Rss Feed Tweeter button Facebook button Technorati button Reddit button Linkedin button Delicious button Digg button Flickr button Stumbleupon button Youtube button

When I am purchasing a property either for myself or with my student/partner, we determine which exit strategy is the best for both parties.  Knowing whether you want to wholesale a property for a small profit or rehab/retail it for a big profit is important.  Many investors start off with wholesaling the properties because they either don’t have a money lender or partner to help them rehab/retail the house and sell it for a bigger profit.  If this is you, then I believe you really should find a partner or money lender so you have more than one exit strategy.

When you purchase a short sale, some of the lenders will put a hold time for the new buyer requiring them to hold the property for 30, 60 or 90 days before they can resell the property for a profit.  In addition, they may tell you that you can only make a certain amount of money on the property if you sell it earlier than 90 days.   Holding doesn’t bother my student/partners or myself because we normally choose to rehab the property and retail it for a higher profit.

Let me tell you about a home that a student/partner and I purchased.  It was a short sale on a home in St. Petersburg, FL that was vacant for about 7 years.  The area was an up and coming neighborhood and the two houses directly across the street from the home sold for $195,000 and $240,000 which both are smaller, only 2 bedrooms, one car garages and no pool.  The area was known for termites.  We replaced all rotten wood, treated the home and provided the buyer with a 1 year termite bond.  So … after negotiating the deal for some time, we purchased the 3 Bedroom Home, 2 Bathroom, and Pool with approximately 1500 Square Feet for $69,900.00.  The garage was already converted but needed repairs. This home was built in 1950 and needed everything from Roof, Electrical, Windows, Air Conditioning, and Pool repair.   The repair budget when we started was about $65,000 and we ended up around $75,000.  The short sale lender placed a 90 day hold period on the Deed so the Buyer could not sell it to a mortgage buyer for a period of 91 days.  Since this was a huge rehab with a large profit we didn’t mind fixing up the home.

So what did we do to the home to get it move in ready?  We were trying to keep the costs down and were going to keep the existing roof that had about 3 to 5 years left but decided to spend the additional $8,000 to replace the roof.  We received multiple quotes from electricians ranging from $3,700 to $40,000 to upgrade the electrical box and replace all the switches and plugs.  We ended up paying around $3,200 for the electrical.  The air conditioning unit needed to be replaced so we contacted an a/c contractor associated with the REIAs and got a great deal of $5,100 which included 5 new runs, new box, new air handler and new compressor.  If we didn’t have to add the additional runs and new box, we could have gotten it for only $3,500.  We had to get hurricane glass windows which were almost double the amount of the windows of non-hurricane glass windows!  We used Home Depot which was American Craftsman and the cost was 2 times cheaper than the quote we received from ABC Supply.  We painted the vinyl siding of the house which painting any house gives a great curb appeal.  We had to replace almost all the flooring in the house except we refinished about 600 square feet of wood flooring for $2,600 in the living room, dining room, hallway and 2 bedrooms.  They were beautiful.  It would have been cheaper if we didn’t want them to replace the bad wood in some of the rooms and two closet floors.  We tiled the family room, 2 bathrooms, kitchen, 3rd bedroom, hallway, utility room and office area.   We needed all new doors, hinges, knobs, some baseboards, light fixtures, ceiling fans, kitchen cabinets, granite counter tops, bathroom cabinets, new shower tile, new tub and surround, all new faucets, toilets, mirrors and more.

The outside wasn’t in too bad of shape but needed some TLC.  The wooden fence around the backyard needed minor repair, we only replaced the bad pieces and power washed the fence.  The backyard we covered completely with red mulch because there was no grass.  The front yard, we just raked and put red mulch and plants around the flower bed area.  The pool was another story.  We had it acid and power washed and it still looked yellowish in spots based on the white body color.  We received quotes from $3,900 to $9,800 to just refinish the body.  My partner/student’s son works for a company that purchases real estate owned properties in bulk and he told us that they were just painting the inside body of the pool.  We checked into purchasing the correct paint for the pool and with material and labor it costs us $1,300 to refinish the pool.  The paint life line for the pool was for 5 to 7 years.

When we first started rehabbing the property the best comparable we had was a house that sold for $220,000.  After rehabbing the property for 2 months, the values of the properties increased and we are able to list the house for sale for $264,900.00.  We could have spent more money on the property but as an investor, you must understand that you are not going to live in the home and this is a business.  So safe something for the new homeowner to do!  When we sell this property, the profit to be split will be between $70,000 and $90,000 depending on if we receive our list price and/or if we have to contribute to the buyer.

If we were going to wholesale this property we would have wholesaled it to a seasoned investor with a profit of $30,000.00.  Any rehab over $30,000 is very hard for a new investor and we figured without the roof that rehab cost was above $65,000.  So, I am asking you was it worth the hold time and extra $40,000 to $60,000 profit to buy, fix and resell?

Based on this article, I hope I have persuaded you to start going after pre-foreclosures and retailing for bigger profits.  You can also find pictures of the house on my facebook account if you would like to see the finished product.

Happy House Hunting!!!

Kimberlee Frank

www.ForeclosuresGoneWild.com

www.RealEstateJunkie.com

www.ShortSaleNegotiating.com

www.SellFastRealty.com

Like me on www.facebook.com/foreclosuresgonewild

Like me on www.facebook.com/sellfastrealty

 

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Less Competition With Short Sales

Many Investors avoid working with Sellers in pre-foreclosure or making offers on short sales. They all say the same thing, it takes too long! I strongly disagree with this decision. I have been working on short sales for years now and even though it does take a few months, it has been the best deal spread in profit that I have ever received on any type of deal. Let me tell you why you should consider working with Sellers in pre-foreclosure and making offers on short sales.
The Pre-foreclosure market will continue to flourish due to the adjustable mortgages, loan modifications and reverse mortgages that they have provide to many Sellers. A lot of the Sellers in foreclosure will have second mortgages that can be discounted to pennies on the dollar. Sellers that are doing a HAFA short sale program requires the second lender to take a maximum of $8,500.00 on their second mortgage. The government bailed out the mortgages companies some time ago and also required them to assist Sellers who were in foreclosure. So, you would think that the lenders would contact Sellers who are attempting a loan modification and agree to reduce their principal to help them out so that their payment would be less. That is not the case. What they have been doing is forgiving the second mortgage on the property and getting paid full value or more on their loans. How does this help the Sellers? Well if the Sellers are the lucky individuals who were paying on time they were NOT the individuals picked to have their second mortgage paid off. The banks chose the Sellers who were in foreclosure. This way the second lender received full value or more for the loan versus nothing if the house went to foreclosure or pennies on the dollar if it was a short sale. Knowing this information as an investor will help you cash in big on your short sales.

Recently a partner and I started working with a Seller who needed the house probated and was in foreclosure. We paid for the attorneys to probate and for foreclosure defense during this time based on future rents. While my office was negotiating the short sale, we ordered title work and found out even though the second mortgage company was included in the foreclosure action, that their lien was paid off – discharged. After a couple of months of probating the property and transferring the ownership to our Seller as the rightful heir, instead of a short sale needed on this property, it was a full payoff. This has happened to me several times now wherein the second mortgage is discharged and there is enough equity in the home and profit for the investor to just payoff the loan.

During the time the house was probated, the Seller agreed to allow the property to be rented and use that money to pay towards the attorney fees of approximately $4,300.00 and repairs. The house wasn’t in bad shape but needed approximately $3,300.00 worth of work and materials to make it “rent ready”. Because we did not fix the house up completely, we asked for $300.00 less on rent making this property a very desirable rental to tenants. The lease that was signed was a month to month and they were informed that the house was in foreclosure, needed to be probated and once that was completed, they would have to move out as the house would be fixed up and sold. The tenants agreed to the terms and conditions and moved into the house and paid $900.00 a month for a total of $5,400.00 while this process was going on.

The property went through probate and the Seller was now the rightful heir and could sell the house once we settled the short sale. The first mortgage company was still pushing the foreclosure and a trial date was set for June. Like I said above, we found out that the second mortgage was paid off and that it would be a full payoff to the first. Because the trial was coming up, we decided to purchase the property as soon as possible to avoid additional attorney fees on the first mortgage. Now that we have it, we have two options. Sell it “as is” to a landlord with or without a tenant, remove the tenant, or rehab it and sell to an end buyer. Purchase price $130,000 with $30,000 in repairs with a value of $210,000. Either way, we shall profit a minimum of $30,000.00. The time frame on this property was 6 months due to the probate. A total of 40 hours invested of my time which equals $750.00 an hour. Are you thinking differently now???

Based on this article, I hope I have persuaded you to start going after pre-foreclosures with less competition and better profit on your deals.
Happy House Hunting!!!
Kimberlee Frank

www.ForeclosuresGoneWild.com

www.RealEstateJunkie.com

www.ShortSaleNegotiating.com

www.SellFastRealty.com

Like me on www.facebook.com/foreclosuresgonewild

Like me on www.facebook.com/sellfastr

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Finding Deals without Flapping Your Lips?

I have been mentoring for many years and have found that my best deals come from actually “speaking” directly to a Seller and working out a win-win situation.  Since I first started investing back in 1998, I have not purchased a property directly from the Multiple Listing Service.  However, some Investors would prefer not to talk to Sellers and would like to be fed deals from other Investors or from the Multiple Listing Service.  We each have different personalities and based on your personality and your personal preferences, I may be talking to you.  If this is your mind set, then I would recommend the following:

  1. Find at least 2 Realtors that will be willing to set you up to receive listings that are emailed directly to you for your review, along with Expired Listings.  You will want them to do a search for some of the following key words:  TLC, Handyman Special, Must Sell, Seller Motivated, Short Sale, and REO.

Currently in Florida, it is a Sellers’ market, so when these listing are received by you, you must immediately make offers on the properties.  In order to make offers, you will need to use a Formula called the Maximum Allowable Offer which is MAO.  Your exit strategy will be important, because if your intention is to flip the house without fixing it, you will need to make sure that you leave enough money in the deal for another investor or a cash buyer.  An FHA Mortgage Buyer will require you to own the home for at least 90 days prior to selling, called “seasoning,” and all repairs need to comply with their guidelines.  Many Investors will use 70% of the After Repaired Value of the home, minus repairs to make an offer.  Some Landlords will pay up to 80% of the After Repaired Value on the home to hold as a rental.  Having your Formula, along with knowing average repair costs ready to use, will help you quickly make offers.

What you will also need to know is the After Repaired Value of homes in the area where you are making offers.  Therefore, I would also recommend that you have sold comparables of no more than 6 months old and no more than .5 miles away from the property in which you are making an offer.  You can have these sold comparables sent to you from your Realtors.  This will allow you to get a good idea on the values in the neighborhood so you will be able to make an offer immediately.  Be prepared to make lots of offers based on your Formula, in order to get one or two accepted. Please remember that a Realtor gets paid on commission and many do not know if the property is a good deal, it will be your responsibility to know the values.

Many new Investors are worried about making offers on houses sight unseen.  However, if you are looking to get deals from the Multiple Listing Service in a Sellers’ market, it will be very important that you make an offer on the same day you receive the listing from your Realtor.  Remember, you always have a clause that you will have 15-day inspection period.  If your offer is accepted, you will be able to go and look at the house and see if this is truly a deal or not.  If it is not a deal, then you can cancel your contract.  You will need to have an earnest money deposit, up to $1,000, and submit the check within the 3-day time frame per the MLS.  Another option is to place a paragraph in the contract that states that your earnest money deposit will be sent in after inspection.  I would recommend that you have your Realtor already be prepared with a Standard Purchase Agreement already filled out with all of your information, terms and conditions so that all she/he has to do is fill in the Seller’s Information.  You will also need a Proof of Funds letter at the time your Offer is submitted.  Therefore you need to get pre-qualified with the Hard Money Lenders in your REIA group so that you will be able to provide a Proof of Funds letter with your offer.  Even if you decided later that you are going to wholesale the deal, you will still need earnest money deposit and a Proof of Funds letter.

As a Realtor, when I set up a search for listings to be emailed to Buyers/Investors, I am able to set them up with a website that allows them to save the favorites and delete the listings that they are not interested in.  In addition, having the Sold Listings sent to you will also allow provide you with the values of other deals in the same area in which you are looking.

  1. Have your email placed on all Wholesalers’ lists in your Local REIA Group or anyone else who would just want to wholesale directly to you. I would also ask if they have any references of individuals that they have sold to in the group, to see if that Investor ended up with a good deal.

When working with Wholesalers, it is important to know how they work.  That is, are they doing an assignment of the contract or a double-closing?  If they are doing an assignment of the contract, then it is important for you to know their terms and conditions on their contract, such as “how many days you will have to inspect the property”, and “is your earnest money deposit is refunded, if the house isn’t acceptable per the inspection?” Each Wholesaler works in a different way, so understanding how they work, will allow you to be able to get more deals.

Knowing the After Repaired Value and the Repair Cost on the home IS your job as these two numbers are just an opinion and could be drastically off, which could stop you from getting a good deal.  Many Wholesalers will re-sell other wholesalers properties and that is why you will see the same house on their list of deals being sold for higher or they might even just split the wholesale profit between 2 or more wholesalers.

I hope this article will help you make offers on properties and still remember that negotiating is the top paying job in the United States.  So … I still believe direct contact with a Seller will bring you in more money because you can negotiate directly with them and cut out the middle-man; however, it will take your personal time to market and find the deals.  Happy House Hunting!!!

Kimberlee Frank

www.ForeclosuresGoneWild.com

www.RealEstateJunkie.com

www.ShortSaleNegotiating.com

www.SellFastRealty.com

Like me on www.facebook.com/foreclosuresgonewild

Like me on www.facebook.com/sellfastrealty

 

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

 Page 1 of 25  1  2  3  4  5 » ...  Last »