6 Ways to take advantage of today’s Real Estate Market
Before we talk about the 6 ways to take advantage of the real estate market maybe we should start with why someone would want to take advantage of the market……… Real Estate is a proven solid foundation whether you are looking for a home for your family or investing in real estate to build wealth. Real estate is an investment you can control. If the investment isn’t going well you can sell it, fix it, rent it, rehab it, paint it or even move in. Also there are great tax incentives for owning a home. The market has gone down for over 12 months now. This means property on average will be purchased at a far less amount that it will be worth in the next 5-10 years. There is no easier way to build wealth. I will even offer a fantastic real estate investment opportunity at the end of this blog!
I am not going to spend a lot of time on market data this blog. Fact of the matter is the market is totally static right now. There is good and bad with that. The positive is the inventory numbers are staying static as well. Median home price was under $170,000 for May 2009 which is lower than it has been in 3+ years. A lot of indicators of a bottom if you ask me. Northern Idaho flat as well. Median prices are still dropping slightly over there but new development, although has slowed down is still moving along. Nationwide there are some bright spots in Montana, Carolina’s, parts of Texas and there are a few neighborhoods in the mid-west. But for the most part there are still minor declines in home pricing and a virtual shut down off new development projects. California market is showing early signs of becoming stable as well. Commercial markets everywhere are starting to feel the pain of commercial subprime and balloons. Stay tuned on commercial problems.
So let’s do this! 6 ways to turn other people lemons into your lemonade through real estate!
1. No better place to start than the $8,000 tax credit of 2009! People if you don’t know about this do yourself or someone you know a favor and read on. Through 2009 the government is giving a free tax rebate to first time home owners. This is an $8000(or 10%) direct tax credit! A first time home buyers is someone who has not owned or purchased a home in the last 3 years. If you know any first time home buyers do them a favor and have them contact us about our first time home buyer program and we can explain the benefits. This has been a great tool to have your tenants buy you out as well! If you need to make a higher purchase price or get paid back for the closing costs or down payment you gave you can! Notice I said the closing costs or down payment you made. You can pay the buyers closing costs. If they are a lease option tenant of yours you can give them a rent credit for the down payment! This is only through 2009!
2. Low prices! With a large amount of inventory relative to the amount of buyers, sellers are being forced to keep their prices down. The fact is this is a buyer’s market and if you can’t get the price you want on a property there is a good chance another seller is more motivated to sell.
3. Low interest rates. Lower interest rates allow you to purchase more home. This is because the interest rate and the amount financed are the two key factors in your payment. Lower interest rates also help investment properties cash flow better. Even you are not using bank money to finance, private money and hard money rates have been very reasonable as well.
4. Motivated sellers! Are you working a creative deal or do you need money to close? This is the market where you can ask for what you want. This includes owner financing, lease options, cash discounts. It just depends on what the seller wants. Investment tip # 1: worry about accomplishing what the seller wants out of the deal before you worry about what you want. That is the best way to work a win win transaction.
5. Choices! Home owners have a market they can “home shop” in that we have not seen in almost 10 years! Buyers can take the time to really compare homes in the areas they want to live. Sellers are also making the homes nicer before they go on the market to help sale, nice bonus.
6. Take action! These homes won’t just fall into your real estate portfolio. You need to go get some good real estate deals while this buyer’s market is in full effect. We are finding great deal everyday because that is what we do! Call Extant Realty to take action.
So there you go. This is the perfect market to put those things into place. Okay so I said I would have an investment deal! There is an opportunity for an investor to hold a $45,000 equity position in a $155,000 3 bed 2 bath home in Coeur d’ Alene, ID. This is a short sale and we are just wrapping up negotiations with the bank. If you are interested in the details and the investment package please call us at 509-926-4018 or fill out a contact form at www.ExtantRealty.com . Now there is an easy way to get into real estate investment! This deal will be a first come first serve. Qualified investors only for this deal! Available until July 7th or as soon as spoken for. We also have similar opportunities available so give us a call. Happy 4th of July everyone!
Wednesday, July 1, 2009
Friday, April 10, 2009
Home sales up 68%; is this start of the turnaround? Is the housing stimulus working? How do I take advantage of this market and government incentives?
Hello and thank you for reading The Insider Real Estate Investment Blog! 68% is a pretty big number, where the heck did it come from? It is the percentage gain in home sales from February 2009 to March 2009. Okay maybe not world changing news, but certainly there is a lot of really positive statistics and information in the real estate industry right now. In this blog I am going to roll through some local statistics, national statistics, give my spin on them and opinion where I think the market is headed and HOW and WHY you should be buying real estate and taking advantage of this historic opportunity. Sound good? Hope so, let’s gets started!
Spokane area market activity and statistics look great. Spokane’s current inventory has remained flat all year and our closed sales and median home price has gone up. Inventory levels are below 2008 and we have not seen a big inventory increase even though spring is the most popular time for homes to be listed on the MLS. Closed sale are up sharply as mentioned 68% over last month. We had 326 closed sales in March compared to 382 in March 2008, so still slightly down year over year and still a far cry from the 511 in March 2007. Median home price in the Pacific Northwest has remained very strong through the recession and housing bubble. Current Median home price in Spokane County is $176,200 which is only 1K lower than ’08 and 2K lower than ’09. That is nothing! We are healthy here. North Idaho is not quite as on the up and up as Eastern Washington. Kootenai County was down in median price over 4% from October 2008 to March 2009. A little more of a bubble burst in North Idaho but local economics have North Idaho coming into some strong growth over the next 10 years and from everything I have researched I completely agree. In fact I was on a coaching call with David Lindahl (commercial real estate investment guru, specializes in apartment buildings in emerging real estate markets) the other month and he named Coeur d’ Alene (even though he could not pronounce it to save his life) in the top 15 for emerging real estate markets in the United States in the next ten years.
The rest of the country is doing well also! Home sales have been up nationwide 2 months in a row! It’s been a while since we have seen that statistic. Certain pockets of the country are very similar to Spokane and are doing well, some markets even appreciating like parts of Montana (has 4 cities in the top 25 for real estate) and West Virginia.
So is this the real estate market turn around we have been waiting for? Well, kinda but not quite. The numbers are great and should be noted. The reality is a strong spring market in real estate is very typical, so some of these numbers are to be expected. The good news ……. Home buyers are out and about, interest rates are killer right now, in fact some of the lowest we have seen in 50 years and the home buyer tax credit is working perfectly (more on this later). Loans for home buyers right now are very favorable. The bad news …….. unemployment is at a whopping 8.5% nationwide with no signs of a quick recovery there. This is also contributing to an increasing number of foreclosures which is still a problem and will be around for another year or two. Come fall and winter 2009 I think some of the ugly real estate problems will show face and we will stay flat or decrease again from August 2009 to February 2010. My opinion is the real turnaround is primed for spring 2010. We will again enjoy a strong spring market and maintain it through the year and so goes the real estate market cycle. So there’s my bold prediction, the market will truly start cycling up spring 2010.
If spring 2010 is when the market will start heating up that gives us 12-24 months to make some awesome real estate investments without trying to find a syringe in a haystack (I know that’s a little graphic but I needed something bigger than a needle). Two key ways to take advantage of the market is to sell and buy. I put sell first because believe it or not it is a good time to sell certain investment properties and take those funds and invest them in this market. Do you have some rentals with great tenants? How about some lease options that the tenant is to buy out? Get these people with a lender!!! There are some fantastic FHA loans out there right now that are not too tough to qualify for! And if they buy your property Uncle Sam is going to give them $8,000! No kidding. Who qualifies for this? Anyone who has not bought a home in the last 3 years (and of course does not own a primary residence). Heard rumors and want clarity? Then I’ll say it again…… home buyers get an $8,000 tax benefit that does not have to be paid back! Think that will motivate your tenant? Me too and I have seen more investors cashed out of their property with this incentive in the last 3 months than I saw the last 6 months of last year. So get your tenant with a lender and educate them how to become a homeowner and get money for doing it. There are a couple of great lenders that have FHA and first time home buyer products that follow this blog so I would start there! (see top of page under blog followers)
So the moral of the story is sell to your tenants for a profit and help them out. Then invest your funds in a short sale, REO or just a nicely discounted piece of real estate! Don’t hold out another year or two for an extra $10,000 when you can make $20,000+ in the same time frame from buying the right property in this market. One of the top strategies I am teaching my investor clients about is purchasing discounted properties and doing lease options. The lease option market is extremely strong and you can set a tenant buyer up to be in an equity position when they buy you out and you will still make a very large profit. How cool is that! You get a phenomenal deal, sell it for a good deal and help somebody achieve their home ownership dream. That is what it is about and a solid strategy in this market. Call or e-mail me for details on this play. But the bottom-line is you can get deals that cash flow very well and buy at such a discount you don’t need the market to appreciate to make a big chunk of dough.
Alright so we have an unbelievable window for purchasing real estate that is open right now. Will you be able to tell the tale of wealth building in this market 10 years from now or are you going to be saying I wish I bought 10 years ago like you were in 2005? Here is my plug ….. Extant Realty is “The Real Estate Investment Headquarters” and will help you with your real estate purchases so please give us a call 509-926-4018 or visit our web site www.YourRealEstateInfo.Net . Take action, build wealth, buy smart(there are bad deals in every market) and best of luck.
Spokane area market activity and statistics look great. Spokane’s current inventory has remained flat all year and our closed sales and median home price has gone up. Inventory levels are below 2008 and we have not seen a big inventory increase even though spring is the most popular time for homes to be listed on the MLS. Closed sale are up sharply as mentioned 68% over last month. We had 326 closed sales in March compared to 382 in March 2008, so still slightly down year over year and still a far cry from the 511 in March 2007. Median home price in the Pacific Northwest has remained very strong through the recession and housing bubble. Current Median home price in Spokane County is $176,200 which is only 1K lower than ’08 and 2K lower than ’09. That is nothing! We are healthy here. North Idaho is not quite as on the up and up as Eastern Washington. Kootenai County was down in median price over 4% from October 2008 to March 2009. A little more of a bubble burst in North Idaho but local economics have North Idaho coming into some strong growth over the next 10 years and from everything I have researched I completely agree. In fact I was on a coaching call with David Lindahl (commercial real estate investment guru, specializes in apartment buildings in emerging real estate markets) the other month and he named Coeur d’ Alene (even though he could not pronounce it to save his life) in the top 15 for emerging real estate markets in the United States in the next ten years.
The rest of the country is doing well also! Home sales have been up nationwide 2 months in a row! It’s been a while since we have seen that statistic. Certain pockets of the country are very similar to Spokane and are doing well, some markets even appreciating like parts of Montana (has 4 cities in the top 25 for real estate) and West Virginia.
So is this the real estate market turn around we have been waiting for? Well, kinda but not quite. The numbers are great and should be noted. The reality is a strong spring market in real estate is very typical, so some of these numbers are to be expected. The good news ……. Home buyers are out and about, interest rates are killer right now, in fact some of the lowest we have seen in 50 years and the home buyer tax credit is working perfectly (more on this later). Loans for home buyers right now are very favorable. The bad news …….. unemployment is at a whopping 8.5% nationwide with no signs of a quick recovery there. This is also contributing to an increasing number of foreclosures which is still a problem and will be around for another year or two. Come fall and winter 2009 I think some of the ugly real estate problems will show face and we will stay flat or decrease again from August 2009 to February 2010. My opinion is the real turnaround is primed for spring 2010. We will again enjoy a strong spring market and maintain it through the year and so goes the real estate market cycle. So there’s my bold prediction, the market will truly start cycling up spring 2010.
If spring 2010 is when the market will start heating up that gives us 12-24 months to make some awesome real estate investments without trying to find a syringe in a haystack (I know that’s a little graphic but I needed something bigger than a needle). Two key ways to take advantage of the market is to sell and buy. I put sell first because believe it or not it is a good time to sell certain investment properties and take those funds and invest them in this market. Do you have some rentals with great tenants? How about some lease options that the tenant is to buy out? Get these people with a lender!!! There are some fantastic FHA loans out there right now that are not too tough to qualify for! And if they buy your property Uncle Sam is going to give them $8,000! No kidding. Who qualifies for this? Anyone who has not bought a home in the last 3 years (and of course does not own a primary residence). Heard rumors and want clarity? Then I’ll say it again…… home buyers get an $8,000 tax benefit that does not have to be paid back! Think that will motivate your tenant? Me too and I have seen more investors cashed out of their property with this incentive in the last 3 months than I saw the last 6 months of last year. So get your tenant with a lender and educate them how to become a homeowner and get money for doing it. There are a couple of great lenders that have FHA and first time home buyer products that follow this blog so I would start there! (see top of page under blog followers)
So the moral of the story is sell to your tenants for a profit and help them out. Then invest your funds in a short sale, REO or just a nicely discounted piece of real estate! Don’t hold out another year or two for an extra $10,000 when you can make $20,000+ in the same time frame from buying the right property in this market. One of the top strategies I am teaching my investor clients about is purchasing discounted properties and doing lease options. The lease option market is extremely strong and you can set a tenant buyer up to be in an equity position when they buy you out and you will still make a very large profit. How cool is that! You get a phenomenal deal, sell it for a good deal and help somebody achieve their home ownership dream. That is what it is about and a solid strategy in this market. Call or e-mail me for details on this play. But the bottom-line is you can get deals that cash flow very well and buy at such a discount you don’t need the market to appreciate to make a big chunk of dough.
Alright so we have an unbelievable window for purchasing real estate that is open right now. Will you be able to tell the tale of wealth building in this market 10 years from now or are you going to be saying I wish I bought 10 years ago like you were in 2005? Here is my plug ….. Extant Realty is “The Real Estate Investment Headquarters” and will help you with your real estate purchases so please give us a call 509-926-4018 or visit our web site www.YourRealEstateInfo.Net . Take action, build wealth, buy smart(there are bad deals in every market) and best of luck.
Monday, March 2, 2009
What exactly is a short sale and how the heck do I buy them! Pre-foreclosure 101
Hi everybody and welcome to short sales 101! Before we jump into the world of pre-foreclosures I would like to talk real quick about our big move and some real estate statistics. As a lot of my readers already know I have left Windermere Real Estate and opened a real estate brokerage called Extant Realty Inc. I have owned this company for a couple of years but now we are putting our full brokerage business behind it as well as multiple other companies that fall under the real estate and real estate investment umbrella. Extant Realty will cater to real estate investors and add services that investors have never found under one roof! Extant Realty is “The Real Estate Investment Headquarters!” Visit us at http://www.extantrealty.com/
Okay so there is my announcement of our real estate investment brokerage, now let’s talk about our market, where there is some good, bad and interesting. Certainly more than you can say about the stock market.(*See my last blog post about using your 401K or IRA to invest in real estate!) Overall I think the real estate market in Eastern WA and Northern ID is predictable and encouraging. Here is the biggest number to chew on, 29%. That is the drop in home sales we saw in 2008 in Spokane County. I don’t know about you but I think that number looks huge! As big or small as it may look it is actually not nearly as bad as half of the middle metro cities across the nation. I do however think it is safe to say the number takes its toll on the industry. How about some good news? Inventory is down 8.5% compared to the end of 2008! In fact there are about 100 less homes on the market right now than there was in January 2007! Those are very positive numbers. On the down side median home prices dropped to their lowest level of 2008 at $170,000 in Spokane County. This is a drop of 7.8%. One of the big reasons for the drop in median home price was the influence of foreclosures and motivated sellers on the sold home prices. As the inventory continues to burn off and activity of buyers begins to increase (and it has!) our market will slowly but surely come back around. I know I have said it before but I have to say it again 2009 is the year to buy some real estate!
Alright time to talk about short sales! What exactly is a short sale and how the heck do I buy them? Two questions I will answer; in fact at the end of this article I will even offer 2 short sale deals to the first two qualified investors who call or e-mail us at the end of this blog.
What is a short sale? A short sale is when the seller owes more on the property than it is worth and the bank allows them to sell it and short the note on the property. So if they sell their property at its market value, it will not be enough money to pay off the lender or the note(s) on the property. So to be able to sell the property to a paying buyer the seller is going to have to “short” the bank. Another way to say it is the bank accepts an amount that is “short” of the balance owed. This may need to be done on one, two or in some cases three notes or mortgages on the property.
Why would the lenders except significantly less of a payoff than what is owed? Well for a couple reasons. As for any mortgages behind the first mortgage(i.e. the second), they are not likely to get anything if the property goes all the way through the foreclosure process. It is very expensive for lenders to go through the foreclosure process. Also, banks are not in the real estate business. Their overhead of foreclosed homes is through the roof (no pun intended). The last thing they want is another foreclosure property in their profile costing them overhead(a.k.a non-performing asset).
I heard short sales could be bought for way under market value, is that true? Absolutely!
Investment tip # 32, spend your time and offers on motivated sellers!
A bank who has not been paid on vacant or beat up home, facing an expensive foreclosure is a motivated seller. They key is to know about what the BPO (Broker Price Opinion) is going to come in around. The bank uses this to help establish a value for the home. There is a certain percentage that the lender will come off the BPO and sell at a discount to avoid the foreclosure process. Also taken into consideration is the property condition and amount of repairs for the property. The banks don’t want homes with any problems. We can typically find a little mold somewhere to send in to them:)! So you want a low BPO, justifications for the BPO being low i.e. repairs, and a nice discount on the property.
What type of discount can I expect on a short sale? It really depends! A home buyer buying something to live in is going to probably be willing to pay a little more than an investor purchasing for a fix and flip. It also depends if there are competing offers. But in my experience the typical discount in our area is 15-35% discount off market value. Want a real life example? I did a short sale in Liberty Lake WA in December. The home was in a very nice PUD with almost nothing wrong with the property. The amount of the 80/20 loan was $480,000. Previous market value of the property was well over 500K but the market has hurt this area of high end homes quite a bit. I found some new homes down the hill from this one selling for really good prices. Still the market value of this property the day we did this deal was between $425,000 - $475,000. I was able to sell the property to a home buyer (I used another Realtor to bring the buyer after my first one backed out) for $350,000!!! That is around $100,000 discount off approximate market value! Then the bank paid fees to sell including excise tax, commissions to me and the other Realtor. So in the end they accepted around $323,000 on their $480,000 note!
Okay, so how do I buy a short sale or pre-foreclosure for a nice discount? The first thing you are going to need to do is talk to the seller who is in default or their Realtor. You will want to interview these parties to see what their knowledge of short sales is. To be able to get a good discount on a short sale the lender is going to need a very comprehensive short sale package to consider the offer. This package needs to contain information on the property, comparables, income information, listing information as well as a hardship letter. Some lenders will send you their short sale package with a list of every single item you need. Make no mistake; the package needs to be fully complete for the short sale to work. You will also need to try to help the BPO broker on justifying a lower price through repairs, market conditions, etc.
Once you negotiate out a price that works the lender will send you a conformation letter stating what they will accept has a payoff. At this point you typical have only 30 days to completely have the deals closed. There can of course be many different issues that come up along the way, requiring extra paper work, signatures, quit claims, inspections and a variety of other things. Each situation is typically unique.
Key Points
· You need to contact the motivated seller in default (through Realtor if listed)
· You need to make sure the seller will be able to put together a full package for the lender that can be sent in a reasonable amount of time.
· You need to tell the story of the seller and the home condition and poor value.
· You need to execute. This means close the deal!
A lot of beginning investors decide they want to go into short sales and pre-foreclosures. I don’t blame them! Especially in this market! But I would highly recommend spending a good amount of time getting the right education to do this type of real estate investing.
If that sounds like a ton of work and time IT IS! A short sale or pre-foreclosure is typically at least twice the work of a normal transaction. That is after you find the short sale transaction! So my recommendation? Use a professional, licensed service to find, negotiate and help close your short sale or pre-foreclosure transaction. A company like Extant Realty will take you through the entire process and provide all of the resources you need. We are able to get very large discounts because of our experience and systems we have in place to negotiate with the banks efficiently. We also have systems in place to bring a lot of these transactions in the door. This virtually eliminates all of the work for the buyer by us putting these deals together. What is our fee to do this? In most cases FREE! The bank pays us our fees! In some circumstances we get such large discounts that additional buyer’s fees are charged but they are typically 3% or less. Not bad for a 30% discount on real estate! Even extremely educated real estate investors utilize our short sale services. This allows them to do more transactions and know they are taking advantage of the most recent market opportunities.
So I said I have two short sales available and I do! One is a 3 bed 1.5 bath in north Spokane. Similar properties in the area sell between 110K-130K. Short sale price will be approximately $80,000! $7,000 in estimated repairs (including finishing the basement bathroom), but very rentable or livable right now.
Other short sale is a true rehab! Ugly is good, huge discount to be had here. Probably needs estimated repairs and junk removal $15,000. Home has a new roof, lots of square feet and mostly vinyl windows. Comparable homes sell for 120K-140K. Approximate short sale price $70,000.
Give a call to 509-926-4018 or e-mail tyler@ExtantRealty.com if you are interested in this property and want a buyer’s packet.
Hope the info. Was good, as always call or e-mail with any questions! Happy March.
Okay so there is my announcement of our real estate investment brokerage, now let’s talk about our market, where there is some good, bad and interesting. Certainly more than you can say about the stock market.(*See my last blog post about using your 401K or IRA to invest in real estate!) Overall I think the real estate market in Eastern WA and Northern ID is predictable and encouraging. Here is the biggest number to chew on, 29%. That is the drop in home sales we saw in 2008 in Spokane County. I don’t know about you but I think that number looks huge! As big or small as it may look it is actually not nearly as bad as half of the middle metro cities across the nation. I do however think it is safe to say the number takes its toll on the industry. How about some good news? Inventory is down 8.5% compared to the end of 2008! In fact there are about 100 less homes on the market right now than there was in January 2007! Those are very positive numbers. On the down side median home prices dropped to their lowest level of 2008 at $170,000 in Spokane County. This is a drop of 7.8%. One of the big reasons for the drop in median home price was the influence of foreclosures and motivated sellers on the sold home prices. As the inventory continues to burn off and activity of buyers begins to increase (and it has!) our market will slowly but surely come back around. I know I have said it before but I have to say it again 2009 is the year to buy some real estate!
Alright time to talk about short sales! What exactly is a short sale and how the heck do I buy them? Two questions I will answer; in fact at the end of this article I will even offer 2 short sale deals to the first two qualified investors who call or e-mail us at the end of this blog.
What is a short sale? A short sale is when the seller owes more on the property than it is worth and the bank allows them to sell it and short the note on the property. So if they sell their property at its market value, it will not be enough money to pay off the lender or the note(s) on the property. So to be able to sell the property to a paying buyer the seller is going to have to “short” the bank. Another way to say it is the bank accepts an amount that is “short” of the balance owed. This may need to be done on one, two or in some cases three notes or mortgages on the property.
Why would the lenders except significantly less of a payoff than what is owed? Well for a couple reasons. As for any mortgages behind the first mortgage(i.e. the second), they are not likely to get anything if the property goes all the way through the foreclosure process. It is very expensive for lenders to go through the foreclosure process. Also, banks are not in the real estate business. Their overhead of foreclosed homes is through the roof (no pun intended). The last thing they want is another foreclosure property in their profile costing them overhead(a.k.a non-performing asset).
I heard short sales could be bought for way under market value, is that true? Absolutely!
Investment tip # 32, spend your time and offers on motivated sellers!
A bank who has not been paid on vacant or beat up home, facing an expensive foreclosure is a motivated seller. They key is to know about what the BPO (Broker Price Opinion) is going to come in around. The bank uses this to help establish a value for the home. There is a certain percentage that the lender will come off the BPO and sell at a discount to avoid the foreclosure process. Also taken into consideration is the property condition and amount of repairs for the property. The banks don’t want homes with any problems. We can typically find a little mold somewhere to send in to them:)! So you want a low BPO, justifications for the BPO being low i.e. repairs, and a nice discount on the property.
What type of discount can I expect on a short sale? It really depends! A home buyer buying something to live in is going to probably be willing to pay a little more than an investor purchasing for a fix and flip. It also depends if there are competing offers. But in my experience the typical discount in our area is 15-35% discount off market value. Want a real life example? I did a short sale in Liberty Lake WA in December. The home was in a very nice PUD with almost nothing wrong with the property. The amount of the 80/20 loan was $480,000. Previous market value of the property was well over 500K but the market has hurt this area of high end homes quite a bit. I found some new homes down the hill from this one selling for really good prices. Still the market value of this property the day we did this deal was between $425,000 - $475,000. I was able to sell the property to a home buyer (I used another Realtor to bring the buyer after my first one backed out) for $350,000!!! That is around $100,000 discount off approximate market value! Then the bank paid fees to sell including excise tax, commissions to me and the other Realtor. So in the end they accepted around $323,000 on their $480,000 note!
Okay, so how do I buy a short sale or pre-foreclosure for a nice discount? The first thing you are going to need to do is talk to the seller who is in default or their Realtor. You will want to interview these parties to see what their knowledge of short sales is. To be able to get a good discount on a short sale the lender is going to need a very comprehensive short sale package to consider the offer. This package needs to contain information on the property, comparables, income information, listing information as well as a hardship letter. Some lenders will send you their short sale package with a list of every single item you need. Make no mistake; the package needs to be fully complete for the short sale to work. You will also need to try to help the BPO broker on justifying a lower price through repairs, market conditions, etc.
Once you negotiate out a price that works the lender will send you a conformation letter stating what they will accept has a payoff. At this point you typical have only 30 days to completely have the deals closed. There can of course be many different issues that come up along the way, requiring extra paper work, signatures, quit claims, inspections and a variety of other things. Each situation is typically unique.
Key Points
· You need to contact the motivated seller in default (through Realtor if listed)
· You need to make sure the seller will be able to put together a full package for the lender that can be sent in a reasonable amount of time.
· You need to tell the story of the seller and the home condition and poor value.
· You need to execute. This means close the deal!
A lot of beginning investors decide they want to go into short sales and pre-foreclosures. I don’t blame them! Especially in this market! But I would highly recommend spending a good amount of time getting the right education to do this type of real estate investing.
If that sounds like a ton of work and time IT IS! A short sale or pre-foreclosure is typically at least twice the work of a normal transaction. That is after you find the short sale transaction! So my recommendation? Use a professional, licensed service to find, negotiate and help close your short sale or pre-foreclosure transaction. A company like Extant Realty will take you through the entire process and provide all of the resources you need. We are able to get very large discounts because of our experience and systems we have in place to negotiate with the banks efficiently. We also have systems in place to bring a lot of these transactions in the door. This virtually eliminates all of the work for the buyer by us putting these deals together. What is our fee to do this? In most cases FREE! The bank pays us our fees! In some circumstances we get such large discounts that additional buyer’s fees are charged but they are typically 3% or less. Not bad for a 30% discount on real estate! Even extremely educated real estate investors utilize our short sale services. This allows them to do more transactions and know they are taking advantage of the most recent market opportunities.
So I said I have two short sales available and I do! One is a 3 bed 1.5 bath in north Spokane. Similar properties in the area sell between 110K-130K. Short sale price will be approximately $80,000! $7,000 in estimated repairs (including finishing the basement bathroom), but very rentable or livable right now.
Other short sale is a true rehab! Ugly is good, huge discount to be had here. Probably needs estimated repairs and junk removal $15,000. Home has a new roof, lots of square feet and mostly vinyl windows. Comparable homes sell for 120K-140K. Approximate short sale price $70,000.
Give a call to 509-926-4018 or e-mail tyler@ExtantRealty.com if you are interested in this property and want a buyer’s packet.
Hope the info. Was good, as always call or e-mail with any questions! Happy March.
Wednesday, January 7, 2009
Use your 401K or IRA to invest in Real Estate without Tax or Distribution penalty!
Happy New Year everybody! 2009 will be a great year to buy real estate. It’s likely to get a little worse before it gets better and that means Deals! Deals! Deals! Things have been a little rough in the industry, although my activity and some other Realtors activity that I have talked with have been outstanding in the early stages of 2009! It is desperately needed everywhere including the Spokane and North Idaho markets! December 2008 numbers are not out yet but there were only 252 sales in November 2008 in Spokane County. December projections are to be similar. Median home prices in our local area are staying strong which is very good. Spokane county median home price is actually up from 2006 and 2007 to $179,950! Both ’06 and 07 were right about $176,000.
So let’s get to the real estate investment info. that you have come to read! Investing with your 401K or your IRA is a huge topic. Especially with the brutal fall of the stock market in 2008. Before we talk strategy I want to talk a little real estate investment versus a stock. How many publicly traded companies went bankrupt in 2008? I don’t know the exact number but it was A LOT! What happened to their stock? In most cases it lost 90+% of its value! Are you kidding me? That will wipe your retirement account out pretty quick. How many real estate properties went bankrupt? Zero. Yes the last couple years have taken its toll on real estate values, but some of the WORST cases (LasVegas, parts of California and most of Florida) were 50%. Most markets did not lose more than 25% of value. As you can see above some markets like Spokane have actually been pretty static, which is a good thing! So should you diversify some of your 401K or IRA into real estate? If you don’t need the money in the next 10 years the answer is absolutely! Real Estate even comes with very nice tax benefits!
Okay time for the strategy part. How do you invest in real estate with your retirement account without taking any tax hits or distribution penalties? Well there are a couple ways to do it. One is to do something called a hedge loan. This is basically a loan against your retirement account. Depending on your portfolio some hedge lenders will lend up to 80-90% of your account value. Problem here is you pay interest on the money. These loans are typically expensive and of course could put you in a very tough position if the value of the account drops below what you borrowed. Now you are in the negatives and that is not good. The benefit is you can “double dip”. Your funds stay in your account and do their thing, good or bad and you have a loan against them. This would be a good strategy if you really like the returns you’re getting in the stock market.
The method I typically recommend for my investors is different. I recommend actually using your funds and buying the real estate. No interest to pay and no risk of being upside down. Sounds good but what about the taxes or distribution issues? No tax penalties because you put all the profits back into your account! Here is how it works……. Let’s say you have a $200,000 401K that is not quite giving you the returns you would like. You find a nice apartment building in an emerging real estate market that puts off some nice cash flow and will likely increase in value. You and two partners are going to use your 401k funds to purchase the building for $600,000. After you have done your due diligence and consulted with an expert like me J and decide you are going to move forward on the building you are going to move your funds from your 401K to a self directed IRA. You are then going to give instructions to yourself directed IRA to fund the deal at escrow at the appropriate time. Your IRA will wire funds to escrow and you and your partners are commercial property real estate investors! Here is the catch….. all profits and cash flow go back to the IRA to avoid any tax penalty (so you are not taking a disbursement). Of course if you keep any of it you will pay the taxes. Okay so same group of 3 owns a building that makes a net profit of $75,000 per year just in cash flow. That will be $25,000 each that will go into your retirement account. That is a 13% return on your $200,000 investment. Each year the property is owned the returns go up. Why? Because rents go up increasing the net operating income of the property. A good property management company will help you reduce expenses in a lot of cases as well, again increasing the net profit. For this example let’s just sit at the 13% return every year. After 5 years you guys decide to sell. Because you have a great broker who put you in a solid property and your NOI is better than when you purchased it (that is what apartment building values are figured) the property is now worth $760,000. After ALL fees and taxes to sell, your group nets $700,000. So each of you will put your original $200,000 back in your account plus the end profit $33,000 each on top of the $25,000 per year. So now after 5 years you $200,000 investment has a value of $358,000! That is an annualized return of 16%. Not making you jump out of your chair? I don’t blame you, but we are being very realistic here! Also a 16% average return every year for 5 years secured by real estate is also a much lower risk than a company’s stock. Plus there is a lot of upside as the market takes off you greatly increase your NOI you could push the number closer to 20%. Those figures are nothing to sneeze at. If you could show me a portfolio with a sustained 16% per year return or heck even an 11% I would say that is extremely well done. Oh, I forgot to mention …… you will be depreciating the building each year you own it that will give you great tax benefits. That is not calculated into the above returns.
So in a small nutshell that is how it is done. Yes you would need an LLC among a grocery list of other things but a good advisor will handle all of that for you. Those costs are built in. Another thing you should know is that it is actually your IRA that is the member of the LLC and has the interest in the real estate.
I put deals like this together and can help you make solid returns using your retirement account. Let’s say we will give your retirement account some growth hormones. So if it is not sitting where you want it to be or not getting the returns you like, think about using it tax free to buy some solid properties and take advantage of today’s buyers market. Feel free to contact me with any additional questions on the subject. There is, as you may expect more detail to it but I can guide you through or answer questions you may have. Oh by the way, this same self directed IRA and process can be used for single family property, commercial property, mortgages, hard money loans, private money, etc. So get that account working a little smarter for you!
So let’s get to the real estate investment info. that you have come to read! Investing with your 401K or your IRA is a huge topic. Especially with the brutal fall of the stock market in 2008. Before we talk strategy I want to talk a little real estate investment versus a stock. How many publicly traded companies went bankrupt in 2008? I don’t know the exact number but it was A LOT! What happened to their stock? In most cases it lost 90+% of its value! Are you kidding me? That will wipe your retirement account out pretty quick. How many real estate properties went bankrupt? Zero. Yes the last couple years have taken its toll on real estate values, but some of the WORST cases (LasVegas, parts of California and most of Florida) were 50%. Most markets did not lose more than 25% of value. As you can see above some markets like Spokane have actually been pretty static, which is a good thing! So should you diversify some of your 401K or IRA into real estate? If you don’t need the money in the next 10 years the answer is absolutely! Real Estate even comes with very nice tax benefits!
Okay time for the strategy part. How do you invest in real estate with your retirement account without taking any tax hits or distribution penalties? Well there are a couple ways to do it. One is to do something called a hedge loan. This is basically a loan against your retirement account. Depending on your portfolio some hedge lenders will lend up to 80-90% of your account value. Problem here is you pay interest on the money. These loans are typically expensive and of course could put you in a very tough position if the value of the account drops below what you borrowed. Now you are in the negatives and that is not good. The benefit is you can “double dip”. Your funds stay in your account and do their thing, good or bad and you have a loan against them. This would be a good strategy if you really like the returns you’re getting in the stock market.
The method I typically recommend for my investors is different. I recommend actually using your funds and buying the real estate. No interest to pay and no risk of being upside down. Sounds good but what about the taxes or distribution issues? No tax penalties because you put all the profits back into your account! Here is how it works……. Let’s say you have a $200,000 401K that is not quite giving you the returns you would like. You find a nice apartment building in an emerging real estate market that puts off some nice cash flow and will likely increase in value. You and two partners are going to use your 401k funds to purchase the building for $600,000. After you have done your due diligence and consulted with an expert like me J and decide you are going to move forward on the building you are going to move your funds from your 401K to a self directed IRA. You are then going to give instructions to yourself directed IRA to fund the deal at escrow at the appropriate time. Your IRA will wire funds to escrow and you and your partners are commercial property real estate investors! Here is the catch….. all profits and cash flow go back to the IRA to avoid any tax penalty (so you are not taking a disbursement). Of course if you keep any of it you will pay the taxes. Okay so same group of 3 owns a building that makes a net profit of $75,000 per year just in cash flow. That will be $25,000 each that will go into your retirement account. That is a 13% return on your $200,000 investment. Each year the property is owned the returns go up. Why? Because rents go up increasing the net operating income of the property. A good property management company will help you reduce expenses in a lot of cases as well, again increasing the net profit. For this example let’s just sit at the 13% return every year. After 5 years you guys decide to sell. Because you have a great broker who put you in a solid property and your NOI is better than when you purchased it (that is what apartment building values are figured) the property is now worth $760,000. After ALL fees and taxes to sell, your group nets $700,000. So each of you will put your original $200,000 back in your account plus the end profit $33,000 each on top of the $25,000 per year. So now after 5 years you $200,000 investment has a value of $358,000! That is an annualized return of 16%. Not making you jump out of your chair? I don’t blame you, but we are being very realistic here! Also a 16% average return every year for 5 years secured by real estate is also a much lower risk than a company’s stock. Plus there is a lot of upside as the market takes off you greatly increase your NOI you could push the number closer to 20%. Those figures are nothing to sneeze at. If you could show me a portfolio with a sustained 16% per year return or heck even an 11% I would say that is extremely well done. Oh, I forgot to mention …… you will be depreciating the building each year you own it that will give you great tax benefits. That is not calculated into the above returns.
So in a small nutshell that is how it is done. Yes you would need an LLC among a grocery list of other things but a good advisor will handle all of that for you. Those costs are built in. Another thing you should know is that it is actually your IRA that is the member of the LLC and has the interest in the real estate.
I put deals like this together and can help you make solid returns using your retirement account. Let’s say we will give your retirement account some growth hormones. So if it is not sitting where you want it to be or not getting the returns you like, think about using it tax free to buy some solid properties and take advantage of today’s buyers market. Feel free to contact me with any additional questions on the subject. There is, as you may expect more detail to it but I can guide you through or answer questions you may have. Oh by the way, this same self directed IRA and process can be used for single family property, commercial property, mortgages, hard money loans, private money, etc. So get that account working a little smarter for you!
Thursday, December 4, 2008
A new Real Estate Investment Era is upon us
It is here. After 6+ long years there is an extremely profitable buyers market out there! Although Real Estate is highly localized, almost every market across this great country of ours is for sale for a very nice price. This will benefit real estate investors and primary home buyers a like. I have had multiple mortgage brokers e-mailing me over the last few days just going crazy about home buyer rates. In fact I have been told owner occupied loans will drop to around the 4.5% mark in the very new future. 4.5%? Are you kidding me? That means the home buyer who was stuck looking in the $170,000 range a month ago can now bump him or her self up to around the $200,000 range! Pretty sweet. While rates are not quite as exciting for investment loans, the deals are! I just did a short sale in a high end PUD in Liberty Lake WA. Property value was around $475,000-$500,00 even in this market. The two notes on it totaled $475,000. We closed it this morning at $345,000. Home is in perfect shape, needs no work. You should see the smile on the end buyers face:) My fellow investors, foreclosures is just flat where it is at right now. The banks don't want anymore properties. Their portfolios are chalk full. Short sales is a very profitable game right now. Ideally you take these deals down with cash buyers, but we are buying them with mortgages right now! The residential window of opportunity is open. Yes it will stay open through 2009 and probably even leak into 2010 a little bit. But with the rates and the deals, inventories are going to drop! The window will shut. Did you ever here anyone in 2005 say "boy I wish I would have bought some properties 10 years ago"? Yeah me too, and guess what? It's time. A 3-5 year hold or maybe even a little longer is looking really good right now. So what will 2009 bring for real estate investors? The rest of the residential opportunity and the start of commercial real estate market drops and foreclosures! You heard it here. The way the real estate market cycles, commercial is the next melt down. In fact it is already starting. Will it be as bad as the housing debacle? No. Not a major sub prime lending market for commercial. However, there were sub prime commercial loans made. Loans that had a very high LTV (loan to Value) as well. Also, even though most commercial loans are amortized over 20-30 years, they have short balloons on them. Typically 5 years. Well if the banks are not doing a lot of big loans, and retail and office buildings are seeing higher vacancy rates, guess what? Yep, default or motivated sellers. As unemployment hits it's peak and companies go out of business in the next 6 months, their housing needs will change as well. And the cycle goes on. So the moral of the blog? Get up, get out and get investing. Help off set all that money you lost in the stock market. Build a real estate portfolio that will bring you cash flow! Cash flow is king and it will set you free. I am currently putting together a couple multi-family commercial real estate investments. If you are interested in qualifying as one of our investors send me an e-mail and I will send you out our qualification questionnaire. If you need to build some "chunker" capital as David Lindhal would say (chunks of capital to invest later in bigger projects) foreclosures are a great place to start. Give me a call and I will help you get started. Happy Holidays!
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