by Donna Robinson, TREA Director - www.TheRealEstateArena.com

I often get email from investors asking me how they can tell which
real estate investing strategy is ideal in their city.  From the
perspective of a new investor it can often be difficult to decide
what particular strategy you should use in a given area.

There are two essential ways to break down a real estate market for
residential real estate investing.  One is geographically and the
other is demographically.  

In the case of Geographics let's say we have an investor who lives
in Cobb County, GA and he or she only wants to buy and sell
properties in Cobb County. Since this investor has chosen to limit
themselves to a specific geographic location, they will be limited
to the deals (i.e. Strategies) that they find most readily
available in Cobb County.   

For example, if you are in a suburban area that has lots of new
construction, you may find more retailing opportunities to owner
occupants. You will also find some rentals and virtually nothing
suitable for Wholesaling because everything is too new.  And, the
majority of properties in new areas have very little equity. Short
Sales are a primary way to create equity in newer markets right now,
due to foreclosures. Homeowners who are facing foreclosure are
prime targets for equity creation through short sales.

If you are in an older area such as inside a major city, where
there are thousands of older properties and many fixer uppers, you
are much more likely to find wholesale, rehabs and rental property
deals but relatively little new construction. Some of these same
areas are also filled with bank owned REO's that may represent
excellent opportunities for buyers with cash.

So when it comes to choosing a strategy, your choice will be
dictated by the situation. Is there a lot of equity to work with?
Perhaps wholesaling is the best choice. Is there very little equity
to work with? And it's a pre-foreclosure too? Then a short sale might
be the only way to make the deal work.

On the other hand many investors attend a seminar on a particular
strategy, then try to find a house that fits that strategy.  
For example if you want to be a real estate wholesaler, you have to
go find neighborhoods where the wholesale deals can be found.

This is what most professional wholesalers will do. They don't
limit themselves to a small geographic area. They travel all over
their area in order to find all the potential wholesale deals that
they reasonably can. They may limit their territory somewhat, but
generally they will cover a wide geographic area to find only the
wholesale deals.  

Their focus will be on contacting owners of older properties that
are abandoned, or need lots of repairs. This is because these
properties generally represent the best opportunity for lots of
equity and a flexible seller.

If you are a wholesaler you don't want to waste your time
contacting owners of 2 year-old houses with no equity.

Wholesalers who do this are using the demographic method. They are
not looking in a particular location, they are looking for a
particular type of seller.   

Demographic prospecting means using more of a mass marketing
technique, and targeting preforeclosures, health issues, job
transfers, probate, divorce, and the whole range of life related
events that can lead a person to become a motivated seller.

It is more common among professional investors to search for deals
demographically rather than limit themselves to specific geographic
locations.  However this means you must have a willingness to drive
sufficient distances to check leads. I personally have driven more
than 200 miles in a single day, while viewing as many as 12
properties.  At that point I was specifically looking for wholesale
opportunities so I had to go where those opportunities were. With
gas prices at all time highs, going where the deals are requires
careful research to avoid wasting time and money.

Had I wanted to stay close to home base,  which is a newer area, with
lots of houses built in the past few years, I would only pursue
strategies that work with pretty houses, such as lease options,
subject-to or buy and hold, because my geographic area is newer and
therefore it contains very few wholesaling opportunities.  

It can take you some time to get a feel for the types of deals that
are most likely to be found in your area.  If you are in an older
area mostly built prior to 1970, then chances are very good that
you would find more wholesaling opportunities.  

If you live in a new area where most of the construction is less
than 10 years old you would find more opportunities with less
equity.

Retailing to owner occupants on a Lease with Option to Buy, is my
personal favorite strategy in suburban neighborhoods that are
predominately owner occupied.  You can make that deal work at 80%
LTV, instead of the 65% LTV you need for wholesaling.

So, one key to determining what strategy to use in what area is to
look at the age and condition of the properties in that area and
make offers that work for those properties.

In larger metropolitan areas, the outlying suburbs are much more
likely to be ideal for retailing, or buy and hold strategies.  The
in-town neighborhoods in the older parts of the inner city are
better suited to strategies like wholesaling, because older houses
tend to have more equity and need repairs.

Newer houses usually have less equity and therefore are better
candidates for creative cash flow strategies, like "lease with
option to buy", or "subject-to the existing mortgage".

Creative cash flow strategies may require less equity where
Wholesaling strategies will require more equity in order for the
numbers to work.

In todays market, with foreclosures at an all time high, many
investors are using short sales to create equity where none exists.
REO's are also a great source for discounted buying opportunities,
due to the high amount of inventory banks currently have available
for sale. Where over-supply exists, banks will be forced to cut
deals until demand catches up. That probably won't happen in many
hard-hit markets until 2009. In this market many deals are "made"
not "found", by savvy short sale negotiators.

Any strategy only makes sense if the numbers work. Regardless of
where you are located, and whether your market is "hot" or "cold",
the bottom line is -- what will cost you?  and, Can you sell it or
rent it for more than it will cost? ***

The Real Estate Arena is a unique web-based company that provides
investor education and business tools for real estate investors and
the professionals who work with them.  

Check us out Today! Click The Link Below:
 
https://www.therealestatearena.com/regl.aspx?i=treablog

by Donna Robinson, TREA Director

Today we live in what is known as the information age. And indeed, it is easier than ever to access information on virtually any subject. There are more seminars, more books, more lectures, more videos. Whatever the topic is, there is information out there that you can access. And there is no question that more people are more knowledgable than ever before.

But have you ever thought about the fact that having knowledge does not automatically mean that you have the wisdom to use that knowledge proper  

Consider the knowledge of the atomic bomb.

The scientists had the information and knowledge necessary to create it, and make it work, but in the process they created the potential for mankind to destroy itself.   

It is one thing to have knowledge, it is another thing entirely to use that knowledge to achieve the best possible results. Knowledge may be power, but wisdom is the power to use knowledge wisely to insure that the result desired is the result actually achieved.

 

Real estate investing is not quite as big an issue as the atomic bomb, but the same dilemma applies in both cases.

 

Can you use the knowledge you possess about real estate to establish financial independence for yourself and your family? Or will you use your knowledge of real estate to put yourself into foreclosure and possibly bankruptcy?

 

Today's high foreclosure rates, mortgage company business failures, mortgage securities losses, and much of the recent stock market losses can all be traced back to the same root cause - knowledge without wisdom.

 

There are millions of home buyers out there who made poor buying and financing decisions. There are tens of thousands of mortgage originators out of work today because of bad lending decisions, there are banks and investors all over the world losing billions of dollars because of bad investing decisions.

 

All of these groups posessed knowledge concerning what they were doing. But most of this housing market melt-down would not have ocurred if their knowledge had been tempered by wisdom.

 

Wisdom goes beyond the basic knowledge that occupies our minds, and asks "Does this decision really make good sense?" "If I do this particular thing, what will be the real outcome?"

 

Our decisions cannot be viewed strictly through the lens of our head knowledge. Decisions, especially big ones, like buying houses or investing money into a real estate development are decisions that must be made not just by knowledge of the situation, but through the filter of wisdom.

 

Wisdom includes several key items that stand uniquely alone in their ability to help us make better personal and business decisions.

 

If we take the time to be "wise" we will consider our decisions in light of certain specific things that make up what we refer to as "wisdom".

 

First is "Truth". The ability to see the truth for what it really is. The truth is the truth, regardless of what you believe is true.

 

Most buyers would never have signed for sub-prime mortgages unless they believed that they would be able to make those payments. But their beliefs did not line up with the real truth. Their decision was emotional and was a rationalization, not a gut-level assessment of the true financial situation that would result from their decision.

 

The real truth was that most buyers simply would not be able to make those payments after they escalated to their full principal and interest amount two years after the mortgage was signed. The buyer had knowledge that the mortgage payment would go up, but heck, that was two years away. Many simply did not consider the "truth" about their personal financial situation.

 

It was easy to believe that the higher payments would not be a problem when the time came. But alas, the belief did not line up with what the actual truth was. Now the truth is, millions of buyers can't make those payments. And for them, it will be equally true to state that their finances and credit will be ruined for a long, long time.

 

The first step in making right investing decisions with the benefit of knowledge AND wisdom is to apply the "truth" test to the decision before you commit to anything.

 

We can only be effective and profitable investors if we view our investing decisions through the clear lens of truth, and not just let our emotions rule our actions.

 

We must be willing to set aside our emotions and examine our decisions carefully. Once a commitment is made, especially where a real estate investment is involved, there is usually no going back.

 

Take the time to examine your business and personal decisions to see what the "truth" really is, and whether this decision is truly likely to provide the results you want to achieve. Only then can you make wise decisions that will allow you to grow and prosper for a lifetime. ***

 

This is an example of the kind of professional advice and information available to members of The Real Estate Arena. TREA offers quality professional level education on real estate investing, with the emphasis on professional methods and business strategies. This information is provided by experienced real estate professionals who understand todays market and work full time in the real estate industry. TREA was created for real estate investors and the professionals who serve them.
Join us today at https://www.therealestatearena.com/regl.aspx?i=blog

When I wrote "ARM Freeze Offers Solution To All World Problems",
and "letting the chips fall where they may". I received many cheers
for voicing the opinions of those who agreed with me. (See TREA
Blog for the full Article dated January 2008)

The point of that article was that people learn best by being made
to deal with their mistakes, instead of having the government play
the role of "baby-daddy" to come along and "save" us every time we
start whining. Where the housing crisis is concerned, at the home
owners level, most people did "make their bed", and now they are
having to "lay in it".

I have consulted with and counseled dozens of individuals over the
past few years who are/were in trouble over bad financial decisions
involving personal homes or investing in houses using questionable
financing tactics. I know from direct personal experience that the
housing crisis ultimately boils down to personal responsibility and
common sense decision making. But those who now find themselves in
this dilemma demand a quick fix, instead of paying the price for
and learning from their mistakes. They want government to bail them
out, or the bank to bail them out, but few are really interested in
learning the lessons of their mistakes so that they won't be
repeated.

The comments I wrote in that article generated some interesting
responses from readers who were offended at the idea of learning
from mistakes and dealing with the consequences of their actions.
One email said that I didn't have to care about the "little people"
because "Millionaires like me" can sit around in our wonderful
world criticizing others because we have nothing better to do and
we don't understand what they are going through.

I find such assumptions rather interesting. Actually, I am not a
millionaire at all. I work for a living just like most people do.
Heck, as far as I know, most millionaires work harder than most
average people. I do have friends that are wealthy, but they are
among the hardest working people that I know. You don't get rich
sitting around on your "assets" all day.

But the bigger point I want to make here is that my story is very
similar to those of the people who are now going through financial
hardships in this housing crisis.

Due to events beyond my control I endured a total financial
melt-down, and stripped of virtually everything I owned, and wound
up almost homeless. And then began the process of rebuilding my
life and my business activities. A process that is well under way
today, but has taken years to restore what was lost.

In November of 2000, my husband and I were regular working folks.
He had a good paying job, and I had a budding career as a real
estate agent and investor. Then that Monday after Thanksgiving
weekend, my husband came home from work very ill, with what
appeared to be the worst case of the flu that I had ever seen. He
was so sick he couldn't even talk. He went up to bed and slept for
3 days before he even spoke to me.

To make a very long story short, we soon discovered over a period
of weeks that he was suffering not from the flu, but from liver
failure, brought on by Hepatitis C. We had known that he had Hep C
antibodies, but up to that point, he had not suffered any real
symptoms. Then that fateful day, he went over the edge, and
suddenly he was clinging to life by a thread. The doctors said he
needed a liver transplant, and gave him maybe a year to survive in
that condition.

Little did I know that it would become a 3 and 1/2 year ordeal that
would eventually strip us of all of our personal assets, our real
property and leave us virtually homeless, living in a camper at a
campground.

Within the first 45 days, my husband gained 100 pounds of fluid in
his body. Fluid that was leaking out of his severely damaged liver,
and literally filling up his body like a plastic bag full of water.
He swelled from a size 36 to a size 48 in 5 weeks. He could not get
up, sit down or get dressed without assistance. He could not eat
without getting sick. I had to eliminate all the salt, sugar and
preservatives from our diet, because he could only eat natural,
unprocessed foods.

Then as if that were not enough, he suddenly developed a condition
known as "Hepatic Encephalopathy" which is a fancy term that means
his blood had too much ammonia in it, due to poor liver function.
This would bring on episodes of "instant alzheimers" in which he
had no idea where he was or what he was doing. During these
episodes, which would last as long as two or three days, he would
not even know to get dressed, and was basically nothing more than a
300 pound toddler, who had to be watched constantly. He started a
fire in the kitchen one day and almost burned the house down. He
required constant supervision. And in all of this, neither one of
us was able to work a job, and our income had disappeared.

Needless to say, our lives were falling apart. We were selling
personal property and assets just to keep a roof over our heads,
generating medical bills for thousands of dollars, and within less
than one year we went from a thriving middle class household to one
that was on the brink of total financial and physical disaster.

Eventually we had sold everything we had left of any real value,
and we moved into a camper to cut our living expenses as much as
possible. It seemed that there was no way out, and my husbands
prospects for a liver transplant seemed to be slim to none. Just
getting on the transplant list was a major challenge, with many
hoops to jump through, and then, even if you made the transplant
list, the wait for an actual transplant could take more years.
Years that my husband did not have to wait. It seemed like the
situation was hopeless.

During this time, I learned first hand about dealing with financial
and physical trials in a way that I could not have imagined
previously. I still had to find a way to make an income, so that we
could afford to even live in a camper. We had no telephone line or
cable access, so I had no internet connection. When my husband
would go to the hospital to see a doctor, or on one of the many
occasions that he was admitted during his illness, I would take my
laptop, virtually the only asset I had left, get on the internet,
and try to do business.

I was still a real estate investor, only now I had to deal with
being in the "no cash no credit" scenario. Not because I didn't
have good credit, but because I had no documented income. I was a
full time caregiver for my terminally ill husband, and had to find
a way to generate income from a camper at a campground, or a
hospital room.

Even in the midst of these troubles, I tried to focus on doing what
I could to make money in real estate. Through a variety of events,
which I now look back and see were God's divine intervention, I was
contacted by an investment group that was buying houses. They
invited me to come to work with them, helping them locate
properties that they could buy, and would pay me a commission for
those deals. They had no idea at the time that I was virtually
broke and living in a camper with a terminally ill husband.

I went to work with them immediately. Real estate is a great
industry because it allows for flexibility in your schedule and can
be done to some extent from anywhere. And that was what I needed...An
opportunity that could permit me to make lots of money while not
going to an office, plus working all hours of the day or night, as
needed.

 I jumped on every opportunity afforded me at this investment
company, and slowly, over a period of months, I started to make
decent money. Eventually I got a pipeline going, and closed several
deals in a short period of time. This allowed us to finally move
out of the camper and back into a house. But my husband was still
terminally ill. By this time he had survived almost 3 years, but
was still not on the transplant list.

I could go on for there were many other events that transpired
during this time, but suffice to say, I have seen my share of
trials, hardships and financial challenges. All during that time,
no one offered us a bail out. I had a few dear friends who helped
out as best they could, but there was no magic bullet and no
instant miracle. But the miracles did come. As we slowly but surely
worked through the financial, personal, and health issues, day by
day, the real miracles did begin to manifest themselves.

In February of 2004, my husband finally made the liver transplant
list. Then, by a miracle that can only be ascribed to God alone, he
received a transplant on April 5th, 2004, just 5 weeks after
getting on the list. 

 It happened to be Easter Week in '04. I can tell you it was like
living through a real resurrection.  He not only survived the
transplant, but he went home only a few days afterward. Today he is
a healthy and restored man, and we are enjoying the fruits of a
marriage that has been transformed and made stronger through those
difficult trials.

And, as a result of the time spent living in the camper, I had a
vision for a new commercial business. At the time, that idea seemed
equally impossible. But through God all things really are possible.
Today that business is known as Marine Depot,
www.MarineDepotUSA.com and is my boat and RV storage business. We
acquired a small facility from a real estate developer. He told me
later that he didn't think I had a snowball's chance in hell, but
he graciously allowed me to acquire control of a commercial
property that was perfect for my business vision.  Today it is a
thriving business that will be expanding in the near future.

And of course, I am still involved in real estate. I don't know
what I would have done during those darkest days had it not been
for my faith in God, and my knowledge of real estate. Prayer and
hard work have been the only "bailout" that we have had.

Looking back on it now, I can honestly say that those trials turned
out to be the best thing that had ever happened to us. They changed
our lives spiritually, made us better decision makers, made us
better financial planners, and made us stronger. It radically
improved our marriage, and our business lives are today better than
ever. No I am not a millionaire yet, but I am on the way to
building a solid financial future. All because we did not have
anyone there to bail us out, and we had to learn to live in faith.
Today that faith influences everything we do, and has not only
restored us, but has made our life better than it was before it all
happened.

So don't despair if you now find yourself in the midst of a tough
trial. In the long run, it could be the best thing that ever
happened to you. It was for me. I am glad that I had to learn to
work through my trials, instead of getting an instant bail out. God
knows what is best for all of us, but we have to be willing to make
ourselves subject to him. The government means well, but they
simply can't do for you what God can do.***

This is an example of the kind of professional advice and information available to members of The Real Estate Arena. TREA offers quality professional level education on real estate investing, with the emphasis on professional methods and business strategies. This information is provided by experienced real estate professionals who understand todays market and work full time in the real estate industry. TREA was created for real estate investors and the professionals who serve them.
Join us today at https://www.therealestatearena.com/regl.aspx?i=blog

The Real Estate Arena is truly a one-of-a-kind opportunity to increase your marketing reach while saving a fortune on marketing expenses.

Agents and brokers know these challenges all too well. For years now we have been taught that we have to spend big money on thousands of mail outs each month, which can cost thousands of dollars to get going and keep going. Not to mention the time involved in putting these mailings together.

One agent I know generates over a half million dollars in business this way. He mails thousands of letters and postcards each month to a large farm area in the area where he lives. But the problem is, he is spending HALF OF HIS ENTIRE INCOME on these mailings. He also has to deal with paying staff people to get all those mail outs done. This means that this "successful" agent is spending over $250,000 on advertising mail outs each year! Few of us can even afford numbers like that. I'd prefer to keep that money whenever possible.

Investors also face these same issues... The founder of TREA, Peter Vekselman, used to spend tens of thousands of dollars each year on a website which was used to market his properties to potential buyers. And even with all that work and money, they were only reaching a local market.

When you have properties to sell, or you are trying to generate new buyer leads, it can truly cost you a small fortune to market those properties. And even if you have MLS access like all agents and brokers do...the problem is still "How do I make sure that buyers find the MLS, and then how do I make sure that the buyers will actually FIND my listings???

MLS systems are a dime a dozen out there, but there is one important difference. They put properties on a website, just like TREA does, but TREA goes one step further...

TREA has developed an innovative Property Listing System Email program so that our members can enjoy having their TREA property listings sent out all over the U.S. and even the entire WORLD each week!

TREA has the only property listing system that allows you to not only list your properties, but each week the newest listings are sent out to over 80,000 subscribers!

This is truly an innovative way to reach over 80,000 people each week, and unlike the agent I mentioned earlier, it WON"T cost you $250,000 a year! TREA's low monthly membership costs insure that you will be able to market your deals to a national and international marketplace for a tiny fraction of the cost of mailing these out on your own!

And our property listing system is constantly being upgraded to improve the ease of use and the features included. Once inside your listing, any of those 80,000 subscribers can even email that listing to someone else, which facilitates a massive potential for networking and marketing your listings.

The TREA subscriber list literally includes buyers, sellers and people who are involved in real estate across the entire United States, and the world. With subscribers in 48 states, all over Europe, in Africa, the Middle East and Australia, the opportunity to expose your properties is way beyond the average MLS. Plus, The TREA subscriber list is growing at the rate of HUNDREDS per WEEK. We are constantly adding new subscribers who want to receive emails with your properties!

And even better - it's a GREAT way to prospect for buyer leads too! At my office we often get calls from buyers as far away as Europe who are looking for deals in the states.

TREA is always working to build a better system that will allow you to reach a broader market on a shoe-string budget. The system really works for those who work the system.***

To join TREA today, click here and start taking advantage of the world-class marketing opportunities available to you as a TREA member!

Hard money used to be synonymous with equity based lending. Equity based lending meant that the lender’s underwriting decision was influenced primarily on the value in the property and less on the borrower.

Today, all lenders are looking at all aspects of a financing proposal. Lenders now examine the property and the borrower. This includes hard money lenders.

Hard money lending is defined as short term higher interest rate financing that lends money to a prospective borrower to purchase and fix-up residential and/or commercial property. Hard money lending fills a need for fast financing to acquire and renovate properties that traditional banks can’t provide. To use an analogy, “once the ugly duckling is fixed up and ready for the prom” then the property is ready for permanent financing to a buyer or a refinance for rental purposes. You have to get from A to C through B! Hard money is “B” and is fastest way to buy a property that needs rehabbing.

Hard money is widely utilized by investors to facilitate their ability to get properties ready for permanent financing since permanent financing requires that a property be “fixed up” to be eligible.

The advantages:

• Usually faster than a bank. Most distressed deals require a short closing time. Underwriting decisions are usually made quicker than a bank’s decision.
• Generally less cash equity required than a traditional bank. This facilitates the property to become eligible for permanent financing.
• Usually more “common sense” underwriting.
• Specialization on the part of the lender.

How can hard money help you? Hard money can be the vehicle to allow you to take advantage of the real estate market today!

There are three facts of the real estate market today:

1. There are better (cheaper) deals to be bought. Prices are down--in some areas a discount of 50% or more.
2. You need to be a more qualified borrower than what was the norm a couple of years ago. Lenders expect higher FICO scores, income, and cash reserves. You should expect to supply full documentation to all lenders to include a fully filled out application, credit report (if you have), 2 years tax returns, and probably 3 months bank statements.
3. The real estate market valuations will return to their previous highs and then continue to rise. They always do. Remember, money is made by buying when everyone is selling and selling when everyone else buying. Housing is a basic need and home ownership is as a part of the American dream. Projections that I have heard from numerous government and private sector sources forecast a 2-3 year window.

So, the opportunity is here and now to buy low and sell high!

A recent example of how the hard money financing process works for the borrower is Herb. Herb is a 33-year-old borrower that came to me through another investor that we recently assisted. Herb borrowed $113k to buy and fix-up a property here in Atlanta. He paid $78,000 for the property and escrowed $32,000 for repairs. He contributed $7,000 towards the deal. The property closed in three weeks and the after-repair-value appraisal came in at $168,000. Herb is almost finished with the rehab and is mulling a retail sale (yes, buyers are still out there). He is also considering renting and waiting for an even higher value in a few years. Either way he wins! He is ready for his next deal.

You can make money in real estate as sure now as a few years ago. If a property only returns to its previous value in 3-5 years and you bought it at 50% of its original value then you would double your money. The additional plus is that, if rented, the tenant pays the note and you would pay (a reduced) long term capital gains when you sell.

A mindset that some potential real estate investors have is that they are not sure that the market has bottomed. They want to “time” the market and buy at the absolute bottom. Let me tell you, you can’t. First of all, there is no date and time that this happens. Secondly, different areas experience different recovery rates. Third, when the media announces a turn around we will probably be well into it.

According to the National Bureau of Economic Research, stimulus plans are an accurate indicator of the bottom of a market. Note that the eight recessions we’ve had since 1948 have all ended just about the time legislation was enacted to counter the effects of the downturn. As you may be aware, President Bush signed the 2008 Economic Stimulus Plan. There is no substitute for due diligence and knowledge. The fact that you are subscribing to the Real Estate Arena reflects that you are a thoughtful and savvy investor. Digging for opportunity means taking the time to know the local market by visiting many potential purchases to gain a first hand insight into value. However, if you couple due diligence with knowledge, you are insuring your success.

I am a hard money broker that constantly looks for new sources of rehab financing. We have programs from three months to 25 years. My challenge is to keep up with the evolution (or revolution!) in the real estate market. Lenders come and lenders go and all go through belt tightening and belt loosening. While I utilize both national and local lenders in my home office location of Atlanta, Georgia, I (almost) exclusively deal with national lenders in all other states. The reason for using these national lenders is because of my familiarity and confidence in their ability to perform.

My name is Bob MacDonald of the MacDonald Group and I have 30+ years real estate experience. I look forward to helping you with your financing needs. We can do a prequalification if you desire to get ready to “pull the trigger”, but don’t have a specific property in mind. Call or e-mail for application and details. I can be reached at 404-454-6856 or bobmacdonald@mindspring.com.

 Lets congratulate the Bush administration, the Federal Reserve and the democrat controlled congress. It looks like they have come up with a  breakthrough approach to problem solving that may finally end the worlds problems once and for all.

 

The breakthrough came with the idea to freeze ARM rates so that borrowers will not be subjected to the terms of the agreements that they voluntarily signed. Combine that innovative thinking with the ongoing efforts to save wall street from its own irresponsible actions. It seems that the U.S. government and the federal reserve will finally succeed in realizing a foundational tenet of liberal politics - change the laws and the way financial markets work so that we can eliminate personal responsibility and individual accountability once and for all.

 

Just ignore the fact that the "full faith and credit" of the United States government will be undermined and perhaps destroyed. Never mind that every individual involved here has made decisions that they knew had risk and potential consequences.

 

Lets just ignore the terms of existing mortgage loans, let all borrowers in default off the hook, pass some new laws, and expand FHA so that the american taxpayer can be required to pick up the tab for a new round of subprime lending under the guise of "government guaranteed loans". That way we can avoid a financial meltdown, avoid consequences of our collective actions, and continue to expand this madness even further by making the same stupid financial decisions in the future at taxpayer expense. 

 

But in pondering the situation in which we now find ourselves, I realized that in fact this line of reasoning may actually be used to save the world and solve all of the worlds major problems.

 

If we can simply decide to alter the way financial markets operate, change existing contractual commitments in the middle of the game, and in the process ignore the long term consequences of such ill advised actions, then lets just take this line of reasoning one step further and solve all of the worlds problems.

 

As soon as the U.S. government gets finished solving the world credit crisis, which may take another week or two, lets move on to some other major issues...

 

Global warming - How about a law that stops global warming by mandating that all future carbon emissions should fall to the ground and wash away with the next good rain storm?

 

Eliminate the threat of world pandemics like Bird Flu - How about a law that says that all birds who are sneezing or have a "runny beak" shall be required to stay at least 1000 feet away from any humans?

 

World Hunger - While we're at it, lets make sure that all of the oppressive regimes in the "third world" are required to feed all of their citizens until they get at least as fat as the average citizen of "first world" nations.

 

I know what you are thinking...these are obviously silly ideas that can't be enforced by passing laws...I rest my case.

 

Only one thing can solve the present financial crisis we find ourselves in, and that is to let the chips fall where they may. Let the free markets do their thing, let the accountability fall where it lies...at the feet of those who have made irresponsible financial decisions that they must be held accountable for. Let all involved learn their lessons, and learn that decisions have consequences, and that risk and reward go hand in hand.

 

We will never solve problems by ignoring them, failing to account for them or by trying to avoid the consequences of our actions. Borrowers who borrowed more than they could afford should learn that there is a price to be paid for such irresponsibility. Lenders who make loans to people who can't afford those loans need to understand that there are consequences for such irresponsible business practices. Investors seeking high returns need to understand that high risk follows high reward. All investments look good on paper, but reality can be a very different thing.

 

Until we are willing to confront our own financial irresponsibility by facing the consequences of our own personal decisions all the way down the financial "food chain", we will never reach a point of true financial stability again. America is already at a crisis point, and a potential turning point in our history that theatens to undermine our national stability and could well be our undoing in the near future. Only a return to integrity and personal accountability will stabilize the system and restore the "full faith and credit" of the United States of America.

 

Any financial system is only as good as the integrity and commitment of the individuals who are involved in it. When it's all said and done, it all boils down the the actions and decisions of millions of individuals. There is a reason why home buyers were once required to make substantial downpayments. And there is a reason why financial managers are expected to follow common sense rules of finance and investment.

 

Oh - I just thought of one more law we need to pass...let's recognize that the government is not our "baby-daddy". We don't need more "child support" to be paid by already over-burdened american taxpayers. Let's pass a law that says that all members of the U.S. congress, and all state and local municipalities must manage taxpayer funds with sound financial principles so that the american taxpayers actually realize a solid return on their investment...Yeah, I know, this really IS the most ridiculous idea of all, but you can't blame me for daydreaming. 

 

This is an example of the kind of professional advice and information available to members of The Real Estate Arena. TREA offers quality professional level education on real estate investing, with the emphasis on professional methods and business strategies. This information is provided by experienced real estate professionals who understand todays market and work full time in the real estate industry. TREA was created for real estate investors and the professionals who serve them.
Join us today at https://www.therealestatearena.com/regl.aspx?i=blog

 

 

 

 

 

My current challenge is whether I can buy REOs, HUDs, VA properties and flip them within a few months. The first one I tried (from Wells) had an addendum that I could not sell for more than 20% within 6 months after closing. I walked away from that. I fix and flip in 3 months. Some people say all REOs, HUDs and VA have this problem. Others say only a few. Others say it is unenforceable.
What has been your experience recently with this?

 Lionel

Reply from Donna Robinson:

I have been hearing some rumblings about laws that would limit the selling profits or the time frame in which you sell, etc.
At present this is being done primarily at the lender level, as lenders seek to control and put a damper on high investor profits. They are not ignorant of the fact that investors have been making lots of money at their expense, via short sales, REO's , etc. And they don't like it. Also, you'll note that HUD, VA and FHA are government related. HUD is responsible for handling properties with federal loan programs. Any property with a federal government related loan program can be more difficult to deal with, due to their objective of recovering tax payer funds associated with these properties. However, this trend is also beginning to show up in non-government related loans too.

I understand that a few states are discussing passing laws to limit profits on the sale of investment property (that is not owner occupied).

There are several issues getting thrown into the mix:

HUD, VA, FHA and any other government guaranteed loan programs have been implementing rules regarding seasoning of title since 2004. They are requiring borrowers who are buying a house under a HUD program to buy houses that have been owned by the seller for at least one year. This is primarily first time buyers using low downpayment government insured funding. I have had this problem myself, so it is harder to sell quickly to a first time buyer who is using HUD funding sources. The lender will not allow the borrower to close until seasoning requirements are met. This is not a legal issue, it is just the lenders imposing rules to prevent quick flips to first time buyers using these particular loans.

The other issue is companies like Wells Fargo using addendums to limit your options. This is difficult to enforce I would imagine, but still, as an investor, I would not want to take the chance. I think you did the right thing to walk away. But this particular method is handled individually by each lender, and is primarily affecting REO properties being sold by some lenders.

If states do decide to pass laws limiting profit margins or restricting title seasoning to a minimum number of months, there could be a backlash that they can't predict now, that could affect the housing market as a whole and drive prices down.

The law of unintended consquences could make for a real economic downturn if they make a big effort to drive investors out of the market. They do not realize how much investor activity has been helping drive the economy the past few years. In essence this would be "price fixing" and like all such attempts the result would be bad economically.

Just as with the state of GA a couple of years ago, when some well meaning representative in the state house wrote a law making buyers of mortgage backed securities liable for predatory lending that might have ocurred on a mortgage being sold as a security.

This had the unintended affect of downgrading GA mortgage notes, and for a short time, the funding for mortgages in GA almost collapsed. The law was quickly revised, after Standard and Poors downgraded GA mortgage notes to near junk bond status in response to this liability threat. This would have meant no funding for mortgage notes created in GA, if no outside investors would buy the notes. That is how mortgage money is raised...by investors who buy the mortgages that are created. These are usually investment companies, pension funds, etc. very big buyers spending tens of millions of dollars. Without them, there is no mortgage money to loan out to borrowers.

The law of unintended consequences kicked in here, and came close to damaging the GA economy. Governments can't regulate free markets without causing other bad things to happen. Since they do not understand the economic fundamentals driving the market, they try to fix one problem only to create one that is even worse. They need to stay out of it, but investor related fraud is such an issue that they can't keep their hands off of it. If only they would ask some investors how to fix this problem. It might help them do a better job of regulating an industry that they do not understand.

On the other hand, all investing clubs and "Gurus" should be calling for investors to act with integrity and honesty. If all investors acted with integrity, and if fraud were not so rampant, this would not be happening. They are trying to stop the fraud, but they don't know how to do it without endangering the whole housing market. I believe that real estate seminars are responsible for a lot of this problem, by encouraging and teaching practices that lead to fraud and irresponsibility, which causes most of the stories we hear in the media about little old ladies getting ripped off my some idiot investor. I have dealt with many such incidents. Something does need to be done to stop fraud, but price fixing, profit limitations and title seasoning simply do not address the root problems.

You should continue to shop for houses and make offers, but avoid any addendums as with Wells Fargo, or anyone else. I can assure you that with foreclosures at all time high rates, the banks will be giving them away as they did back in 1989, if investor buyers stop doing business with them due to price fixing or restrictions on profits. Trying to stop investor activity will be a very bad choice for them in the long run, with foreclosure inventories growing daily. Once again it is a fundamental issue...if you are foreclosing at a record rate, you will need to unload them any way you can, or as a bank you could face insolvency. They can't control this like they think they can. Too much tunnel vision and too little understanding of market fundamentals.

 Donna Robinson, TREA Training Director
 

By now everyone is aware that the residential real estate market has gone into a severe slump. The tightening of mortgage qualifying guidelines due to the subprime disaster is having a significant impact on home sales in general. Most national home building companies are reporting serious losses for the third quarter totaling tens of millions of dollars, after posting healthy profits for the same period in 2006. Foreclosures are at historically high levels in most states, and most markets. But as is always the case, the most significant losses affect certain markets more than others.

For example, metro Atlanta, Georgia has suffered through one of the highest rates for mortgage fraud. In addition Atlanta is also a market that has seen tremendous investor activity inside I-285, know locally as the perimeter highway. Many neighborhoods inside the city of Atlanta have been so over worked by investors that the supply of available homes and rental properties is drastically exceeding the demand. In these specific areas, rent rates have dropped approximately 25% since 1999, and vacancy rates in some areas are leading to a snowballing foreclosure rate. In these specific neighborhoods, I expect prices to be off more than 50% from the 2005 peak, by the time we reach bottom. In general this would apply to any major market where these same characteristics exist. These areas will take the biggest hit in values. Smart cash buyers will pick up some great deals in these areas about nine months from now. Buy prices at 30 or 40 cents on the dollar will probably be common before it's over.

Many investors in these areas are over financed, most commonly with 80/20 sub prime "piggyback" loans, that allowed for no down payment, but 100% financing simply won't cash flow. As a result many investors are "upside down", which has been partially responsible for the rising foreclosure rates. The real damage has been done in the investor markets by over financing and too much emphasis on no money down acquisitions. These types of areas in any major city are probably the hardest hit areas for falling values and lack of buyers. They will continue to suffer declines for months to come, while inventory slowly balances with demand. These are the areas where the bubble truly existed, due to too much speculation and too little demand. As a general rule, anytime you have supply exceeding demand you have a bubble on your hands. For the past ten years, investor activity has grown at the fastest pace ever as more beginners entered the investing game for the first time. Unfortunately, many of them have made poor decisions when buying these properties and the result has been a drastic increase in investor owned foreclosures.

In suburban Atlanta, over supply is also an issue, but there are still willing buyers, and investor speculation has been much more diluted, which means that values and prices are a bit more stable. But in those areas where over supply and buyer qualifying is a problem, sellers will still feel the pinch. Over all the slump in housing has generally cost sellers about 20% to 25% of their value since 2005's market peak. High foreclosure rates in suburban areas will lead to additional value erosion in those areas as they will continue to aggravate the supply / demand problem.

The rule to remember is that demand always drives a local market. In this case we have tightening credit, which is reducing the number of buyers who can buy. Foreclosures are escalating for several reasons. The most common scenarios driving foreclosures right now are, in no particular order, over-supply of inventory, investor over-financing which causes negative cash flow and consumer spending with home equity lines of credit. Many have borrowed too much against their homes, and cannot now cover their payments; graduated payment mortgages whose low payments are now graduating to higher levels, and fraud which usually leads for foreclosure. Builders have over built, and speculators have added about 20% more volume to the supply of homes for sale. All of this taken together is forcing supplies up at a time when demand is falling due to a lack of liquidity in the mortgage market. These factors will combine to keep housing in a slump until demand finally begins to over take the available supply. This will likely take a year in better areas and two or more years in less desirable areas.

The winners will be smart investors who have been waiting for the right time to buy. In my opinion, the best time to buy may still be a few months down the road. January of 2008 might see sales prices in inner city areas approaching their lowest point in over 7 years. In fact, most areas will see the lowest prices in years by early 2008.

Retail buyers - those in the market for a home to live in should also be patient. Foreclosures have also escalated in upper class neighborhoods, and those prices are also off as much as 20%. It is reasonable to assume that properties which sold for $500,000 in 2004 may soon be selling for $400,000 or even less. One major builder in California is planning to discount an inventory of new homes from their original $300K listing price, down to $150K for an auction in the near future. This is only a preview of things to come for home buyers who can get funding. Patience is the key for investors and home buyers. The best is yet to come on the buying side.

If you are on the selling side and you do not have to sell right now, don't. It is not a good time to sell for most home owners in most areas. There are some exceptions, but those are limited to high-demand / low-supply items such as lake front homes in prime locations, prime coastal homes, etc. Again, supply versus demand is always the issue, right down to the individual property level. If your property is highly desirable for some reason, your price will drop less than average, or it may still go up.

The current market is actually the result of lots of factors that have converged to create the present set of circumstances. As always there is a good side to every market. In this case, it is good to be a buyer and bad to be an over financed seller. The key to long term success as a real estate investor is to always use solid financial and investing principles. Over financing is a recipe for disaster. Keep your costs under your income and you will always be on the right side of the market no matter what happens.***

Author Donna Robinson is the Director of The Real Estate Arena, as well as an expert in real estate market analysis. This is an example of the kind of investing information and education that is available to members of TREA. If you want to learn how to be successful in real estate no matter what the markets may do, you should check out The Real Estate Arena at this link: The Real Estate Arena

By Donna Robinson, TREA Director
Member GA Association of Realtors

In todays market, with foreclosures reaching record highs, and many sellers owing more money than their property is even worth, it is time for a strategic change in business strategy.

With a fundamental situation that presents us with literally thousands of properties being "dumped" on the market with each passing month,  and most of those properties having little or no equity, it is getting more difficult to sell any properties for full value.

Listings are sitting on the market for months, and many of those listings on which we have spent valuable time and effort are going into foreclosure,
leaving many agents with less income and no way to sell their listings for what the seller actually owes.

Anyone may negotiate a short sale. You do not have to be licensed to negotiate with a lender or bank. You merely need to follow the specific procedures necessary to complete a successful short sale.

But this situation is creating a need more than ever for agents and brokers to understand how to use short sales to help their sellers sell and their
buyers buy. Save your listing commissions and help homeowners avoid foreclosure.

Short Sale means getting the lender to sell a property for a discount well below the amount the owner owes for the property. With the growing number of foreclosures, more and more lenders are having to resort to short sales in order to move inventory that cannot be sold for enough to cover the payoff.

We are seeing more short sales and hearing incredible stories from around the US about short sales in some areas where the lenders are discounting properties by as much as 30 to 70 percent! This results in a very profitable deal when done correctly.

Whether you have overpriced listings that aren't selling, investor clients who want the best possible deals, or you are representing aspiring home buyers who want a good buy in a personal residence, short sales could be your ticket to more production in a slowing market that still has a long way to fall before things start to improve.

But short sales require a certain amount of expertise, not to mention specific forms, letters and procedures. You have to know what you are doing. But if you do, you can create opportunities for your clients by getting discounts amounting to tens of thousands of dollars, that can turn "no sale" into a great opportunity for your clients.

If you are also an investor you need to know how to use short sales strategy to add bigger equity spreads to your own investments. Buying at a discount will help insure strong positive cash flow on rentals, with higher equity spreads. It's the "safe" way to go in an eroding market.

But the trick is, how to get this crucial information without spending $1000 or more on a seminar or course? They are out there - anywhere from $250 to more than $1500 for information on what will surely be the hottest buying / selling strategy of 2007-2008

But we at TREA have been working on a very cost effective solution for you. If you are serious about making money in real estate in 2007, you absolutely must know how to execute short sales in a professional manner.

I am currently using this same short sales process to help increase my personal production as an agent to help sell overpriced listings, as well as help my investor buyers find better deals and I am confident short sales can do the same for you too.

There is no need to languish in this market - you must adapt to the changing market conditions with strategies that will work for your clients.
 
I predict that this market will continue to worsen for months to come, making short sales even more necessary than they are now. By 2008 the banks may be desperate for any way out possible.

Because of the obvious need for this strategy, I am very happy to announce that The Real Estate Arena is recommending a new and timely course called "Short Sales Short & Sweet", written by Real Estate Broker, Marie Whitton. Marie is my personal broker. Together we use short sales to increase production for both sellers and buyer clients.

The course is easy to read, and designed to help you get up and running with short sales as quickly as possible. And frankly it is priced UNDER $100 - a "no brainer" for those of us who make our living in real estate.

If you are looking for ways to make more money in a tough real estate market, this could be your ticket.

Short sales help homeowners avoid foreclosure, and it may be the only way to make a particular deal work for an investor or home buyer.  In todays market short sales are a timely and important strategy to have in your toolbox.

Click the link below and discover the benefits of working short sales
and how they can help you add business and income.

http://www.reiuonline.com/shortsales/shortsalesindex1.htm

 

Today is seems that virtually everyone is interested in real estate investing. And why not? Real Estate is one of the few industries that present numerous opportunities for employment and financial independence. It is also one of the few industries where the majority of the participants are self-employed. With that in mind I’d like to outline some of the major opportunities to help you understand how to take advantage of them.

Perhaps the best known position in all of real estate investing is that of "Property Locator". Property Locators, a.k.a “bird-dogs”, or transaction analysts, as I like to call them, are typically unlicensed individuals who begin their investing careers by searching for investment grade deals.

Property Locators typically work for investors or investment companies who need individuals to help them find more investing opportunities. I personally spent several years inside an investment company working as a property locator and have helped train hundreds of locators. This can be an excellent way to break into real estate investing if you are a novice with no experience.

Ideally a property locator will begin their career by working with an investment company. These companies should be in a position to buy the properties. This means that the locator does not have to take any financial risk nor put contracts in their own name. Some companies may charge a fee for their locator training. Legitimate investment companies are interested in making sure that their locators understand what kinds of properties to look for and how to evaluate them properly. Before you sign on with any company, ask to see a list of deals that they have purchased or sold recently. The best companies are those that can buy the deals themselves, and are regular buyers.

For ultimate success as a property locator your objective should be to become proficient at evaluating the profit potential of any property. Locators who are good at identifying profitable deals can earn anywhere from a few thousand to tens of thousands of dollars for finding and identifying the best investment opportunities. But keep in mind that investors are paying for good deals. If you are not good at evaluating deals, you will have trouble getting investors to buy the deals you find.

Property locators do not perform the same functions that an agent may perform on behalf of an investor. Usually when working with locators the investor will negotiate with the seller directly and write their own offers. The locator simply finds the property, does the initial analysis and due diligence and passes the information along to the investor involved. Locators are not performing the same acts that an agent or broker may perform on behalf of a client.

If you are a real estate agent or broker you should also consider adding real estate investors to your client list. Traditionally, many brokers have discouraged their agents from working with investors. But the fact is that investors buy and sell more real estate than any other individual or company. I am also a licensed real estate agent in the state of Georgia. I do handle residential sales but working with real estate investors is the cornerstone of my business.

Working the investment side of the real estate industry is a great way for agents and brokers to expand their client base and their income potential. The key here for agents and brokers is to get proper training with regard to evaluating investment property and its profit potential.

Though I have years of experience as a licensed real estate agent, my understanding of the investment side of the business did not come from the experience gained as an agent working in the residential market. It was the result of spending several years working with investment companies and doing my own deals as an investor.

Because of this combination of both agent experience and education as well as investment company experience I have been able to put the two together to develop a strong ability to analyze investment-grade real estate and make reasonable profit projections. This gives me the ability to recognize the investment potential in any property, and structure offers that, if accepted, will be profitable for my investor clients.

Agents and brokers can make excellent property locators for two big reasons. No. 1 they have access to more listing and property information and secondly they are in a position to work with banks and lenders to negotiate short sales and work specifically with properties listed on the MLS.

While you do not have to be licensed to negotiate a short sale it is certainly an advantage. Licensees are also in a position to generate investment grade business by listing REO's, pre-foreclosures, and helping with short sales. Most importantly they have the ability to network with other brokers and do referral business across the United States, thereby making themselves available to a national market place.

Using licensed agents as property locators is an advantage to investors because the seller usually pays the agent's commission. This means that investor buyers have the opportunity to utilize the services of a knowledgeable agent at no cost to them. Many unlicensed investors and investment companies work with both licensed agents and unlicensed property locators.

Property locators who are not licensed may need to work with agents on occasion in order to facilitate transactions for listed properties. In these cases the agent is paid by the seller and the locator is paid by their investor buyer. This way everything is kept legal since agents cannot pay commissions or referral fees to unlicensed property locators.

As the training director for The Real Estate Arena, I work with locators, agents, brokers and investors from all across the U.S. TREA is a web based real estate investing community that provides a wide range of opportunities including a listing service to promote your deals, training and support, business building tools such as web logs, and personal websites, access to search links for listed and non-listed properties, including FSBO’s, REO's, Foreclosures, property evaluation tools and much more. TREA members have the advantage of being able to market themselves, their deals and their business services to a national market place of like-minded real estate enthusiasts.

Our national membership includes property locators, agents, brokers, investors, mortgage brokers, loan originators, appraisers and others associated with the world of real estate and real estate investing. For a small monthly fee, members get access to top quality investor training, including live coaching calls each and every week, and members from all over the nation are able to network with each other. Through the power of the web, we are able to create business, networking, and investment opportunities that were not even possible just a few short years ago.

Agents and brokers will find opportunities to participate in larger investment grade deals that can potentially generate hundreds of thousands of dollars in commissions. Best of all, the content is moderated, and screened for quality. To discover how you can fit into the world of real estate investing on a national level go to www.TheRealEstateArena.com

Donna Robinson is a licensed real estate agent in Georgia. She handles real estate transactions for home owners, and investors, as well as commercial real estate transactions and private funding for development. She is the Training Director for The Real Estate Arena, and works to insure that TREA provides high quality content for it’s members.

Well, the new FHA expansion bill appears to be rocketing through congress with virtually no opposition.

I got my email from NAR last week, (several times in fact) asking me to make sure that I contacted my congressional representatives to request passage of this bill.   

NAHB is in strong support of the measure, saying that it will help stablize the housing market. In fact, if you read the mainstream media, you would get the impression that this bill has no opposition anywhere. You may even think that this idea will be beneficial for you if you are an agent or broker who is suffering under the strain of the present slump in retail sales.

However, there is a HUGE downside to this bill. The problem is not in wanting to help people and stabilize the largest single asset class in America. That is a noble goal, but the means to achieve the end simply do not add up. In my opinion, and that of most other real estate market analysts,  this expansion of FHA will not solve the subprime problem. It will simply move it from the banks and professional capital investors and instead place it squarely in the laps of the American taxpayers, as subprime lending practices move from the world of capital investors to the world of government guaranteed loans.

  Most folks don't realize what "government guaranteed loans" actually are.   

Under FHA the taxpayer actually guarantees the mortgage payoff. When a home that has an FHA loan on it gets foreclosed on, the lender does not lose their money, as happened with the recent subprime losses that wiped out some investors and investment companies. When an FHA loan gets foreclosed, the government actually reimburses the lender for the balance of the mortgage note. Meaning - the lender gets paid off by Uncle Sam and HUD becomes the proud owner of a foreclosed home.   

Ever wonder where all those HUD houses come from? They are homes with government guaranteed loans that were foreclosed. Now Uncle Sam is the proud owner. Problem is, Uncle Sam is using taxpayer dollars to provide these guarantees. Then HUD tries to resell the home and recover it's expenses. When HUD homes sell at a loss, it is you and I that foot the bill. The real loser in this scenario is the same hard working American taxpayer that the government claims to be helping.   

Expanding FHA to allow for higher Loan To Value limits, "no downpayment" loans, and adding easier condo financing is tantamount to moving subprime lending from the little known corners of capital investing, and secondary mortgage markets, into the living rooms and pocket books of middle America.   

"No Downpayment" and "High LTV Loan Amounts" are considered "subprime" for a reason. That reason is their tendency to produce much higher default rates. Well duh...that is exactly what has happened to subprime. Higher default rates caused by relaxed lending standards have nearly led to a world economic crisis. It makes absolutely no sense to me to now decide to throw good money after bad. Especially when the taxpayers are the ultimate source for these loan guarantees. If you've ever wanted to be like Elvis, and buy houses for people you've never even met, here's your chance. But at least Elvis did it with his own money, not someone elses.

Everyone in Washington wants to be seen as doing something to "fix" this problem. "Broadening" and in effect lowering FHA's lending standards will fix things alright. In my opinion, this idea is a violation of every common sense rule for smart investing. I predict that this program will only move FHA into the subprime lending business, and set the US (and the US housing market) up for an even bigger financial disaster in the future.

Below is a list of the highlights of the new FHA expansion act. Where would the US economy be today if these items had already been in place prior to 2005? What if they had been enacted prior to the collapse of the current housing market? With condos overbuilt in many cities, and values falling like rocks, and a few million more properties with no equity and 40 year payoffs where the heck would the US economy be right now?  

The only reason we survived the current storm is the fact that the Federal Reserve injected money into the system to help keep it afloat. We came very close to a 1929 style crisis. It was narrowly averted. The average taxpayer does not realize that next time, it will be their money that will be paying back these loans. It really makes me wonder what our government leaders are thinking...no wait - I know what they are thinking..."get me reelected", that's what they are thinking.   

Meanwhile, next time you pass a HUD house, or show one to a prospective buyer, take pride in knowing that you own a small piece of it. And now, you'll get the chance to buy even more...say, doesn't that make us all real estate moguls? I'll bet you didn't even know you owned so many houses already!  

FHA Expansion Act Includes The Following Items:   

1- There won’t be a minimum 3% down payment which

means you need less cash at closing.  

2- New 40-year loans will lower your monthly payment.  

3- The FHA loan amounts can be higher which

means more homes would qualify for financing.   

4- Condos will be more easily insured with an FHA loan.  

5- You don’t have to have perfect credit.  

6- More seniors will be able to get reverse mortgages.  

None of the measures being added to the expansion act has any basis in common sense financial principles. Only a return to solid fundamental financial principles will save our housing market and stabilize it over the long run. We have to realize that there are no quick fixes for poor financial management. It's high time that our leaders realized that you cannot solve financial problems by creating more debt. You may disguise the problem, but you won't get rid of it. But this time, they have me really worried. This bill is cleverly disguised as help for homeowners, but in reality it is you and I who are behind the mask. ***

 

The Real Estate Arena promotes real estate investing with common sense and financial responsibility.

Real Estate Arena members enjoy information, education and tools for real estate investors that emphasize profit and responsibility. To Join TREA today, click here.

The Wholesale Real Estate business has been around as long as

people have bought and sold real estate.  In good times and in bad,

there is always money to be made buying real estate at a discount then

selling it for a profit.

 

A true Real Estate Wholesaler purchases real estate as low as

possible and resells it at a higher price to other investors. 

Typically, the investors that purchase from a wholesaler are in either the

retail or rental business. Usually This means that once the investor

purchases the property from the wholesaler, they will make necessary improvements

to the property and then either rent it out, or sell to those who wish to buy a home to live in.

(Retailing - selling for full price to owner occupant)

 

Most Wholesale Investment companies hire what's known as a Property

Locator to identify, locate, evaluate, and secure discounted real estate.

Once the Property Locator secures a deal that meets the investors buying

criteria, the investor quickly purchases and resells the property for

more than what he/she paid.

 

Real estate agents and brokers who work with investor buyers are

essentially licensed property locators. A property locator who does research for a

private investor buyer does not have to be licensed.

 

While licensed agents and brokers can prepare contracts, negotiate on behalf

of their investor client, and provide other expert services, the

unlicensed property locator is not representing an investor or writing offers

for the investor.

 

They are merely researching property data, evaluating the property for its

profit potential, then passing the information along to the buyer, who will make their own decision

about what to offer, and will usually write their own offer.

 

Appraisers, attorneys, inspectors, contractors and other real estate

support services professionals may also locate and refer properties to

investors from time to time, as a result of their normal business activities. 

 

Investment companies often employ unlicensed property locators to

help them find and research more potential deals. When an unlicensed property

locator works for an investment company, the company provides the funding

and negotiates the deals found by their locators.

 

Agents and brokers also locate properties for investor clients.

Real Estate Arena members include both licensed and unlicensed individuals.

The real estate investing business covers a wide range of operations, and

The Real Estate Arena wants to welcome everyone, and help

everyone understand how they can earn income in an industry that

offers a myriad of different opportunities for financial success.

 

When a real estate transaction takes place, commissions are

generally paid in one of two ways. 

The unlicensed Property Locator is paid by the investor buyer to

whom they provided the deal information. Unlicensed locators should agree

with their investor buyer up front, as to whether their fee for locating

a property will be a flat fee, or a percentage of the investors net profit.

 

If the fee is a flat fee to be paid right after closing, the

locator will receive their money faster. If the fee is to be a percentage

of the investors net profit from reselling the property,

the locator will be paid only after the property has been fixed and

resold. This may result in a higher fee, but the locator has to wait

longer to get it.

 

Flat Fees for unlicensed locators range from $500 and up, and

average about $1000 to $5000.

Generally the higher the potential profit spread, the more an

investor will pay. Fees for better locators can be as high as 20 or 30%

of net profit. Obviously the better the locator is at

finding great investment opportunties, the more valuable they are.

The most accurate property locators command the best fees and may perform

property research for investors with millions of dollars to invest.

 

Flat fees are usually paid by the investor buyer to the property

locator within three business days of closing. If the locator will get

paid a percentage of profit based on the resale of the

property, they may make more, but the paycheck will not be due

until the property sale is completed.

 

Agents and brokers can charge a fee for buyer agency, in addition

to collecting commissions for sales of listed investment properties.

Since agents and brokers already have access to

contracts that cover agreements for both selling properties and

working with buyers via buyer agency, they can provide a range of services

for investor buyers.

 

When agents and brokers become members of The Real Estate Arena,

they also have the opportunity to join our nationwide broker referral

network. Since the Real Estate Arena operations are based in Atlanta, GA,

we use a local Georgia brokerage to assist our agent and broker

members with referrals within our nationwide network of licensed

professionals.

 

The Real Estate Arena offers professional grade, web-based training

in the art of evaluating properties for their investment potential.

Members enjoy 24X7 access to a library of training

materials on every aspect of real estate investing, including short

sales, foreclosures, REO's rehabbing properties, creative financing and more.

 

In addition, the training also includes audio lectures and video tutorials.

This is not your typical "guru" seminar with a high price tag,

members enjoy access to all the training materials at any time.

 

There are no hidden charges and no high priced seminars to buy.

New training sessions are provided weekly.

 

Members also get a "Virtual Office" which provides them with access

to their own weblog, web page, our property listing system, 24X7 Training Library,

The Real Estate Investors Guide to Buying Right, the TREA message board,

where you can communicate with real estate buyers

sellers, locators and support professionals like lenders,

contractors and appraisers.

 

Click the link below and expand your opportunities as a member of

the Real Estate Arena.

 

https://www.therealestatearena.com/regl.aspx?i=blog

 

Across the country investors have been trying to guess what the fluctuations in the real estate market will mean to their valuable investments. There seem to be a number of theories as to what the market will be doing in the coming months, but then again that is just speculation. To fully comprehend what is happening in the national real estate picture one needs to look at it from a larger perspective. Over the last 10 years real estate was growing like a snowball rolling downhill. There seemed to be no end in sight for this market and investors and home owners alike enjoyed a huge jump in their property values. Unfortunately, as things tend to do the market has seen a dramatic change that for a while has everyone asking if the bottom had completely dropped out of the market. Saying that this was true is really jumping the gun and failing to look at things from that broader perspective.

What we are really seeing here is more of a market correction from the years of rapid inflation. There was bound to be a point where the number of buyers dropped below the number of available homes. Now that this has happened the market is straightening itself out and returning to a more average and even state. Now this does not mean that homes are losing value, merely that the rate of inflation has slowed down and homes are now selling for closer to what they are actually worth. for many years the high demand for homes inflated their values to amazing proportions and sellers and investors easily got used to that fact. As with any rapid increase in the value of anything, the leveling off of that increase can cause pandemonium and a good deal of guesswork as to what is happening.

The truth is that real estate in the major areas of popularity has retained that popularity and is still showing an increase although it is not nearly as dramatic as it once was. Take Orange County as an example. This is an area that saw immense growth and huge inflation on property values. Over that last year the average property in San Clemente has appreciated over $130,000!! So don't despair, properties are still gaining in value and investments are still earning top dollar. One simply needs to be a bit more patient and less prone to jumping to conclusions!

Drew Hartanov & The Hartanov Team are the elite choice for Orange County real estate Drew's attention to detail and professional manner are essential tools in the Hartanov Team's quest to bring the best in real estate service to buyers and sellers in Orange County. Contact Drew for more info or visit the team online at www.localrealestateteam.com

Article Source: http://EzineArticles.com/?expert=Drew_Hartanov
http://EzineArticles.com/?OC-Real-Estate---Still-Gaining-Ground&id=680418

By Donna Robinson, TREA Training Director 

As we all know there is a seemingly endless variety of seminars and courses on various real estate strategies.  While in principle there is nothing wrong with this and it is important to understand how particular strategies work, I feel that most "would-be" investors are missing the bigger point.

Which is that any long-term investing business must utilize multiple strategies in order to remain profitable when market changes occur.

This means simply that it is not about what strategy we find interesting or what "sounds good" but rather it's about what's working now.  The plain fact of the matter is - if you don't understand the fundamental issues that make a strategy work or cause it to not work you will not remain profitable over the long haul.

Indeed I see many "experienced" investors who are struggling with this today.  In fact the survey indicated that 51 percent of those who responded have made no money at all, are struggling to make money or are losing money.

46 percent indicated that they had made some money in real estate, not enough to make a living but at least they were profitable on one or two deals.  Only 4.5 percent indicated that they have actually made a significant amount of money investing in real estate. This fits with my real experience in the marketplace. Very few people know enough about what they are doing to be able to identify the investment that "works" at any given point. 

The fact is most people are not profitable and will never be profitable because they are only following the herd, doing what everyone else is doing because everyone else is doing it. In the marketing world, they call this "social proof". This is a phenomenon that plays off of our natural desire to be part of the "in-crowd".

In other words people tend to do things when they see everyone else doing that particular thing. but when it comes to investing, following the herd can be a recipe for disaster. That's because by the time the herd is involved the real money is already gone.

 If you were buying stocks in 2000 you know exactly what I'm talking about.  If you bought after everyone else was getting in, prices were sky-high and left very little real profit. By the time the market began to melt-down in 2001-2002 the people who were buying before the herd got involved were laughing all the way to the bank as they sold off high-priced stocks to eager investors who thought they were getting in on the next big thing.

The same thing has been happening with real estate for the past three years. Prices have gotten too high, profits have been going lower and lower and yet the herd continues to buy based on strategies that simply will not work under those circumstances.

The result of this has been a huge number of investors who bought properties at peak of the market prices because they ignored market fundamentals. Now they are at a point where these properties will not cash flow and in many cases are losing value at a rate that will leave the investor owing more than the property is worth. 

If I can drive one point home it is the fact that if you run with the herd sooner or later you are  going to wind up getting trampled.

Can I tell you a secret?  The real truth is that the "herd" hasn't got a clue.  Many people out there dealing houses, claiming to be selling great investment opportunities would not know a good deal if it hit them in the behind.  Hardly a day goes by that I don't see a promotion for some supposedly great deal that hasn't got a chance of being profitable.  

95% of the survey responses indicated a desire for financial freedom, or to earn enough money to quit their job, etc. But a to attain financial freedom and make enough money to quit working for someone else, you have to make sure that you can make enough money working for yourself.

 In order to be profitable enough in an investing business you have to be flexible and adaptable to changing market conditions.  You can only do this if you understand the fundamentals of your market and their effect on the various investing strategies.

Those of you who are really new are probably thinking that this sounds rather complicated; but trust me, if you expect to survive and make a real living off of real estate investing, sooner or later you will either learn how to use the fundamentals to your benefit or you will not be able to survive a complete market cycle.  At that point you'll find yourself heading back to a job in order to generate enough cash to keep your struggling properties paid for.  About 10% of you are already experiencing this for yourselves.

I am telling you this because I have lived through it myself.  I understand very well the challenges and rewards that come with self employment and especially as it pertains to real estate investing.

Regardless of how easy most people want to make it sound, it is a great achievement to survive for more than three years in real estate investing. But it can be done and people do it every day.
I know a lot of investors who started out as property locators or bird dogs, who now own their own investing business. The profitable ones are those who have committed themselves to understanding the fundamentals.

At this point I have escaped the rat race so to speak. On Monday morning when most people are  trudging out to another long work week I am home drinking coffee and organizing my schedule.  But I'm only being honest with you when I tell you that I am here because I have learned to adapt to changing market circumstances. I have learned to deal with changing conditions and alter strategies when necessary to remain profitable and continue to grow.

This is why I continue to hammer home the point that if you don't understand the fundamentals and you don't get a good grasp on how they work and how they affect wholesaling, lease/options, subject-to, retailing or any other strategy, you simply will not know how to adapt to changing market conditions. 

If all you know how to do is wholesale a property you will find it rather slow going in 2007.  If all you know how to do is buy or sell on sandwich lease options you may have trouble figuring out why your deals aren't making money right now.

And for heaven's sake, if you're going to follow the herd and jump on the pre-foreclosure bandwagon you have my sympathy.  Pre-foreclosures may be in large supply and easy for the herd to target, but the fact is that a conversion rate of one deal out of 50 to 100 targeted leads is not my idea of a viable business model that will produce financial independence.  And there are certain fundamental issues specific to 98% of all foreclosures that make these even more difficult to profit from. But you sure wouldn't know that by reading most of the standard fodder written for Real Estate investors.

Mind you, there are foreclosures that make outstanding opportunities for investment. But foreclosures in and of themselves are only a source for leads, NOT a strategy. Foreclosures are not profitable just because they are foreclosures. It is the fundamentals of the deal that will determine whether any given foreclosure can make you any money as an investment.

There is no question that we are now in a deflating market.  The number of foreclosures is increasing. Retail selling prices are falling because inventory has been rising dramatically. Sellers - and especially investor sellers are being forced to cut their prices to move a property. Still other investors are lucky to sell at all. It is pretty easy to see that any strategy that requires a quick sale may be in for a bumpy ride for the forseeable future.

On the other hand there are market forces at work that will enable tremendous profits and help smart investors develop the income streams needed to quit jobs and achieve financial independence. In fact in just the past week, my coaching clients and I have identified an investing opportunity being overlooked by virtually everyone else. 

How would you like to buy one property and immediately have a positive cash flow that would give you a solid 30 to 40% return on investment, with the potential to hit 50 or 60% ?  Just this week I identified quite a few properties that have this kind of potential.  If you ever expect to become financially independent as a real estate investor, these are the kinds of results you are going to have to achieve. But the good news is there are a number of different ways to achieve those kinds of results in any given market.

I use the same exact "Buying Right" process that I have been trying to emphasize to you. I am finding new investing opportunities that are among the best I have seen in years.  But I found them only because I knew what I needed to look for.  When you know exactly what it is you need to look for is much easier to find it. (sounds like plain old common sense doesn't it?)

There is no such thing as a good time to invest or a bad time to invest IF you know how to choose the right strategy for the market conditions.  When you understand how the fundamentals will affect investing strategy then it is simply a matter of identifying those specific strategies that you know should work given the fundamentals at hand.  Each local market will have its own set of fundamentals to apply.  That's why Market Analysis is the key fundamental skill possessed by successful, financially independent real estate investors.

If you are really wanting to achieve the objective of quitting your job, working for yourself and becoming financially independent as a real estate investor, you must have a grasp of the fundamentals and then apply the appropriate investing strategy for that situation.

I know it doesn't sound "easy" and it doesn't sound "quick" and it may not even sound like fun, but achieving freedom with financial independence is not easy or quick. It does require a commitment and effort.  But I'm sure you know that once you get there, it sure is fun.

So don't get caught up in the trap of thinking that you need to focus on one specific strategy such as wholesaling, lease options or short sales.  If you want to do real estate investing "on the side" a one-strategy approach will be fine for part-time income.  But if you are looking for freedom and financial independence and the ability to quit your job you'll have to learn how to "Buy Right" based on the fundamentals that apply to each given opportunity.

 

I do a lot of private coaching and hourly consultations with investors. Many of them contact me because they feel that their investing activity is going nowhere. They are looking at lots and lots of properties, but not finding anything that is a deal that they can sell to another investor, or they can't get financing, etc. These people have read success stories, heard fabulous tales of making $10,000 for only "5 hours work" and all that jazz. I remember one where a guy was living in his car until he found a great investing deal, made $10,000 in less than 30 days, and 6 months later was wealthy. Good for him, but he is the rare exception, not the rule.

I can state truthfully that I have participated in dozens of deals, creative deals, seller financed deals, wholesale deals, rentals, retail, subject-to, etc, etc, etc. Certainly millions of dollars worth of houses. I have almost never used my own money, I did not have a "W-2 job", (nor do I now), and for much of that time, my husband was terminally ill, so I had to work from various hospitals or other remote locations.

BUT - before I was able to do those deals and make that money, I spent several years learning the business, got my agents license, and spent lots of money on seminars, clubs and courses. In short, it didn't happen for me like the success stories make it sound, but it DID happen.

Can I let you in on the real secret of success? The ONE thing that insures that sooner or later you will make it?

It's not a pretty secret, it's not sexy or glamorous, but it is the truth....

Perserverance - just don't quit.

It takes time to learn what must be known. And frankly, I know first hand from years of being a property locator and training hundreds of them, that the number one problem that leads to frustration is simply working the wrong strategy in the wrong market.
Not finding any deals in pre-foreclosures? Not a surprise to me. I didn't either. In spite of what everyone told me, few if any were a good deal on paper, then when they were, I couldn't find the #$%^& seller anyway!

Without a doubt, the single most common reason for failure in real estate investing is not understanding the proper way to evaluate and qualify a deal. The result is that the new property locator or investor wouldn't know a good deal if it hit them in the head. People often think they have good deals, but when they bring them to me, I can see immediately that they are not going to work.

But, this market presents some special challenges at present. If you are getting poor results, chances are you are trying to work the wrong strategy in the wrong market. The challenge is to find the deals that will be profitable. Whether that may be houses, duplexes, quads, commercial, whatever. If all you are doing is focusing on one single strategy, that strategy won't work unless your market fundamentals support that strategy. For example, successful wholesaling requires lots equity. If you are searching for wholesale deals in areas where the houses are only 5 years old, you are gonna have a big problem finding enough equity. The fundamental need for equity is not being met in the area being searched, so the net results are poor.

You have to analyze your market and find the properties that will work.

There are two basic ways to do it,
1. pick a strategy, then you must go to where that strategy works. ( for example, wholesaling means finding older neighborhoods)
2. pick a location then analyze the properties at that location to discover what is working in that specific area.
(a location that contains a large number of newer houses is more ideal for retailing to owner occupants)

If you are looking at lots and lots of leads with no deals, you are getting both 1 and 2 backwards. Something works everywhere at any given time, but nothing works everywhere all the time.

Serious investors or those who want to be serious investors need a solid approach to investing that bypasses the single-strategy, one-size-fits-all approach and get the one program that shows you how investing really works. It's all about the numbers and whether this deal has real profit potential and if so, how much profit is there and how will I get it?

There is only one program out there that teaches where the rubber meets the road. My program owners and private coaching clients characterize it as "totally enlightening" "opened my eyes to how investing is supposed to work", "eliminated the frustration that comes from trying to pursue a strategy that is not working at all".

 

By Donna Robinson - TREA Director

The big news of the week is the meltdown of the Bear Sterns Hedge Fund containing subprime mortgage debt. While this news seems to be taking wall street by surprise, the only surprise I have is the fact that no one on wall street seems to realize that this is only the symptom of a much more serious problem. One that may take several more months to manifest, but none the less, a major problem.

After being "on the streets" full time in the real estate investing business for the past 8 years straight, I know first hand what a high percentage of bad loans there are out there. Just this week I listed 4 properties that all belong to a single owner who may be heading for 4 foreclosures. I've listed 5 in the past 30 days, belonging to just two owners. These owners are good people who got sucked into sub prime loans on investment properties. The loans simply won't cash flow for the owners. Therefore, they stop making payments and let the bank foreclose on the investments rather than risking losing their own home in the process.

I have had so many cases like this in recent months, and have analyzed so many properties with 80/20 piggyback loans that can't possibly be cash flowing positively. I believe that the foreclosure rates among owners of investment properties could reach 25% or even 40% in this market. These small investors are saddled with interest only payments, prepayment penalties, and rising APR's. It's just a mathmatical formula for disaster. These loans virtually guarantee that the investors will not be profitable. Some are frantically trying to sell these properties but if their efforts to sell fail, as many surely will, foreclosure will become a very real possibility.

Many of my current clients have "perfect" credit - but most are on the verge of taking a foreclosure hit because they can't pay for rental houses and keep their own house mortgage paid.

My advice - watch for a major meltdown in the secondary mortgage market and in particular in mortgage backed securities somewhere in the fall to late 2007. By then the numbers of subprime and alt-A investor mortgages will be escalating. In turn this is likely to force mortgage rates up, as capital flees the mortgage markets for safer investments. Bear Sterns may only be the first of many such stories to come.

Watch for a new package on Short Sale negotiation and strategy. Written by Licensed Real Estate Broker, Marie Whitton, this program provides straight forward details on what short sales are, who can do short sales, and how to do them correctly. Includes all of the necessary forms needed, including the HUD-1.
Also includes actual settlement statements from real short sales, so that you can see exactly how they work. Marie represents lenders and REO properties, as well as negotiating on behalf of her clients who are investor buyers. She has done numerous short sales and is considered an expert on this strategy.
Watch for this new package to be released in mid-June 2007.

By Donna Robinson, TREA Director

As a general rule, real estate investing is an excellent way to build a solid
financial foundation and get out of debt.
But-- that being said, you should only do this under the right circumstances,
and for the right reasons.

One of the most common scenarios that I see among new, inexperienced investors who have gotten themselves into big trouble with real estate, is jumping into a deal that they don't understand, in hopes of earning a chunk of money quickly so that they can pay off existing personal debts.

If you are desperate for $20,000 and you're trying to think of a way to come up
with it in the next 30 days, you could use real estate as a strategy. 
 
Many folks get into deals that they barely understand and wind up in a
worse financial situation than they had to begin with. I recently counseled with
a young man, (we'll call him Tom), who had excellent credit, documented income and a "friend" with "connections in the business".

The friend approached Tom and said, " I can set you up with
some good real estate deals, I've got the connections in the business, we can make some big money quickly". 

Being a young, inexperienced investor, Tom jumped in, assuming that his friend
had everything under control.
After all his friend "had done this lots of times".

He signed loan documents he barely read. He did not understand how the deals
were to work, or how the profit in the deal would actually be made. He committed
his credit as the buyer for the properties, while his friend would be responsible for all the confusing details Tom did not know anything about.

Unfortunately, it was a bad decision. Tom signed paperwork that was so vaguely
worded that it left him with virtually no recourse at all. If only Tom had gotten
some professional advice first. This never would have happened.
Real Estate Arena members enjoy access to professional investors and licensed agents and brokers who can provide common sense advice based on real world experience. If only Tom had the chance to run this by a professional before he had gotten involved.

There were three critical errors that Tom made.
These are very common among the inexperienced:

A: He assumed he did not need to know anything about the deal because
he had "a friend in the business".
B: He committed his credit and signed as the buyer for deals that he
did not understand.
C: He failed to get independent advice from someone with experience who was not directly involved in the deal.

Turns out, his friend was engaged in a bit of loan fraud.
He inflated the appraised value of the properties so that the lender loaned more
on them than they were actually worth, pocketed the extra cash, and left Tom holding the payment book on properties worth about $200,000 with loans outstanding of about $300,000.

Now Tom will have to borrow more money to fix the properties and try to get them sold in order recover as much cash as he can for the lenders, or face foreclosure and possibly even bankruptcy. 

For the average new investor, who's never done a deal, who doesn't understand real estate that well, has no experience with writing contracts, you should never, ever, in my opinion, engage in any kind of real estate deal, or give cash to anyone, until you have consulted with someone who knows what to do;

Someone who can give you the benefit of an expert opinion, and that opinion is not influenced by involvement in the deal.  

Real Estate Arena members have the opportunity every week to discuss their deals and investment opportunities with real investors who have real experience.
Our weekly coaching and mentoring calls allow members to ask their questions and get independent advice BEFORE they make a big mistake.

Don't let the temptation to make a quick buck draw you into a deal that you don't
understand. Real estate investing is, in my humble opinion, the best way on the
planet to generate and maintain true wealth.

You can generate cash flow to build income and build assets through appreciation.  Houses are shelter and provide an essential human need. A house has a value that goes far beyond the price.

You can't live in your stocks. You can't raise your children inside a bank CD.
Real estate makes sense for a lot of very fundamental reasons. 
But for the average person who's in debt seriously and needs to get out, you
really should take this one step at a time.

You can make $10,000 in a short period of time. I see it done every day.
But the people who are doing it know how the deal works, and most importantly,
they understand where their profit is coming from and how they will generate it.
They also understand what their risks are and what they will do if plan A does not
work out and plan B becomes necessary.

It is a fact that over the long term, investing in real estate, is a great way to pay
down debts, build income and secure your future, but only if done correctly.
Join The Real Estate Arena so that you can have access to real experts and real experience.***

We're excited about taking you to the next level in real estate
investing, business building and online marketing...won't you join
us? Our unique subscriber model means you get all the business
building and networking tools at a fraction of their individual
cost. 

To Get Started Right, Click Here Now

Attention all Real Estate Arena Paid Members: URGENT JUNE 8TH 2007

When you join The Real Estate Arena, You will receive an important confirmation email, asking you to please confirm your subscription to The Real Estate Arena Members List.

Your email contains a special link that is tied to your email address. If you do not click this link to verify your desire to receive membership emails from The Real Estate Arena, you will NOT RECEIVE your membership emails. This means you will be missing lots of important information.

This issue is beyond our control. The new CAN-SPAM laws require this type of opt in process and our email management service also requires it. We CANNOT send member emails to you unless you open the confirmation email and click the confirmation link. We can't even resend it to you. If you are a PAID member of The Real Estate Arena, and you are NOT getting emails sent to members each week, be sure to find your original confirmation email and click the link. We apologize for any inconvenience. Again, we are complying with new email spam laws and this confirmation process is now required for paid members. We appreciate your assistance. If you cannot locate your original email, you may contact us at support@therealestatearena.com and request your original sign up date, so that you can find your original confirmation email.  

Again - this applies to PAID members only.  This does NOT apply to the free email newsletter list.

Thanks for your assistance!
Donna Robinson - TREA Director

by Donna Robinson, Training Director, The Real Estate Arena www.TheRealEstateArena.com

I often get email from investors asking me how they can tell which real estate investing strategy is ideal for their market. From the perspective of a new investor it can often be difficult to decide what particular strategy you should use in a given area.

There are two essential ways to break down a real estate market for residential real estate investing. One is geographically and the other is demographically.

In the case of Geographics let's say we have an investor who lives in Cobb County, GA and he or she only wants to buy and sell properties in Cobb County. Since this investor has chosen to limit themselves to a specific geographic location, they will be limited to the deals (i.e. Strategies) that they find most readily available in Cobb County.

For example, if you are in a suburban area that has lots of new construction, you may find more retailing opportunities to owner occupants. You will also find some rentals and virtually nothing suitable for Wholesaling because everything is too new. And, the majority of properties in new areas have very little equity.

If you are in an older area such as inside the city of Atlanta where there are thousands of older properties and many fixer uppers, you are much more likely to find wholesale and rental property deals but relatively little new construction.

So when it comes to choosing a strategy, your choice will be dictated by the situation. Is there a lot of equity to work with? Perhaps wholesaling is the best choice. Is there very little equity to work with? And it's a

pre-foreclosure too? Then a short sale might be the only way to make the deal work.

Because of the proliferation of strategy based seminars, most investors choose a strategy first and then try to find a house that fits that strategy. For example if you believe that you need to raise cash by wholesaling, you have to go where the wholesale deals are.

This is what most professional wholesalers will do. They don't limit themselves to a small geographic area. They travel all over a wide area in order to find all the potential wholesale deals that they reasonably can. They may limit their territory somewhat, but generally they will cover a wide geographic area to find only the wholesale deals.

Their focus will be on contacting owners of older properties that are abandoned, or need lots of repairs. This is because these properties generally represent the best opportunity for lots of equity and a flexible seller.

If you are a wholesaler you don't want to waste your time contacting owners of 2 year-old houses with no equity.

Wholesalers who do this are using the demographic method. They are not looking in a particular location, they are looking for a particular type of seller.

Demographic prospecting means using more of a mass marketing technique, and targeting pre-foreclosures, health issues, job transfers, probate, divorce, and the whole range of life related events that can lead a person to become a motivated seller.

It is more common among professional investors to search for deals demographically rather than limit themselves to specific geographic locations. However this means you must have a willingness to drive sufficient distances to check leads. I personally have driven more than 200 miles in a single day, while viewing as many as 12 properties. At that point I was specifically looking for wholesale opportunities so I had to go where those opportunities were.

Had I wanted to stay close to home, which is located about 45 miles from downtown Atlanta, I would only pursue strategies that work with pretty houses, such as lease options, subject-to or buy and hold, because my geographic area is newer and therefore it contains very few wholesaling opportunities.

It can take you some time to get a feel for the types of deals that are most likely to be found in your area. If you are in an older area mostly built prior to 1970, then chances are very good that you would find more wholesaling opportunities.

If you live in a new area where most of the construction is less than 10 years old you would find more opportunities to work pretty houses that have less equity.

Retailing to owner occupants on a Lease with Option to Buy, is my personal favorite strategy in suburban neighborhoods that are predominately owner occupied. You can make that deal work at 80% LTV, instead of the 65% LTV you need for wholesaling.

So, one key to determining what strategy to use in what area is to look at the age and condition of the properties in that area and make offers that work for those properties.

In Atlanta, the outlying suburban areas are much more likely to be ideal for retailing, or buy and hold strategies. The in-town neighborhoods in the older parts of the city are better suited to strategies like wholesaling, because older houses tend to have more equity and need repairs.

Newer houses usually have less equity and therefore are better candidates for creative cash flow strategies, like "lease with option to buy", or "subject-to the existing mortgage".

Creative cash flow strategies may require less equity where Wholesaling strategies will require more equity in order for the numbers to work.

Any strategy only makes sense if the numbers work. Regardless of where you are located, and whether your market is "hot" or "cold", the bottom line is -- what will the property cost? and, Can it be sold or rented for more than it will cost?

Donna Robinson is the Training Director for The Real Estate Arena. She is also a licensed real estate agent in Georgia. This article is one example of the kind of factual, practical investing advice you will receive when you join TREA. For more information, go to www.TheRealEstateArena.com

By Donna Robinson

A glut of new construction combined with higher than normal resale inventory, plus a sharp increase in foreclosures is leading to massive oversupplies of single family housing in most areas of the country.

Fundamentally this indicates a severe weakening of the single family home market. Sagging prices along with erosion of market value could have a ripple effect throughout the economy. Several major builders are currently suffering losses, and some 2.1 million homes are on the market. This is a 34% increase in inventory nationally from one year ago.

Factor one in the oversupply scenario is the number of speculative investors buying single family houses then putting those houses on the market to generate a “quick” cash profit. Investor speculation has reached all time highs.

Factor Two is rising foreclosures in the sub prime loan sector. These are loans that were made to low income and marginal credit buyers, some investors, and millions of regular home buyers who wanted a bigger house but with a smaller house payment.

Sub prime lenders allowed buyers to qualify with income that could barely cover the interest payment, let alone the principal. This includes many of the “interest only” and “graduated payment” mortgage programs that have been very popular in recent years. But payments are now beginning to graduate upward to include both principal and interest, and many owners can’t keep up. To add insult to injury, making interest only payments during a time when values are going down will result in negative amortization. This is leaving some owners owing more for their home than it is now worth.

The early results of these risky lending and borrowing practices are already visible, with two dozen sub prime lender failures in the first two months of 2007. It appears that many of the largest lenders in the sub prime category will fail during 2007. Other more main-stream lenders are feeling the pinch too.

All that would be enough for concern, but you can also throw in Factor number three-- new home construction. In many areas, thousands of new homes are being built along side growing inventories of resale homes. Common sense would seem to indicate that there is real potential for a huge price drop in single family housing.

Simply put, the single-family home market seems to be on the verge of a downward spiral that could erase 50% of value in some areas.

Even suburban markets in better areas are averaging fifteen percent decreases in selling prices since the 2005 market peak.

I also want to point out that those markets that are enjoying a steady or growing job base will continue to see modest price gains. They will still suffer from the drag on selling prices caused by increasing foreclosures but good jobs make for good home markets and help to soften the effects of too much inventory.

By the time we see the tightening of credit that may result from banking failures in the sub prime market, investors could find the single-family home market to be extremely tight or unprofitable.

Selling single family houses for quick cash is a risky strategy for the time being unless you are in areas where job growth and consistent demand will soften the effects of the oversupply.

Over supply in some areas heavily worked by investors is significant and is going to lead to falling prices in those areas due to excessive inventory aggravated by increasing foreclosures.

Older inner city neighborhoods heavily worked by investors are most likely to suffer the biggest losses. At present investors simply should not be buying single-family properties for a quick cash sale in these areas unless they are absolutely sure that the location has adequate buyer demand.

Suburban markets are more likely to be affected by increasing foreclosure rates among homeowners with adjustable rate mortgages and in particular those who have been making interest only payments. These are foreclosures that are escalating among middle-class homeowners.

The good news is that all of this means that there will likely be fantastic buying opportunities in the not too distant future for those who are well positioned to take advantage of the situation.

We could see something reminiscent of the savings and loan collapse of the late 1980's. That event resulted in buying opportunities for investors that were unprecedented up to that time. I believe it is likely that the same thing could happen again. We could be on the verge of the best buyers market in

15 years. Patience is key. Time is currently on the side of the smart investor.

Now that the media coverage has hit the mainstream it's just a matter of time before the full extent of the problem becomes exposed. In about six to nine months it could become apparent that the problem was much more widespread and will affect a much broader segment of the economy than was first thought.

Investors who are not entangled in bad debt but are well positioned to take advantage of the coming opportunities will profit greatly and a new generation of real estate gurus will be born.

This is why it is so important to understand that fundamentals dictate strategy for real estate investors who are smart and know how to buy right. When you understand how to take advantage of market fundamentals whether good or bad then you will understand how to make money with real estate no matter what the market is doing. This is the definition of a professional investor and is also the requirement for long term profitability.

Donna Robinson is The Training Director for The Real Estate Arena. She is also an investor & licensed sales agent in Georgia. This article is one example of the great information and professional support available to you when you join TREA. For more information go to www.TheRealEstateArena.com

by Donna Robinson, Training Director, The Real Estate Arena
www.TheRealEstateArena.com

1. Begin with the End In Mind...
I first read the phrase "Begin with the end in mind" in a Steven Covey book called "The 7 Habits of Highly Effective People". This expression makes a lot of sense because the fact is, you can't get where you're going, unless you know where you want to go.

Most new investors understand that real estate is an investment vehicle that makes sense. We all know that many fortunes have been built with real estate. But when you are first getting started, all the available information can be very confusing. I often receive emails asking "what strategies should I use?" or "Where should I look to find deals?".

One reason these issues are so difficult to understand and sort out when you are new to the investing game is that the answer to the question can be different for every individual.

Seminars must package information in a "one-size-fits-all" course. Since each individual investor has different needs, this inevitably leaves unanswered questions. Simply put, each person has their own individual situation with regard to credit, income, employment, assets, etc. All of these factors can affect your investing choices and objectives.

Adding to "newbie confusion" is the sheer number of strategies. Should I own rental property? Should I fix up and resell? How about Options? Or, how about buying tax leins? There are so many choices, how is one to know what to do when just starting out?

Like any trip, you start out by deciding where you want to go. Once the destination has been chosen, you figure out the best way to get there.
It sounds simple and it is, but that one act of making plans from the "end to the beginning" will cause you to focus more effectively.

Many of the most successful and wealthy investors I know, built their fortunes with rental property. Some of them own hundreds of houses and apartments. Some of them own commercial properties like gas stations, storage facilities, or office buildings. They each had the same destination in mind, cash flow from rental income, but two drastically different ways of getting there.

Frankly, most of the really successful investors are very patient men and women who build their portfolios slowly over a number of years. They are cautious and prudent, buying only when they know the deal is a good one.

Let's say that your ultimate objective is to achieve $5,000 per month passive income from rental property.
Now, think of that objective as if it were a city on a road map.

Most cities have a number of different roads you can take to get downtown. It is the same way with your investing. Different people will arrive at the same destination, each one using a slightly different route to get there.

Once you decide where you want to go, your route to your destination will be determined by your financing options.

If you have great credit, income for which you receive a W-2 statement, and lots of cash for a down payment, your financing options will allow you to take virtually any road you wish. The fact is, good credit and cash will get you where you want to go a lot faster. But it's not the only way.

If you are credit challenged, self-employed, or lack cash for down payments, your ultimate destination can be the same, but you will need a different route to get there.

Your financing options determine the route you have to take to get to your destination. In essence, the answer to getting started is find out what kind of financing you can get, and then find deals that work with your available financing options.

If you can't get any kind of financing at all, you can still buy deals where the seller will agree to finance the deal, or some scenario where financing is provided without you having to qualify.

If you have decent credit but no cash, there are investor loans with low down payments, that may make it easier for you to get in with little cash.

If you have great credit and cash - hop on the expressway. Look for any good deal, since you can get a loan at excellent rates, in addition to taking advantage of any good seller financing deals that come your way. You have the most options for getting to your destination.

No matter where you start from, you can still wind up at the same destination, and achieve the same objective.

Step One : Decide where you want to go. Then, get with a good lender to find out which roads you will be able to take. Even if you have to start out on the "no cash, no credit" back roads, remember that sooner or later, if you keep driving, you will find an access ramp to the expressway.***
Donna Robinson is a real estate agent, market analyst and the Training Director
for The Real Estate Arena. This article is one example of the quality information
you will receive when you join TREA.
For more information go to www.TheRealEstateArena.com

By Donna Robinson – Training Director, The Real Estate Arena
www.TheRealEstateArena.com

There is a type of fraud in which an unsuspecting Real Estate investor believes he is buying a property worth a certain amount, when in reality the property is worth much less. This places the investor in a hopelessly upside down situation, owing more money than the property will ever be worth.

The primary way that this type of scheme is enabled is by the use of a "bogus" appraisal that over-inflates the value of the property. Once the investor has closed the deal, there is virtually nothing he or she can do to avoid the consequences of a 300% Loan To Value mortgage on an investment property.

This means that the investor will owe too much to be able to cash flow the property as a rental, and there's no possible way that he or she will ever sell the property for enough to cover the mortgage payoff. This essentially leaves one with a bankruptcy/foreclosure, "take-your-pick" financial situation.

Investors who realize they have bought a property that will never be worth what they owe on it, may continue to make payments for months or even years in order to preserve their excellent credit rating. However once the damage is done this is essentially throwing good money after bad.

Given that this is one of the worst scenarios an investor could ever experience, it behooves each one of us to take the necessary time to carefully examine the appraisal for the property that we are about to purchase, BEFORE we buy it.

Since this type of fraud is dependent upon an over-inflated appraised value, an appraisal with incorrect or deliberately misleading market information will be necessary to perpetrate this fraud.

Therefore if a prudent investor is careful to take the time to examine the appraisal prior to closing, or better yet, have their own appraiser do an independent appraisal, one could avoid this scenario completely.


In a nutshell, it is potential investing suicide to accept an appraisal at face value without verifying the information in that appraisal.

When you don't know the market well, it would be an excellent idea to simply pay the $250 or $300 necessary to have your own independent appraisal done.
You do not want to take anyone else's word for the appraised value of a property. YOU are going to guarantee the loan, so you are the one who must make sure you are not being misled into paying too much.

The vast majority of investor fraud and loan fraud would be avoided if someone took the time to verify the information in the appraisal.

The greater part of a typical appraisal will deal with what are called "comparable properties". These properties are supposed to be very similar in style, quality, and size, to the property which is the subject of the appraisal.

The concept of Comparable Market Analysis" or CMA, means simply that one property in a given neighborhood should be worth approximately the
same amount as other similar properties in the same neighborhood.

A valid appraisal that is a reasonable and accurate estimation of market value would only use similar properties that are within a very small radius from the subject property being evaluated.
The official rule is within one mile of the subject property. But in Atlanta, one mile can be the difference between a $50,000 and $500,000 ARV. So, I prefer to see comparables that are located within the very same neighborhood. One mile can make a big difference.

The question is, "who is responsible for generating the appraisal being provided as an estimate of value?"
In a typical transaction between a home seller and a home buyer it is the buyers lender who orders the appraisal as part of the process of underwriting the loan.
But, in many investor transactions, the seller may provide an appraisal.
When you are the buyer, you should always plan to verify any appraisal provided to you by the seller.

Many fraudulent schemes perpetrated against innocent real estate investors involve an appraisal that uses phony or manipulated “comparable” properties that make the subject property appear to be worth more than it is.

In extreme cases of well organized fraud, it is possible for the seller, the seller's agent, the closing attorney, the appraiser and even the lender to be involved in trying to lure a buyer into a bad deal.

Usually in this type scenario, the investor buyer is offered a "full-service" type arrangement, in which everything is taken care of for them. One should always be wary of any investment property deal in which "everything is taken care of for you", and insure that the appraisal is checked out carefully.

Many newbie investors get too emotional about finding a deal, and tend to accept information at face value. A number of my private clients, who have contacted me about getting out of a bad deal, admit that they “assumed” that the data provided to them was accurate, and did not question it. They were too afraid of “losing out on the deal of a lifetime”. They let their emotions and assumptions guide them.

Real estate is a great way to build wealth – But, you do not want other people building their wealth at YOUR expense.

The single most important piece of due diligence on any property is to verify the real market value before you buy. ***

Donna Robinson is a real estate agent, market analyst and the Training Director
for The Real Estate Arena. This article is one example of the quality information
you will receive when you join TREA.
For more information go to www.TheRealEstateArena.com

One of the most critical aspects of insuring a profitable deal is the degree to which you understand the supply and demand issues within the area in which you are planning to invest.

Often new investors will have difficulty knowing whether or not a particular property is actually a good deal because they are not aware of the local market activity and they do not know their market well enough to make accurate assumptions about the deal.

But how does one go about the process of “knowing your market?"

There are several key factors that make up what you might call essential market data.

The number one factor in my opinion is supply and demand.
Supply and demand issues help you determine whether or not a deal that looks good on paper is truly a viable investment.

You may find a property at a great price, in an area that is ideal for section 8 rental. So you decide that you're going to buy this property, qualify it for the section 8 program and rent it to a Section 8 tenant. On the surface it appears you are making a correct assumption about the best choice of strategy but if you fail to check the supply and demand conditions you could be making a critical mistake.

Let's say you've done everything correctly. You bought it at the right price, you verified the amount of rental income you can expect, and you know that this property should generate positive cash flow based on the projected income and expenses. Further, you did a good job with the rehab, kept everything on budget and finished right on schedule. You put the house on the market right on the date you anticipated and everything is going according to plan.

After your property has been available for rent for four weeks with no takers, you start to wonder what is wrong. You know your rent is appropriate for the area, you know the condition of your property is very good but you're not getting calls from prospective tenants. What's the problem?

So you grab your computer and go to the housing authority website for available properties and you are shocked to discover that there are 300 other vacant properties in the same zip code that are the same size and rental rate as your property. Unfortunately there are only 100 tenants looking for housing in that neighborhood.

You have done everything correctly up to this point but you find yourself holding the property, making the monthly payments while it sits vacant because the supply of similar properties is greater than the demand from local tenants.

You executed your deal perfectly except for this one small detail. But unfortunately a deal is not a deal unless you are able to get your exit strategy to work. So you wind up stuck, making the payments out of your own pocket, losing money on a deal that should have been very profitable all because you forgot to check the supply and demand as part of your due diligence.

In many markets around the country, supply has outstripped demand significantly. This is forcing investors in those markets to slash their prices in order to get out of the property.

The South Florida condo market is one example of an area where supply has overtaken demand. From 2000 to 2005 investor buyers came in from all over the country to buy condos in Florida. The perception was that market appreciation was happening so rapidly in South Florida that virtually anyone could come in and buy a condominium at near full price and then expect to sell the condo at a profit once construction was completed. For a few years this strategy worked simply because there was more demand in the market than supply.

But as time went on more and more condos were built and were being pre-sold to increasing numbers of investors as well as retirees. Then 4 hurricanes in one year put a real damper on demand from retirees.

Today there is such an over supply of condominiums in South Florida relative to the demand, that most folks who have purchased condominiums in the last year or two cannot expect to sell them immediately for any profit at all but will be lucky to take a small loss on the sale. What was a profitable strategy only four years ago has become a very un-profitable strategy simply because of a change in the supply-demand ratio.

In most metropolitan areas demand is driven by job growth which brings in new workers who need housing. The technology boom of the late 1990's created significant job growth in the city of Atlanta, GA. By the early 2000's young up-and-coming technology workers were driving a retail housing boom inside the city of Atlanta.

This made it relatively easy for investors working the older inner-city neighborhoods. Because of the strong demand from young buyers, property appreciation was strong. This made it easier for investors to profit by selling rehabbed properties to affluent owner-occupants who wanted to avoid a long commute from the suburbs.

But today, several years after the collapse of the technology boom there is less demand for inner-city housing and therefore values have begun to drop as much as 15 to 20% in many inner-city neighborhoods as a result.

Wholesalers in Atlanta have suffered significant losses due to the combination of inflated purchase prices and sagging demand, which have made it difficult to generate decent profit spreads for the past couple of years.

So how do we go about checking the supply and demand situation in a neighborhood or marketplace in which we are interested in investing?

There are several relatively inexpensive ways to accomplish the task of assessing supply and demand for a given area.

First you can drive the streets of the neighborhood where your subject property is located and look for the number of for rent or for sale signs in the area. If you see a lot of these signs in the neighborhood it is reasonable to assume that there could be too much supply relative to the present demand.

Real estate agents who have access to MLS market data can pull information for a given area and find out how many houses are on the market in that neighborhood, what the listing prices are and in some cases how many days the properties have been on the market. A high number of days on the market is a good indicator that either properties are overpriced or there is too much supply relative to the demand in the neighborhood.

MLS data can also show the number of properties listed for sale relative to the total number of properties that exist in the neighborhood. This can give you a very specific ratio of the amount of supply relative to the total number of properties in the neighborhood.

If the number of properties for sale or rent exceeds 10% of the total number of properties in the neighborhood you should proceed with caution and adjust your profit projections accordingly. In other words leave yourself plenty of "wiggle room".

Simply checking the classified ads in a given area can be an indicator of supply and demand issues. If you see ads that say things like "first month's rent free", or a builder advertising new properties with ads that say "free refrigerator" or "builder pays closing costs” these could be signs of sagging demand or over supply.

It's not very hard to discover issues with supply and demand if you take the time to look at what is going on with sales or rentals in a given area.

A "hot" market, a.k.a. “a sellers market", is a market in which demand significantly exceeds supply. A “buyers" market is one in which supply exceeds demand. Understanding this one key factor can be the difference between a big profit or a big mistake.

Also it is important to note that at any given time there will be both buyers markets and sellers markets in various areas. There is no such thing as a blanket buyers market or sellers market across the entire country.

Any large metropolitan area will have places with too much supply and places with high demand. The trick is to know which one your market is experiencing at the present time.

Investors who are capable of identifying pockets of strong demand or sagging demand will put themselves in a position to make offers that will be profitable because the assumptions about exit strategy will be valid and workable.

Donna Robinson is a real estate market analyst, investor, and licensed agent in the state of Georgia. She is also the TREA Training Director. This is an example of the kind of professional advice and support you receive when you join The Real Estate Arena.

 By Donna Robinson
REA Investors Forum Director

I often get email from investors asking me how they can tell which real estate investing strategy is ideal in their city.  From the perspective of a new investor it can often be difficult to decide what particular strategy you should use in a given area.

There are two essential ways to break down a real estate market for residential real estate investing.  One is geographically and the other is demographically. 

In the case of Geographics let's say we have an investor who lives in Cobb County, GA and he or she only wants to buy and sell properties in Cobb County. Since this investor has chosen to limit themselves to a specific geographic location, they will be limited to the deals (i.e. Strategies) that they find most readily available in Cobb County.  

For example, if you are in a suburban area that has lots of new construction, you may find more retailing opportunities to owner occupants. You will also find some rentals and virtually nothing suitable for fast cash sales because everything is too new.  And, the majority of properties in new areas have very little equity.

If you are in an older area such as inside the city of Atlanta where there are thousands of older properties and many fixer uppers,  you are much more likely to find cash sales deals,and some kinds of rental property deals but relatively little new construction.

So when it comes to choosing a strategy, your choice will be dictated by the situation.Is there a lot of equity to work with? Perhaps wholesaling is the best choice. Is there very little equity to work with? And it's a pre-foreclosure too? Then a short sale might be the only way to make the deal work.

On the other hand many investors prefer to choose a strategy and then try to find a house that fits that strategy. For example if you want to focus on generating fast cash deals, you have to go where the fast cash deals are. 

This is what most professional wholesalers will do. They don't limit themselves to a small geographic area. They may cover a very large area in order to find all the potential fast cash deals that they reasonably can. They may limit their territory somewhat, but generally they will cover a wide geographic area to find only the wholesale deals. 

Their demographic focus will be on contacting owners of older properties that are abandoned, or need lots of repairs. This is because these properties generally represent the best opportunity for lots of equity and a flexible seller.

If you are in need of a quick cash deal, you don't want to waste your time contacting owners of 2 year-old houses with no equity.

Investors who do this are using the demographic method. They are not trying to stay in a small geographic area, they are looking for a seller who is in a particular group,like pre-foreclosure, for example.

Demographic prospecting means using more of a mass marketing technique, and targeting pre-foreclosures, health issues, job transfers, probate, divorce, and the whole range of life related events that can lead a person to become a motivated seller. In this case, you try to get the seller to find you. It is much more efficient for your business if you make it possible
for this kind of seller to find you.

It is more common among professional investors to search for deals demographically rather than limit themselves to specific geographic locations.  However this means you must have a willingness to drive sufficient distances to check leads. I personally have driven more than 200 miles in a single day, while viewing as many as 12 properties.  At that point I was specifically looking for wholesale-able opportunities so I had to go where those opportunities were. 

Had I wanted to stay close to home, which is located about 45 miles from the most active fast cash area of fixer uppers, I would only pursue strategies that work with pretty houses,such as lease options, or subject-to, for a buy and hold strategy. My geographic area is newer and therefore it contains very few fast cash sales opportunities,in the immediate area, but is a better area for rentals.

It can take you some time to get a feel for the types of deals that are most likely to be found in your area.  If you are in an older area mostly built prior to 1970, then chances are very good that you would find more fast cash, wholesale type opportunities. 

If you live in a new area where most of the construction is less than 10 years old you would find more opportunities that offer less equity. These call for creative strategies. They work best in a buy and hold type situation, and offer less opportunity for fast cash profits.

So, one key to determining what strategy to use in what area is to look at the age and condition of the properties in your area and make offers that work for those properties.
The other key is decide what kind of strategy you want to go after, fast cash, retail or rental,and find the area that has the kind of opportunities you need.

In any part of the country, some areas are ideal for rental, retailing, new construction section 8, fast cash fixer uppers and seller financing.

In Atlanta, the outlying suburban areas are much more likely to be ideal for retailing, or buy and hold strategies.  The in-town neighborhoods in the older parts of the city are better suited to strategies like wholesaling, because older houses tend to have more equity and need repairs.

Newer houses usually have less equity and therefore are better candidates for creative cash flow strategies, like "lease with option to buy", or "subject-to the existing mortgage".

Creative cash flow strategies may require less equity where fast cash strategies will require more equity in order for the numbers to work.

Any strategy only makes sense if the numbers work. Regardless of where you are located,and whether your market is "hot" or "cold", the bottom line is -- what will cost you?  and, Can you sell it or rent it for more than it will cost?

With any deal in any market, you always have to assure that you are buying right. No matter what strategy you think is best for your market, you always want to be sure that you are never paying too much, so that you remain as profitable as possible.
Bad buying is virtually impossible to fix.

This means that you need to remain conservative when running the numbers on any potential deal. That is why I use the classic wholesaling formula as my benchmark for buying in any market. It gives me a starting point for the absolute best possible deal. Then, I can go up (or down) from there with my offer.

The wholesaling benchmark serves as a guide to many professional investors, who know that to survive in a commodity investment for the long haul, you have to learn to identify the really good opportunities, and stay away from those that do not present a high probability for profit.

Knowing when to walk away is half the battle. ***

 by Donna Robinson, TREA Training Director

RISMEDIA, Feb. 15, 2007-Convinced that home foreclosures will rise dramatically in the next two years, the chief economist for the Real Estate Center at Texas A&M University warns that a new scam threatens home buyers desperately looking for a way out of financial stress.

"Predatory lenders now offer what they call ‘rescue loans,'" said Dr. Mark Dotzour, "but home buyers are neither rescued nor do they actually receive loans."

Home buyers who purchased homes with subprime loans are especially vulnerable, he said. Predatory lenders are targeting subprime borrowers who have some equity built up in a home but who are having difficulty meeting monthly mortgage payments.

Home buyers with impaired or nonexistent credit histories often turn to subprime loans despite the higher interest that comes with them. According to Dotzour, many are about to discover that their "American dream" has turned into a nightmare.

Here is how the scam works. The home buyer gets behind on mortgage payments. The predatory lender offers a "loan to get caught up" on the delinquent mortgage payments. In exchange for the rescue, the homeowner signs over the title to the predator, who promises that the home buyer may remain in the home while paying rent. The predator then sells the house to someone else, and the original homeowner gets an eviction notice.

About a dozen states have passed laws designed to deter rescue loan fraud, but Texas is not one of them.

"The scam is called a loan, but it is not," says Dotzour. "It really is a buy-out with a leaseback."

Dotzour fears the problem is going to get much worse. As of Oct. 31, some 4% of borrowers who obtained subprime loans in 2006 were 60 days or more behind on payments. He said the delinquency rate is running twice that of a year ago.

"Foreclosures are up 27 percent in the last 12 months," said the noted economist, "but that's still low in my books. I'm betting 2007 U.S. foreclosures will double last year's total."

Subprime mortgage volume has increased fivefold in five years. The Mortgage Bankers Association estimates that $1.1 trillion to $1.3 trillion in subprime loans are due to adjust to higher interest rates in 2007.

"Obviously there will be a much higher foreclosure rate in the next five years," said Dotzour, "regardless of whether there is an upswing or downswing in the economy. 

Credited to : The  real estate center of Texas A&M, as published by RISMEDIA

 

Q. I have some, actually a lot of offers, of rent to own. I would like your feedback on these propositions. I am looking for a home. However my credit is bad. I do have a little cash though. Anyways, my main concern of this type of deal of course, is not being able to qualify after 18 months or 2 years. My other concern is who pays for maintenance? such as, roof, plumbing, etc. if this goes bad. What do you reccomend in this situation? and what do you suggest as a good read on this subject?

A. As a buyer, rent to own can be an effective way to get into a house. the key point to watch for is whether the rent to own terms you are being offered are reasonable, and will allow you to get qualified over time.  Some rent to own investors are only wanting to make as much money as possible, and will structure rent to own terms that will cost you so much, it is almost impossible to accumulate enough downpayment credit to get qualified.

They don't care about whether you can ever get the house or not, to some investors rent to own is merely a strategy for making more money off of their tenants. Be very cautious of the terms of any rent to own deal that is coming from an investor.

Terms should allow you to accumulate a reasonable amount of rent credit towards your down payment. For example, if you pay $1000 per month in rent, the more of that rent that is credited towards your downpayment, the better. 10% credit would be low, 25% would be pretty good. Investors will tend towards 10%, or even less.

Also, the fine print may say that if you miss a payment or are late, you are forfeiting your rent credit. Be sure you understand the terms in detail before you sign anything.
The other side of this coin is the private sellers who are not investors, but are merely trying to sell a house any way they can. They may allow you to rent to own if you can just cover their existing payments. Private sellers will often offer a better deal because they are motivated, and they are not "up" on all the rent to own stategies that investors use to get more money out of their tenants. My preference for you would be to find a motivated private owner who needs to get someone to cover their existing payments. The terms are likely to be much better. Private sellers are more likely to let you take over existing payments, without adding lots of rent on top of that.

You may want to schedule a flat fee, one hour consulting call with me, if you find a potentially good rent to own, or "subject-to" the existing mortgage situation, that you want to make an offer on.

If you find a motivated seller, you will want to work with them to make it a win-win deal. Many private sellers are willing to work with someone who handles themselves with integrity and can be trusted to keep their end of the deal.

Some investors will do rent to own deals in good faith. As usual, it is up to you, the buyer, to check the terms thoroughly, and be sure you understand how the deal will work.

Summary: Everyone has heard a story or read about someone who bought a property without paying a single dime as a down payment. But how does this work?
There are several "classic" methods commonly used to purchase real estate with no money down. There are an infinite variety of situations in a real estate transaction that could lead to a deal with no down payment. But for the sake of reality, I will focus on those that are most commonly seen in the current market.

1. Seller second - The buyer obtains a new first mortgage for most but not all of the total purchase price.
The seller finances the rest.

Purchase price: $100,000
Buyers loan: $90,000 (90% LTV) (new first mortgage)
Sellers finances $10,000 (in the form of a new second mortgage)
The buyer has borrowed 100% of the purchase price. Thus, you have100% financing, and no down payment was paid by buyer.
This is not a difficult strategy to employ if the seller has enough equity, is willing to hold a second, and the first mortgage lender approves.

Herein lies the fundamental issue that makes it so difficult to write about your financing and what to expect.
The fact is that lenders who are making the first mortgages on a property can change the rules or make new rules in the middle of a deal. Therefore every deal is different. Every buyer's credit and income are different and lenders vary in their underwriting requirements.

Talk to your lender ahead of time and find out if creative financing options such as a seller second would be allowed. Make sure you have a lender who is used to working on investment property loans. Some mortgage companies only have programs for owner occupants. You need to go to a lender who specializes in loans for investors.

2. Another common way to obtain a no down payment loan is to utilize one of the many low or no down payment programs that exist.
Many of these are intended for owner occupants, but some are available for investors. Again, it is important to talk to the right lender.

When it comes to finding a seller who will help you create a no money down deal, consider buying from an investor who is willing to be flexible. Some investors are willing to do creative financing simply because they understand that it helps them sell houses. It never hurts to make an offer that includes a seller second. You never know until you ask.

There are some things to remember when purchasing investment property with no money down. A key point is the comparison of monthly payments to expected rental income. When you are financing 100% of the purchase price, your payments will be higher. If you have a second mortgage payment to add to a first mortgage, your payment may be even higher. Be sure your rental income will cover the entire monthly payment.

3. More common among professional investors is buying wholesale properties, using hard money to purchase and rehab.

When the rehab is done, the buyer will usually obtain a new mortgage that pays off the hard money loan. Since this is a refinance rather than a purchase, you can take cash out of the property with this loan. You may have to bring some money to closing for the hard money loan, but theoretically you'll get it all back and more, when you “refi”, so you end up with no money out of pocket. This becomes not only a "no down payment" deal, but also a "cash back at closing" deal.

It works like this:
Purchase price $100,000
Repairs $15,000
Hard money loan $115,000
Bring cash to closing for Hard Money points and closing costs.

Purchase and repair, then get new loan to pay off hard money.
New loan is based on 90% of After Repair Value.
For our example, the ARV is $150,000

90% of $150,000 is $135,000.

New loan for $135,000. Subtract hard money loan pay off of $115,000 leaves $20,000.
You keep the extra $20,000 in cash, tax free since it is a loan, rent your house out and let the tenant pay the loan back.
Your gross profit is $20,000 cash and $15,000 equity. Total gross profit $35,000 before other expenses are deducted. Our goal is to end up with more cash in hand than we spent to get in the deal.

Down payment by definition means specifically money that is used to "pay down" the total purchase price. This does not include money for closing costs, points, interest, and other items such as insurance. But if you are buying wholesale properties, fixing them and refinancing to pull cash out, you should be able to pay all your expenses and have a nice profit at the end of the day. (Just keep some of that cash in reserve for emergencies)

If you fix and sell 3 houses per year, and you only net $25,000 total, after paying all expenses on each of the 3 houses, you are still netting $75,000 cash and equity in about 6 to 9 months. Plus, if you are renting these properties, you are also creating additional passive income through monthly cash flow, while accumulating equity in each property.

This is a solid strategy for small investors who wish to build a retirement nest egg and and a substantial monthly income, in 10 years or less. If you look around at the real estate investors who are wealthy, the vast majority own rental property, be it residential or commercial.

They understand the concept of buying at a discount, then holding their properties for years. They get to the point where their holdings are worth double or triple the price paid. This is free money that you can earn simply by buying and holding long term. No, this is not as easy as it sounds. If it were, everyone would be wealthy. It will require persistence and determination.

There are wholesaling companies in every major city that specialize in selling fixer upper properties that fit with strategy number 3 in this article. Look for their signs on the side of the road, their ads in the paper, or ads in local thrifty nickel type shopping papers.
Most deals do require some out of pocket cash, even if it is only temporary, until you refinance.
The old fashioned “no down payment” opportunities are pretty rare these days, with interest rates at historic lows. If interest rates go back up, (and they will) we will see more creative financing and more no down payment opportunities in the future.

 By Donna Robinson, TREA Training Director

I have been witnessing an unprecedented number of seminars, books and articles, all proclaiming that foreclosures are a vast pool of lucrative deals. While I do agree that foreclosures can provide investment opportunities, in the hot sellers market we have had up to now, the number of real deals has been relatively low. High buyer demand by both investors and owner occupants is driving up prices and the real deals are much harder to come by.

There are foreclosure books, tapes, seminars, newspaper and magazine articles everywhere you look. There is not a week that goes by in Atlanta, GA that someone is not giving speech, seminar or teaching a class on how to buy foreclosures.

Websites offer lists of all the foreclosed properties, photos, and detailed information for as little as $19 per month.

I am beginning to see and hear lender comments concerning being deluged with offers on some foreclosed properties. I can't help but wonder..."Is the foreclosure market reaching a saturation point for investor activity?"

Compounding the issue is the fact that many would-be investors are bidding way too much for properties, and driving prices up to near full market value. You will find that most foreclosed properties are listed for sale at or near 95% of market value, even when they need $20,000 in repairs. Houses we used to buy for $35,000 now regularly sell for more than twice that much.

The ownership or control of real property is a documented source of wealth. Real estate can make you money a variety of ways.
But if everyone is riding the same big wave, our surfboards are inevitably going to run together.

I believe what we are seeing is a foreclosure market that is so loaded with investors, that it does not represent the widespread area of opportunity it once did.

If there is a "secret" that is not openly told, it is the fact that only 1 to 5 percent of the properties in any given county in Georgia will be considered a good potential deal by professional investors.

Generally, a "good deal" involves locating properties that have lots of equity in them. There just aren't many. Most foreclosures occur within the first five years of the purchase. Properties with lots of equity are less likely to get foreclosed on.

In pre-foreclosure, you might negotiate a short-sale with the lender and pick up some equity that way. But there is just one
little problem.

Most lenders are not in the mood to negotiate with an investor prior to the auction. They much prefer to see it through the auction process. Or, the investor has to be able to function on a professional level. Lenders only look for credibility and the best offer. Short-sales are not for amateurs.

That is not to say that these techniques don't work. They do -- in the right place and time. For the most part, it is a real
numbers game.

You may sort through 50 or even 100 properties to find one or two gems like that. But, the question is, "is that your idea of
a workable investment plan?" It amounts to a full time telemarketing job, and a very part-time investing career.

Target those properties in preforeclosure that have a combination of distressed condition - in need of lots of repairs - and an owner with a legitimate hardship, such as loss of job or health problems.

Check out the short sale training in the training center for details on how short sales work and the documentation required. YOu will be competing this hundreds of other investors. Your preparation must be organized and detailed for short sale success with pre-foreclosures.

Get your funding in place to buy good solid properties you can rent. Interest rates will climb eventually, and so will rental property demand.

Foreclosures will still remain high for the time being, and lenders could eventually find themselves in a "fire-sale" mode, as interest rate increases begin to put a damper on the home sales market.

I think the real bargains in foreclosures are still a year or two away. I believe interest rates could hit 8% by that time. If foreclosure inventories are as high then are they are now, we will see some true short selling and motivated lenders.

 

 

 

I thought it would be a good time to have a look at current real estate market trends and make some assessments about the real estate market, and where we appear to be headed.

In doing this research I've been reading some very interesting statistical data regarding housing and in particular some of the historical trends in housing markets. Most interesting among these is a chart put together by Yale economist Robert J. Schiller, which is an index of American housing prices going back to the year 1890. It is based on sale prices of standard existing houses and excludes new construction so that it might more accurately track the value of housing as an investment over time. The housing prices are adjusted for inflation, in what economists call “constant dollars”, meaning that while prices are always rising, it is possible to adjust them to reflect a constant dollar value over time. This gives a more accurate picture of true dollar value over a period of years.

One of the interesting things that I noticed was that a house in 1890 was more expensive than the same property in 1920.

Actually housing prices as adjusted for inflation were at their lowest point in the entire cycle in 1921. In fact, even during the worst of the Great Depression in 1932, housing prices did not fall to 1921 levels.

So it's interesting to note that even the Great Depression did not cause the lowest housing values of the 20th-century. The apparent cause of the 1921 low point was increasing supply outstripping demand. A situation similar to what we have today.

And even World War II did not cause housing values to erode. After a 1939 peak saw the highest prices in 20 years, World War II and Pearl Harbor only resulted in about a 10 to 12% drop in the value of existing homes. And that lasted only until 1943. From 1944 to the early 1950’s prices rose about 40% and then began to level out, staying roughly consistent until the late 1970's when prices finally reached levels not seen since 1890.

In the early 1980's we saw a 15% drop from the peak prices of the late 1970's. In 1984 the housing market began a significant boom cycle once again and by 1989 prices had risen to just above the 1970's peak. Since 1979 we've had two 10 year long cycles where prices have risen significantly, then lost approximately 15 to 20%. This tendency to increase then fall back has kept the housing market more or less constant over the past 100 years, in terms of real value.

However, since 1997 prices for real property have been on a steady increase. This means that we have sustained the longest single cycle of price appreciation in American history over the last 10 years. And true to the historical data it would appear that yet another 10 year cycle is coming to an end. Indeed it is already apparent that prices have dropped approximately 10 to 15% in general since the beginning of 2006.

What makes our current 10 year cycle unique is that it is the only 10 year cycle that has sustained consistent price increases for the entire 10 years.

In other words this is the first time in our history that prices for housing have increased steadily for 10 straight years without any kind of decline in the middle of the cycle.

I believe that when you look at this information and combine it with other essential data such as the increase in the foreclosure rates, growing consumer debt, the popularity of exotic mortgages, and most particularly interest only payments and the recent phenomenon of negative amortization, common sense would tend to dictate that this is a recipe for a serious market adjustment.

Many factors seem to be combining at present, and may eventually bring about one of the largest market corrections ever seen in the real estate industry in the United States. We've already seen a 10 - 15% correction, but that is only 15 percent relative to 2005. If we look at the historical corrections that have already occurred at different points in time over the last 110 years, we might make some reasonable “guesstimates” as to what could happen in the near future.

Let's put a couple of things in perspective. The real estate boom of the last 10 years exceeds any previous peak by 70 percent. The historical peaks of the past were approximately 15 to 20% price growth followed by a decline of about 15 to 20% which kept the market somewhat consistent from the period 1948 to 1995. But the 1997 through 2005 boom has exceeded historical averages by approximately 300%.

Translated into plain english this basically means that we should see a major correction in housing prices over the next year, two or three, depending on interest rates, and overall supply versus demand.

Indeed we've already seen a 15% decline even with interest rates still at historically low levels. If interest rates begin to climb significantly in the near future this could certainly trigger an adjustment of historical proportions.

So what would this mean for the average investor like you and me?

The number one thing it means is that just over the horizon are some of the best buying opportunities we've seen in years. While a 50% drop in housing prices may sound like the end of the world on the surface, the fact is that this would be a tremendous boon for Real Estate investors who have patiently waited for better prices to come along.

If you are positioned correctly you stand to profit greatly. On the other hand if you find yourself tied up with interest only payments and negative amortization, you could be looking at serious financial problems. Now is the time to consider strategy adjustments to take advantage of the coming changes. Getting out of any adjustable rate mortgages in favor of fixed rates is a smart decision right now.

I believe that one of the primary factors that has pushed the present market to its all-time highs is investor speculation on a level never before seen in the U.S. housing market. I believe that speculation among investors has been one of the primary driving forces in this current cycle. It has pushed supply above demand, and is forcing price erosion in an otherwise strong economy.

Based on all of the data that I've seen recently I would be willing to bet that as much as 30% of all housing for sale today is related to investor speculation. I believe this is also the reason for the huge cancellation rates builders are now seeing in new construction projects around the country. In some areas new construction contracts have seen cancellation rates as high as 36%. This is typical in areas where the so-called hot markets were located - New Jersey, south Florida and California, which are rampant with investor speculation.

If I'm correct about the amount of investor speculation diluting the overall housing market future price erosion could be more severe than anyone realizes at this point. The mistake investors have made is to pay too much going in, due to an assumption of continued price appreciation. When an investor fails to buy right, due largely to flawed assumptions about increasing values, it can force an investor to slash prices drastically in order to get rid of the property. This has been underway for some months now, and has contributed to the erosion in selling prices that occurred in 2006.

But all of this bad news is good news for smart real estate investors. I've been on the sidelines for quite a while now waiting for these over inflated prices to drop to more reasonable levels. Once they do, smart investors who know how to avoid overpaying for properties will be out there to take advantage of the multitude of buying opportunities that will develop.

There are strong indicators that this has already begun.

TREA Investor Forum members will soon be getting some real insider information on the hot areas of activity that are developing now, and how to take advantage of them to get huge discounts on properties in their market.

There's still time to plan for the tremendous opportunities ahead. Keep an eye on your market, pay attention to the sales and foreclosure activity in your local area, get your funding sources together and get ready. Things are about to get very interesting.

And if you are not already a member of TREA Investor Forum, you may want to join soon, so that you can get the inside track on investor strategy and planning so that you can prepare to profit. ***

Donna Robinson is a real estate investor, consultant and market analyst located in Atlanta Georgia. She is the TREA Training Director.  Her program "The Real Estate Investor's Guide to Buying Right" shows you how to profit from and take advantage of today's changing real estate market. You get full access to the Guide To Buying Right when you join The Real Estate Arena. Go to www.REAInvestorForum.info

(Special thanks to Daniel Luby, AIC for this timely article on tax issues for investors. )


When seeking to maximize the cash flow on their real estate investments, individuals may be able to benefit from some of the same strategies employed by the largest and most sophisticated real estate investors.

In the 1990s Hospital Corporation of America (HCA) sued the IRS after HCA’s cost allocation of certain structure items to personal property was disallowed by the IRS. The amount in dispute was $700 million. While the IRS vigorously fought the position of HCA, the United States Tax Court ruled substantially in favor of HCA (Hospital Corp. of Am. & Subs. v. Commissioner, 109 T. C. 21 (1997)). Since then, the IRS has acquiesced to the procedures of a Cost Segregation Study and the subsequent tax deferral benefits.

A Cost Segregation Study is a strategy where the cost of personal property items, which are inherent in almost all real estate properties, is segregated from the structure portion. This personal property is then depreciated over 5 years rather than the usual 27.5 years for residential property or 39 years for nonresidential property. This reallocation of the cost basis allows for rapid depreciation during the initial years of ownership and a subsequent increase in the annual cash flow.

For example, in a study that our firm recently completed, an individual client purchased an existing residential condominium for $182,000. We were able to identify more than $20,000 of items that qualify as personal property which will defer more than $4,000 in taxes over the first 5 years of ownership. Furthermore, when the client sells the condo, along with the attached personal property, any capital gains in excess of the depreciated basis of the personal property may be eligible to be treated as long term capital gains at a 15% tax rate, not the typical 25% depreciation recapture rate. This favorable tax treatment at disposition of the property will reduce our client’s income taxes by $2,000. This is an unexpected little bonus that increases the overall return on investment.

While a Cost Segregation Study can be a powerful and profitable tool, it is not appropriate for all real estate investments. If you have owned the property for more than 5 years or if your exit strategy contemplates selling the property within a couple of years, the expense of the study may exceed the tax benefits. However, there is subsection of the Cost Segregation Study that can benefit all investors at any time during the entire holding period.

Part of the procedure of a Cost Segregation Study is to estimate the initial cost basis of various elements that make up the entire property. In one of our studies, the roof of a residential property was estimated to have a cost basis of $15,000. As per IRS rules and regulations, the roof is a structure element that is depreciated over 27.5 years, even though roofs in Florida typically last only 15 years. If our client has to replace his roof in year 5, his accountant now has the documented cost basis to deduct the un-depreciated portion of the original roof. Without the Cost Segregation Study, the client would have been depreciating the original roof for 22.5 years after it had been replaced.

While the IRS begrudgingly accepts the conclusions of a Cost Segregation Study, they apply a subjective analysis as to the quality of the study. The study needs to be performed by “qualified” individuals or firms, such as those employing “…personnel competent in design, construction, auditing, and estimating procedures relating to building construction” (IRS Private Letter Ruling 7941002). Also, utilizing a third party to provide the Cost Segregation Study helps to bolster the independence of your auditor as required by the Sarbanes - Oxley Act of 2002.

A real estate investor needs to maximize cash flow on a property to assure a profitable investment. While achieving a high cap rate is the first tool for profitability, the use of a Cost Segregation Study may result in additional cash flow, over and above the cap rate.

As tax season is upon us all, it may be beneficial to check with your tax or legal advisors to see if you can benefit from a Cost Segregation Study.




Dan Luby is a principal with Precision Advisors, LLC, which provides Cost Segregation Studies and insurance loss recovery services. Contact him at (407) 228-0820 or via e-mail at dluby@precisionadvisors.us

Summary: Over the past 5 years, retail housing values have risen 80% while investors are paying 300% more for investment properties. This is leading to more foreclosures among investors who are buying properties that can't support themselves.

In preparation for my project on the real estate investors guide to buying right, http://www.GuideToBuyingRight.com I spent some time researching selling prices of real estate during recent years.

What I found was very interesting. I pulled old files representing deals that took place more than 5 years ago. At that time we were paying an average, in Atlanta, of $20,000 for a 2 bedroom 1 bath property in decent condition.

In 2000 a 3 bedroom 1 bath SFR in liveable condition sold for around $30,000 in an average neighborhood. We paid as little as $5,000 for a house with some fire damage and as much as $53,000 for a house with an ARV of $250,000!

5 years ago, an average gross profit spread on a deal was around $100,000. In short, there was plenty of profit to go around. Today I regularly receive e-mail's offering "good deals" such as a 2 bedroom 1 bath house for "only" $115,000. (repairs included)This is an increase of well over 300%. In fact, my research indicates that retail housing prices - houses sold to owner occupants - have gone up nationwide an average of 60% to 80% over the past five years. At the same time, selling prices to investors have gone up some 300%
.
The phenomenon of so many investors selling to so many other investor buyers has created an artificial market in areas heavy with investor activity. It is something of a real estate bubble, because of it's total dependence on investor activity.

What this means is investors buying today are paying the highest prices ever recorded for Real Estate Investment Property, with no guarantee that these properties will go up in value, or cash flow enough to justify their purchase prices.

After reviewing 25 years of real estate market data, I personally believe that we have topped the very peak of the current real estate market cycle and will continue to see more evidence of a downward trend in property prices and the resulting effect that this will have on appraised values.

It calls to mind a mental picture of a kid swinging on a swing set. As you swing forward you reach a moment when you become virtually still as the swing reaches its peak, pauses just momentarily, and then begins its descent to the backward part of the swinging motion.

I believe we may be at that momentary pause in the cycle before the market starts to swing the other way. But just as the forces of gravity act upon that swing, cause it to pause, and then return where it came from, there are forces at work in the real estate markets that could act like gravity to pull real estate values downward from
their present peak highs.

Some of these "forces of gravity" could be rising interest rates, rising foreclosure rates, slowing investor activity, too many investors selling in the same area at the same time, and unforseen events like another devastating hurricane or a major terror attack.

I would caution investors at this point to be extremely mindful of the fundamentals when buying any investment  property. At this stage in the cycle, buying should be based strictly on real time market data. (i.e. very recent verifiable sales numbers)

I am concerned about the number of investors who have gotten into the market over the past two years and are finding themselves in foreclosure on one or more properties.

While the general media news is that houses are still selling well, the fact of the matter is that more investors than ever are finding their cash flows squeezed or their properties not selling. This is leading to a very high foreclosure rate in the investment property community. The primary reason I am aware of this is because of my ties to investing insiders, and my knowledge of the fact that many of the properties now on the market are investor foreclosures. This is a strong indication that my concerns are likely to be true.

While the National Association of Realtors may downplay slowing sales as a small percentage of their overall market, the fact remains that there are no specific reporting mechanisms for investor sales or cash flow activity. Mass media reports can be misleading for investors.

It is very difficult for the average investor to get any kind of accurate information that shows what's actually happening in the investment property market both for sales to buyers or property cash flow data.

While there are always deals available in any market, you have to pick and choose carefully. I caution you to analyze your deals and do your due diligence before you commit yourself to anything.

At the present time it is very important to be conservative when evaluating investment property deals. With investor buy prices, property taxes and insurance at all time highs, there is more risk in the present real estate market.

On the bright side, I see these problems leading to more opportunities down the road. I would expect that eventually we will see prices drop as much as 40% in the most over-invested areas.

As activity slows, or interest rates rise, more creative seller financing will begin to develop. Rental markets virtually always improve as interest rates go up. Investors who are patient and wait for the best opportunities may have to wait a while longer, but in this case patience will definitely be a virtue.

 

Recently a Property locator contacted me about a lead in Grant Park, one of the better known neighborhoods in the city of Atlanta. This lead came through someone who was acting as a wholesaler. The Property locator reported the following details to me based on information given them by the wholesaler:

Asking price $157,000
Repairs and renovations $40,000
After repair value (supposedly) $350,000
Gross profit well over $100,000

The subject property is a 2 bedroom 1 bath that has 1000 square feet. The rehab would require the addition of a master bedroom and bath of approximately 200 square feet in order to bring it up to the standards of the other houses in the immediate area.

I instructed the Property locator to have a local sales agent do a comparable market analysis and find the properties that have sold during 2006. Grant Park is a diverse area, so I instructed the Property locator to only pull those sales that had occurred on the same street as the subject property. This is because prices can vary widely from street to street and even block to block in inner-city areas. There is a diverse range of housing and prices in this general area and in such cases it is very important to find comparable sales that are the most recent and are located as close as possible to the subject property.

I received a comparable market analysis with the following information:

Sale number one occurred on March 31, 2006 and went for $307,000.
Sale number two occurred on April 20, 2006 for $305,000.
Sale number three occurred on June 26, 2006 for $286,000 .

All three of these properties have 3 bedrooms and 2 baths. I took each sales price and divided it by the square footage of the property. Then I averaged all 3 together. The result was $200 per square foot. This means that while each sales price varied somewhat, on the average each house sold for about $200 per square foot.  Looking at the closing sales prices, it appears that there is a downward trend. On a dollars per square foot basis it appears that prices are flat, with no real appreciation for the year.

I make this point because as an investor it's important to note which way the sales are going in a given neighborhood. Over the past 10 years prices have generally trended upward at a steady, healthy pace. This type of "sellers market" appreciation makes it easier to buy because price appreciation helps add to bottom line profitability.

But as of this writing, in September of 2006, it is becoming clear from sales data all around the country that the real estate markets are slowing and therefore prices are tending to remain flat and in many areas they are beginning to fall.

From the standpoint of an investor, with an exit strategy calling for a sale to an owner occupant it is important to know whether prices are rising or falling. This is because falling prices must be taken into account on the buy side or you will pay too much going in. And, the longer the renovation and marketing process takes the more likely it is that the price will have to be discounted to get a faster sale. Taking the sales data provided and looking at our subject property
we can do some quick math:

Current square footage = 1000
We anticipate adding an additional 200 square feet in the form of a new master bedroom and bath. This will bring the total square footage of the subject property to 1200 after renovations are completed. Keep this number in mind. Using the sales data provided, we can make a quick assessment as to whether or not our wholesaler friend is correct about the after
repair value on this property being something in the range of $350,000.

First I want to point out that none of the comparable sales listed above sold for $350,000. In fact, they were not even close. Secondly, let's look at this in terms of the average dollars per square foot. We have already established that each of the three comparables sold for an average of $200 per square foot.

A 1200 sq. ft. property selling at $200 per square foot would equal $240,000. A whopping $110,000 below what the wholesaler is telling us the property will be worth.

But why such a dramatic discrepancy?

Assuming that the wholesaler is not attempting to perpetrate an outright fraud, the most likely explanation for this discrepancy is the fact that Grant Park does contain houses that sell in the $300,000 to $400,000 price range. However the houses at this price point tend to be larger Victorian style two-story houses built around the turn of the 20th century. These houses are not comparable to our subject property because our subject property was built in 1952 and is a ranch, so it is a completely different style from the higher priced properties even though they are both in the same neighborhood. (But NOT on the same street)

This is the main reason that I instructed the Property locator to pull sales data from the same street that the subject property is located on. It would not be difficult to imply a higher market value for the subject property simply by mixing these larger houses into the market analysis. This is a common mistake that new investors make when buying a property in a neighborhood with a wide variety of housing styles built over a long period of time.
So let's review the circumstances and make a decision.

We know that the repairs will be at least $40,000 because it's very difficult to add a bedroom and bath and update the rest of the house without spending something in this price range on the renovations. There is not much wiggle room in this repair estimate.

Also, taking into account the current slowing sales in the real estate market, it is reasonable to assume that our selling price could go below the estimated $200 per square foot . We need to make some allowance for this so that we don't accidently pay too much in a market where prices could go down. So for purposes of this example I'm going to lower my anticipated
selling price to $195 per square foot.

1200 sq. ft. x $195 = $234,000
If I budget this deal based on an anticipated selling price of $234,000 I am well below the wholesalers claims of market value but hopefully I will be right in line with what I call "Real Time Market Value"(TM). This is the amount I feel I can reasonably expect to sell this property for given realistic comparable sales numbers and overall market conditions in the neighborhood.

My rule of thumb when selling to an owner occupant is that I want to be in this deal for no more than 80 cents on the dollar when all is said and done. This should give me a 20 percent net profit margin. Of course I would try to get more than 20 percent, but this is a realistic target in the current market.

So here's how this would break down -
$234,000 x .80 - $40,000 repairs - $15,000 for financing and carrying costs = $132,200
Assuming I feel comfortable with a 20% potential profit margin I can structure my buy price based on the formula shown. If I wanted to pad that a little bit I might change the formula from .80 to .75 for a little extra breathing room.

If my numbers are correct the deal should cost about $187,200 and sell for $234,000 for a net profit of $46,800 if I sell the house myself. If I have to list the property and pay a 6 percent commission, it will cost an additional $14,000. The smart thing would be to lower the offer price to about 119,000 to cover the cost of paying a sales commission.

Of course the question is whether or not the seller can or will accept my offer at that price. If he does, I can feel pretty good about my chances with this deal. This research gives me the ability to "nail" the price range in which I will have to buy in order to ensure that this deal will be profitable.

The moral of this story is you can make money in any market but it is critical to do an accurate market analysis and make adjustments to your buy price accordingly.

 

Make More Money and Avoid "Anemic Profitosis"

Is your investment income looking a bit pale and fatigued?
Do you become nauseated at the site of your profit and loss statement?
Are you "itching" to sell properties that are losing money?
Chances are you're suffering from a lingering case of anemic profitosis.

Sooner or later many real estate investors begin to show symptoms of this affliction.
Occurrences of this disease are most common during times of transition in the real estate markets. At present we are moving from a "hot" sellers market to a "cooler" buyers market.
The changing conditions often catch many investors holding properties that just won't move.
This extra inventory can leave you feeling bloated and irritable.
The result can be a devastating case of anemic profitosis.

One of the primary causes of anemic profitosis is severe swelling in the taxinus maximus.
In most markets, this condition usually develops slowly over time, and tends to get worse year by year if left untreated. In some areas swelling property tax rates have all but wiped out positive cashflow. In extreme cases this can lead to a very bad rash of selling among landlords who did not realize that they were paying too much for their property at the time they bought it.
Like many afflictions, anemic profitosis can be difficult to detect in the early stages.

Another common cause of anemic profitosis is buying pre-construction at near full price, then discovering afterward that there is not enough appreciation to cover your costs. This painful condition is often accompanied by sleeplessness, migraine headaches and multiple trips to the lenders office to beg for deferred payments. Symptoms include buying preconstruction condo developments in Florida, in markets that are already overbuilt and oversold to investors.

Chronic cases of anemic profitosis often arise when investors associate with "high-risk" groups. Chief among such groups are marketing gimmicks that offer to find houses for investors. Symptoms of this malady include paying a fee to join a group or club that will find the houses, arrange for your financing and take care of all of the "details" for you. A key symptom is the fact that you do not need to know anything about real estate investing. In many cases this leads to swollen purchase prices which can inflame or burst your budget, leading to severe financial emergencies. This situation can also be difficult to detect in the early stages, so it is best to avoid all contact with such high risk groups.

If you are an investor who is struggling with anemic profitosis, take heart. There is a cure.

Of course like they say "An ounce of prevention is worth a pound of cure". But in this case the same solution that can cure this malady can also prevent it if the symptoms are caught early enough.

The only known cure and the only known way to prevent anemic profitosis is to develop an excellent understanding of real estate fundamentals. Investors who are immune to anemic profitosis or have recovered from it have discovered that the profit is really made when you buy; therefore "Buying Right" is the key to avoiding a nasty case of anemic profitosis.
Buyers-Anonymous is full of recovering investors who admit that they got involved in deals they did not understand, with people they did not know.

Investors that earn healthy profits in any market will tell you that they don't buy anything unless the price is right. But these investors have the ability to determine what the right price is; because they understand the fundamentals of the market they're working in and generally choose a more conservative, common sense approach to their investing strategy.

The bottom line is that all strategies work sometimes but no strategy works every time.
In order to understand what strategy will work in a given situation it is necessary to understand the fundamentals of that particular investment and choose the strategy that will work best within the given circumstances.

Fundamentals will affect your strategy choices, but strategy choices cannot change the fundamentals. For example:

Interest rates are a fundamental issue. Each investor will be able to qualify for financing at a certain interest rate. For some investors this interest rate will be low, for other investors this interest rate may be several points higher. Some investors will be able to pay all cash and will not have an interest rate at all. In all three cases the costs of funding will vary and strategy decisions may be altered in each case due to the cost of funds. Whatever strategy you choose, your cost of funds will be a "fundamental" issue that you will have to work with.

When interest rates are low, financing is easier to get, there are more buyers, so you can sell faster for more money. This condition makes for a better chance of fast cash profits.
But when interest rates are rising, fewer buyers can qualify for a home. So they move into rental apartments and houses instead. Therefore rental income tends to grow, and income properties will cashflow better.
And, creative seller financing is easier to find in a buyers market.

Equity is a central fundamental issue. Simply put, the more equity in the property, generally the better the profits will be. It is much more difficult to make a profit from low equity deals than it is to profit from high equity situations. Equity gives you more flexibility, and more exit strategy choices.

Property Taxes are a major fundamental issue. No matter what type of property you purchase, no matter what investing strategy you choose, property taxes will affect your profitability.

There are many other fundamentals issues such as location, area demographics, and available inventory, just to name a few.

Adaptability is the key to avoiding chronic cases of anemic profitosis. The ability to adapt to changing market conditions comes only from understanding how the fundamentals will affect your investment.
Whether commercial or residential, healthy long-term investing requires the ability to analyze your market, and make adjustments to your buying and selling strategy for maximum profitability.

Whether you are suffering from a lingering case of anemic profitosis, or you want to avoid this affliction entirely, you'll need quality investing education that teaches you how to understand the fundamentals and then apply them to create profitable investing opportunities in any market.

 

By Donna Robinson, TREA Training Director

When evaluating the investment potential of any income property there is one basic criterion that you must apply. That is cost versus income. Simply put, property income must exceed monthly costs by an acceptable amount or the property will not generate a positive cash flow.

By definition an income property means “a property that produces income”. This sounds incredibly basic and simple but it is ignored by the vast majority of new real estate investors. I am speaking here specifically of cash flow, when I use the term “income property”.

In order to be profitable you must purchase income properties at prices that allow you to generate a positive cash flow. One of the biggest problems among newer investors is the inability to accurately gauge cash flow potential.

Today's higher selling prices, when combined with taxes and insurance costs have rendered many so-called income properties worthless as investments. Paying too much for a property means you cannot generate an acceptable positive cash flow. Excited but ignorant investors are plunking down big bucks for real estate without checking to make sure the real income will cover the costs. This has led to a drastic increase in the number of foreclosures of investment-grade property.

When it comes to income property all you really need to know is what will a property cost you per month versus how much income can you expect from that property each month.

My anticipated monthly income should exceed my total monthly costs by at least $200 or more for a property to be a reasonably good deal. Most experienced investors would consider $200 to be the minimum amount of positive cash flow that they would accept. If you can’t get a reasonable cash flow - don’t buy.
It’s that simple.

It doesn't matter what the seller is asking for an income property. From the standpoint of an investor who is considering buying a particular income property the asking price is irrelevant.

Income is the primary issue that drives my offer price. If there's not sufficient income I’ve either got to lower my buy price to a reasonable level or just walk away from the deal. The last thing I want to do is pay too much going in. Therefore the seller’s asking price is only valid to the extent that the property can generate enough income to justify the price.

When you evaluate an income property you need to know how much income you can reasonably expect from this property each month. NOT what the seller tells me, NOT what my friend at the office is telling me, but what I can reasonably expect based on my own research. This is an area where you do not want to take the seller or anyone else's word.

To protect yourself you must verify likely income for yourself. This is one of the most common mistakes new investors make. Making assumptions about income without verifying the real numbers can leave you with a negative cash flow and put you in foreclosure. So suffice to say it is critically important that potential income be verified before making any written offer. You do this simply by finding out what other similar size properties in the immediate area are renting for.

Once I know what the likely potential income is for a given property then I am ready to determine what I can actually offer for the property by “backwards engineering " based on the income.

Let's say for example that a particular property rents for $1,000 per month and the seller is asking $139,000 for the property. Is this a deal or not? The simplest way to answer the question is to take a mortgage calculator and run the numbers.

Sales Price $139,000
Down payment $13,900 (10% down)
Loan amount $125,100
Interest Rate 7.25%
Term in Months: 360 (30 year note)
Monthly Principal and interest $853.40

The calculation shown here is based on standard investment criteria which are generally 10% down, (or more) required for investment property. An interest rate of 7.25% is reasonable for an investor with better credit. (Your actual rate may vary, this is for example purposes only).
I use a 360 month term simply because that is the longest possible time frame and therefore represents lowest possible payment.

So what do we have here? Basically we have a property we can rent for $1,000 per month. And we see from our quick calculation that this property is going to cost us $853.40 per month for principal and interest. We still have not added taxes and insurance. Taxes and insurance should easily amount to $150 or more per month. (Much more in some areas).

Our payment will be $1003.40 but our income will only be $1000. We are going to lose a minimum of $3 per month. Given that the object of the game is to make money we have to come up with an offer price that will allow us to do that. This is where “backwards engineering" comes into play.

Going back to my P I T I calculator in the “Real Estate Investors Guide To Buying Right”, I am going to begin to lower the sales price in increments of $10,000, until I find an amount that will allow me to earn a positive cash flow of $200 or more. I am working backwards starting with the seller’s asking price and going down until I find a number that allows me to net at least $200 per month.

If I lower the sales price in my calculator from $139,000 to $129,000 my
P & I will drop to $785.18. I haven't changed the interest rate or the number of years. I am only changing the selling price. $785.18 added to my $150 per month for taxes and insurance now gives me a total cost of $935.18. Subtracted from our $1,000 a month rent we have now achieved a positive cash flow of $64.82. Still not what we're looking for, but we are headed in the right direction.

Next I lower the sales price to $119,000, re-run the calculation and my P & I drops to $716.97. Added to our $150 taxes and insurance we now have a PITI (Principal, Interest, Taxes, Insurance) of $866.97. Potential positive cash flow now stands at $133.03 per month. I still haven't reached my target of $200 positive cash flow per month but again I am headed in the right direction. Next I'll drop the sales price to $109,000.

At $109,000 my P & I is now $648.75. Added to my $150 for taxes and insurance, my total PITI will be $798.75 bingo!
$1,000 -$798.75 = $201.25 positive cash flow.
I have identified the maximum amount that I can pay in order to achieve my benchmark of $200 per month positive cash flow.

Let's quickly review –
The seller is asking $139,000 for a property that will rent for $1,000 per month.
If I pay the sellers asking price, I will lose money every month

Using my P I T I calculator I have adjusted the asking price downward, recalculating the payment until I reach the point where I have achieved my desired positive cash flow.

This is the essence of “backwards engineering” your offer price. As you can see from this example it is totally irrelevant what the seller is asking. It is only important to know what you can afford to pay in order to keep the payments at a level that will allow you to achieve your cash flow goal.

In this particular case I would offer no more than $109,000 for the property.

Of course the seller can refuse my offer price and try to hold out for more. But I know that I cannot exceed $109,000 if I want my cash flow to be at least $200 per month. It is not an emotional decision. I could care less about buying a property if it will not make any money.

This is an easy way to determine how much you can really offer for income properties. Whether you're talking about single-family houses or multi unit apartment buildings, your cash flow must be higher than your costs or you will not make money.

 

 

High property prices and rising property taxes are combining for a 1 - 2 punch in the investor marketplace. The net result is a dramatic increase in the number of investor owned properties that are heading for foreclosure. Weak rental rates and growing available inventory are aggravating the problem, by keeping investors in a soft rental market in many areas.

In particular investors are finding that government subsidy programs (aka section 8), are cutting rents by as much as 25% in some markets, due to a glut of available properties. This has created a bubble effect in the Atlanta / Fulton county market, with hundreds of houses currently available in every major zip code. During the past year, Atlanta zip 30310 had on average, over 550 houses waiting for a tenant under the housing choice program. There is currently way too much supply for the local demand, thus rendering many investment properties vacant for long periods of time. Of course, that means NO CASHFLOW.

This problem is so bad in the Atlanta area, that I would advise all investors in the local market to STOP and THINK before buying property for use in a local section 8 or housing authority program. In times past, section 8 was THE place to go for top flight rent rates, but no longer. Landlords are reporting to me that rent cuts have been so severe that many of them are selling at a loss just to get out. Tenants faced with lower rent subsidies are vacating desirable properties because they cannot make up the additional rent.

Wholesalers have "sold" section 8 as an investment program for years. It is supposed to be a viable way to collect higher than market rent from a guaranteed source - the government. Just one issue to think about - the government that makes the rules can change them in the middle of the game. This is what's happening to many investors who are dependent on the government for their income. A scary thought if you ask me. Just goes to show you need to pay attention to the fundamental market conditions no matter what strategy you think you want to use. If supply exceeds demand you can find yourself with no cash flow.

As usual, it is critical to know your local market conditions. Ignoring this fundamental fact of investing can result in the total failure of your investing business. Many investors are finding that out now. Based on my observations, as many as 25% of investment properties could face foreclosure as a result of over supply in investor driven markets.

Even so, this will not make a blip on the media radar, as they pull their data from the National Association of Realtors. NAR data tracks the owner occupant / retail markets, and does not really contain any specifics about investor grade real estate. But if you check your local MLS listings you may find many REO properties that are obviously investor grade real estate that has been foreclosed on. There are deals to be had out there, IF you understand your market and you know how to buy right.

But don't make the same mistake that the first investor made, when buying those REO's. You should be basing your offers on Real Time Market Value - NOT on appraisal data. If you buy based on an appraisal you will likely pay too much. Investment property is only worth the income it can produce. Your job is to figure out how much income that really is, not how much someone tells you it is...

If you want to find out how to evaluate real estate in any market and avoid making bad investment decisions, you should check out my "Real Estate Investors Guide To Buying Right". It shows you how to understand your market and make sound investment buying decisions. Don't let anyone lead you around by the nose - for duplicatable, profitable results in any market, under any conditions, you must learn how to adapt to changing market conditions and use them to your advantage. You can only do that when you know how to Buy Right (TM).

Donna Robinson, TREA Training Director - Note, the Guide To Buying Right is now available to all TREA members in their virtual office.

 Many programs, seminars and boot camps on real estate teach a specific step-by-step strategy in an attempt to help newbies learn how to become a real estate investor. I've done it too.

There is no question that some businesses are ideal for a simple step-by-step process. McDonald's would be the perfect example. Franchise operations are built with specific instructions and the documentation of a specific process.
Supposedly you can take anyone and make a business owner out of them by dropping them in the middle of a McDonald's restaurant, with their big fat operating manual in hand. (I am sure it looks similar to many of the seminar manuals I have in my real estate collection.)

This is what most real estate education addresses. The focus is usually on specific strategies and their specific step-by-step process. The idea is that this gives you a repeatable, easy to understand process, that you can learn and implement quickly.

But after years of learning about real estate and then years of teaching and consulting, I have realized that this approach can inhibit your ability to understand how real estate investing works at the most basic, fundamental level.

It is sort of like teaching a kid how to play baseball by saying:

1. Get a hit.
2. Get on Base.
3. Score a Run.

While this an easy "strategy" for scoring, it leaves the player with no understanding of the fundamental skills needed in order to get on base.
It's exciting to think about scoring the winning run, or making $50,000 on one real estate deal. However, most people who can do that on a regular basis have been working at their craft, diligently practicing and mastering fundamental skills.

Real Estate has basic principles that are not new. They have been around since property ownership deeds were first filed in England back in the 1600's.
These fundamentals are really the keys that unlock the door to investing success.

Just as with professional athletes, real estate investors have to practice the fundamentals.
Home run king Hank Aarons success was in his mastery of the fundamentals of executing a proper batting swing. That swing was what gave him the ability to hit so many home runs.
A real estate investor faces the same challenge when trying to "hit a home run" and make big money with real estate.

Alex Rodriguez and Roger Clemens make the money they make playing baseball because their skills are among the best in the game.
You will only make the big money on a regular basis, when you have mastered the fundamental skills of real estate investing, and learned to apply those fundamentals to every prospective deal. The bottom line is if you want to be a star in the "game" and make the big money you have to be good at the right things. But strategy based training tends to divert our attention away from the fundamentals.

Back in the early 1990's I heard Carleton sheets saying that rental property was the way to go.
I went to a seminar on government auctions and heard another guy named Russ Whitney saying that I should be finding houses that were in bad shape and fixing them up.
Then I saw a some guy on TV talking about how he got cash back at a closing, and actually made money by buying a house! It certainly seemed that there were plenty of ways to make money in real estate. Still I had what some people refer to as " "Analysis Paralysis ".

I now realize that my analysis paralysis was caused by a lack of understanding.
The plain fact was that I simply did not know the fundamentals of real estate investing.

After a few months of reading articles, searching real estate websites, buying books and tapes, and going to seminars, I piled in the car and started looking at houses. But every time I looked at a house, I felt confused and unsure about what to do and how to know if this really was a decent investment property.

I could understand this idea that all these different strategies were ways to make money with real estate but I really did not know what particular house would be good for what particular strategy.

Even though I had heard about all of these different strategies I felt confused about what to do because I could not quite connect all the dots. I knew that real estate made money but somehow I couldn't seem to get the right connection between looking at the property and choosing a strategy.

It seemed like my career was going nowhere. I went from one seminar to another hoping that each one would be the one that would clear up all my questions. Finally, out of sheer frustration over what to do, I decided to get my agent's license. While I was an agent I was required to take some classes on Real Estate Finance.

We learned to calculate net profits on a sale, buyers payments, market value based on comparable sales, and the fine art of gathering real estate intelligence when preparing for a listing . These calculations were not such exciting stuff at the time, but several years later, when I made the jump to become a full time buyer for an investment company, this gave me the ability to adapt to the investment market quickly.

Using my baseball analogy, you might say "I was working on my swing." I was honing those fundamental skills, that would later enable me to get involved in bigger deals with higher level investors. When I get to the "world series" of real estate, and have the opportunity to become financially free on one big real estate deal, it won't be by accident.

Looking back on all this experience I can't help but notice that the most successful investors, the ones who are truly financially independent as a result of their real estate activity, are those who have mastered these fundamental skills of Real Estate Finance. Every property has a value, location and character all its own. Mastering the fundamentals means being able to obtain key pieces of information, and then let the property dictate the investment strategy options based on that information.

The greatest single problem facing most investors in the current market is a lack of adaptability to changing circumstances. I believe that this lack of adaptability is primarily the result of not understanding the fundamentals of Real Estate Economics. It sounds pretty highfalutin' but all we're really talking about are the Real Time Market Value, income potential, and costs.

Each property will dictate to you what your best investment options are if you can find those key pieces of information.

Your starting point is to understand your market well enough to define an average of property values by the square foot - NOT house to house, as with comparable market analysis.

In a stable to improving market as we had from 1995 to 2005, it is easier to avoid mistakes when calculating value. But in a changing market where prices are tending to shift down because demand is changing or slowing, it is essential to be aware of what I call the Real Time Market Value. Learning this fundamental skill is critical for hitting "home runs" with real estate deals.

Calculating a Real-Time Market Value is so critical in a slowing market, that I developed my own way to calculate it.

Appraisals will always be relevant as long as lenders require appraisals. But appraisals will tend to be too high for months after market demand starts to slow. This will lead to increasing foreclosures among investors who are in deals at prices that are just too high for the Real Time Market Value to support.

Fundamental Skill number one: Know Your Real Time Market Value, and use this value to calculate your offer price.

When you pay too much going in, few, if any, strategies will keep you from losing money. ***

 

Strong Evidence of Buyers Market is Everywhere
By Donna Robinson, TREA Training Director

In an article by John Spence on Marketwatch.com, regarding declining demand for
new home orders, and quoting from a report by builder, Standard Pacific Corporation,
The company blamed the decline on "the slowing of demand in some of our markets from
the unsustainable pace of the past few years, a trend that we began to experience in
the fourth quarter of last year."

Slower activity is "particularly evident in markets which have experienced significant
price increases and investor-driven demand in recent years, such as California and
Florida," Standard Pacific said.
Additionally, the Irvine, Calif.-based firm said the year-to-date cancellation rate
for the period ended Feb. 26 was 26%, up from 18% the prior year."

The U.S. Commerce Department is reporting that home sales slipped 5% in January,
and January inventory levels of new homes on the market has reached a 9 year
high, with just over 5 months inventory available. (Remember, these numbers pertain
mostly to owner occupant activity. If it's slowing there, investor activity is likely
to be slowing even more)

According to the National Association of Realtors, that 5% drop annualized over 2006
indicates that 2006 sales are significantly below the sales rates of the past
two years. I really suspect it is going to be more like the slowest year in 6 years.

Inman Real Estate News is saying that 2006 home sales are off 24% in California.
Even as interest rates remain low, inventory is rising faster than demand.
California has a number of volatile markets, driven by lots of investor activity,
in addition to builders.

Markets that went ever higher will tend to lose value faster as demand slows.
Concerns over rising investor inventory has been the wild card for months now.
In many markets investor sellers are contributing to inventory rising faster than
buyers can absorb.

As investors are forced to cut prices in order to sell, appraised values could begin
to drop like a rock in areas where a large majority of the potential buyers are investors.
I suspect values are already dropping in many investor driven areas, like the inner
city areas of Atlanta and other major cities. Days on market are getting longer
and contracts are falling through with greater frequency than in past years.

Joel Naroff at Naroff Economic Advisers said recently at a Las Vegas meeting, that
he sees prices tumbling from 10% to 25% depending on the area.

These reports only tend to confirm what I have been suspecting and predicting for
months now. The ride to the top is over, enjoy the view, because it may be a long
trip to the bottom.

But actually I am pretty happy to hear this. I have been waiting a while now for
another good buying opportunity. In fact, I have not seen any deals in over a year
that I felt met fundamental investing criteria.

Here in Atlanta, everything has simply gotten too expensive in neighborhoods where
investor activity has been heaviest. Between ridiculously high asking prices,
and out of control taxes, it has not been possible to derive a decent positive cash
flow, or the cost to get in did not leave an adequate profit margin on the resale.
So, for over 12 months now, I have not seen any deals that had the profit margins
we used to see every day.

Mind you, I am getting pickier in my "old age". After 7 straight years of investing
activity, searching out and evaluating deal after deal after deal, rehabbing,
reselling, renting, optioning, etc, I know that you need hefty margins in order to
make a deal work and pay a good return for your time and trouble.
Lately, those returns have been harder to come by.

That is why I consider the current sales slow down to be good news.
It is also why I stress paying attention to the fundamentals of buying and financing
investment deals of any kind. You cannot pay too much for a deal and expect it to
make money.

There may be lots of broke investors by the end of this year. Lots of nice, well
meaning people who did not understand what kind of a deal they were getting into,
and what might happen if the market went south. Investors who do not understand that
you make your money when you BUY, are most likely to pay too much.

You collect your money when you sell, but you actually
make your money when you buy, by buying right to begin with.

Right now is the time for patience. You should always be looking for a good deal,
but you need to be aware that buying a deal based on an assumption of
continuing appreciation is suicidal right now in most areas.
(there are always exceptions, but you gotta know an exception when you see it)

Paying near full price because you assume that values will continue to rise
simply is not "buying right" and never has been.
Many professional sellers are so tight that they are selling at a
loss just to get out. Some have lost everything by failing to realize that
the fundamentals always win in the end.

It's like I always say, "IF YOU DON'T KNOW HOW TO BUY RIGHT, DON'T BUY AT ALL!"

*************************************************************************************
BUYING RIGHT IS WHERE THE MONEY IS MADE...

There are opportunities in any market if you know what to look for.
Real Estate is a serious business that rewards those who are diligent, and
punishes those that are lazy or irresponsible.

If you want to build and maintain a career as a successful investor you have to
know the fundamentals and Buy Right.

Join the Real Estate Arena today, and learn how to Buy Right with Confidence.

 Hold Property Six Months Before Flipping?
Q. I read your article on the macon scam and seen you are in the Atlanta area. I'm in Conyers and have been told by a realtor that in order to be legal in Ga that I must hold a property for six months before it can be flipped. I'm trying to see if this is true ort not? Since your in the business I thought you would know for sure. Thanks Jim Granger

A. This is not true as stated.

There are no laws pertaining to flipping in the sense of selling your house quickly. Only flipping as pertaining to mortgage fraud - a totally separate issue.

The realtor is mixing seasoning requirements for HUD loans, which are 6 mos to a year, versus flipping to an investor for cash. Only HUD loans are subject to seasoning at this point. Most investor grade lenders do not look at seasoning, only total equity as a percentage of value.
(seasoning is the amount of time you have been on title as the owner)

A property owner cannot be restricted from exercising his right to sell his property, regardless of the time frame.
But a lender can impose arbitrary requirements in an attempt to protect borrowers or themselves from mortgage fraud.
You can sell anytime, but some buyers using government insured loans may not be able to get funded for six months.

Q. The money that you pull from equity or from a loan is untaxable income,
right?

A. A loan is not income, as it has to be paid back. Therefore it is not
taxable income. It is a deception to think of a loan as income, even
though many people teach this idea.
Creating debt as a way to generate income is a popular strategy, but it
can and does create a situation where foreclosure or bankruptcy are more likely.

Q. In Real Estate, how do you recommend paying taxes on the money you make?

Keeping up with everything and paying at the end of the year, or paying
after each deal you make?

A. that is a question for your accountant.
Different businesses have to pay at various times.

Most self employed investors may have to pay quarterly, but
as you might imagine, the idea is to avoid paying as long as possible. An
accountant would have to answer that based on your income, the business type
you have or will have, and how you anticipate making the bulk of your
profit.
Rental properties are taxed differently than a dealer selling houses for
cash.

Q. I am looking at a house in foreclosure for $106k, but it does not come
with a sellers disclosure.
Does this mean that there are some problems with the house?

A. Banks do not provide sellers disclosure. this means that IF there is
anything wrong with the house it is your responsibility to discover it
ahead of time or deal with it after you buy the house.
They are not responsible for disclosing any problems.
This is standard procedure when buying a
property that has been foreclosed. Sellers disclosure is an optional form.
There is no specific requirement that the bank or a seller provide one.

 

 

Summary: Investors should closely check the appraisal for any property they are considering. Many fraudulent deals are dependent on an appraisal that uses bogus comparable properties for inflating the value.

There is a type of fraud in which an unsuspecting Real Estate investor believes he is buying a property worth a certain amount, when in reality the property is worth much less. This places the investor in a hopelessly upside down situation, owing more money than the property will ever be worth.

The primary way that this type of scheme is enabled is by the use of a "bogus" appraisal that over-inflates the value of the property. Once the investor has closed the deal, there is virtually nothing he or she can do to avoid the consequences of
having put a 300% Loan To Value mortgage on an investment property.

This basically means that the investor will owe too much to be able to cash flow the property as a rental, and there's no possible way that he or she will ever sell the property for enough to cover the mortgage payoff. This essentially leaves one with a bankruptcy/foreclosure, "take-your-pick" financial situation.

Investors who realize they have bought a property that will never be worth what they owe on it, may continue to make payments for months or even years in order to preserve their excellent credit rating. However once the damage is done this is essentially throwing good money after bad.

Given that this is one of the worst scenarios an investor could ever experience, it is "playing-it-smart" to take the necessary time to carefully examine the appraisal for the property that we are about to purchase, BEFORE we purchase it.

Since this type of fraud is dependent upon an over-inflated appraised value, an appraisal with incorrect or deliberately misleading market information will be necessary to perpetrate this fraud.

Therefore if a prudent investor is careful to take the time to examine the appraisal prior to closing, or better yet, have their own appraiser do an independent appraisal,one could avoid this scenario completely.

In a nutshell, NEVER accept an appraisal at face value without verifying the information in that appraisal.

When you don't know the market, it would be a smart idea to simply pay the $250 or $300 necessary to have your own independent appraisal done. You do not want to take anyone else's word for the appraised value of a property.
YOU are going to guarantee the loan, so you are the one who must make sure you are not being misled into paying too much.

The vast majority of investor fraud and loan fraud would be avoided if someone took the time to verify the information in the appraisal.

The greater part of a typical appraisal will deal with what are called "comparable properties". These properties are supposed to be very similar in style, quality, and size, to the property which is the subject of the appraisal. The concept of Compable Market Analysis" or CMA, means simply that one property in a given neighborhood should be worth approximately the same amount as other similar properties in the same neighborhood.

A valid appraisal that is a reasonable and accurate estimate of market value would use similar properties that are within a very small radius from the subject property being evaluated. The official rule is within one mile of the subject property. But in Atlanta, one mile can be the difference between a $50,000 and $500,000 ARV. So, I prefer to see comparables that are located within the very same neighborhood. One mile can make a very big difference.

And, I want to make sure that the comparables noted in the appraisal actually do exist as stated. One common tactic is to give descriptions of high value comparables and alter the address or zip code to appear that appraisal rules have been met, when in reality, the property is too far away, and not similar at all to the subject.

It was chosen specifically to give the appearance of higher value, and would not meet the required criteria under standard appraisal rules. The intent is to deceive the borrower into thinking the property they are buying is worth more than it is.
The lender may also be deceived. Though in some cases, the lender or a mortgage broker is involved in planning the fraud.

The question is, "who is responsible for generating the appraisal being provided as an estimate of value?"
In a typical transaction between a home seller and a home buyer it is the buyers lender who orders the appraisal as part of the process of underwriting the loan. Most lenders have their own appraisers who work for them, or are independent appraisers
who work with several lenders.

But, in most investor type transactions, the seller may offer to provide an appraisal. When you are the buyer, you should always plan to verify any appraisal provided to you by the seller.

Many fraudulent schemes perpetrated against innocent real estate investors involve a seller who got an appraisal that was over inflated simply by paying an appraiser and asking him to provide a specific value, in order to "make the numbers look good". Therefore the prudent investor buyer does not want to accept the appraisal provided by the seller at face value.
The appraisal should be verified or you should obtain your own independent appraisal prior to closing.

In extreme cases of well organized fraud, it is possible for the seller, the seller's agent, the closing attorney, the appraiser and even the lender to be involved in trying to lure a buyer into a bad deal.

Usually in this type scenario, the investor buyer is offered a "full-service" type arrangement, in which everything is taken care of for them. One should always careful of any deal in which "everything is taken care of for you".

The single most important piece of due diligence on any property is to verify the real market value before you buy.

As sent to Donna Robinson. The victim is not identified, but the story is real.

The story first, then my reply:

...I am 27 years old now.... 2 years ago, a close buddy of mine offered me the
chance to get to "invest in realty". Basically what was needed for him to
begin, was giving him and his business partner authorization to check my credit - no money down - his partner, who owned a realty investment company, would then find a good home and
purchase it under my name.

His business partner's company would give me a 30,000 dollar "buffer". I would use this "buffer" to pay the home loans upon purchase of the house as they made an attempt to resell the house. They would then turn around and sell the home and I would keep the remainder of this "buffer". He said my advantage in addition to the money is that I'd have a home purchased under my name with on time payments.

He explained that this is "what realty investors do". No money down
- no worries - this is what they did. And this is what supposedly enabled my
friend to by his own home that he lives in today.

Well - 2 years later after depleting my "buffer" completely - not to mention
a great amount of dollars out of my own pocket - the house never sold and I was only
able to get a person to rent for about 600.00 less than the monthly bill. In the
process of being squeezed for paying the loan I finally got some sense and looked
into details of the whole thing. Apparently what they did is "predatory
loaning" as some internet blogs define. He didnt buy a 250k house in my name, He took a loan under my name in the amount of 250,000 for a home that costed 170,000. My "friend" probably recieved some of that extra as did his partner. He was never able to sell the home - so now I am left with
nothing and a house on the brink of foreclosure.

(WHAT I DIDN'T KNOW THEN, BUT AM LEARNING ABOUT NOW)
At the time of the investment - I wasn't even thinking of where the $30,000 could be coming from. I was just told, "take this money and pay your loans on time until we can get someone to by this 250,000 dollar house". The money blinded me from common sense. I'm kicking myself for that now.

During the whole process, things seemed odd, and the whole house purchasing process seemed shady, and scripted.... I felt so uncomfortable (I wish I just left the office building where I signed documents) When I started questioning my friend about the legality of everything ... it suddenly became hard to get in touch with him as well as his partner. I've never purchased a home or ever applied for a large loan before. I make a good and honest living, but don't see how I could ever qualify for such a large loan in the first place. Also I eventually found that the house to be valued at about 170k - no where near 250k. It is here where I think the fraudulent / forged activity was done. The realty co. owner asked for my banking information, and even password to get into my account. And the house itself I feel was intentionally falsely appraised at 250k. That 80k difference..... went somewhere - I assume this is how they gave me the 30k "buffer".

So many details involved here that I don't even want to begin - the betrayal,
the realization that I was scammed by my own friend, the helplessness that
I feel now, the shattering of my dreams to purchase my own home someday.
Depression, depression, depression .... I feel like I'm a criminal - can't tell
my parents - my family.

I am however, more knowledgable now then I was then. Only now am I reading online
and researching what not to get involved in - and red flags identifying scams. I was scammed by my own friend but blinded by my own greed and stupidity.

I don't know what to do or what I can do.
My "friend" is just telling me to let the house foreclose and
life will go on. I just can't get over though the fact that this is a scam,
illegal and has ruined the last 2 years of my life. Not to mention my future.
I want to stand up for myself and for my mistake of being greedy - I
want to own up to my responsibilities yet let it be known that I am a vicitim
more than anything else.

As explained before - in addition to my seemingly lack of common sense back then, my main mistake was perhaps I was greedy? I dont know the laws, but i feel my actions might make me guilty of something - and in God's honest truth, it was done innocently. I wish to correct it in a manner abiding by the law, and bring to light the wrong doings done by the people who are really involved. Basically I'm making a plea for help to someone who can. I describe myself as a hardworker with goals of making money in life, no question. My trust in my friend was my downfall though - I am almost certain he knew he was getting me involved in a scam, but presented it otherwise. And his business partner.... I wouldn't be surprised if he has pulled this on a number of people. Its certain that I will have a foreclosed home under my name - and some lender will lose on a lot of money that I cannot pay..... THIS is because the masterminds of this scam had such illegal and malicious intent. Someone needs to know of this, Ms. Robinson. Thanks for your time and any advice you can give me. Perhaps you can ask me specific questions and i can answer as best I can.

Donna's Response:

I really feel for you, and for so many others like you who have fallen prey to these same, and worse tactics. Yep, you can bet your behind that your friend knew exactly what was happening. He needs a good "butt whipping". He knew he was hanging you out out to dry if the house did not sell, but was probably hoping it would sell. Still, I will guarantee you he pocketed money from your loan. Ultimately, the greed you mentioned is a dangerous motivator for all involved. It causes friends to betray friends, and leaves destruction in it's wake.
The crap everyone promotes and teaches about investing being so easy and such a great way to get rich quick is just so much BS. This business is full of risks and issues, as you have discovered.

As for the so called business partner. I would be willing to bet that these days, he is selling most of his houses this way. Not a week goes by without someone telling me they are either in a deal like this already, or they are being baited by a dealer who will give them 30K up front.

Many house dealers are only making money right now by getting guys like you into inflated loans then taking part of the loan proceeds. With the high housing prices, there are not any big spreads to be had. Most of these so-called "profits" are coming from loan spreads, not true cash profit based on real equity.

You need not worry about the criminal element of being involved. It is likely that you won't be prosecuted by the lender, but it just makes it very hard for you to mount a legal case against the other two, since you accepted the cash.
This is how these thieves suck you in. They tempt you with part of the illegal loan money. Once you take it, you are as guilty as they are in the eyes of the law. Even if you did not know what they were doing. The fact remains that you willingly gave them your bank account, and credit info to use for this bogus loan. This implicates you as a co-conspirator.

I do suggest that you discuss this with an attorney to see what, if any suggestions they have. You may have some recourse in Texas that I am not aware of, since I am located in GA.

Also, I think there is one thing you can do to reap some good out of all this. I would like your permission to tell your story to my newsletter readers. Of course, I will not identify you in any way, and will not disclose your location. If you do not object, this may be a way to help others avoid making the same tragic mistake.

 By TREA Training Director, Donna Robinson

There is no question that many, (but not all) real estate
markets throughout the country are experiencing a slow down. Recent survey data
provided by you, my newsletter subscribers from around the nation, are confirming
news reports that real estate sales are slowing significantly.

Atlanta and other major cities are experiencing significant market changes
and investor challenges. Especially in inner city areas, those areas that do
not have strong job growth, and those that are losing existing jobs.

It's high time for investors to recognize that the end of the current market cycle is
at hand. Interest rates, which have fallen for the past 10 years, are now on the
rebound. In some areas investors are struggling with longer days on the market when
trying to resell. Lenders have clamped down on fraud. As a result, seasoning issues
are making it harder to resell deals quickly.

Depending on your position as an investor you may find this end-of-cycle news
to be either good or bad.

Highly leveraged investors who are dealing with rising taxes and flat rental rates are
finding it tough going at present. But those investors who have stuck by fundamental
investment principles are seeing this change as a real opportunity.

The key is the ability to recognize a market change, and adjust buying strategy
accordingly.

It is always critical to Investor success to "buy right". And in times like these, it is not only critical but tricky.
It can be difficult to know exactly where "right" is in a shifting market.
Even professional investors can find it difficult to make the necessary adjustments
in buying strategy when one market cycle ends and a new one begins.

The key to long-term success as an investor is the ability to buy right in any market.
Cycles come and go. Values can rise dramatically and fall just as dramatically.
The risk of paying too much increases significantly in changing markets.
The ability to implement good buying practices is essential.

Most chief among these is the ability to correctly assess the market value
of a property. In wholesaling, we call it the After Repair Value or ARV.

Based on standard appraisal guidelines, determining an accurate ARV is a simple
concept in principle. In practice it can be more difficult. In a shifting market where values can be
flat or dropping slowly over time, it is very easy to over estimate the ARV.

One big issue that investors face,is property values supported by comparable market
sales that are higher than the numbers being seen on the street in what I call
the "real-time" market.

During the early months of a shift in market conditions, there is a time lag between
peak-of-the-market appraised values and real time market selling conditions.
One of the central keys to surviving market changes is the ability to recognize the
difference between appraised value and real-time market value. Since offers are
typically based on the anticipated ARV, it is critical to recognize these times when
the ARV should be adjusted downward. Paying too much for a property is the one mistake
that is almost impossible to fix without losing money and sleep.
In a shifting market, it is an easy mistake to make.

The most common question I get from new investors is "How do I get into this deal?"
The second most common question I get from new investors is "How do I get out
of this deal?"

You have to get in "right" in order to get out "right".

One of the keys here is to use the newest possible comparables when evaluating a deal.
Comparables that are older than 3 months are "old news" in many inner city rental
markets.

You will note that many properties being offered for sale now, show high
ARV's with comparables from 6 to 9 months ago. While this does fit standard appraisal
guidelines, these are peak of market comparables. The current "real-time market" as I
like to call it, simply is not supporting the cash flow needed to finance the high
ARV's being justified with sales from the spring of 2005.

If you bought a rental property within the past year or two, and you refinanced to
pull out cash, you know exactly what I am talking about. Rental property
loans that are above 80% of real market value are barely cash flowing - IF they are
in the black at all. Thanks to rising property taxes many landlords
have seen their cash flow go from positive to negative within a relatively short time.

The bottom line - until interest rates rise enough to slow retail sales,
and force more would-be buyers to continue renting, rental property rates and demand
will remain flat.

At some point, rising rates will strengthen the rental markets, but
this could take another year to really produce results. Long term, a significant
increase in interest rates will likely lead to another boom market in creative
financing. I do think we will see that, but I also believe it will take a good while to develop.

In todays climate of rising taxes, rising interest rates and flat rents, the
investment property business has hit a ceiling of sorts. While it is possible to get
an appraisal to support a very high ARV, it may be impossible in some areas to get
enough rental income to justify a high ARV.

In areas where there are lots of rental properties, and lots of rental houses
available, I am seeing landlords who bought based on an ARV that looks great on paper,
but in reality, they can't cash flow the property based on the ARV.

Cash out refinancing of income properties can work great, but NOT when rents are flat
and taxes are rising. This is a dangerous combination that I have mentioned before.

Heck, I'm not telling you this stuff because I have a crystal ball. The fact is,
I have lived through the same things myself. All of the things I've mentioned
in the past about fraud, seasoning, cash flow, rent rates, all of that and more,
are the same kinds of things I have experienced myself.

Real estate is easier in theory than it is in actual practice. (what isn't?)
Mind you, some deals go great, and everything is easy and wonderful.
But some of them are difficult, and some mistakes can break you if cash on hand is
already tight.

Remember the rule of thumb: Never finance more than 80% of the real market value of
any rental property, or you will risk losing your positive cash flow due to events
beyond your control.

When it comes to the "secrets of the rich and wealthy", they understand one thing all
too well...you can't over finance a property and expect to make money.
Believe me, the REAL investors out there with REAL wealth -
know that EQUITY is the key to protecting your cash flow when market conditions
are changing, taxes are rising, and general economic conditions are more volatile.

As usual, it is all about the fundamentals of good investing.
Gimmicks for financing at 95% of ARV, and other "explode your wealth now!" junk,
are nothing more than bad advice in a market where the fundamentals do not support that strategy.

We have had some good years recently, in which some of us could get away with
high LTV's and high interest rate loans. But, as you will see in the months ahead,
it is time to shift gears and pay attention to what works in the real world,
not what sounds good.

There is no substitute for buying right. But in changing times, it is critical to
understand the concept of buying right from the standpoint of how your strategy and
financing choices will work together in your market.

I know of one case where a formerly successful investor who failed to heed
the fundamentals, managed to put her mom into foreclosure.
Mom's house was paid for until the investor decided it would be a good idea to
use mom's equity to finance another deal that went bad.

How would you like to be in that position? Going from being a successful landlord
with cash in hand, to losing an entire portfolio, including your mother's home.
I can tell you that will make for some very sleepless nights.

We all want to be successful investors and make our fortunes, but we are about
to find out what really happens to certain strategies when a stable market
begins to change significantly.

From pulling the equity out of mom's house, to pulling all the equity out of your
personal residence, some of the things people do to finance property are very risky
and not usually in their long term best interest.

It's not about all these different strategies that you can employ, it is about
what strategy makes sense given the fundamentals of the situation.

**************************************************************

Do townhomes and apartment building have equity in them?

Q. Do townhomes and apartment building have equity in them?

A. Equity is the difference between the amount of mortgage debt owed on a given
property, and the total market value of that property. Therefore, any
property has equity if there is less owed on the debt than the property is
worth. It is also possible to owe more than a property is actually worth,
which is "negative equity".

 Q. Thanks for sending the report about prices then and now. I haven't got the words to tell you how correct your report is. After I sold the property I had last November, I decided to step on the brakes, and I do feel that my brakes will be on for quite awhile.

I have been seeing some very desperate investors lately, who are resorting to various kinds of "underhand" practices to get rid of properties in their posession. I get the impression, that many investors are trying to get other people, to take ownership to properties while they ( the investors ) take full control of the money and whatever profits they can make, then leave the person(s) with all the liabilities of the property.

I am diligently searching for other sources of income. I like real estate investing, but right now I am a bit unsure as to what I want to do, but I know that I will have to come up with a plan soon.

A. You want to think of real estate as a long term activity. Sometimes you wait it out and sometimes you get very active. It comes and goes. This is another little known truth about this business -- sometimes it is difficult to sustain a steady flow of deals on a regular basis.

I am self employed and have been for 23 of the past 30 years. I have found that the best approach to income without a job, is to have several different income sources, real estate being one. It can be a very big source from time to time.
But I also have a boat and RV storage business, and a couple of online activities via websites, and I do some private consulting.

SOMETHING will generate income every day. The trick to independence is to generate and maintain cash flow from multiple sources. The more sources, the less each one has to make on it's own, and the less risk you have of losing your entire income all at once.

I think I may write an article about this, as the desire for independence is really where everyone is at. I started real estate only as a way to escape the corporate job I had. But, a few years ago, several deals all fell apart at the same time and almost put me on the street. I realized that I needed other sources of income that are not directly connected to closing on a real estate deal. That has really helped to even out and maintain the cash flow. It takes time to build, but the rewards are well worth it.

Real estate investing is often "feast" or "famine", and can be very stressful if you are totally dependent on that one source of income. That is why we are currently observing so many desperate individuals who are now willing to "screw" anyone who is dumb enough to fall for their deal. They are suffering under the load of mortgage debt, and lack of cash flow. They too are finding that things can go south on you very quickly.
Multiple income streams help protect you by spreading your risk, so as not to be dependent on any one source or job.

Thanks for your nice comments. I appreciate the feedback.

By TREA Training Director, Donna Robinson

Summary: Economic factors, such as rising interest rates or volatile fuel costs will likely impact the real estate industry. while we know the changes are coming, predicting the timing is much more difficult, as unexpected factors such as terrorist attacks, or weather related disasters can affect the markets virtually overnight.  This article also discusses how these factors will affect real estate investors, and predicts a return to more creative seller financing.

The comments below are quoted from a recent speech by Ben Bernanke, a member of the Federal Reserve Board of Governors...

"Looking forward, I am sure that the Committee will continue to watch the oil situation carefully. However, future monetary-policy choices will not be closely linked to the behavior of oil prices per se. Rather, they will depend on what the incoming data, taken as a whole, say about prospects for inflation and the strength of the expansion. Generally, I expect those data to suggest that the removal of policy accommodation can proceed at a 'measured' pace. However, as always, the actual course of policy will depend on the evidence, ncluding, of course, what we learn about how oil prices are affecting the economy."

In short, the Federal Reserve knows that there will be an impact. But no one knows how big and how fast. During the oil embargo of the 1970's gasoline prices doubled several times over a matter of months. The effect was dramatic and sudden. It was difficult to adjust, because things were happening so fast.

This time around, it appears that the price climb will be gradual and slower than expected, thus allowing the Federal Reserve and the government to make adjustments as they go, by examining economic data on a monthly basis. At least that is what they are hoping for. They know that the economic climate is changing, but they are hoping that it will be slow enough to control.

This week as I contemplated my own reaction to the changing economic environment, I felt compelled to encourage you to give some serious consideration to your personal economic circumstances. If you have a large percentage of debt relative to your in-come, you should take steps now to eliminate as much of it as possible. Prepare your-self so that you will be protected against unexpected economic upheaval.

Being debt free, or having a very low debt to income ratio is the best way to protect yourself in an unpredictable and volatile world. As we learned on September 11, 2001 things can change dramatically in only a few hours. If you put it off, you may not have enough time to get it done. The average person needs 4 to 5 years to pay off their outstanding personal debt, not counting their home. In today's world, it will pay to get started now. I have made it my primary objective to pay off my personal debt over the next year or two.

If you currently own rental properties, be sure you have cash reserves for future emergencies.

But how might all this economic stuff affect real estate investing?

The interesting thing about real estate investing is that even bad economic conditions tend to have a silver lining. There is a cause and effect relationship at work in any given economy, whether it is considered a "bad" or "good" economy.

In good times, such as we've had the past 8 years, retailing or flipping for cash was the hot ticket, due to high demand for housing and the ability to sell properties quickly. In recessionary times, higher interest rates and lower housing sales fuel more seller financing, and rental properties flourish. Of course there are always exceptions to the rule, but generally speaking this is the case.

As interest rates got lower, rates of return for traditional investment vehicles went lower and lower. The result? More and more money poured into real estate lending. Hard money and other types of conventional real estate financing programs expanded drastically, making millions of dollars in new funds available for real estate investors.

As housing sales reached record levels, home sellers began seeing a boom in housing prices. It has truly been a sellers market since rates fell below 7%. What happened to investment property? During the past 5 years of an investing bonanza in Atlanta, prices for investment properties have doubled and even tripled. 3 bedroom 1 bath junkers were selling in 1999 for as little as $25,000, even in liveable condition. Today, that same type house regularly sells for $65,000 (or more) before repairs.

Going Forward:

Rising rates will have a positive effect for investors, by slowing housing sales even further. As sellers get fewer solid offers property prices will get softer. Rising rates could fuel more short selling of foreclosed properties, and this trend is likely developing now.

Foreclosures may eventually get to levels not seen since the late 1980's, due to high levels of mortgage debt among homeowners, who in many cases, have mortgaged all of their equity to pay other bills.

If rates get above 7%, you can dust off your creative financing books, as seller financing will increase. Rising rates mean rising monthly payments. This will eliminate the borderline buyers from the housing market. They will start moving back into apartments and rental houses. Vacancies will decline, rental rates will increase.

If rental rates increase, cash flows will increase. Rental property will be back in style with investors who abandoned rentals and focused on selling for fast cash in a hot market.

Companies that sell investment property can expect growing demand for rental grade properties. While it is still very early in the cycle, I believe this shift is already under way.

Economic recessions are boom times for smart investors who are positioned to take advantage of the situation. I am not predicting a recession per se' but rising oil prices and interest rates will eventually have a big effect on housing. Be ready to take advantage when the opportunity comes.

You have plenty of time to plan for it now.***

 Property Rights and You
By Donna Robinson, TREA Training Director

Summary: The supreme courts 2005 ruling on Imminent Domain ignited a firestorm of controversy over the idea of government having the right to confiscate private property for the benefit of another private party. Clearly overstepping the original intent of the rule of Imminent Domain as practiced since it's inception. The erosion of private property rights over time is apparent in the courts handling of this matter. All private property owners should be concerned about the long term interpretation of this doctrine.

The recent ruling by the Supreme Court of the United States regarding private property and a governments right to confiscate it under the principal of "Eminent Domain" has many real estate owners and investors fearing for the future of private property ownership in America. In case you are not very familiar with what has happened as a result of this court ruling, let me quickly cover the high points.

In New London, Connecticut, the local city government was approached by a large private corporation, who wanted a certain piece of waterfront land upon which to build a new commercial facility. Since New London is economically depressed and needs more jobs and more tax revenue for the city, it was decided by the local government that this new project would be of "public benefit", and therefore it should proceed. Only one problem, a number of private houses were already located on this waterfront land. All but 6 homeowners agreed to the terms of a buyout that would take their houses and demolish them to make way for the new construction.
The remaining 6 owners have fought a long, expensive legal battle just for the right to stay in their homes.

The years-long court battle finally ended with the supreme court ruling in June of 2005. It was decided by the high court that governments have the authority to confiscate private property, including businesses, for any "public purpose", even if the "public purpose" is actually a private, for profit project. Through this ruling the court has broadened the definition of "public benefit" to include any project that can increase tax revenues. This has caused an outcry in the real estate community, over the definition of "Eminent Domain" and it's original intent and purpose.

But what is "Eminent Domain"? and How is it supposed to be used? Here is how my 10 year old real estate agents licensing manual defines "Eminent Domain" (also known as "Police Power"):

"The right of government to take ownership of privately held real estate regardless of the owners wishes. Land for schools, freeways, streets, parks, urban renewal, public housing, and other social and public purposes is obtained this way. Quasi-public organizations, such as utility companies or railroads are also permitted to obtain land needed for power lines, pipes and tracks..."

Note the reference in the above paragraph to urban renewal and public housing. Prior to the 1950's, even this purpose was not considered to be a "public benefit". Up until a 1950's supreme court ruling that allowed governments to take land from so called "slum lords" in the inner cites for urban renewal projects, only roads, parks, freeways, and other truly public uses were considered eligible for the confiscation of private property under the concept of Eminent Domain.

Now, we have another court making making the police powers of the state even broader. But is there really an issue here? Are we all going to lose our house or commercial property because of this ruling?

I think the real problem here is the slow erosion of our private property rights. Like water running through the grand canyon or wind sweeping across monument valley, everything appears to be normal and unchanging. But as with the erosion caused by rain and wind, over a period of years our property rights are slowly being taken away. Since the 1950's the definition of private property rights has been slowly eroding away and is now being replaced by a new mindset that says the government knows best what to do with all property located within its jurisdiction.

I don't expect anything sudden or dramatic to happen, but make no mistake about it, the erosion of your right to own property will continue. My biggest concern is that in another generation people will begin to lose the concept of private property ownership, and develop a mindset that the government knows best how to control everything.

Communist countries already live under the principal that the state knows best. In the old USSR, under socialism, people were assigned a place to live and a job to work. It was "efficient use of the states resources". Certainly communist China would agree that taking property for the good of all is efficient and makes planning and growth issues easier to deal with. After all, in China, the state has determined that it is in the "publics best interest" to allow each family only one or two children. If you exceed that number, well, it's in the public interest to exterminate those additional babies. So today in China, your children can be confiscated too. But not to worry, it is all in the publics best interest.

There is no power more dangerous to the concept of individual rights and private property ownership than a government in need of money. Add to that the growing belief that people should give up individual rights for the good of society as a whole.

This probably won't happen next week, but give it 10 or 20 years. Once this kind of thinking takes hold and more local governments get into dire financial need, individual property owners will become the "bad guys" who are impeding progress and hindering the public good. Today it is the 6 homeowners in New London, Connecticut, tomorrow it might just be you or your children. Then, it will make "perfect sense" to eliminate private property ownership "for the public good".

By Donna Robinson, TREA Training Director

As a general rule, real estate investing is an excellent way to build a solid financial foundation and get out of debt. But-- that being said, the strategy works best when used under the right circumstances, and for the right reasons. One of the most common scenarios that I see among new, inexperienced investors, who have gotten themselves into big trouble with real estate, is jumping into a deal that they don’t understand, in hopes of earning a chunk of money so that they can quickly pay off existing personal debt.

If you are desperate for $20,000 and you’re trying to think of a way to come up with it in the next 30 days, you could use real estate as a strategy. But I strongly suggest that you consult with an independent professional who can give your deal an honest evaluation that is
in your best interest.

Many folks get into deals that they barely understand and wind up in a worse financial situation than they had to begin with. I recently counseled with a young man, (we'll call him Tom), who had excellent credit, documented income and a "friend" who is an appraiser. The friend approached Tom and said, " I can set you up with some good real estate deals, I’ve got the connections in the business, we can make some big money quickly".

Being a young, inexperienced investor, Tom jumped in, assuming that his friend had everything under control. After all, his friend "had done this lots of times". Tom signed loan documents he barely read. He did not understand how the deals were to work, or how the profit in the deal would actually be made. He committed his credit as the buyer for the properties, while his friend, the appraiser, would be responsible for all the confusing details Tom did not know anything about.

Unfortunately, it was a bad decision. Tom signed paperwork that was so vaguely worded that I was rather shocked when I read it. If only Tom had gotten some professional advice first. This never should have happened. Getting an independent third party to evaluate your first deal, or any deal you don't understand well, is an excellent way to gain experience, while avoiding major beginner mistakes.

There were three critical errors that Tom made. These are very common among the inexperienced:

A: He assumed he did not need to know anything about the deal because he had "a friend in the business".

B: He committed his credit and signed as the buyer for deals that he did not understand.

C: He failed to get an independent third party to evaluate of the terms of the deal.

Turns out, his friend the appraiser was engaged in a bit of loan fraud. He inflated the appraised value of the properties so that the lender loaned more on them than they were actually worth, pocketed the extra cash, and left this Tom holding the payment book on properties worth about $200,000 with loans outstanding of about $300,000. Now He will have to borrow more money to fix the properties and try to get them sold in order recover as much cash as he can for the lenders, or face foreclosure and possibly even bankruptcy.

For the average new investor, who’s never done a deal, who doesn’t understand real estate that well, has no experience with writing contracts, you should never, ever, in my opinion, engage in any kind of real estate deal, or give cash to anyone, until you have consulted with someone who knows what to do; Someone who can at least give you the benefit of an educated opinion. Have someone look at the numbers and evaluate your deal appropriately. They can make educated recommendations about what you need to do.

Ultimately, you make your own decision about whether or not to invest, but you can make that decision with a much higher comfort level if you have independent analysis that says this deal is a "go". Don’t let the temptation to make a quick buck draw you into a deal that you don’t understand.

If you need consulting, you should seek someone who is capable of giving you an honest assessment of the deal and give you some degree of assurance that the deal as presented makes sense for you. A real estate attorney, a CPA, a fellow investor, or qualified family member are some of many people who can give you qualified advice for a relatively small fee, Real estate investing is, in my humble opinion, the best way on the planet to generate and maintain true wealth. You can generate cash flow to build income and build assets through appreciation. Houses are shelter and provide an essential human need. A house has a value that goes far beyond the price. You can't live in your stocks. You can't raise your children inside a bank CD. Real estate makes sense for a lot of very fundamental reasons.

You can use real estate to generate cash to pay down debt but the deal must be a good one. It really is possible to make $10,000 in a short period of time. I see it done frequently. But the people who are doing it know how the deal works, and most importantly, they understand where their profit is coming from and how they will generate it. They also understand what their risks are and what they will do if plan A does not work out and plan B becomes necessary.

Wise investing requires prudence and experience. You can take action now. But get the help you need before you sign anything. The best advice in the world can't prevent a mistake that has already been made.

By Donna Robinson, TREA Training Director

When we see Donald Trump on TV, we see a guy who is living the high life. Money, women and fame - all thanks to real estate. By media standards it appears that "The Donald" is a rich, successful real estate mogul. And, as far as I know, he is. He lives a lavish lifestyle. He also seems to have lots of money.My guess is, he might be making more real money on his TV show than in real estate. Those nice cash paying jobs can come in handy. As The Donald knows, the real estate markets and their income,can ebb and flow.

But whether you want a nice positive cash flow each month, or a cash profit on a quick resale, the only real way to get there is with EQUITY.

You may think that an investor who owns say, 50 houses is probably very well set financially. He  might well be...but if this investor has refinanced his properties to take all the cash out that he can, he may find himself on the brink of foreclosure and bankruptcy if vacancy rates climb.

One the biggest dangers I see today is the incredible pace at which home owners and investors are pulling equity out of their properties. Many investors are buying properties without even understanding how crucial equity is to their profitability. And homeowners who get 125% loans on their homes are asking for a foreclosure.

Regular readers know that I harp on the idea of keeping a minimum of 20% equity in every property you own. The best reason to take lots of cash out of a property is for the purpose of paying down debt on other real property.

I often get calls from investors who are desperate to get a fix on why they are losing money on a deal. The number one reason I see over and over, is a definite tendency to take too much cash out of a property, which will kill your positive cash flow.

It 's not flashy, it doesn't sell as well as telling someone they can get $10,000 by next week, but buying, holding and accumulating equity is the absolute bottom line rule for success if you are a small investor. I don't want to burst any guru bubbles, but the facts are the facts.

Let's take my mom for example, who happens to be one of my favorite investors and also by far, the most conservative one I know. She owns 5 houses all paid for free and clear. All are rented for an average of $525 per month. Her personal residence is paid for too.

Mom is bringing in $2,625 per month in rent. Taxes and Insurance will get about $600 of it, leaving $2025. Over 12 months that is $24,300. Not too bad. Added to other income and investments this makes for comfortable, reliable retirement income.

On top of that, her passive income will increase over time as her rentgoes up. And, she is earning a solid 5% per year appreciation in the value of each property. Some of her houses have doubled in value over the past 12 years. In terms of equity, mom is worth a pretty good chunk. In a good market, I'd guess about $800,000 just for those 5 houses and her residence. She took about 15 years to do it. Nothing fancy, just classic real estate investing. Anyone could do the same thing easily in 10 years or less.

Mom represents the vast majority of the conservative, "never-been-to-a-seminar-in-my-life", types who make up the bulk of the real investors out there. Some have 5 houses, and some have 75. I once worked for a guy who had about 150 income properties. He was debt free and had untold wealth in his equity. He had spent 30 years building this portfolio, buying good deals as he came across them.

Equity gives you breathing room when the unexpected strikes. You have a tenant that skips out on you, or a tree falls on the roof and your deductible is $1000. Practical real estate investing requires equity for long term safety and security.

In contrast, many of the best known real estate gurus have been broke and even filed bankruptcy due to their real estate dealings. Many people don't know that Robert Allen, the writer of "Nothing Down" and "Creating Wealth", went bankrupt in July of 1996. It appears that his no money down deals loaded him with too much debt. When interest rates went down and the rental market got soft, there was not enough equity there to pay the bills.

Remember the guru Robert Huff? Well known in the 1980's,he wound up in bankruptcy too.

Even "The Donald" has been broke. His restructuring of debt on his New York City properties was the basis for his "comeback" to real estate glory. During the 1980's he got into a hole about 100 feet deep and then managed to get himself out.

Mom would probably caution Mr. Trump against too much debt. She will probably never be as famous as "The Donald" but whatcha wanna bet she has more equity... ;- )

 

Q. What do the zoning numbers mean - R2, R3, R4 etc. Could you point me in a direction to get some info?

A. Call the local county planning and zoning office and request their official list of zoning codes. R-2, etc may vary from county to county, but general meaning is "residential, 2 units per acre."
Every county maintains their own list of zoning codes and ordinances. Some are consistent from county to county, still you need to verify zoning with the local authority. Comments (0)
How Do I find wholesale deals on a regular, consistent basis?

Q. What do you consider the best method for finding wholesale deals on a regular, consistent basis? Thanks.
A. My answer assumes you do not have a bird dog network, which is a good way to find them. There is nothing better than having a network of people searching for you. Right now, given the high prices and over inflated ARV's, I highly suggest REO's. The reo realtors list and sell their junkers at very good prices. Most are in the cities, but they can be found in any area, though they may be few and far between in newer areas.
Wholesale deals are best suited to older run down (usually inner city) areas.

Not sure if you are in Atlanta or not. Either way, you can find these reo agents by checking local real estate books at the convenience stores and restaurants. Look for properties that are listed as REO's. Of course a realtor could help pull these off the MLS also.

Even most reo's go for near full price -- or they have for the past few years. I think as 2006 goes on, we will start seeing prices come down a bit, and banks getting more negotiable on these properties. If we get to 7% interest rates, it will be very interesting.

Understanding the difference between Real Time Market Value™ and Appraised Value

is the key to structuring profitable offers that will build your wealth faster or make your deals more attractive to investor buyers.

This is because Real Time Market Value™ is geared especially to the needs of investors, who must be sure they are buying properties for their profit potential. Investors need profits, in the form of either cash or cash flow.

The only way to insure profitability on every single property you locate for others or keep for yourself is to make sure you or your investor buyer will get in at the right price. It sounds simple enough, but thousands of investors today are struggling with properties that are not profitable. This is due to the fact that inexperienced investors do not realize that simply buying real estate in and of itself will not make you money. There is a big difference between buying a house to live in, versus buying an investment property with immediate profit potential.

Lets look at the key differences in these two approaches to value, and see how they affect investors.

Appraised Value

: The value assigned to a particular property by a licensed appraiser. These values are based on a wide range of criteria. The comparable sales used can be up to one year old. The properties that can be chosen as comparable properties for an appraisal can be up to 1 mile away from the subject property.

Appraisers must then go one step further and attempt to make the comparable properties they use in the appraisal "match" the subject property that is being appraised.

In older neighborhoods where the houses are all different in design, and built over a number of years, this can be very challenging. For example, if the subject property does not have a basement, any comparable that does have a basement must have its price adjusted to reflect what it would be worth without the basement.

This process continues by adding or subtracting bedrooms, baths, garages, etc. And as you might imagine, there are lots of differences in basement types, finished basements, unfinished basements, big bedrooms, little bedrooms, etc. It gets to be quite arbitrary by the time a particular appraiser makes all of these adjustments.

There is no way to be consistent. Every appraiser will come up with a different assessment of value. I personally have experienced situations where one appraiser said a property was worth $110,000 while another appraiser said the same property was only worth $60,000. A 35% difference on the same house!

The process of adding and subtracting items from the original selling price of a comparable sale makes the appraisal rather difficult to predict and control. And this confusing array of changes and adjustments opens the door to a lot of the appraisal fraud we have seen in recent years. Most importantly, standard appraisal methods do not measure the true profitability of an investment property.

Real Time Market Value

™ is a term I created to describe the process of evaluating the worth of a property based on its profit potential as an investment.

Whether you are a property locator or an investor, your objective is to find opportunities that have real profit potential. And you also need to be able to determine exactly what to pay for a given property in order to insure that this profit potential is realized. In addition, you should be able to predict with a reasonable degree of accuracy how much profit can be expected whether the goal is to sell quickly for cash or hold long term for cash flow.

Most advertising for investment properties looks something like this:

Asking price: $135,000

Repairs: $20,000

After Repair Value: $235,000 (i.e. Appraised Value)

Gross Profit: $80,000

So the average investor looks at these numbers and immediately assumes that there is a profit margin of $80,000 in this deal, so therefore it is a good deal.

Unfortunately this is not the case. This kind of approach to investing is the worst possible way to make your buying decisions.

Number one, these numbers are simply not an accurate estimate of real potential profit. Even though you might get a standard appraisal for $235,000 on this property, that appraisal is not relevant when it comes to selling quickly for cash or renting that property for positive cash flow.

Real Time Market Value™ looks at these numbers and asks, "What can I REALLY sell this property for in this market at this point in time?"

Where holding for cash flow is concerned, Real Time Market Value™ says,
"An investment property is only worth the income it is capable of generating at this point in time." Bottom line, monthly income MUST exceed monthly costs by a reasonable amount, to justify the investment. Most pros would define a reasonable net positive cash flow as at least $200 per month or more, after all expenses. This can certainly vary with location, price range and property type.

Standard appraisals assume no unusual circumstances, and no undue influence upon either the buyer or seller. Therefore market value as expressed in a standard appraisal does not apply to an investor who must get in and out quickly, or one who is dependent on a positive cash flow to pay for a property and generate income.

So that being said, my approach to finding the value of an investment property means I must discover the true profit potential of that property, whether I wish to sell quickly for cash or rent for cash flow. In fact, I prefer to look at any investment opportunity both ways to see which is the better choice: How much can I net if I sell quickly for cash? How much can I net per month if I hold and rent?

My approach is to compare the profit potential for different exit strategies to determine which one(s) will realize the most profit. I don't like trying to make every property fit one single strategy. I prefer to choose the strategy that represents the best profit potential.

Different properties will lend themselves to different strategy choices. If you only work on wholesaling all the time, you will have to pass on many leads that could work if another strategy were applied. Thus you reduce your volume of deals and therefore you reduce your potential income too.

To be a successful investor or property locator, you want to structure your offers on the basis of real potential profit rather than standard appraised value. If you don't do this, you will pay too much going in. This means your deals will be marginal at best. Most of the time you could find yourself selling at a loss, holding rentals with negative cash flow, or you'll be unable to sell your deals to another investor.

If you want to be a full time investor, quit your job and become financially independent, you can only get there if your deals are profitable!

Real Time Market Value™ focuses on verifying the income potential as the major part of your due diligence process. This is where "the rubber meets the road" so to speak, for investors. Smart investors who make the real money in this business, who are profitable year over year know how to structure offers based on income potential, NOT appraised value. ***

Donna Robinson is the director of the Real Estate Arena Investor Forum - check out the benefits of membership!

 

Question: I began my investing career in Jan 05. I have purchased 8-9 properties, networked with 100's of people, joined my local reia, met with Peter Vekselman in Atlanta, set up teams in different cities, hired a mentor for over $7k for a year. The market has changed so drastically in the past 8 months that I have become 'gun-shy'. I feel as though I am starting all over again from scratch. Very scary. I have lost a level of self confidence. I know what I know. I know what I don't. But it's what I don't know that I don't know that's got me stuck. Can you help?

Donna's Answer: That scary feeling comes from not having a fundamental understanding of how market forces act on each other. Those who have been on the REIU mailing list for more than 9 months know that I called this market downturn back in the 4th quarter of 2005. WAY before anyone else.

Real estate has a certain cause and effect to it that controls the best choice of strategy in a given market. For example, when the market is "hot" such as the past 5 years, retail strategies tend to work very well. But when the market "cools" demand drops,and housing inventories rise, rentals tend to work best.

This is why my Real Estate Investor's Guide To Buying Right focuses on applying fundamental market analysis and allowing that to dictate your choice of strategy. If you only understand one strategy, such as wholesaling, you do not have enough knowledge to make over all market adjustments. Market adjustments are made by knowing where the profit will come from in any given strategy, and knowing how fundamentals affect the strategies.

For example, rising prices are a fundamental issue. You can't control them. You have to choose strategies that work with rising prices. You may have paid too much going in. Many people have been buying at peak market prices, and the result is marginal profit, or no profit at all.

  Rising buy prices eliminate real equity and add more cost. If you get caught paying too much at the very peak of the cycle, you can be left holding properties you can't sell or cash flow when the market goes south. There are lots of motivated sellers right now who are investors who paid too much.

Falling prices as we now have, are another matter entirely. Buying when prices are falling is a real trick. You have to be on your game to get the right deal numbers. Investors who bought at peak will have a real tough time for the near term future. Selling prices could continue to drop on the retail end for the next year or two.

I adjust investing strategy to adapt to the market changes. Hopefully I am able to adjust before a market changes too much, or else it is harder to adjust without losing money. Today we have many sellers who want to sell but their prices are no longer realistic, as housing supply has vastly outstripped demand in the single family markets.

I would think that any mentor worth their salt should have been able to see this market change coming and guide you in a more appropriate direction, based on your own specific market. Any mentor who can't do that is not a mentor. They are selling education, not experience.

At this point in the market cycle, wholesaling will be tough for the time being, with deals being much more spotty. As with any strategy there are always a few opportunities out there with good enough numbers. The handwriting is on the wall for flipping as we currently know it. Title seasoning rules and new laws are going to take a lot of wind out of the wholesaling strategy for a number of reasons.

Its going to be time to move into other strategies that work best in low equity situations. We have a huge number of properties with low equity hitting the market at present. This is going to continue to drive prices down. Cash flow strategies will be working better in the future. They have been flat for the past 3 years.

Hey, I don't generally "blow my own horn", but people have to realize that the market will always change every few years. In order to be profitable for the long haul you have to know how all these forces work together. That is why my REI Guide To Buying Right is SO appropriate at this particular time. I am old enough to have lived through two complete market cycles since the early 1970's. That does give me a little perspective that most people do not have. Ability and skill in this business does improve with years of experience. If you survive the early years, you will have learned your lessons well.

The best opportunities we've seen in perhaps 15 years could be only a year or two away. Hang in there, but I do suggest you drop your mentor and join the Real Estate Arena. You'll get accurate information not typical BS that is only trying to make money off of you.

Donna Robinson, TREA Training Director