Posted by: Nick Johnson in Single Families, Remodel, Rehab, Recession, Real Estate Investment, Real Estate Agents, Private Lender, Preforeclosure, Offer, Motivated Sellers, Mortgage, Market Prediction, Investment, HUD, Hard Money Lender, Getting Started, FSBO, Foreclosure, Financing, Economy, Due Dilligence, Bank Owned on
Feb 18, 2009
Over the past 12 months my partners and I have been buying single family home foreclosures. Homes are selling for deep discounts and providing high cash-flow rates once rented. Our strategy is not to buy and flip, but to buy, rehab then rent to provide cash-flow and capital appreciation. On the surface this may seem as easy as drinking coffee because of the high number of foreclosures available. But don't be fooled with high quantity and low prices. Buying foreclosure properties is not as easy as it may seem. Buying houses for cash has been our strategy which is one way to up your chances of success. Refer to my previous article "Buying Real Estate With All-Cash" In todays article I'll outline another strategy that when paired with all-cash works for us.
Relieving Some of the Burden
Buying homes at deep discounts for cash relieves vacancy pressure as there is no unerlying mortgage. You may still have a lean on the property held by a private lender but hopefully you have worked out the terms so that you have 60-90 days until your first interest payment. Racing out to find a tenant before your first payment is no longer a pressing issue. You can be more choosy when screening tenants. You can hold closer to your asking rent price and not decrease it just to get the property occupied. You can save money by performing more of the rehab yourself. These are just a few of the benefits.
The Problem With Real Estate Agents
As easy as it might seem to buy real estate at low prices, a problem has arrisen that must be addressed if we are to successfully close deals with banks. I have found, as with many of my collegues that seller real estate agents have all the control when it comes to you submitting your offer, deciphering which offers to submit, how much information they tell you ahead of time, and lets face it some blatently do nothing. As a buyer in the past I have typically used a buying real estate agent to help me track down candidate properties, perform showings and leg work. As a result I did not close many deals dispite offering near or above asking price. The reason...
Posted by: Nick Johnson in Rehab Money, Rehab, Recession, Offer, Motivated Sellers, Mortgage, Market Prediction, Investment, Getting Started, Foreclosure, Financing, Economy, Due Dilligence, Bank Owned on
Feb 03, 2009
In an up and down market there are those investors that will dig up opportunities regardless of the state of the economy. In the current climate banks are holding on to their cash with a wait and see attitude. Savvy investors are finding that buying with "All-cash" works as a viable strategy for acquiring residential and commercial bank owned properties. Investors with a wait and see attitude for institutional lending and financing are missing a great opportunity to buy while everything is on sale. Rock bottom prices in the residential and commercial markets in part have been driven down by the scarce availability of credit.
A Hostile Lending Environment
Currently, savings and loan banks, an alternative to commercial lending institutions and private lenders, will typically finance up to 65-70% percent of property values. Buyers in some cases are required to bring 30-35% to the closing table to even be considered. The Commercial Mortgage-Backed Securities (CMBS) market which has traditionally produced many lenders eager to compete for loans has been stalled since the 4'th quarter of 2007. For example: In the first 3 quarters of 2008 only $12 to $13 billion worth of commercial loans were securitized. Already, 2009 is on its way to having the lowest production of securitized commercial loans in 10 years as stated by Commercial Real Estate Direct. Some banks, in order to finace a new project, are requiring developers to pre-lease roughly 70 percent of office/retail units and housing. Shorter amortization periods and higher interest rates added to the mix creates the perfect storm for an even more hostile lending environment.
It should come as no surprise that investors of all sorts are rushing to the real estate sector to cash in, especially since this sector is outperforming many other instruments.
In short order, profit can be realized by the reselling of a property or by long term leasing of a property. This is a great way to generate revenue as your equity on the property builds.
Despite the options, investment properties can still prove to be hard to find, but that does not mean it is impossible. Employing the right strategy for your market can still yield sizable revenue streams, even in depresses markets.
Generally, a 20 to 30 percent spread between your costs and resale price will yield a handsome profit. This would mitigate any sort of inflated values due to an industry bubble and added costs like closing fees and repairs.
The most favorable buying situation for a buyer involves a vested seller with little time on his or her hands to spend in the actual selling of a property. Because they have equity built in the house, and they are motivated to divest themselves of it, they are more likely to sell far below market value.
Wholesaling or "flipping" a property involves finding a fixer-upper, snapping it up, and immediately reselling it to another investor who will rehab the property and make a profit from the improvements. There below are tips for those who want to get started with wholesaling.
The first step in wholesaling is finding a bargain or "distressed" property. These are often FSBOs (For Sale By Owner's) or properties listed on the MLS (Multiple Listing Service). The most important step, though, is making the offer. You can't make a profit if you don't make an offer.
You must keep the customer- the ultimate buyer who will be doing the renovations- in mind when you make your offer. Some wholesalers use a speculative strategy and make large amounts of money off one deal, but a more conservative strategy often nets as much income when it's applied steadily over many deals.
A Lease Options is a "Rent To Own" arrangement, which is simply a lease where the tenant has the option to purchase the subject property. This tenant/buyer is sometimes called "Homeowners In Training" where they can own now and buy later.
With a Lease Option, you as a buyer can control a property without actually owning it yet. The "Lease" part of the agreement gives you the right to occupy the property and the "Option" part of the agreement gives you the right to buy. As part of the lease, a percentage of the rent payment is credited towards the purchase price. This means that you are occupying the property, the seller cannot resell it to someone else, and a portion of your monthly payment is going towards what is owed on your option to buy.
Sellers will do a lease option for a couple of reasons. Sellers will do a lease option, mainly, for debt relief. When you "Lease Option" the property for the amount owed on the mortgage, you are giving the seller the debt relief they need. You are going take over the monthly payments, living in the house and maintaining it until you actually close the purchase of the house. Mean while, the seller now gets enough money from you to pay for their mortgage, taxes and insurance, and they no longer have to worry about maintaining the property.
Also, some sellers may need to improve their "debt to income" ratio when buying a new home... A debt-burdened home-owner looking to buy new property has a slim chance of doing so. The reason being that mortgagees always examine your debt-to-income-ratio to determine how much you can pay towards the mortgage you take out for the new property. Now, you as a buyer, "Lease Option" the house from the seller. The lease payment the seller receives is considered to be income (for tax and credit score purposes) and this income offsets the debt of the monthly payment on the old home. Therefore, you are helping to correct the seller's debt ratio problem.
