The Foreclosure Investor
Feb., 2008 Vol. 4, Issue #1
100 % Loans Are Back:
We thought that the days of 100% loans were gone forever but here they are back again in an effort to encourage the housing market to rebound. Now, it takes an absolute minimum score of 660 along with a goodly amount of income. Owner-occupant receive special considerations, as usual, but the loans are also available for investors who have the credit score and income.
One caveat though--these 100% loans and low interest rates apply only to single family residences. Apartment buildings still require a 10-20 % down payment. Surprisingly, duplexes, triplexes, and 4-unit buildings qualify as single family residences for loan purposes. This explains why there are so many 4-unit apartment buildings around. *
**Snippet from the Foreclosure Investor, Feb., 2008
Why We Get Inspections:
The Iceberg Comparison:
Houses are similar to icebergs, in that only a small portion of the iceberg is visible above water, and only a small portion of the house's defects are apt to be visible on a walkthrough. Except for cosmetics and esthetics, you really don't know much about the house unless you engaged the services of a licensed inspector.
Here comes the Man!
A licensed inspector will do all of the inspection and send you a written report, many pages long, usually with photographs of the defects. He will charge you from $250 to $400 for inspecting a house and from $200 to $300 per unit for inspecting a multi-family building. Paying an inspector is cheap.
After the inspector send us his report, we sit down together and draw up a list of options to present to the seller. Incidentally, on Alabama, a seller is not required to disclose defects.
**Snippet from the Foreclosure Investor, Feb., 2008
How Comps Can Change
What are Comps?
Comps are really just a quick way of saying Comparative Market Analysis, and they work like this: The Multiple Listing Service provides date on every sale that is made within a market area. A computer system can pull up every sale within a given radius of a property (usually .3 or .5 miles) that is a comparable building (such a 3 BR, 2BA, 15-20 years old). If the sale prices for the last six months are averaged, you get a number that is pretty close to what that property will being on the market. This is the "comp" value of the house and is quite useful when setting a price.
How do they change?
Now suppose that there have been three sales in an area in the last six months of $170,000, $172,000 and $174,000. This would average out to $172,000 as a "comp" value. Suddenly a fourth similar house in the area sells for only $160,000. The average of the four houses is now only $169,000. If a fifth houses sells for only $154,000, then the average of the five is only $166,000. This illustrates a declining market, such as we have seen for the last eight or nine months, in which property values decline in value and the constantly decreasing comp values actually hasten the decline.
So what does this mean?
For the average property owner, comp changes can be quite meaningful because almost every home buyer has an agent that furnishes him with comps. Although the house has not changed physically, the perceived value of the house through comps greatly affects what a buyer may be willing to pay.
How Can I Make Comps Work for Me?
First, accept the fact that comps are very important whether you are buying or selling. Buying in today's market with falling comps puts you in a extremely good position to get a bargain. If you buy a property now and rent it out until the market comes back, then you can sell into a rising tide of comps and make a handsome profit.
Second, be aware that comps are always changing. The comps in an area will change slightly ever time a property is sold and will affect the value of every other property in that area.
Third, try to go with the flow. Buy when comps are down (like now) and try to sell when comps are high if at all possible. Yes, this sound like paying the stock market.
Fourth, keep in mind that comps usually don't change a lot in spite of today's falling market.
And last, if you are caught in today's market, don't panic. Rested assure that it will change.*
**Snippet from the Foreclosure Investor, Feb., 2008
Strategies for Today's Market
Downside and Upside:
By now, unless you've been living on the moon, you know that real estate is in a buyer's market. You can get tremendous deals on buying a property, but selling one at a decent price is very difficult. So, does this means that we can't make money any more? Not at all! It just means that our strategies have to change and adapt to a changing landscape.
Two "R" Words:
Instead of just buying a property, doing a little fix-up and then selling it at a profit, now we have to do something else. That "something else" consists of Renovations and Renting. It works like this:
Since we are in a buyers market, we find a property that has been on the market for a while and is a bit ratty. If we are strong and knowledgeable in the renovation department, we find one that is very ratty. This property also has to be "rentable". That is, it needs to be of a type and in an area where we can successfully rent it out after it's renovated. After renovations are complete, we then proceed to rent it out.
The Third "R" Word:
O.K., now we have a renovated property that is fully rented, so that we have enough monthly income to make a mortgage payment, maintain the place, and have some gravy left over. Are we through? Nope, there is still one more step to take. The third "R" word is Refinance. We bought that property in ratty conditions at a bargain price, didn't we? Now it's shiny and producing income and it's worth a lot more than it was before. In fact, it's probably worth at least a third more that we paid for it. So what do we do? We re-finance with a a new appraisal. lenders will normally lend at least 75% of appraised value so we get all of our initial investment back plus maybe a little extra.
Now we have a shiny piece of valuable property-we have it rented out with the rent paying for the monthly mortgage payment and maintenance-and we have all of our capitol back. This is a sweet deal. Who said you couldn't make money in a down market?*
**Snippet from the Foreclosure Investor, Feb., 2008
The Foreclosure Investor
July, 2009 , Vol. 5, Issue #1
The State of the Market*
Strategy: Buy, Rent out, Hold, & Sell*
In today's market, it is difficult to sell a property at a price that will allow you to make a profit. However, because of stricter credit and down payment requirements, there are an awful lot of people out there who can no longer buy a house, but must rent instead. This has created an incredible market for rental housing, and therefore an opportunity.
Whether we choose to buy a foreclosure , a short sale, or use some other method, we can buy property very cheaply now. The answer is to buy cheap now, rent the property out at today high rental rents, and wait for the market to come back-then sell it high at a good profit.
A lot of people don't want the hassle of dealing with tenants. The answer is to let a property management firm manage the property. Stringfellow Properties is also a property management company.
Financing*
100% financing is probably gone forever, Using investment property as collateral, we have to put 10-20% down there days. On owner-occupied properties, however, only 3-1/2% down is required for an FHA loan and a several mortgage of 3% can also be rolled in, making the loan 99.5% of the purchase price.
Horse trading: What about offering a trade-in property on a higher priced investment property? Read more about 1031 Exchanges.
1031 Exchanges (tax free)*
Every investor ultimately is faced with two big problems:
1. Coming up with the down payment when buying a new investment property.
2. Paying the capitol gains tax when selling an old property.
A neat gimmick called the "1031 Exchange" solves both of theses problems at one time.
(See newsletter for details on the 1031 Exchange. Email carl@stringprop.com for you copy.)
Short Sales*
Today, short sales are quite common and are a win, win, win tactic for the owner of the property, the lending institution, and the buyer.
The property owner, for some reason, gets into financial difficulties and can no longer make his mortgage payments. He appeals for mercy from the lender and they grant him some extra time to sell the property before for the property is foreclosed. This is now a short sale.
It cost to a lender approximately $30-35,000 to take a $200,000 house into foreclosure and sell it, and it may take six months to a year before the sale is made. As an example, suppose the house is listed for $200,000 and the owner owes $180,000 on it. We would go in with an offer of around $150,000
Single family vs. Multi-family*
The obvious advantages of Single Family Dwelling (SAD) investments is that they can usually be bought cheap and there is not a great deal of hassle in renovation and maintaining them. The great disadvantage is that you can only get one tenant's worth of rent from them each month.
For Multi-Family Dwellings (MAD) investments, the emphasis is on high income. Income and cash flow are usually great, and the more units that you have in a building (triplex, quad, etc.) , the better it gets.
On the down side, you will have more tenants to deal with and somewhat more maintenance. MED properties usually do no appreciate as much as a SAD. With a MED you get more income but usually not as much profit at the end.
The Foreclosure Market*
Five years ago, there were just over 300 foreclosures available for sale in the Jefferson, Shelby and St. Clair county areas. As of today, there are over 2,000 available, and most of them are at bargain prices.
The problem here, obviously, is getting our hands on enough money to buy these bargains. There are sources of investment mortgage money out there, but is often expensive and you do have to have a 10-20% down payment. Strangely enough, it is more difficult at present to get a small loan that a big one.
The time is ripe for your investments..
* Snippet from the Foreclosure Investor, July, 2009*
*If you would like any or all of the Foreclosure Investor newsletter emailed to you just email us at carl@stringprop.com with the words "email" as the subject.*