take back a note on a property other than his own. He was expecting to have a mortgage on his own home. But you can point out to him that by taking the second mortgage on the duplex he has more equity protection and a seasoned note.
He has no idea how you, the new buyer, will perform on the loan. But Sally Seller's loan is several years old and is well seasoned with a good payor. After seeing Paul Payor's credit report and his payment record, Harry agrees to accept Sally's note from you. If Harry is willing to sell you his house and accept Sally's note, then his house if free and clear.
If you are buying Harry's house, and it is free and clear, you can get new financing! You go to the bank, and the bank says they will loan you $80,000 if you will make a $20,000 payment. You say okay, and perhaps show the note as your down payment.
He has no idea how you, the new buyer, will perform on the loan. But Sally Seller's loan is several years old and is well seasoned with a good payor. After seeing Paul Payor's credit report and his payment record, Harry agrees to accept Sally's note from you. If Harry is willing to sell you his house and accept Sally's note, then his house if free and clear.
If you are buying Harry's house, and it is free and clear, you can get new financing! You go to the bank, and the bank says they will loan you $80,000 if you will make a $20,000 payment. You say okay, and perhaps show the note as your down payment.
I'll take the leftovers, please
All parties agree to the deal, and you go to escrow to close the purchase of Sally's note, and the purchase of Harry Homeowner's house. The bank has given the escrow officer a check for $80,000 secured by the house you are purchasing from Harry. The escrow officer writes a check for $48,000 to Sally Seller for her note.
The escrow officer then writes out a check for $20,000 to Harry Homeowner and gives him Sally's note. She transfers the house to you with the $80,000 mortgage on it. She writes out a check for $4,000 in closing costs to the bank. She then says to you: "Wait a minute, I still have $8,000 left! What should I do with that?" You raise your hand and say, "I'll take it!"
You have picked a home with $20,000 equity, you have $8,000 in cash, and you have spent none of your own money! The lesson is that real estate notes bought at discount can trade at full face value in the real estate market. Great profits can be made if you learn this lesson.
The escrow officer then writes out a check for $20,000 to Harry Homeowner and gives him Sally's note. She transfers the house to you with the $80,000 mortgage on it. She writes out a check for $4,000 in closing costs to the bank. She then says to you: "Wait a minute, I still have $8,000 left! What should I do with that?" You raise your hand and say, "I'll take it!"
You have picked a home with $20,000 equity, you have $8,000 in cash, and you have spent none of your own money! The lesson is that real estate notes bought at discount can trade at full face value in the real estate market. Great profits can be made if you learn this lesson.
About the author...
Jon was a licensed real estate broker, long time real estate investor, and an expert in finding, appraising, buying, and brokering discounted notes and mortgages. He was the professor and tenured instructor of Real Estate at the College of Alameda in California.
Making Real Estate Money-Subprime Meltdown Creates Opportunity for Investors
The so-called day after "hangover" from the fast and loose lending spree that helped fuel the real estate boom during the first half of this decade keeps getting worse, with a continued fall out among lenders who catered to high-risk (or "subprime") borrowers. Several dozen lenders have closed their doors because the Wall Street firms who have provided their funding will no longer do so.
What is a subprime mortgage?
Generally speaking, it's a home loan made to borrowers who have low or no down payments and/or poor credit ratings. Although most home loans do not fall into this category, subprime mortgage programs have proliferated in recent times as the "rising tide that lifts all boats" propped up home values across the country and emboldened lenders to take on more risk.
As real estate values moved higher after 2000, lenders expanded the use of subprime loans, adding enticing features that made home ownership possible for people who could not qualify for traditional mortgage loans.
As real estate values moved higher after 2000, lenders expanded the use of subprime loans, adding enticing features that made home ownership possible for people who could not qualify for traditional mortgage loans.
What went wrong?
Increasingly, lenders approved subprime loans to shaky credit borrowers with little or no proof of income, little or no down payment funds, and with low "teaser" starting interest rates and payments. Some of these "stated-income" loans became referred to as "liar loans."
Wall Street encouraged this behavior by bundling the loans into securities that were sold to pension funds and other institutional investors who were seeking higher rates of return.
Seasoned real estate industry professionals watched the trend toward "easy money" loans with concern. As risky home loans soared in popularity, federal banking regulators were repeatedly warned that more borrowers were getting trapped in mortgages they simply could not afford.
As long as home values rose, borrowers gained equity and could continue to refinance. However as interest rates rose and home values declined or flattened many borrowers could no longer get new loans and could no longer make their payments when their initial teaser rates expired.
Rising defaults and delinquencies have caused more stringent underwriting standards and in some cases the outright elimination of certain loan programs.
The "Piggyback 2nd Lien" Here is an example:
Property Sales Price: $300,000
Buyer's Down Payment: $15,000
Balance Due: $285,000
1st Lien Loan 80% LTV: $240,000
2nd Lien Loan: $45,000
A prospective buyer with shaky credit purchases a home for $300,000 and can put down 5% of the purchase price or $15,000. The lender agrees to lend the buyer/borrower a 1st mortgage loan for 80% of the sales price or $240,000.
In addition to that mortgage, the lender also agrees to lend the remaining $45,000 to the buyer by allowing for a 2nd lien mortgage to be placed against the property, often known as a "piggyback" 2nd lien mortgage.
So the buyer borrows a combined total of $285,000, and along with the $15,000 down payment is able to cash out the seller completely for the $300,000 purchase price.
Typically the interest rates on the 1st lien mortgage are lower than that of the piggyback 2nd lien mortgage, which in some cases is called a Home Equity Line of Credit (HELOC) loan that is then drawn on.
As long as the lenders were able to continue to originate these piggyback 2nd lien mortgages and Wall Street continued to have an appetite for them, this was wonderful for the sellers because they were getting ALL CASH for the sale of their property.
Wall Street encouraged this behavior by bundling the loans into securities that were sold to pension funds and other institutional investors who were seeking higher rates of return.
Seasoned real estate industry professionals watched the trend toward "easy money" loans with concern. As risky home loans soared in popularity, federal banking regulators were repeatedly warned that more borrowers were getting trapped in mortgages they simply could not afford.
As long as home values rose, borrowers gained equity and could continue to refinance. However as interest rates rose and home values declined or flattened many borrowers could no longer get new loans and could no longer make their payments when their initial teaser rates expired.
Rising defaults and delinquencies have caused more stringent underwriting standards and in some cases the outright elimination of certain loan programs.
The "Piggyback 2nd Lien" Here is an example:
Property Sales Price: $300,000
Buyer's Down Payment: $15,000
Balance Due: $285,000
1st Lien Loan 80% LTV: $240,000
2nd Lien Loan: $45,000
A prospective buyer with shaky credit purchases a home for $300,000 and can put down 5% of the purchase price or $15,000. The lender agrees to lend the buyer/borrower a 1st mortgage loan for 80% of the sales price or $240,000.
In addition to that mortgage, the lender also agrees to lend the remaining $45,000 to the buyer by allowing for a 2nd lien mortgage to be placed against the property, often known as a "piggyback" 2nd lien mortgage.
So the buyer borrows a combined total of $285,000, and along with the $15,000 down payment is able to cash out the seller completely for the $300,000 purchase price.
Typically the interest rates on the 1st lien mortgage are lower than that of the piggyback 2nd lien mortgage, which in some cases is called a Home Equity Line of Credit (HELOC) loan that is then drawn on.
As long as the lenders were able to continue to originate these piggyback 2nd lien mortgages and Wall Street continued to have an appetite for them, this was wonderful for the sellers because they were getting ALL CASH for the sale of their property.
Prudent lending or not?
Let's take a look at that very tenuous $45,000 piggyback 2nd lien and see how unsafe it really can be. With a buyer/borrower who has little or no money of their own into a property, there is little or no true equity. If times get tough for such a borrower, the incentive to work things out becomes precarious.
Add to this the sloppy credit history of the borrower, and that 2nd lien mortgage carries with it a tremendous amount of riskbecause it sits behind or "junior" to a much larger (and superior) $240,000 underlying 1st mortgage lien. Its no wonder Wall Street will no longer purchase such high risk "throw away" 2nd lien mortgages.
Add to this the sloppy credit history of the borrower, and that 2nd lien mortgage carries with it a tremendous amount of riskbecause it sits behind or "junior" to a much larger (and superior) $240,000 underlying 1st mortgage lien. Its no wonder Wall Street will no longer purchase such high risk "throw away" 2nd lien mortgages.
Cause and effect
Now buyers, their Realtors, and the buyers' mortgage brokers are trying to convince sellers to carry back the $45,000 piggyback 2nd lien mortgage. Yet most sellers can clearly see how uncertain and perilous holding such a smaller 2nd lien mortgage can be to their financial well being and refuse to do so except underextreme circumstances.
An alternative way using seller financing
What if you could structure the sale of a property to a prospective subprime candidate and not have to take back any high risk dangerous piggyback 2nd lien mortgage while still achieving a respectable all-cash sum when your property sells? Might this make more sense to a property seller?
Using some of the creative and alternative methods involving the seller providing the financing (owner financing), this is very achievable. Let's take a look how:
Property Sales Price: $300,000
Buyers Down Payment: $15,000
Balance Due: $285,000
1st lien Loan 95% LTV: $285,000 (seller financed)
Using some of the creative and alternative methods involving the seller providing the financing (owner financing), this is very achievable. Let's take a look how:
Property Sales Price: $300,000
Buyers Down Payment: $15,000
Balance Due: $285,000
1st lien Loan 95% LTV: $285,000 (seller financed)
Step one:
Let's the same $300,000 sales price and same $15,000 cash down payment from the buyer. However . . .
Instead of the buyer being limited to only 80% loan to value (or $240,000 loan from a lender), the seller agrees to finance the buyer under the terms of the sale and agrees to take back a purchase money mortgage in the amount of $285,000 (the $300,000 sales price minus the $15,000 cash down payment).
Instead of the buyer being limited to only 80% loan to value (or $240,000 loan from a lender), the seller agrees to finance the buyer under the terms of the sale and agrees to take back a purchase money mortgage in the amount of $285,000 (the $300,000 sales price minus the $15,000 cash down payment).
Step two:
Now I know what a lot of you are saying: "If I provide seller financing to the buyer, how does that equal me getting cash?" The second step is the answer, and it involves the pre-sale or conversion of this $285,000 seller financed mortgage into a cash lump sum.
Assuming that
Assuming that
Some time was spent checking out the prospective borrower's employment, stability, overall credit profile, and credit scores, and
The negotiated repayment terms of the seller financed instrument were commensurate with how strong (or not) these borrowers stacked up,
. . . then (using the services of a cash flow professional), the $285,000 seller-financed mortgage can typically be sold immediately to generate somewhere between $256,000 to $262,000 or more as a lump cash sum.
The seller receives the $262,000 cash sum from the sale of their seller-financed mortgage plus the $15,000 down payment--or a total of $277,000 in cash proceeds and it negates their having to hold a very, high-risk $45,000 piggyback 2nd lien mortgage as in the example above.
Many sellers--especially investors, holding unsold homes in "inventory" will agree that $277,000 cash in hand today is far better than $255,000 cash (the $240,000 1st lien mortgage proceeds plus the $15,000 down payment) and a high-risk $45,000 piggyback 2nd lien mortgage they may have trouble later collecting on in the future.
The seller receives the $262,000 cash sum from the sale of their seller-financed mortgage plus the $15,000 down payment--or a total of $277,000 in cash proceeds and it negates their having to hold a very, high-risk $45,000 piggyback 2nd lien mortgage as in the example above.
Many sellers--especially investors, holding unsold homes in "inventory" will agree that $277,000 cash in hand today is far better than $255,000 cash (the $240,000 1st lien mortgage proceeds plus the $15,000 down payment) and a high-risk $45,000 piggyback 2nd lien mortgage they may have trouble later collecting on in the future.
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