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.

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.

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...

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You are probably asking yourself, how is that going to work? And why would the local Health Department take an interest in deadbeat tenants? Why would they want to help me? But also do they have the right to intervene?

The simple answer begins with utilities. Many communities, cities and counties across the nation have rules and regulations, simply put, laws for health codes and regulations. One of which is that it is illegal for residents to live without light, water, sewer or septic turned on and working. This also may become an issue of minor endangerment if children are in the home. The local Health Department has the power to remove people from properties violating this regulation.

Ironically enough, I never really stopped to think about this option as a landlord and how this might work to my advantage when it comes to delinquent tenants. In my time, I have seen it all, heard every excuse and as a result, I feel I can put these experiences to good use and share my advice.

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When it comes to investment properties there are loopholes which create many options. For instance, Section 1031 of the IRS tax code permits real estate investors to sell their investment properties and in return allow a trade for comparable or similar matched investments in order to defer the tax as the capital gains amass. It seems that real estate is truly the most popular transaction permitted by this code. Something called the Triple Net or NNN otherwise known, as Leased Real Estate is considered appropriate as alternate property during such a transaction. What this really entails is a Net lease where a tenant foots the bill for all or most of the properties' active expenses over and above the rent. It is important that before we discuss the particulars of Net lease that we have an understanding of other kinds of leases as each serves a different purpose.

First there is the bond lease that makes the tenant completely accountable for active expenses encompassing the property's operating costs, which include regular maintenance, repairs and substitute costs for replacing materials etc. Second there is the Triple Net or NNN lease, which incurs actual restrictions on capital expenses. The tenant must pay for property expenses including tax, insurance and maintenance, as under this kind of lease, these are the tenants responsibility. Third taking from the NNN lease is the Net Net or NN lease. This is somewhat the same as NNN lease but returns the responsibility of the physical up keep of the structure to the landlord. They must make sure major items such as the roof are in good working order. Lastly the Modified Net lease infurs that the tenant pays for everything including utilities, maintenance, repairs and insurance. They do not pay property taxes.

For the NNN situation first the situation may allow less property management issues to be a problem for the investor. This is especially true for investors dealing with multi-family units, complexes considered commercial because they want the profit and income without the hard work or heartache. They also want to postpone their tax accountabilities without having to play the role of landlord 100% of the time. Savvy investors use NNN leases because they insure income but still allow for ownership to stay in their name and portfolio while maintaining a good level of capital. Another aspect of the NNN is that it also makes the transfer of real estate to beneficiaries easier.

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Lately it seems Blogging and becoming a Blogger is all the rage.  They seem to have a power all their own as blogs have been key to the downfalls of major political and media members like Senate Majority Leader Trent Lott and CBS news anchor Dan Rather for instance.  At first it seemed an entertainment outlet for teenagers instead of gaming all night, they would Blog as a means of staying in the "know" and making sure their friends knew everything about them. 

Celebrities and other high-profile people seem to use them also to captivate an audience and announce different trends in their lives, mostly personal.  Still Blogs are not just for teenagers, celebrity brats, they're for the average business person, mainly right now it seems Realtors are utilizing the media to market themselves.  And this begs the question do Blogs and the action of Blogging really help businesses?  Are they good marketing tools or just a waste of time?  Can this medium help or hinder your real estate business?  The answer remains in how they are used and to what degree.  It is really all about knowledge.

 Still what is Blog really?  For those of us that remain technically challenged and couldn't be a Web Master if we tried, a Blog is as user friendly as web content comes but it is a way of managing content or a CMS, content management system.  The software involved really does all the work for the Blogger and this allows just about anyone to create and maintain a Blog.  This action of maintaining or updating the Blog is known as the verb form of Blogging as well as someone who Blog is a Blogger.  The individual Blogs are also known as posts and they are usually organized in reverse chronological order.  The most up to date material will be viewed first.  Still with all the Blogs in the Super Information Universe, what makes a Blog unique, eye catching?  What makes it a different media from just a web site or a forum, email or other e-based media?  How is this method unique in format and material?  Can this be found in the way it balances technology with individual expression?

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 Although Wall Street seems to have rebounded in recent days in response to the Congressional approval of the $700 billion financial-system bailout last week, there seems to be continued concerns found amongst financial professionals, who are concerned with the continued pall of recession over the American economy. The main concern remains focused on government ownership of the American banking system.  Will this end the market's paralysis or is it just another bad idea from a failed administration?

Let's face it the average American person does not concern himself or herself with the goings on of Wall Street.  Until recently this just did not impact their lives unless they were savvy investors.  The average American mainly concerns themselves with the bankers that lend the money out.  We are a credit minded country.  So now what to do when the credit market folds?  Banks have had no choice but to limit the amount of credit that can open for people but also the guidelines for credit lending have tightened incredibly so.  The subprime market, once open for business is no longer available.  What else has happened for the banks is the widening spread, or surcharge, that banks must impose on short-term loans to other banks. This has increased over the last year from 0.65% above the cost of funds to an exorbitant 4%.

While the symptoms of the economic crisis and virtual breakdown have been evident for quite some time, since the market became deregulated in 1999 and allowed less government regulation, the current prognosis remains unseen even by the country's foremost financial experts.  Many can play the blame game like a pro and point the finger at bipartisan investments in the mortgage industry, specifically the borderline predatory lending practices found in the subprime market.  This was all very hush-hush, as this knowledge was not readily shared with the common everyday investor. 

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 This current talk of financial bailout suggests that as a result mortgage rates will fall allowing a surge in home buying especially for first time buyers.  Still one must wonder how long this will last but also what are the long-term impacts for the housing market?  Right now it feels like the lending industry is distressed but this may not be true for very long.  The banks at risk of failing just need to time to recover and it will actually be consumer confidence that drive the economy back to being fruitful again.

There just seems to be a lot flux in the market, organizations don't know if they are coming or going.  This is a period of acquisition and consolidation.  Lehman Brother's is on the auction block, AIG's failure has brought the issue of bailout into the limelight and Bank of America, of course, will remain standing, buying up new pieces for their vast umbrella like Merrill Lynch.  This week has been historic and shocking for the experts even to say, they don't know what should happen.  That's tough.  While so many people grasp this concept, many are putting their ducks in row and wonder if this is a right time to even think about buying a home or new car.  I believe people are hesitant this week but this will change once there is direction and leadership toward resolution.  This is what some experts have to say about the future of home buying:

How does the latest fallout from Wall Street influence mortgage lending rates?  Well, let's take a look.  We can only hope.  In the interim rates will more than likely go down because there is a lot shuffling going as the dust settles and investors look for safety nets in this uncertain market.  Upon many experts advise, this is a time to put our money in real estate investment or income property.  As of last week the 10-year notes went down which means that the yield also decrease but this makes for new opportunities.  Experts expect mortgage rates to follow this trend because historically they usually follow suit.  Expect rates to drop further as more news brakes.  Just within the last week Bankrate.com commented that the 30-year fixed rate was 5.78% down from 6.08% of the previous week.  Just to compare, this rate was 6.5% in August.

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 For a while now, many can spectulate the trouble started at the tail end of 2006 with the mortgage industry busy, the American economy has been struggling, facing uncertain times.  Many understand the historic significance of last week but the implications of a federal bailout has yet to hit home.  With the annoucement that the Federal Reserve will aid the ailing AIG with an $85 billion rescue package, the details seem murkey as more politicians throw in his or her two cents of how this bailout will work and impact the economy.  While the bailout does not favor AIG, the company must hand over 80 percent control of the organization's future business dealings, this new bailout and the status of future bailouts remains in the balance and hands of the federal government who stepped into save the mortgage giants Fannie Mae and Freddie Mac not too long ago with a $100 billion package.  Where this differs and many fail to see a need to save AIG is that Fannie and Freddie were already government controlled and sponsored by federal dollars.  Why should the federal government step in and save a stockholder owned company?  What I am trying to say is that this bailout of finance giants has been a popular trend, starting with a $30 billion loan to Bear Stearns in February.  It is a trend we will see more of and possibly a part of the Federal Reserve's strategy to save the American economy.  I believe many who are struggling to make ends meet, living pay check to pay check, the working class and even the upper class, when push comes to shove and with a cold winter on the way, wish that the Federal Reserve would give the American people a loan.  That $300 incentive check just did not cut it.

While AIG must pay the Federal government back or risk losing control of its interests, many are concerned with the level of government involvement and bascially, the bottom line, who really will be paying for the bailouts?  Is Washington really to blame for this mess?  What about corporate accountability and the management of these organizations?  Something is rotten in Denmark as Shakespeare wrote in Hamlet.  Really it does not add up.  It is cause to worry of how this can be avoided in the future but also how this will impact the American people over the years to come. Many will argue that this has been a long time coming that part of the issue has been a faillure to tighten lending practices and that the subprime market has lead to the downfall of the whole market.  Truly companies like Countrywide should have known better instead of living high on the hog.  We could have avoided a lot of trouble today with bad loans.

So should the federal government step in and save companies riddled by bad behavior in the market place?  This whole crisis begins and ends with the practice of predatory lending and we've known it since before the mortgage buble burst.  As said above, not only Countrywide but other banks allowed their lending practices to be too flexible allowing many under qualified borrowers to purchase items like homes and cars.  Many brokers pushed such products on people who otherwise should not have been buying in the first place.  Many did not look at the full picture and mainly the issue of repayment.  Now the market is suffering due to underperforming loans or bad loans.  Still the bank is at fault, they should have never allowed such practices to continue but they were leveraging on the risk involved as long as the portfolio was performing well, the bank was making money on subprime products.  Now the current situation prevents this demographic of people with blemished credit from establishing any credit and only the prime customers (A & B paper) will prevail.  Many will have to learn to live without or forget about keeping up with the Jones because there will just not be any loans out there for these customers.  It is unfortnate because this takes aways from sales people's commission salaries and many people of these professional will be out of work.  Truly this is why so many people have never believed in the concept of credit in the first place.  It creates a vicious cycle. 

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 But here's the rub: an appraiser may provide their professional opinion through analysis and experience, but they do not create a property's value.  Instead, market value is based on the philosophy of "what the market will bear." Translated, that means what people are willing to pay and what price a seller willing to accept.

In the most traditional sense real estate market value is about speculation, pure and simple. Speculation is the probable price a property will sell for in a competitive open market under any condition at a fair price. Ideally, if a house is in good condition, the layout is pleasing and it's favorably located, a house is usually only on the market for a few months. If it sells within that time it's probably fairly priced. If it doesn't, a reasonable assumption is that the price most likely is too high, and the price needs to be renegotiated for a sale to occur. 

Many real estate brokers will purposely set a price higher than the neighborhood market will bear. Initially, most sellers are only too willing to encourage their broker to do this because; well ... who doesn't want to get the most money they can for their home? Unfortunately, this M.O. may drag on for months and months. Great expectations can turn into disappointment. Eventually, even for sellers who have deep pockets will get tired of shelling out money for two homes.

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Over the past five weeks, mortgage rates have dropped about half a percentage point, according to a survey by mortgage research firm HSH associates - this comes after a May 23 confirmation that the average rate on a 30 year fixed-rate loan was 6.02 percent, a figure that jumped to 6.55 last week, while the bearer of an average jumbo loan suffered a crushing 7.12 percent rate. The typical 5/1 adjustable rate mortgage (ARM), a mixture of conforming and jumbo loans - also happened to jump half a percentage point.

Being presented with enough facts and figures to make even the savviest financial analyst feel a bit panicky is all well and good, but what does all of this stomach-churning monetary mumbo-jumbo actually mean?

Despite the tangled web of effects, the cause is fairly simple: our fear of inflation is driving the American rate increases. While we are not technically in a recession (read: yeah, we're kind of in a recession, even though Dubya might not want to admit it) due to the shred of life to which our economy is tenuously clinging, panic is still widespread. And to make matters worse, the Federal Reserve announced it would no longer slash interest rates - in fact, it may start raising them, due to the abundant fear of inflation. Fighting inflation with the threat of inflation? With that axe swinging over our fragile heads, what options are Americans left with?

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