The Foreclosure Investor Volume 2, Issue 1
A New Real Estate Company !!
Good News for everyone in Investor Land! As of November 4th, we formed our own real estate company, Stringfellow Properties, Inc. This means that we will be able to offer your more and better service which at the same time saving you some hard-earned cash.
The biggest change is that we can now handle the sale of your properties for an absurdly low commission rate. Now we can sell your property for 3 % if we find the buyer or 4-1/2 % if an agent from another company finds one for you through us. This can save you thousands on the sale of just one property.
Last, we can now give you access to the Multiple listing Service! This is normally reserved for Realtors only, but you can access it through our website, www.stringprop.com. If you have trouble , give Paula a call at 824-1459 (office) or 937-5107 (cell) and she will walk you through it.
(This is a segment of article, call or email for complete article.)
1031 Exchanges
As most of you probably know, when we sell a property we have to pay both state and federal capitol gains taxes on the profit. In order to encourage re-investment of profits, the writers of the tax code came up with the 1031 Exchange, that allows you to escape paying the taxes until you finally cash out. There is no limit on the number of times that you can do this, so that it is possible to legally avoid paying these these for the rest of your life. A 1031 Exchange works this way:
You must use a Qualified Intermediary (QI) who will hold the proceeds from the sale of an investment property after all expenses and loans have been paid off. The QI can be a real estate attorney or a company that specializes in this. You must then select a new investment property to put these funds into that costs more than the selling price of the original property. The purchase must be structured in such a way that the proceeds from the sale all go into the new purchase. If you pull out any cash, them you must pay capitol gains on that amount.
There is a time factor in 1031 Exchanges. You only have 45 days from the time you sell the first property to identify the succeeding property that you intend to buy. You also have one 180 days to close on the new property, or until April 15th, whichever comes first. Extensions are routinely granted on request for the April 15th deadline, so that's usually not a problem.
If you think that you might be interested in a 1031, call Carl at 824-1459 or 907-1943.
(This is a segment of article, call or email for complete article.)
New on Our Website-MLS
The website address is www.stringprop.com
Once on the website, here's what you do: The "Property Search" button is the fourth one on the home page. Click on "Property Search" and you will be directed to a page of options. The first option will search by zip code, the second will search by area and the third will search by MLS#. Selecting the zip code or area will bring you to a page to narrow your search. You can select the number of bedrooms, bathrooms, list price and other options. You don't have the option of searching specifically for foreclosures, but we can do that for you and give you the MLS numbers to pull the properties up on your screen.
Home Tours
"Home Tour" may also be useful if you would like for us to sell your property for you. To use it, click on "Home Tours" and you will be directed to a page with all our listings. Click on the property and you will go to a page with photos on the interior and exterior of that particular house. Our listed homes will also be featured in realestatebook.com, a national real estate website.
Seventy-five Percent of individuals who wish to look for a new home do so online!
Foreclosure Newsletters
Don't forget that you can get snippets of the Foreclosure Investor newsletter by clicking on "Foreclosure Investor Newsletters" on the left bar on the home page. If you have lost any issues and would like a reprint of any back issue, please contact us and we will get one (or several) out to you.
(This is a segment of article, call or email for complete article.)
The Foreclosure Investor July 2006 Vol. #2, Issue #3
The HUD's Are Back !
Talk about sneaky-- the HUD homes are being put back on the market one or two at a time. Presumably the HUD's will start coming at a faster rate as time goes on. The Katrina evacuees were supposed to all be out by Mach 1st, and then by April 1st, and then by May 1st, but appears that some of the houses are still occupied.
For those of you who came in late, HUD stands for Housing & Urban Development. This federal department assists low income and first time home buyers in buying a home with little or no money down (no, they won't do this for investors). If the buyers then default on the mortgage, HUD places the property up for sale to the highest bidder. For the first ten days after the property is placed on the market, only people who will sign a statement that they will personally occupy the property for at least two years are eligible to bid on it. After that ten-day period, the bidding is open to anyone, including investors.
Bidding on HUD properties is a bit different. It has to be through a HUD certified realtor (ahem, yes we are certified) over the internet. There is no human interaction and highest net bid wins. The HUD houses are locked up with special lock that can only bed opened with a special HUD key that certified realtors have. If you are interested in investing in a HUD property, call us at 824-1459 and we'll make them available to you.*
The Pros and Cons of Buying a HUD
PROs:
1. HUDS can be quite profitable-- These properties go to the highest bidder. They have sometimes been renovated.
2. You can see them all on your computer--Anyone with a computer and internet access can see all of the available HUD homes in the area. Just go to www.hooksvanholms.com, click on Buyer, then Available Properties and then the Alabama map icon.
3. YOU get a free inspection report--You save $300 this way.
CONS:
1. HUDS are difficult to get into--HUD houses have a special HUD locks that can only be opened by a realtor with a HUD key.
2. HUD is slow-- If you thought that dealing with banks on foreclosures was slow, you ain't seen nothing yet. If we are lucky we'll get to closing in one month after contract acceptance. If we're not lucky, it may take two months, or more---.
3. If your loan falls through you DON'T get your earnest money back--HUD requires that your earnest money be for approx 1% of the purchase price and in the form of a certified or cashiers check Make sure that things are right with you Leander before you make a HUD offer. If he pulls the loan you can weep, wail, and threaten, but it will do you no good. Owner-occupants buying a HUD for their own use are not subject to this harsh rule, but investors had best have their loan in order.*
The Odds of Offer Acceptance
We often see first-time investors make an offer with high expectations, get out bid, and then get so discouraged because their bid wasn't successful that they drop out of the game completely. From our experience, rough only one out of every five offers on foreclosures results in a successful contract and closing. The key is persistence. To speed things up we have some clients who bid on several properties at a time and then withdraw their offers on the rest when they get an acceptance on one. If the foreclosure game, the three most important factore are persistence, persistence, persistence.*
Rising Mortgage Rates
How the rates affect us:
In the last nine months mortgage money rates have steadily progressed upwards. At present, home owner mortgage money for a 30-year loan is approx 6.75% and 15-year mortgage are 6.50%. Money for investors starts at 7.5% and goes up to 10.5%.
Flippers affected the least:
If we are flipping houses, we will hopefully only hold them for two to four month before we sell them to someone else, so whether we are paying 7.5% or 10.5% really doesn't make a tremendous difference in the cash outlay for mortgage money. On a $100,000 loan, the difference between 7.5% and 10.5% for three months is approx. $200 to $250 per month. If we are shooting for a $15,000 profit on a flip, that amount is not going to break us.
On Related Mortgage Subjects:
Financing houses via the internet is popular and the rates that these leaders offer sound to good to be true. That's because it usually is too good to be true. Interest rates are low but the other charges that they add on zoom the total cost of the loan sky high.
Another landmine to watch for when dealing with out-of-state leaders is the Pre-payment Penalty clause. Alabama prohibits this penalty for homeowners, but is you finance with an out-of-state lender you are fair game. An investor should turn down any loan with a prepayment penalty clause unless he is desperate. Investors need to have flexible options at all times. *
* These are snippets from the July issue. If you would like the entire issue or other issues, please contact us at 205-824-1459 or click here: Foreclosure Investor Newsletters
The Foreclosure Investor Vol. #2, Issue #4
Multiple Offers
One Property-Several Buyers:
If more than one person makes an offer on a property, you have a "Multiple Offers" situation. The Agent for the Seller will inform each of the Buyers of the situation and ask each to come back with their "highest and best" offer. This in effect puts the Buyers in a "blind auction" mode in which they are bidding against each other but no one knows what the others are offering All you can do is make that bet offer and sit back, wait, and hope for the best.
Several Properties-One Buyer:
Investing in foreclosures is very competitive. From our experiences, only about one out of every five and six bids is successful. The rest of the time we get outbid. Since it normally takes a couple of weeks to locate a good property and then a couple more for the bidding process, we end up wasting a month's time when we lose a bid. The strategy for avoiding this is to simply make bids on several properties at one time.*
Change is in the Air
HUD Changes: The changes since the JUD houses cam back on the market are significant: One big change is that HUD is not accepting any more lowball offers. Most of the offers that have been accepted in the last three months have been nearor above the List Price. I attribute this to two factors: One, HUD is pricing the houses more realistically now, and Two, there are still less than 100 HUD houses available for sale in the whole state at present. This is in sharp contrast to the huge inventory before Katrina hit.
The second change is that HUD will now pay only 3% of the purchase price towards the Closing Costs. This is going to make buying low-priced HUD's less attractive. On a $50,000 house JUD will only pay $1,500 in CC, where as the actual CC may be over $3,000. It's going to take a price of $100,000 or better for that 3% to actually cover all of the CC.
The third change is that HUD has started pulling houses off the market after one month and relisting them, usually with a lower List Price. That, coupled with change #1, above, gives you a pretty good idea of how much you have to bid to get a HUD property. If you feel that HUD is asking too much for a house, just wait-the price will come down-provided that someone else doesn't buy it first.*
How to Improve your Credit Score
Everyone talks about the weather but no one does anything about it. That's usually the way with credit scores but it doesn't have to be that way. Sometimes raising your score just a few points will put you across a lenders magic line and allow you to either get a larger loan (such as 100% instead of 90 %) or else qualify for a lower interest rate.
(Call to receive this informative newsletter with tips of Credit Scores Improvement !!! 937-5107 or 824-1459.) *
New Listing Policy
In the past we have listed and sold properties for our clients for 4-1/2% commission, which is by far the lowest rate in town. For our investor clients we are now taking this one step further. For an investor client for whom we have acted a Buyers Agent in purchasing a property, we will not only sell it for 4-1/2 % initially, but if he has not received an offer within 90 days from the time that he lists it for sale with us, we will lower the commission rate to 3-1/2%. This will allow the investor to lower his selling price on the property without decreasing his profit margin on it.*
Limiting Renovations
One problem that faces all of us when renovating a property to flip or rent is "just how good do we want to make it?" Every improvement will certainly increase the probability of a quick sale or rental, but every improvement also costs money and cuts into our profit margin. It's a balancing act that calls for some decision making. Obviously we want to make the property look clean and neat. Paint, carpet, and needed repairs are no'brainers, but do we really need to add a $3,000 chandelier" That's an extreme and the answer is "of course not" but there are many improvements that fall into a gray area in which one investor might make the improvement and one might not.
As a general rule, anything that increases the appearance of the property for a small investment is a good thing. We have one client who religious replaces all electrical faceplates, small light fixtures, and faucet sets in a house. He claims that the money spent comes back to him in a higher sales price and quicker sales.*
* These are snippets from the Oct issue. If you would like the entire issue or other issues, please contact us at 205-824-1459 or click here: Foreclosure Investor Newsletters
The Foreclosure Investor
Jan. 2007 Vol. #3 Issue #1
The Market is Back!!:
For the last six months we have all been deluged with news media tales of gloom and doom in the real estate market. A lot of this was based on geography, as the Gulf Coast and parts of Californian and New York were really tanked, with properties sometimes selling for 40% less than previous value, if they could be sold at all.
Here in the Birmingham area, we had a mild slump that lasted from August through mid-December. Sales picked up right after Christmas, and during the current month of January it's been frantic.
The one cloud on the horizon is the huge number of foreclosures that have appeared on the market. When we first started this newsletter three years ago, we had access to over 300 of them. Last spring this number went up to 600, and it is currently over 900. From an investor's standpoint, the increase in foreclosures is an opportunity. If there are more houses to bid on, there will be fewer bidders per house, and the selling prices will go down. Buying a foreclosure now means that renovations on it can be completed in time for the Spring buying rush. Go for it!*
*Snippet from the Foreclosure Investor, Jan 2007
Foreclosure Profit Margins:
As real estate investors we are all concerned about profit margins. They are the reason that we play this game. However, have you ever stopped to think about how we arrive at our final margins and the factors that control them? We all know that when we flip a property our Profit equals our Selling Price minus the Purchase Price minus Expenses. That's elementary Foreclosure Lesson 101.
So how can we put ourselves in the enviable position of being the only bidder? The answer lies in the price range that we bid in. There are many people that bid on properties under $50,000 as that are a lot of bidders for each property. Usually the successful bidder do all of the renovation work themselves and are able to make a profit because of that. There are fewer people that bid in the $50,000-$100Krange so the number of bidders property is somewhat less, but there are are still usually three to six bidders per property.
From $100K to $150K the number of bidders drops again, so now you may have only two or three bidders for each one. From $150K to $200K, the bidding is very sparse, so you have a fairly good chance of being the only one or having only one competitor. Above $200K, you are properly going to be the only bidder, and the price will be determined by what the Seller will accept for the property.**
**Snippet from the Foreclosure Investor, Jan 2007
Foreclosure Financing:
Although some of our investor clients are in a position to pay cash for the foreclosures that they buy, most people use form form of financing. Although you are probably familiar with some of the financing instrument, here is a brief rundown of some of the most common ones:
100% loans, 90 or 95% loans, 80% loans, Interest only loans, ARM's, Balloon Mortgage, and Combinations***
Different lenders have different types of loans and your mortgage broker can probably find the type of loan that you want provided that you have a good enough credit score and enough income to support the loan payments. The right kind of financing can make a bid difference in the profit on your investment-so look carefully before you borrow!
***Snippet from the Foreclosure Investor, Jan 2007
Meet the Professionals:
Real Estate is a highly regulated industry with may safeguard built into it to protect the consumer. All of the professionals described below are licensed and their business activities are strictly limited by the laws of the state.
Agent, Appraiser, Broker, Inspector, Mortgage Broker, Termite Inspector, Closing Attorney.****
These are your professionals- they are on your side and you can trust them-use them.
****Snippet from the Foreclosure Investor, Jan 2007
If you are interested in receiving this complete newsletter or any in our archives, please email us at:
The Foreclosure Investor
April, 2007 Vol. #3, Issue #2
No More 100 % Investor Loans!!
This is grim news for a lot of people playing the foreclosure game. For the last two years mortgage money for real estate investment purposes has been both plentiful and cheap, with 100% loan being the norm. The recent rising rate of foreclosures has made the lenders tighten up and 100% loans are now a thing of the past. They may come back again, but for the here and now you can count on having to put down 5%, 10% or even 30% to buy a foreclosure.
Requirements will vary with income, available cash, etc., but as a rough rule of thumb, this is what the lenders are telling us:
For a 95% loan, you need a 700 credit score
For a 90% loan, you need a 680 credit score
For a 80% loan, you need a 660 credit score
For a 70% loan, you need a 620 credit score
* These are snippets from the April issue. If you would like the entire issue or other issues, please contact us at 205-824-1459 or click here: Foreclosure Investor Newsletters
Partner, I Need a Partner
Sometimes, one plus one equals four: When money is tight, sometimes it makes sense to pool resources. There are a lot of investors out there who have a little money, but may not have enough to get a loan under the new restrictions. If two investors in this situations get together they can pool their money and talents to play the foreclosure game even with tight money. There are several advantages to having a partner:
1. There is a larger pool of money to draw from for a down payments and renovations.
2. Two people can renovate a property twice as fast as one person alone. The quicker you can get the house on the market, the quicker you can sell it and get your profits.
3. If the house doesn't sell for several months each person's share of the monthly payments is only half of what they would be for one person.
4. Each person may be able to bring skills to the partnership that the other doesn't have.
* These are snippets from the April issue. If you would like the entire issue or other issues, please contact us at 205-824-1459 .
General Remodeling Tips
Getting Started:
When preparing to remodel your foreclosure, prepare a realistic budget. There are ways to stretch the remodeling budget and still end up with a home ready to flip in a reasonable time.
The number one way to decrease the cost is product choices. Look around to determine whether you can achieve a similar look with a less expensive product. In addition, pay attention to how labor intensive some design features may be, for example laying ceramic tile on kitchen countertops and the backslash as opposed to installing a pre-make counter top.
An inexpensive facelift:
If all the room really needs is a facelift, make the most changes with paint, as opposed to structural changes. Changing the color of a room can revitalize it and is the easiest way to bring life to a room on a budget. Homeowners are now using natural shades and muted earth tones on walls, floors, and even cabinetry. You can also save money by wallpapering a slightly damaged wallpaper than replacing it. Faux finish painting or other textured decorative painting can hide minor damage or irregularities that flat paint won't.
In the Kitchen:
If at all possible, reuse existing appliances, and refinish your cabinets around them. Spruce up vintage cabinets with new hardware and a coat of clear varnish. If new cabinets are needed, choose some that can be installed without the addition of expensive hardware. New kitchen cabinets can be very expensive.
In The Bathroom:
Consider reglazing a tub instead of replacing it--it's a lot cheaper. Cultured marble sheet are a good choice of tub surrounds, instead of ceramic tile. Fiberglass surrounds are even less costly than marble, although they don't look as good.
Homeowners are increasingly opting to use concrete in bathrooms (and not just on the floors) due to its reasonable cost. Concrete can also be used in playrooms and there is a great non-skid cement paint to cover the floor.
Considering your options in materials and time will help you realize greater profits with your flip. Stretching your budget is the name of the game.
* These are snippets from the April issue. If you would like the entire issue or other issues, please contact us at 205-824-1459 .
The Foreclosure Investor Newsletter*
Selected Articles from Aug., 2007 Vol. 3 Issue #3
A New Inexpensive Way to Sell
A Limited Service Listing:
For some time we have regularly listed properties for 4-1/2% for a full service listing (we handle everything). Now, we have taken this one step further for those who want to assume part of the load of selling a property and want to save even more. We now offer a limited service listing (click here for more information).
The disadvantage of this arrangement is that you have to show the property yourself and pay for the advertising. the obvious advantage is that you can save some significant amounts of money by doing these things yourself.
Closing
Paper, Paper:
If you have ever participated in a real estate closing, you were probably struck by the enormous amount of paperwork that was involved and weren't quite sure about what all of that paperwork entailed. As a buyer, you probably signed so many papers that your hand hurt. This article will give you a brief rundown as to what goes into those closing papers.
The heart of a closing rests in the HUD-1 statement, which is a 2-page legal sized document. Just to confuse you, the HUD-1 starts on page 2. This page itemizes all of the expenses and credits charged to both buyer and seller. The page 2 totals are entered on page 1 along with the amount of the sale, earnest money, loan amount, tax adjustments and other items. The totals at the bottom of page 1 show what is being paid to whom.
Details, Details:
But just what goes into those closing papers beforehand? Do you have any idea? If you are thinking about doing a For Sale By Owner (FSBO) you had better start finding out. The following items have to be taken care of and the documentation put into the hands of the closing attorney several days prior to closing:
Inspection Report
Wood Infestation Report
Survey
Mortgage Payoff Letter
Home Warranty
Insurance
Lead Based Paint Disclosure
Termite Bond
Title
Appraisal
We Can Help You:
If you are one of our clients and have a contract we will be glad to help you put together the closing details. If you sign up for one of our Limited Service Listings, we will handle all of the closing details for you and be with you at the closing.
Foreclosure Market Trends
Have Foreclosures Peaked Here?
In spite of a nationwide record of foreclosures, the number of available foreclosures in the Birmingham area has stopped rising-at least temporarily. A month ago, there were over 1,400 listed in the Multiple Listing Service and as of early August this number has dropped to around 1,360.
Most of the real bargains are at the mid to upper end of the price scale. HUD houses are still going for very close to list price and in many cases for more that list price. In most cases this is because HUD is pricing their houses realistically to start with. A HUD house at list price is quite often a bargain without a price reduction.
The General Market Here:
In general, real estate in the Birmingham area is chugging along without any slowdown. For our office, it appears that August will be our best month ever. However, there are some negative signs: The Days On Market (DOM) for houses that are listed for sale has stretched out considerably since this time last year, and slight price reductions are getting to be the norm instead of the exception. Nonetheless, houses continue to sell at a near record rate.
The National Market:
Real Estate in the USA as a whole seems to be doing OK with the exception of some states, notable Florida, California, New York, Colorado, and Nevada. These areas had quick, high rumpus in price, and now the chickens have come home to roost.
Where Does This Leave Us?
It leaves us in a pretty good position. There are a lot of bargains available on the foreclosure market, particularly in the mid to upper end price region. Although the market has slowed somewhat from a seller's point, houses are still selling.
Overall, there is money to be made in the foreclosure market. Like always, it takes, time, energy, and perseverance to make it happen. The rewards can certainly be worth it.
Value Versus Cost
TV Fantasyland:
TV programs on renovating and flipping houses have gotten quite popular in the last year or two, and Paula and I sometimes watch them for laughs. We saw one a few weeks ago that would have been a riot if it weren't for the fact that it could steer some people down a disastrous financial path.
Repair and Improvement:
The truth is that expensive improvements very seldom add as much value as they cost. The key is making a distinction between improvements and repairs. Repairs generally add value, but improvements usually add only a fraction of what they cost.
As in anything else, there are exception. Improved kitchen countertops usually add more value than they cost if you don't use exotic materials, and modest upgrades in light fixtures and wall switches hive a good return. The main thing is to have a house looking neat and sparkling with everything functioning properly when you put it on the market.
What improvements can do is make a house more "sellable" by adding appeal to it. Strangely enough this doesn't necessarily translate into getting more money for the house, or at least not as much more as the improvements cost. They simply make the house easier to sell.
And remember, don't believe everything that you see on television!
* These are snippets from the Aug. issue. If you would like the entire issue or other issues, please contact us at 205-824-1459
Foreclosure Investor Newsletter
Nov., 2007 Vol. 3, Issue #4
Today's Market:
The nationwide slowdown is real estate seems to have finally hit here in the Birmingham area, but it seem to have been more of a gentle nudge than a blow. Monthly sales of homes finally showed a slight decline in the third quarter but strangely enough, the average selling price of a home actually increased.
What appears to have happened is that the people with marginal credit who would normally buy low-priced houses cannot get a loan at all anymore due to the tighter credit restrictions, so sales of low priced houses have plummeted. On the other hand, people with money and good credit are still buying and they are buying middle to upper tier homes.*
Pity the Poor Mortgage Broker:
The people who are really hurting are those in the lending industry. If they can't make loans then can't make money, and the tighter lending restrictions mandated by the underwriters are literally putting some of them out of business. *
We Blew It !
The Bitterness of Low Price:
We knew better--but we did it anyhow--and now we're sorry.
We all know that buying anything, just on the basis of price is risky, but we found what we thought was a great deal on homeowners and rental insurance with the Farmer's Insurance Co. The agents were friendly and professional and the saving were substantial--so--we switched all of our insurance over to Farmers.
During the summer, one of our tenants had a kitchen fire which they fortunately put out before it burned the place down, but none-the-less the fire caused a lot of damage. Farmers paid approximately 1/4th the amount of the claim and so far have refused to pay any more than that. The matter has been turned over to our attorney and will probably end up in court.
We preciously recommended Farmer's Insurance to some of you , and if you acted on that recommendation, we're sorry. We've cancelled our insurance with them and you might want to consider doing the same.*
Coping with Copper Theft
Lately, the price of copper has gone through the rook and this has resulted in a lot of theft. Not only are the thieves, taking copper water pipe but they are even ripping electrical wiring out of houses and taking outside AC units.
Foreclosures normally stand empty for a good while before they are even put on the market and during this time they are prime targets. When you are inspecting a foreclosure by sure to check for cut water lines, cut wiring, and removed HVAC units.*
Figuring a Bid Amount
Remember AV-RE-P=BP and Forget List Price! (read the article on this one or call Carl)*
Rental Income vs. Flipping
Flipping:
Flipping has one big advantage, and that is that it generates working capitol immediately. You buy a foreclosure, renovate it , and sell it for a profit. The disadvantages are that you must pay tax on the profits of the sale and that the income form flipping is very erratic.
To make a living flipping houses (and some people do make a very good living at it) you need to flip several in a year and always have something going on.
Renting:
Operating rental property has its ups and downs as well. The biggest advantages are constant income and little or no income tax to pay. Since you will be holding the property for several years you can take advantage of depreciation on your income tax return and the depreciation may be enough to even provide a tax shelter for you on other forms of income.
A Combination:
A very neat way of "having your cake and eating it too" is to flip two properties and then rent one, flip two more, and then rent another. In this way you always have working capital and after you get a few properties under your belt you always have rental income.
The Long-term Payoff:
Rental properties have one other advantage, and that is the long-term appreciation when you finally sell them. If you put all of the proceeds into another, larger investment property, you can even avoid all of the income tax on the profits by means of a 1031 Exchange. It's a wonderful way to acquire wealth over the lone haul.
If you are interested in this please call us. We have access to the properties and we can even get you set up with a 1031 Exchange. *
* These are snippets from the Nov., 2007 issue. If you would like the entire issue or other issues, please contact us at 205-824-1459.