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Category: Investment (page 3 of 20)

August 17, 2010

Master Seller-Financing To Beat The Mortgage Market Freeze of 2011

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

I’m not so sure I want to play hockey against Bryant Tutas.  He thinks like Wayne Gretsky.

I cautioned about the coming mortgage freeze and asked what agents might do to prepare for it.  I’m a mortgage guy so I think in terms of institutional financing.  I completely forgot about seller-financing.  Bryant Tutas answered:

I’m ready for it. I just listed my 3rd property this month where the seller is offering financing. Seller financing is going to be very popular over the next few years. I’ve also been marketing to foreign investors with cash to spend. Once they purchase a home we turn right around and offer it for sale with financing. It’s a win all the way around.

Are you kidding me?  It’s so time-tested but underutilized it’s brilliant.  I forgot all about it!

What do you know about seller-financing?

First, you have to have a seller with some equity but…. ain’t nobody got no equity no mo’.  What’s a hustler to do?

Foreigners are looking to pay cash for U.S. homes and are finding great bargains at auction.  In San Diego, we see investors buy properties at auction and sell them for 20-35% higher, 60-90 days later.  The problem with some of those properties is that they aren’t appraising.  Seller financing doesn’t require an appraisal nor does it have  those pesky underwriting guidelines.  Bryant Tutas mentioned that he is prospecting foreign investors, to buy properties and sell them with financing terms.

This is the ultimate form of private financing.  Before you embark on this strategy, you might advise your sellers to require the following when considering offers:

  • a tri-merged credit report– you definitely want to check for tax liens, judgments, and large charge-offs.  All of those can become liens on title
  • It’s a good idea to require some income documentation– if your buyer’s housing expense doesn’t exceed 50%, you’re kosher in California but it’s probably a good idea to make sure that all of his/her debts don’t exceed 50% of gross monthly income
  • A down payment is going to assure your buyer has something to lose if the deal goes sour.  I might suggest Read more
August 10, 2010

That Giant Slurping Sound is the Mortgage Market Drying Up

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Ken Montville asked the nagging question about the future of the mortgage market:

Unfortunately, even Congress — that bastion of liberalism and home of the bailout — is tiring of pouring good money after bad into the two mortgage giants that have been sucking up all the mortgages — good and bad — that private industry is willing to create. To paraphrase one-time third party Presidential candidate, Ross Perot: That giant sucking sound you hear is taxpayer money subsidizing home mortgages.

Now, the big questions remains: What will happen next? If there is no Fannie and Freddie to buy up all the mortgages, who will do it? Will the lenders who originate the mortgages be forced to keep them on their books and won’t this further inhibit an already tight credit market?

I outlined, a year ago, how the government is retarding a private mortgage banking recovery but I said it again for Ken’s benefit:

“If there is no Fannie and Freddie to buy up all the mortgages, who will do it?”

Nobody will…or everyone will. I’m a “lowly retail mortgage originator” with some formal education (and lots of informal education) in economics so consider my opinion with that qualification.

To use a BawldGuy axiom, lenders lend. Unfortunately, the government, through TARP and artificially subsidized mortgage rates, is creating a situation where lenders prefer arbitrage to lending. It doesn’t take a rocket scientist to borrow guaranteed money at 1% and lend it (with a guaranty) at 4.5%. This is the systemic problem that is distorting the market and arresting any chance of a recovery in lending.

If the GSEs were allowed to fail, and FHA disappeared, lending would halt…for about 3-4 months. The recovery would be robust, sustainable, and at rates somewhere in the high 5s or lower 6s. Wall Street is taking chances on 5.75%-6% non-guaranteed, mortgage yields right now; there is interest in betting on the American homeowner. Low down payment loans would most likely be gone for about a year. Read more

February 27, 2010

Dawn In America Part Two

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

The American People will take Socialism but they won’t take the label  –Upton Sinclair

I believe that the American people will want the label of  “unfettered capitalism” but will not necessarily adopt the economic system.  Americans like government in small doses but they like (and mostly trust) their government.  The morality of the argument for voluntaryism, while sound, will be difficult to adopt.  Those of you, who believe that government is the problem rather than the solution, should never stop saying  “I told you so”  when Statist policies fail but you would do well to remain aware to the fact that Americans like a little bit of government. That is how we can thrive amidst chaos.

Let’s talk about how we might prepare ourselves for the next 20 years:

I don’t believe we’re in a depression nor even a recession nor do think the 1930’s were a depression.  Rather, I believe we’re in the middle of a huge economic shift like the one we experienced in the early part of the 20th century.  The economic decline of the 30s and the current economic decline was a fallout from a shift in technology.  The economic decline of the 1930s was some 25 years after the implementation of the assembly line at Ford Motor Company.  It took that long for the economy to absorb the shift from a mostly agrarian society to a manufacturing society.  It was no easy shift, either.

Critics in the 20’s and 30’s claimed that we couldn’t eat machines but crop yields increased “spectacularly” in the twentieth century.  Domestic food production was so efficient that, despite what Willie Nelson said 25 years ago, American farmers were quite prosperous.  The market rewarded those who improved our lives by moving us along roads, on top of the water, and through the air…faster and cheaper.  Americans wanted to travel because we were already well-fed.

Is it any surprise that the current economic decline happened some 25 years after IBM’s introduction of the PC?  Is this really a “failure of capitalism”, as Van Jones might have you believe, or an unexpected response to the Fed trying to prop Read more

February 12, 2010

Google and the artifacts of inefficiency

by

Realtor, Peripatetic Iconoclast

Author website

The interwebs are BUZZING about Google Buzz and how benevolent Google co-opted everyone’s contact lists from their Gmail accounts. I wonder how many million valid email addresses Google captured in the first 30 minutes of Buzz going live? I try to remember that Google is the same benevolent company that assisted the Chinese communists in censoring the internet for the billlions imprisoned in the PRC. More recently Google has gotten a Federal bailout in the form of assistance from the NSA to secure Google’s servers from the same ChiCom hackers they used to happily work with ‘doing no evil’, except for entrenching the folks who invented the involuntary liver donation.

The point is this: be aware of the cost of “free stuff”, no matter how cool. The price may be more than you are willing to pay in terms of your professional reputation. I would suggest that a cost benefit analysis is in order. What is the cost in professional reputation for all your social media efforts? Are your friend lists, contact lists and customer rosters available for any non-#RTB data scraper to start spamming with listing flyers? It is surely something to think about.

I don’t care if Google renders a contextual ad in my gmail account. I do care if my clients start getting real estate spam from competitors. Below is a relevant video.

Related articles
January 26, 2010

Shimmers of the shadow: Is your local REO inventory going up?

by

Suburban Phoenix Real Estate Broker

Author website

Strictly anecdotal — and I would be delighted to be wrong about this.

First, the inventory of the homes I track for investors has been rising slowly but steadily since mid-October. Not an obscene increase, but sales are way up as prices have wallowed in more or less the same place since last March or April. A lot of investors are calling “bottom!” with their cold, hard-to-come-by cash — and yet available inventory is going up, not down. And prices? In December, way down.

Then consider this: I have an REO negotiation going on in a condo community where the quantity of the one floorplan my buyers are interested in jumped 50% in two weeks, from 13 to 20 units just like that, all of them priced right or within shooting-down distance.

It seems to be getting easier and easier to get just the right deal for buyers. Even in overbuilt Phoenix, last summer and early fall played like a seller’s market, but by now it feels to me as though the table is swiftly turning.

And all of that leads me to wonder if we’re finally seeing the much-hypothesized, much-denied shadow inventory.

Am I seeing my own shadow, or is there something going on?

January 12, 2010

Marketing To The Expired Listing Property Owner

by

Real Estate Investments Broker

Author website

I’m the expired listing king of the hill — NOT. The only reason I’ve ever initiated a conversation with the owner of a property on the expired list, was if I had a specific buyer/exchanger who might fit. I began this policy due to the consistent and predictable dual attitude — mistrust of brokers/agents, and massive denial as to why their property didn’t set the brokerage world on fire.

Don’t get me wrong, as we all know agents who make much if not most of their living from marketing to expireds. Part of my reasoning, maybe the driving force if I’m gonna be honest with myself, is that my direct mail marketing was so reliably successful, dealing with expireds was like lookin’ for ways to get painful splinters.

When it comes to the 1-4 unit market, their are two generic classes of owners. Those who occupy, and those who don’t. I look back now and marvel at how myopic my thinking was back then. I specialized in investment property for Heaven’s sake, why wouldn’t I choose to leverage my knowledge advantage with investors who were recently unsuccessful in selling? Double Duh.

If you feel comfortable with your current basic investment knowledge, including pertinent Internal Revenue Code Sections, or are confident you can get yourself there quickly, here’s how you might garner some new listings. To save space I’m not gonna spend time on specific strategies implied here. You either know them or not. I’m easy though, and will freely share if you call.

First, let’s understand exactly the advantage you have with an investor vs a homeowner. Before we continue, I don’t bother with bank owned listings or short sales — merely a personal preference.

The reasons for selling/exchanging are mostly objective, not emotional. There are all kinds of solid reasons for an investor to make a move. Chances are, since they own just one or two local rentals, they’ve really never spoken to someone who knew which way was north on the investment map. You’ll stand out as a very positive exception. The best thing that could happen though, is Read more

January 5, 2010

Are the uninformed chatterboxes in your area insisting that the real estate market has recovered? You may want to defer the celebration. Even so, this could be the golden moment for investors in Phoenix.

by

Suburban Phoenix Real Estate Broker

Author website

I’ve known for six months or more that there was a sweet spot on the horizon for investors and other highly-solvent buyers. That event was delayed by the first-time home-buyer’s tax credit. Today’s news about declines in the number of pending purchase contracts is a symptom of the market returning to an unstimulated level of demand. I watched the dropoff reflected in today’s news as it happened last fall. Lenders cut off new applications for first-timers and, just like that, price pressure eased, available inventories started to rise and it came to be a lot easier to get a house under contract.

We’re all waiting for the other shoe — the shadow inventory — to drop, but the supply of the homes I want most for my investors has almost doubled since mid-October, from around 350 units then to just over 600 today.

Here’s even better news for buyers (not for banks): Prices are going down.

This is the Cliff’s Notes for the last four months, as reflected in the BloodhoundRealty.com Market Basket of Homes:

September: +3.15%
October: +2.14%
November: +2.22%
December: -8.03%

That’s a huge drop for December — giving back almost everything we’ve gained since April, 2009. But, interestingly enough, the ratio of sales price to list price was positive. In other words, there is still competition for listed homes, but list prices are dropping.

I don’t know how it is by you, but this is the perfect storm for investors in Metropolitan Phoenix. The homes are in much better condition than they were this time last year, and the prices are at hovering just above the 2009 low.

Are we at the bottom? Feels like it — but we’re going to be here for a while. Positive cash flow is easy, but cash flow is all there is right now. If you’re not a buy-and-hold investor, Phoenix is not for you. I’m sure that’s true in most rental markets.

But if you’re thinking of buying a rental home anywhere in the South or Southwest, reflect on this: This could be the coldest winter in 25 years. Whether they can afford to or not, people are going to move. When Read more

December 29, 2009

Appreciation Is A Luxury – Invest Accordingly

by

Real Estate Investments Broker

Author website

Here’s an example, using real properties recently purchased by real clients. I’m gonna modify some of the numbers, but the modifications will not in any way make the bottom line better by an inch. (Worse in fact.)

What if you paid $245,000 apiece for four properties, each with an annual gross scheduled income of $28,800. The renters sign year long leases, and tend to stay a little longer than two years. We’ll set the operating expenses and vacancies at just under 40% — $10,950 a year. This results, when using currently available loans, in a negligible cash flow of less than $250 monthly — essentially a break even.

The down payment used will be 20%, though I’ll use 22% for any return figures. In these transactions you’ll be credited up to 2% of the sales price for your closing costs. The first year’s cash flow will be just under $3,000 or so for each property. We’ll assume any increases in expenses will serve to cancel out any rent increases. The loans are fixed rate, amortizing over 30 years, with a 6.5% interest rate.

If in five years the value is still $245,000 — what will you have gained? Of course, you didn’t invest to find yourself in a non-appreciating asset. Since your crystal ball is in the shop, we’ll just consider it your time in Murphy’s barrel. 🙂

So, what will you have gained in this scenario?

  • Income tax savings of around $7,500 a year, or $37,600 over 5 years
  • After tax cash flow of almost $12,000 annually, or $59,800 over 5 years
  • Principal reduction of just over $50,000 over 5 year holding period

    • It took about $54,000 +/- to close each of the four purchases, meaning you’ve invested a total of $216,000. In 5 years without values increasing, here’s what happened.

    Add up your 5 year total for tax savings — $37,600. Your after tax cash flow for the same period is a couple hundred less than $60,000. What that means to you is simple. Your Levi’s garnered just under $20,000 ($19,520) annually in spendable cash. That’s an after tax cash on cash return of roughly Read more

    December 22, 2009

    Real Estate Investing For Retirement – 2 Schools of Thought

    by

    Real Estate Investments Broker

    Author website

    There surely are more than just a couple schools of thought when it comes to using real estate as a vehicle to get them to an abundant retirement. The two that almost always garner most of the attention are Buy & Hold for cash flow from Day 1, and Capital Growth First THEN a transition to cash flow upon anticipation of imminent retirement.

    Will either one get you there? Yep.

    The real question is — do you want your Social Security check to be used for groceries, or spending money? And yeah, I know, what SS check? 🙂

    Proponents of the Buy & Hold school are from the Old Old School. Don’t try to talk them outa their strategy. Show their results side by side with the Capital Growthers though, and they really get loud.

    I urge you to check out a comparison I’ve done over at my place. Caveat: It’s over 1,600 words of reading. It goes into clear detail. So far, folks who’ve read it, have been pleasantly surprised at how much solid info they understood and can now apply.

    If you’re a real estate investor, or wanna be one, this ‘case study’ is for you.

    Merry Christmas!

    December 18, 2009

    One Turtle Dove

    by

    Chicago Broker Owner Realtor | RE 2.0 Blogger

    Author website

    The Glass Ceiling

    I remember the moment I decided to stop wearing a suit and tie in public—forever. It was a couple days before Christmas and I dropped by the K-Mart to pick up a punch bowl for the office party.  I was looming  in Housewares when an elderly woman approached me with a fistful of coupons.  Alvin and the Chipmunks were singing that insidious song through the sound system.

    “I want to file a complaint.”  She said.

    “I don’t work here.”  Me.

    “You’re not the manager?”  She asked,  insistent.

    “No. I’m not the manager.”  I replied, perhaps a little snippy.

    She glared up at me like…well…like I was lying.  More than anything, I hate being implicated in an aspersion when I’m innocent. I’d rather receive three french hens every day for a year from someone I don’t truly love than be deemed a liar (unless of course, I actually am, in which case, I will simply deny until totally boxed in).

    “This is an Italian suit,  lady. You need to find someone with a name tag,”  I continued, perhaps a little prideful.

    “That lady over there said to ask  you. That you were a manager.” She pressed.

    We turned our attention to a  squat woman in a burka, a rare sight in Richmond, Virginia in those days.

    “That lady over there doesn’t speak English.”  Me, perhaps a little too loud.

    “I speak better English than you,” the lady yelled back across the aisle.  “I speak five languages. How many you speak?”

    Oh yeah.  One of  those days.  A blue light siren began twirling above my head and something inaudible was announced over the speakers, interrupting  the chipmunk falsetto drone. I froze as a wave of shoppers began scurrying  in our direction; something about cutlery.

    “You don’t have this Foot Soaker in stock.”  The elderly lady shoved a coupon under my nose as the herd surrounded us.

    “I know I don’t, ma’am…Because…. I. Don’t. Work.  Here.”  Me.

    “She deserves a rain check,”  Burka lady. “It’s false advertising if you don’t. Bait and switch.”

    “Yes. Bait and switch,”  Elderly lady.

    “Bait and Switch!”  Somebody yelled from the mob. “Bait and Switch….”

    About that time an employee approached me and ask Read more

    December 1, 2009

    The Next Step….

    by

    Mortgage Officer

    Author website

    I’ve had a lot of people ask me lately, “Tom, what do you see is coming next?   What’s the next step in this mess?”

    A couple of thoughts at this point:

    • Anyone short of Nouriel Roubini, Paul Krugman, Meredith Whitney and maybe a few others who tell you that they KNOW how this is all going to end is lying.   (Did you notice how I didn’t include Treasury Secretary Geithner or anyone in Washington in that list?)
    • But there are some people who have the ability to peer a little farther out into the fog than most do.
    • Anyone who tells you this isn’t a confusing and potentially scary time is lying to you as well.   Never in our life times have we seen the kind of financial devastation and economic pain that is currently happening.   

    The things that are going on are causing lots of people to question a lot of things that they weren’t questioning before.   Things like: 

    1. Will I be able to retire?  
    2. Can I ever trust a mortgage lender again?  
    3. Will real estate still be a good investment?  
    4. What’s happening in the stock market?  
    5. Is my financial advisor telling me the whole story?  
    6. What are mortgage rates going to do? 
    7. How does the actions of the Federal Reserve impact the financial markets? 
    8. What are the long and the short term ramifications of the deficits that the government is currently running?
    9. How does the value of the dollar impact real estate and mortgages?

    Those are just a smattering of the types of questions that I’ve been hearing from people lately.   Okay, some of them aren’t quite in the format that I spelled them out but they have basically been asking that.  Frankly, I think the consumer’s desire to ask more questions is a good thing and a healthy thing in the long run.

    So where am I going with this?   I’m getting to it…….

    I’ve been fortunate to “hook up” with two of the experts in other areas of the financial spectrum (one of whom is our own Jeff Brown) and we’re setting up a new source for financial and real estate market insight and understanding.   As Read more

    November 26, 2009

    A look back at the last decade in real estate, what I got right, what I got wrong — and where things go from here

    by

    Suburban Phoenix Real Estate Broker

    Author website

    My friend Andrew Breese asked me to go through my own history, in light of both the real estate boom and the bust, detailing where I was wrong and where I was right.

    Very big job, and it would be a long essay to write, so I’ve elected to go through it in video instead.

    Click on the graphic below to watch the video.

    November 25, 2009

    For the Cosmic Record

    by

    Chicago Broker Owner Realtor | RE 2.0 Blogger

    Author website

    When presented with an ultimatum my first inclination has always been to go for the ‘or else’  end of the proposition— a defiant tendency that was pointed out  to me by more than a few black-hooded figures in charge of my early catechism. This probably explains  the abnormally high pain threshold I lug around to this very day. (Go ahead,  smack me across the knuckles with a ruler the next time we’re doing math together and see for yourself  how little I seem to care.)  I’m convinced this emotional dereliction has to something do with a mutated gene strand that skipped a few low risk taking generations in my inherent DNA.  Clearly, I was breech born under a bad moon.  I am a Virgo, they say,  but not by much.

    In the late 1960s, when the Age of Aquarius was recruiting the deflowered masses of my wayward generation, I found myself stalled,  hesitant to beam up to the mothership.  Manned with my own back alley (hearsay, to be sure)  knowledge of that dirtiest of deeds,  I actually did the arithmetic and concluded that  my parents must have lost the rhythm on, or around,  Thanksgiving Dinner, 1955.  Born in the late afternoon on August 23rd  the following leap year (and exactly three complete trimesters to the dinner bell hour later), I concluded that  had my mother only pushed a little harder during labor,  I could  have been a Leo.  But then again, if everyone hadn’t started drinking Cold Duck in the morning exactly nine months earlier, I probably wouldn’t have been…. at all.

    So hence, I mentally celebrate—in my sick,  sick head—two birthdays every year:  The day of my most  probable, mathematically correct Conception (Thanksgiving dinner, badda-bing),  and…. August 23rd, that so-called celestial cusp I barely missed by some late breaking water.  When someone asks me what astrological  ‘sign’ I am,  I simply spew out  my theory as posed above… and they usually go away.  It’s my own ultimatum of  sorts,  I suppose, to anyone who tries to get too close.  After all, I did come out feet first and tend to veer a Read more

    November 24, 2009

    Me and KJZZ: What’s up with the real estate market? Tune in Wednesday to hear my take on the topic

    by

    Suburban Phoenix Real Estate Broker

    Author website

    I will be on KJZZ radio (91.5 FM) in Phoenix tomorrow from 11:30 am to Noon. I’ll be talking about the state of the real estate market, the impact of the real estate tax credit and the flow of international buyers into the Phoenix market.

    I think there will be an MP3 available, afterward, but you can stream KJZZ by clicking on this link.

     
    Further notice: Click here for a link to the broadcast.

    October 14, 2009

    The passive path to active real estate investment marketing

    by

    Suburban Phoenix Real Estate Broker

    Author website

    I was talking with Jeff Brown on the phone yesterday about how much we depend on passive marketing devices — our Phoenix real estate weblog mainly — to generate new business.

    We don’t even do all that much. By now there are much better resources to turn to than me for advice on how to do real estate weblogging. But what we do is consequential, because we are constantly adding to our inventory of hard-headed real estate information.

    As an example, I wrote a post this morning on the factors that contribute most to the profitability of Phoenix-area rental home investments. That post in turn supports a basic guide I have prepared on rental home investing in suburban Phoenix.

    What am I up to? I’m pre-conditioning future clients, for one thing. I’m sharing a lot of hard-headed information, but I’m also letting them know what it’s going to be like to work with me. In addition, I’m splitting the herd, isolating the people I will want to work with and sending the others packing.

    The weblog post will have a future in other locations. I can use the HTML to make a very compelling Craigslist ad. And, in the long run, that post will add to the content on our static real estate investments page.

    Here’s the best news: The people I hear from who will have pursued all of this information will come to me pre-sold. I won’t have to cover as much of the basics with them on the phone. They will not have picked up the phone to call me until they had already committed to hearing more of what I have to say. They won’t be slam-dunk conversions, necessarily — investors never are — but their business will be mind to get — or to lose — with no significant competition.

    I am not diminishing more active prospecting strategies — much the contrary — but this is the kind of thing that I can set up once that will pay me over and over again. And as others here have noted, the climate for rental home investors in Phoenix just keeps getting better Read more

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    Inventing Real Estate 2.0

    Welcome to BloodhoundBlog, the national real estate industry marketing and technology weblog written by, for and about real estate professionals. Better yet, welcome to the wired world of real estate. We are busily inventing Real Estate 2.0 – technology, marketing, service and salesmanship. Like all Bloodhounds, we are smart, frisky and fiercely independent. We've built a spot on the earth – beloved over all – where each one of us can be who we are, no matter who that might be. We are committed to an idea of excellence that will flush the bums, the con-men and the crybabies out of the real estate industry. If you yearn to have your failures excused, your moral lapses absolved or your boo-boos kissed, seek elsewhere. But if you are sick to death of mediocrity – welcome home. Read all about us, subscribe to our feed and steel yourself for the hunt. We work hard, we play hard, we learn everything we can – and we bow to no one.

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