Wednesday Minute
January 7, 2009
Here are some random notes about issues and problems that I have been hearing about in the past week.
TIP #1 - Seasoning Issues - We had a deal that we chose to allow the buyer to use conventional financing but the buyer had a foreclosure three years ago. Our mortgage broker had a lender who would do the loan while all the large conventional lenders have a four-year waiting period since the close of the bankruptcy filing. The buyer did have a 700 credit score which was amazing unto itself. We had a higher cash offer for the property but since we made the commitment we stuck to it. Within about three weeks, as we approached the closing, we got word that the lender wouldn't close as the property wasn't "seasoned" for at least 30 days. Consequently, we sold the property to a cash buyer for a higher price and closed in three days, otherwise we would have had to sit and wait for 30 days to pass to close. The general guideline currently is that if the property has been seasoned for 30+ days, the lender will allow the investor to take a profit of 25% or less. After 90 days the sky is the limit for the profit - if the lender is satisfied that the deal is real. This is not a hard and fast rule but a generalization subject to the whims of various lenders.
So here are a couple of solutions to the seasoning issue which should be worth a ton of money to you:
1.) Transfer the property to a Land Trust, and if you do it PROPERLY, this transfer will not break the chain of title. I am in the final stages of producing a complete step-by-step text and the ten (10) documents that you should need for completing any Land Trust transfer. If you don't think they work, you will be shocked at how many are being done by an attorney in Miami (not Paul Woods because Paul doesn't do real estate closings).
2.) Ask the buyer's mortgage broker if the lender he chooses for the buyer has a problem with seasoning. Better yet, have your own mortgage broker as part of your professional team so you know what to expect ahead of time. Call us for referrals if you need one.
3.) If the "profit" is called a real estate commission on the HUD-1 Statement most lenders will not object to the transaction/seasoning. When we had a realtor on staff, we had one transaction that we added a 25% commission that the lender approved after turning down our 25% profit that we tried to fully disclose in the first place.
4.) If you are energetic about doing these closings on an ongoing basis, go out to local credit unions, small local banks and introduce yourself to the loan officer in charge of home loans. The primary question you need answered is "do you sell your loans or do you do portfolio lending?" If he/she says they do portfolio lending you need to make your case that you are creditable, buy and sell at or below FMV in a few days, and that their appraiser will confirm the property's value. This will work if they aren't gun-shy about the local housing market and want to spend their part of the 700 Billion Dollar+ giveaway. To seal the deal, put an addendum in your Sales Contract that the buyer must use the lender you choose and sweeten the deal for the lender by giving the buyer a credit at closing to "buy down" the loan's interest rate.
Despite what you may have heard, FNMA and Freddie Mac do not have any issue/problem with seasoning. In fact, it is the lenders that have what amounts to personal issues with investors making "quick profits" on sales. But since they control the loans, they are in the driver's seat and perpetrate the myth that it's a requirement for the guarantee/resale of the loan.
In closing on this seasoning issue, don't do anything illegal or you will possibly be committing bank fraud - a Federal offense. Make certain your closing attorney is fully aware and agrees with what you are doing. If he isn't creative enough to do the deals without getting into seasoning issues, shop around for another attorney who is doing these deals daily. If you have a problem, ask us for a referral.
CAUTION - if you are closing with a title company MAKE CERTAIN that there is an attorney involved in your specific transaction. You do not have to be an attorney or have an attorney on staff to be a title company. However, the title insurance they issue may have limited value because of certain issue restrictions, and could cause a title defect later - usually, just when you go to sell the property.
I beat that issue up enough so here are some revelations and insights to things that are happening in the market locally and currently-
TIP #2 - I explain to our mentoring students that 40% of our deals are done after the seller says "Absolutely Not, no way in H*#@ I will take that price!". On average it used to take about three months for sellers to come back to us because our offer was either the only offer they got or, most likely, the best offer. Today it's a new market and what is different is that our students are using XimaUSA's "Property Analysis Report" in their presentation to sellers. Now these sellers better understand the current market conditions. The big change is that these sellers are coming back within two to three weeks instead of months for the price we offered! If you decide to try XimaUSA.com, use the Code "BREIA" to get your discount. It's an incredibly powerful tool, but if you aren't serious about making money in real estate investing, don't spend the money on it.
TIP #3 - Eighty percent of the newbie investors who call me about doing deals explain that they called someone else first. These other "professional wholesalers" were called because they thought we were too busy to want to split deals with them. We harbor no hard feelings, and are always on the lookout to make money on good deals. Our power is our years of experience and our 10,000+ email list. Anyway, these newbies finally called us because these "pros" said they would get back to the newbie and NEVER CALLED BACK! This can be expected in South Florida in some trades, but not in wholesaling! So I am just taking a minute to thank those irresponsible souls who have graciously put tens of thousands of dollars in our pockets and the newbies they didn't have the courtesy to call back. It seems that these same wholesalers have suddenly decided to become "gurus", start mentoring students, and stop doing their own deals. So be careful out there!
TIP #4 - The former World Savings used to finance investor deals for me by giving me a one year balloon note at 7% for properties that were REO's and needed extensive rehabbing. They even offered interest only and in one case, interest payable at the sale of the property. If you are buying an REO from Chase or Wachovia, ask about investor financing. I understand that these two lenders are offering financing but I haven't asked for it so I can't confirm it yet because I haven't seen one of their REO's. I suspect that you will have to endure a credit check and possibly put some money in the deal - although I never did in the "old days". Have an exit strategy and show that you are experienced in rehabbing or have a pro to do it with permits. Essentially the lender is your partner if you mess it up. I can absolutely guarantee that if you don't ask, you will not get any lender financing.
TIP #5 - While I am not going to divulge what our mentoring students are doing to get leads I have to say some are really "thinking outside the box"! A few are getting 50 - 200 buyers calling in a few short days and getting on the student's buyers' list. Another student got five very good prospects IN ONE DAY, IN THREE HOURS, that could bring in at least 2 - 3 deals and all are unrelated leads. I am mentioning this because I have never seen another guru write about these techniques, and on the surface they would seem to be ridiculous. But who is to say they won't work especially when they are working. The point is that if you "flap your lips" enough you will get deals - so go do it!!!!
TIP #6 - Is it a deal or no deal? One of our students mentioned she was having trouble determining if a property was a deal. This is like driving a stake through my heart since I take each student's success or failure personally. To set the stage, this student has spent possibly $20,000 on Real Estate courses in the past few years so she is not a novice to "book learning". So here are the "Quick and Dirty" guidelines I gave her to determine if it was a "deal or no deal" -
1.) If it is a rental income property, it should be purchased at a price that will yield 2% of the purchase price on a monthly basis - i.e. if the income on a duplex is $1,500 per month, the purchase price should be $1,500/0.02 = $75,000. This will allow this rental property to be re-sold at 1.25% of earnings for a tidy profit and almost a cash-cow to the buyer. For example, if the duplex was bought for $75,000 and gross income was $1,500/month, the sale price at 1.25% income/month to the buyer would be $120,000 and at a great return rate of 1.5% of the sales price would be $100,000. In either case the profit ($45,000 at 1.25% or $25,000 at 1.5%) would be many years of income if you held the duplex for income. Remember, I don't believe in the theory of buying, renting and holding for years - all the while fighting tenants, but that's only my personal opinion.
2.) For SFH's - Use XimaUSA.com or drive the neighborhood to get the open listings (REMEMBER - these properties are NOT selling or they wouldn't be open listings!) and make your offers below these figures - enough said here.
TIP #7 - New guidelines for medical visits - Here is one of those laws that suddenly comes into effect that you never heard about. Starting 1/1/2009, a new statute became law that gives hospital patients better consumer protection. The new law requires that health care facilities and hospitals must give patients "good faith" estimates of expected charges for procedures they will be receiving. The law further requires that information be posted in the lobby about how the patients can get info on charity and discounts on the facilities' services. I wish this was SOP for doctors' offices!
TIP #8 - If you do any amount of rehabbing, you probably use either Home Depot or Lowes. Lowes has been giving "Contractor Discounts" for years to non-contractors. Only in the past two years has Home Depot started matching this policy. The National REIA worked for over a year to have HD give NAREIA members a 10% discount using just a membership card, but they fell short by not getting it for less than a $2,500 purchase order. So I suggest you do it yourself at your favorite HD or Lowes - ask for a contractor's discount and push the issue. Each store is different so don't take "no" for an answer - use your negotiating power to talk about the "other" store (HD or Lowes) who does it already, etc. That way every time you make a purchase at a HD or Lowes, you can thank BREIA!
TIP #9 - Homeless people holding bandit signs!? I recently read about an investor who didn't want to stick bandit signs in the ground because of code issues so decided to try having homeless people stand in intersections and hold the signs. I had mixed reactions to this idea, but besides both good and bad publicity about what he did, he did get two deals from the exercise. What does it say about a homeless person looking tattered and dirty holding your bandit sign? This is "outside the box" thinking and it worked!
For all of you who have asked about Nancy - she is losing her hair and will probably have very little left by her next chemo treatment later this week. She continues to spend much of her time daily fighting with the doctors, hospitals, and mostly the insurance company. She said to say "Hi" to everyone and is coming in the office occasionally to help out but she tires quickly. As I have gotten older I have learned to count your blessings especially when you have your health, there is very little else that can't be replaced or that you really need.
To your limitless success,
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