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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

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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

 

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April NewsletterWhen making offers on properties as an Investor, you will need to have your exit strategies in place prior to purchasing the property. What I mean by that is, who is your buyer and what type of financing are you going allow the buyer to use when sell the property. Knowing this will allow you to maximum your profits.

When I look at properties to purchase I always analyze the value of the property and how long I will have to hold the property before I am able to sell the property for a profit. The comparables that I use are through Realtytrac.com and also the Multiple Listing Service. Realtytrac will give me the values in the area, however, the Multiple Listing Service MLS in addition to values will provide me with how the property was sold ie; Cash, Conventional mortgage, USDA mortgage, VA mortgage or FHA mortgage. You can normally assume houses under $200,000 that many of the buyers purchasing at this price point are FHA mortgage buyers. FHA mortgages are mainly used for first-time homebuyers. The Mortgage Lender requires 3.5% as a down payment which attracts many first-time homebuyers.

What I have found in the price point of homes that are selling for under $200,000 is that 85% to 90% of the buyers will use FHA mortgages. The FHA Lender will put a restriction on the Seller/Investor called seasoning. What that means is that the Investor who purchased the property was expecting to have a quick exit strategy versus having to hold the property for a period of 91 days before they could sell the property to a FHA buyer. The restriction is called seasoning of the property. What that means is that the FHA Lender will look at the date that the Seller/Investor has purchased the property to the date that the Buyer signed the Purchase Agreement as a timeline for seasoning of the property. Let me give you an example: Investor purchased the property on March 1st and now we need to count 90 days from the purchase before the Seller/Investor can even enter into a Purchase Agreement with the Buyer. So the month of March has 31 days in it, the month of April 30 days, and the month of May has 31 days.
I would recommend that the earliest day that a Buyer can even present an offer to the Investor would be May 30th as that would be a total of 91 days. FHA does not count the days from the date that the Seller/Investor signs the Purchase Agreement but instead goes from the date the Buyer presents the offer. This is very important to know as I had one FHA buyer that was denied for a loan because they submitted the offer 60 days into the 90 days but I as the Seller/Investor accepted 91 days into the 90 days. I argued with the Lender that it was not an acceptable offer until the Seller/Investor accepted it but, FHA has their own guidelines and denied the loan anyway. They wouldnt even use an addendum to correct the dates and said that they should not even started processing it until the 90 days was up.

Therefore, when you are selling a house using the exit strategy to sell the property to a buyer using a mortgage, you will need to know what the requirement is from the Lender as to how long the Seller must own the property seasoning and add that additional 3 months of holding costs plus another 30 days to close for a total of 4 months into your profit.
Conventional, USDA and VA Mortgages will allow the Seller to own the property for a minimum of 30 days. I have heard that they will allow no seasoning through the grape vine, however, I have never flipped the house that fast that needed some rehab to test that theory. Obviously if you as the Investor/Seller was selling the house to a Cash buyer, it can close the same day you buy it allowing for a simultaneous closing. There are some conventional mortgages that will say that are conventional and you will think that you dont have to worry about seasoning but I have called and have been informed that they are mirroring FHA guidelines even though it is a conventional mortgage. What that means then is again, you have to hold the property for 91 days prior to selling the property to your end buyer using FHA financing.

Another requirement that FHA mortgage buyers lender require is that you will need to have two appraisals on the property to confirm the value. Should either one of the appraisals value come back less than the offer amount then that is the value that FHA will lend to the buyer. Once a FHA appraisal number is given to your property, that value on the home will stick to your property, NOT THE BUYER, for a period of 4 to 6 months stopping you from selling the property to another FHA buyer unless you accept the lower value.

Make sure you know what type of financing buyers will use on your house that you are flipping so that you are able to maximize your profit. Always fully disclose to your buyers lender that this is a flip house and find out their requirements BEFORE you enter into a Purchase Agreement.

Please keep sending me your questions and topics that you would like to hear about, so I can be sure to keep feeding you with the information that you need in order to move through 2017 with high success and help you bring your Real Estate Dreams to Life this year!

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

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