Flipping Houses Archives

Bank Note Blunders

Bank Note Blunders


Buying bank notes for non-performing loans is one of the easiest ways to make money in real estate today. Sure, it’s not absolutely fool-proof (nothing is) but it comes pretty close. So, why does it seem there are so many people making a mess of buying bank notes?


Like most things in life there are always a few people that give something a bad name but that doesn’t mean it should stop you from adding bank notes to your personal investment portfolio.


Find out for yourself what the most common bank note blunders are (and how to avoid them) with this quick checklist:

Failure to verify the outstanding balance due and the actual repayment terms of the note. Yes, it sounds obvious enough but you might be surprised at the number of people that don’t really understand what they are buying. Take time to inform yourself about the original conditions of the note and terms before finalizing the transaction. A little information and education can go a long way.Failure to verify the lien status; first liens/mortgages are much stronger than second ones. Once again, a simple concept but one frequently overlooked. Don’t be persuaded by higher fees without understanding the inherent risk associated with each. It’s also important to understand the status of property taxes, liens and escrow balances associated with the property. Once again…know what you are buying before finalizing the transaction.Failure to confirm the value of the collateral property in today’s fair market value. Whether you perform your own evaluation or use a BOP, independent appraiser or other method it is essential to have an up-to-date valuation performed before finalizing the transaction.Failure to obtain or record legal rights to the property…ie, assignment of the actual mortgage or trust deed or endorsement. Closely related to this is the failure to obtain a physical copy of the paperwork. As evidenced by  the current state of the mortgage industry, paperwork fiasco’s are common. Protect your investment by taking a little extra time to obtain physical copies of all documents.

In fact, many investors find it useful to obtain an estoppel affidavit from the assignor indicating the balance and terms of the note as well as hazard insurance documentation. Small precautions can add up to major protection in the event of a claim or other unfortunate event.


© 2010 Marco Santarelli


Norada Real Estate Investments


www.NoradaRealEstate.com


View the original article here

Active vs. Passive Investing

Active vs. Passive Investing


In real estate, there are two basic concepts of investing – active and passive.


Passive investing is typically your buy-and-hold form of investing. Simply put, once you’ve purchased a solid income property, you sit back and let it appreciate over time and have your tenants literally pay down your mortgage each and every month.


This form of investing usually combines most, if not all, of the advantages of real estate; that is, appreciation, leverage, cash flow, tax advantages, tenant pay-down of your mortgage, a solid asset, and freedom.


Passive real estate investing is where true wealth creation comes from. The majority of wealth that comes from real estate investing is created from buying prudent income property and holding on to it. This is how real wealth is created.


Active investing is a form of investing that requires more time and direct effort from you, and usually on an ongoing basis. There are three common types of active investing:

Assignment or assignment of contract – this is where you find a good deal, put it under contract, and then assign that contract to another investor for a fee.Rehabbing – this is where you buy a distressed property and fix it up. Rehabbing can be very time consuming if you’re doing the work yourself. But, even if you’re outsourcing the rehab work to a contractor or handy-man, there are still many tasks to be done before you can rent or resell the property.Flipping – flipping is related to assignments and rehabbing because it describes what you’re doing with the property as your exit strategy. But, flipping can apply to any form of real estate regardless of condition. For example, you may find yourself a good deal on a pre-foreclosure that requires little to no rehab work and be able to turn around and flip it to a new home buyer shortly after acquiring it.

As you can see in the Active vs. Passive Investing graphic, active investing is made up of three parts, forming a triangle.


At the apex of the triangle, you have money. Money isn’t necessary, but it can help you generate profits faster than without it. You don’t need money because if you have the right deal, there will be other investors with money who’ll be willing to finance or partner on your deal.


At the left base of the investment triangle, you have credit. Again, credit isn’t necessary, but it can also help you accelerate your profit building efforts. The fact that you don’t always need money or credit is the reason why there are many ways to profit from real estate. This is also the reason why you can buy real estate with no money down.


Finally, you have activity at the right base of the triangle. Activity is the most important part, which is why it’s called “active” investing. Activity trumps the other two parts because with activity, also known as “sweat equity,” you can find the deals that other investors want.


There are many real estate investors who have money and/or credit but lack the time or knowledge to find good deals. This is where you can generate some nice profits for yourself without using any of your own cash or credit. Your only risk is your time!


© 2010 Marco Santarelli


Norada Real Estate Investments


www.NoradaRealEstate.com


View the original article here

Dont Become a Seminar Junkie: Experience is the Best Teacher


I know of some people who have become totally caught up in the euphoria of newfound knowledge and just couldn’t stop buying audio programs and attending very expensive seminars and bootcamps.  This seminar junkie must have spent at least $50,000 within a 12 month period and still hadn’t bought their first investment property.  They were just bouncing around from one great idea to the next.


I don’t know whether, in their case, it was because they were just caught up in the excitement of that environment, whether it was their way of convincing themselves they were active when they may have been too scared to get started, or they were honestly trying to find the best strategy for them.  I’m guessing it was a mix of these things.


I also know of an investor who took quite the opposite approach.  He stumbled across a pretty good investing strategy and didn’t check out any other alternatives but went ahead and spent over $10,000 getting a good education in that one area.  He went on to build a decent portfolio over a few years but then realized there were some even better strategies out there.


This second story isn’t so bad because he built some success and he could afford the further education he now sought.  However, he told me once that it was a little disheartening because if he wanted to pursue a different strategy he had to start the learning process all over again and it felt very much like he had his “ladder to success” leaning against the wrong wall.  And even though he could now afford the education more easily it was still another $5,000 – $10,000 that he could have avoided spending.  If only he’d done his homework first.


I won’t point out the obvious with the seminar junkie in the first story beyond reiterating that it can be a very costly exercise to get an education.  You must do something with the information as you receive it so that it pays for itself.  Remember that a true real estate investor is looking for a ‘return on investment’ rather than speculating and that applies to the cost of education as well.


But aside from the ROI on your education you must stop buying more courses and buy your first property simply because experience is the best teacher.  The true education begins when you go and sign your first contract and then close on your first deal.  Yes, it can be daunting but stop waiting for it to feel comfortable because chances are it never will.


A concept that is important for you to adopt is that of “training deals”.  If you recognize that you are not a professional when starting out and it’s important for you to get some experience and make some mistakes then you must give yourself scope to screw up one or two deals.


I know, you’re probably thinking, “I can’t afford to screw up any deals”.  Well, the trick is to minimize your risk of financial losses.  You can do that in numerous ways but a couple of the key things you can do are:

Analyze the numbers – this is an absolute MUST that is unfortunately overlooked by quite a few amateur real estate investors.  Strangely some people seem to invest on a hunch rather than when the numbers look profitable.Contingency plans – list any possible problems that you think you might encounter and then come up with a contingency plan.  (e.g. if you have trouble finding tenants you could hire a property management company to put tenants in the property.)

If you do these two things along with the obvious risk mitigators such as inspections and insurance you will minimize your risk sufficiently that you should feel comfortable doing a training deal or two just for the experience.  Sure you want them to be profitable but if you give yourself permission to fail (without risk of financial ruin) it makes it a whole lot easier to get started.


And when you do that, you will learn so much more than by buying another course or attending another bootcamp.  I cannot recommend this highly enough.  Getting a real world education will put you miles ahead just as it did with the second guy in the examples at the start of this post.


© 2010 Marco Santarelli


Norada Real Estate Investments


www.NoradaRealEstate.com


View the original article here

7 Reasons to Use Land Trusts

7 Reasons to Use Land Trusts


The land trust is a very powerful tool for the savvy real estate investor.  A land trust is a revocable, living trust used specifically for holding title to real estate.  Each property is titled in a separate trust, affording maximum privacy and protection.


Here are seven reasons to use land trusts:


1. Privacy.  In today’s information age, anyone with an internet connection can look up your ownership of real estate.  Privacy is extremely important to most people who don’t want others knowing what they own.  For example, if you own several properties within a city that has strict code enforcement, you could end up being hauled into court for too many violations, even minor ones.  Having your real estate investments titled in land trusts makes it difficult for city code enforcement to find who the owner is, since the trust agreement is not public record for everyone to see.


2. Protection from Liens.  Real estate titled in a trust name is not subject to liens against the beneficiary of the trust.  For example, if you are dealing with a seller in foreclosure, a judgment holder or the IRS can file a claim against the property in the name of the seller.  If the property is titled into a trust, the personal judgments or liens of the seller will not attach to the property.  This effectively separates the owner or seller from the property.


3. Protection from Title Claims.  If you sign a warranty deed in your own name, you are subject to potential title claims against you if there is a problem with title to the property.  For example, a lien filed without your knowledge could result in liability against you, even if you purchased title insurance.  A land trust in your place as seller will protect you personally against many types of title claims because the claim will be limited to the trust.  If the trust already sold the property, it has no assets and thus limits your exposure to title claims.


4. Discouraging Litigation.  Let’s face it, people tend to only sue others who appear to have money.  Attorneys who work on contingency are only likely to take cases which they can not only win, but collect, since their fee is based on collection.  If your investment properties are hard to find, you will appear “broke” and less worth suing.  Even if a potential plaintiff thinks you  have assets, the difficult prospect of finding and attaching these assets will discourage litigation against you.  This is a huge benefit!


5. Protection from HOA Claims.  When you take title to a property in a homeowner’s association (HOA), you become personally liable for all dues and assessments.  This means if you buy a condo in your own name and the association assesses an amount due, they can place a lien on the property and/or sue you PERSONALLY for the obligation!  Don’t take title in your name in an HOA, but instead take title in a land trust so that the trust itself (and thus the property) will be the sole recourse for the homeowner’s association’s debts.


6. Making Contracts Assignable.  The ownership of a land trust (called the “beneficial interest”) is assignable, similar to the way stock in a corporation is assignable.  Once property is titled in trust, the beneficiary of the trust can be changed without changing title to the property.  This can be very advantageous in the case of a real estate contract that is non-assignable, such as in the case of a bank-owned or HUD property.  Instead of making your offer in your own name, make the offer in the name of a land trust, then assign your interest in the land trust to a third party.


7. Making Loans “Assumable”.  A non-assumable loan can become effectively assumed by using a land trust.  The seller transfers title into a land trust, with himself as a beneficiary.  This transfer does not trigger the due-on-sale clause of the mortgage.  After the fact, he transfers his beneficial interest to you.  This latter transaction does trigger the due-on-sale, but such transfer does not come to the attention of the lender because it is not recorded anywhere in public records.  This effectively makes a non-assumable loan “assumable”.


As you can see there are many creative and effective uses for the land trust, limited only by your imagination!  What has been your experience with land trusts?


© 2010 Marco Santarelli


Norada Real Estate Investments


www.NoradaRealEstate.com


View the original article here

20 Million Underwater Mortgages by 2012?

More than 14 million borrowers were underwater as of Q1 2010, and with a further 10.8% decline in house prices expected relative to Q4 2009 levels, another 6 million borrowers are likely fall into negative equity by the end of 2011, according to commentary today by Deutsche Bank.


The presence of negative equity goes hand-in-hand with an increased likelihood of strategic default, as borrowers may sometimes not be willing to pay the mortgage when the house has lost substantial amounts of value.  The firm noted that, even when strategic default makes economic sense, many borrowers resist on moral and social grounds, as well as from fear of legal consequences. The existence of recourse — when a lender is able to pursue a borrower’s other assets — also acts as a disincentive against strategic default.


Deutsche Bank noted 11 states are considered non-recourse — though not all explicitly forbid deficiency judgments on homes or on purchase loans.


Underwater borrowers are more likely to default in non-recourse states. The greater the negative equity, the higher the cumulative default rate. “Walk away or strategic default from a house with negative equity makes economic sense, especially in locations that have less expensive rentals,” Deutsche Bank researchers said. “Many existing academic studies model homeowners’ default decision based on the theoretical hypothesis that a borrower would exercise a default when it is in-the-money, i.e., when the borrower’s house has negative equity. Therefore, a homeowner with negative equity would default even though they can still afford to make their mortgage payments.


© 2010 Marco Santarelli


Norada Real Estate Investments


www.NoradaRealEstate.com


View the original article here


 

5 Secrets of Successful Real Estate Investors

5 Secrets of Successful Real Estate Investors


Can anyone become a successful real estate investor? According to industry experts…the answer is a resounding “Yes”. Average Americans and heavy-hitting investors alike have historically embraced real estate as one of the most reliable methods available to generate real wealth. If anyone can succeed at real estate then it only stands to reason that there must be a series of steps or guidelines to be followed; a “formula” for success….and there is.


Research indicates there are five essential elements involved in becoming a successful real estate investor; steps available to almost anyone. Although they are not easy, they are very “do-able” with a bit of determination.


Learn how to recognize real estate investing opportunities. Sounds simple enough but putting this into practice often requires the ability to think independently and go against the prevailing wisdom of the day. For example, tough economic times like those in the current fiscal crisis lead many to believe that real estate is a bad investment. Others see a major buying opportunity with historically low prices and the lowest interest rates in decades. Which are you?Discover the advantages of using other people’s money.


Contrary to popular opinion, it doesn’t take a lot of money to get started investing in real estate…in some cases it takes nearly nothing. Using other people’s money (OPM) isn’t just a good way to get started, it’s the preferred method of investing in real estate.Utilize buying techniques that reduce your risk. Newbie real estate investors fall prey to schemes and scams that promise fast riches without risk but in reality, do little more than pass along outdated information. When evaluating buying techniques it’s important to get the most up-to-date and reliable information possible about financing, legal issues and other related topics.Position yourself as a real estate insider.


Becoming a real estate insider doesn’t require you to rub elbows with the likes of Donald Trump. Instead, keep it realistic and focus your efforts on becoming an insider within your own local market. Plenty of average people make millions without ever leaving their own hometown. In fact, research on the wealthy conducted by Charles Stanley found the majority of “self-made” millionaires tend to stay close to home, invest in real estate or a small business and form strong local networks.Utilize selling methods to maximize profits. Last but not least, successful real estate investors know how to utilize selling methods to maximize profits. This also entails more than the mere use of leverage; legal considerations, tax implications plus literally dozens of other issues are routinely scrutinized in order to determine the maximum ROI for every transaction.


© 2010 Marco Santarelli


Norada Real Estate Investments


www.NoradaRealEstate.com


View the original article here

Cash Flow Will NOT Make You Rich

Cash Flow Will NOT Make You Rich


Don’t get me wrong. Cash flow is good (assuming it’s positive), but absolutely NO one has ever become rich from cash flow alone. Think about that for a minute.


Let’s look at a quick example. Let’s say you have a $100,000 property that generates $200 per month in positive cash flow. That’s $200 per month after all your expenses and debt service. That would give you $2,400 per year or $12,000 over five years in cash flow.


Assuming you follow our advice of maintaining a reserve account for each of your properties to cover future maintenance and repairs, you will have made $12,000 in net profit over those five years. This assumes that nothing unforeseen happens along the way such as a hot water tank or leaky roof requiring replacement, or a long-term vacancy.


If you’re going to put your investment capital, credit, and possibly your income at “risk” for $12,000, then you’ll need more than just cash flow to make it worthwhile. You need to be investing in markets that offer good appreciation potential. That is how you become rich!


Live where you want and invest only where the numbers make sense! This stresses the importance of investing in good markets and good neighborhoods.


Going back to our example above, what would happen if we averaged only 5% appreciation per year in addition to the $2,400 in cash flow? (Remember that the national average has been 6.2% going as far back as the 1940s.)


With only 5% appreciation per year you’d make over two (2) times more money in equity than cash flow alone. And with a 10% average rate of appreciation over five years you’d make over five (5) times more money in equity than cash flow alone.


Did you forget that appreciation in many markets used to be over 10% as recently as four years ago? Markets move in cycles and appreciation always happens as markets cycle off their bottoms. We are seeing it today in markets all around the country.


Of course, in addition to the positive cash flow and money made through appreciation, you also benefit from the amortization of the mortgage and the tax benefits through depreciation, tax deferred exchanges and lower capital gains when holding your property for more than a year and a day.


Now is the time to be investing with so many markets near their cyclical bottom or turning back up. Cash flow is great, and it’s the “glue” that keeps your investment together, but it’s the equity growth that will make you rich.


© 2010 Marco Santarelli


Norada Real Estate Investments


www.NoradaRealEstate.com


View the original article here

Mortgage Overhaul and What it Means for You

Mortgage Overhaul and What it Means for You


By the time you read this, the new 2,300 page financial reform bill is likely to be making the headlines. The Senate has already approved the new bill and President Obama is expected to sign it into law this week – despite the fact that many of the provisions related to specific regulations have yet to even be written. If that sounds faintly disturbing, don’t worry, your concern is noted and shared by many experts throughout the nation. However, there are sweeping changes that are already apparent despite the lack of specific details.


Although broad in scope, home buyers and sellers are likely to be among the first impacted by the new provisions. They represent one of the most comprehensive – top to bottom changes to the finance, valuation, types of mortgage products offered and how lenders are compensated to take place in decades.  In fact, there are even new rules for real estate investors that provide capital for the purchase of mortgages.


A few of the most important points likely to make immense impact to buyers, sellers and investors is the language dealing with any type of mortgage outside of the “traditional” or “plain vanilla” category.  Unfortunately, regulators have yet to fully define what will constitute a “traditional” mortgage under the new plan but it is clear that the line will be drawn to reduce the number of sub-prime borrowers as well as offerings of owner finance and other alternative forms of finance.  Experts predict an immediate and severe impact on many minority and low-income borrowers; many who have already been impacted by far less severe measures.  For example, according to FHA, rejection rates for African American and Latino borrowers have substantially increased among non-FHA loans.


The new FDIC and other regulatory oversight standards contained in the bill are expected to provide safer mortgage instruments but at a higher cost and more stringent requirements for both banks and individuals.  It is estimated that only five banks currently control more than 65% of the current mortgage market; the new bill is expected to further consolidate this trend by favoring big banks over small.  In part, this is due to the belief that big banks are easier to regulate.  However, at the same time, new controls and rules regulating private investors are also expected to take another two to three years to fully define – leading many to believe the bulk of mortgages will still be backed by the United States government for the foreseeable future.


© 2010 Marco Santarelli


Norada Real Estate Investments


www.NoradaRealEstate.com


View the original article here


 

Foreclosure Timeline

Foreclosure Timeline


Novice short sale and other real estate investors are often confused by the entire process; it’s not your fault! Foreclosure has never been simple but with the current backlog and other pressures, it’s become worse than ever.


Here to help is an easy to read foreclosure process timeline. It will help novice investors understand the different methods used to purchase short sale, pre-foreclosures and foreclosed properties.

First month missed payment. This counts as day one for the bank but notice, the homeowner had 30 days just like normal to come up with a payment. They will always remain 30 days ahead of the bank schedule.Second missed mortgage payment…day 30 for the bank.Third missed mortgage payment…day 60 for the bank. The loan is now seriously delinquent.Notice of Default…usually sent around day 70. If the homeowner doesn’t send payment within 30 days, the foreclosure process will begin.Notice of foreclosure…day 100. If the homeowner did not make payment the formal paperwork is now filed with the clerk of the court. An itemized list of fees, charges and payments are included.Notice of Trustee Sale is published. This typically takes place around day 160 for the bank.Loan Acceleration. Prior to the auction/sale, the homeowner may still pay back the amount owed plus fees.Second Notice of Sale. The lender is legally obligated to run another notification of the sale prior to the auction.Sale or Auction. This normally takes place roughly 180-190 days from the start of the first delinquency (ie, six months), however, due to the large number of foreclosures and the desire of banks to manage the number of defaults, many homes are now taking as long as two years to complete this entire process resulting in an extensive amount of savings for many homeowners who haven’t been required to make payments for up to two years.

Investors are often accused of taking advantage of a bad situation but banks, buyers and homeowners often benefit from a short sale. Not only have many homeowners had a change to substantially increase their savings without having made a mortgage payment for months or even years, but banks typically realize greater gains and may save the cost associated with the extended process associated with a full foreclosure.


© 2010 Marco Santarelli


Norada Real Estate Investments


www.NoradaRealEstate.com


View the original article here

You might have missed this little item in the nightly news report; government home mortgage giants Freddie Mac and Fannie Mae are delisting from the New York Stock Exchange. Despite $145 billion in taxpayer funds spent to shore up the pair, shares have dropped so significantly they no longer qualify for inclusion on the exchange but will continue to be traded via the infamous bulletin board instead.


In order to participate in the traditional exchange, shares must trade above $1…Fannie has been below that level for well over a month making delisting a legal necessity. Freddie has continued to struggle at just over the $1 level but will also be delisted given the eventual prospects. Given the difficulty of becoming profitable…much less an actual attempt to repay the government aid, it’s unlikely any serious effort to revive the failing entities will be forthcoming.


Since January of 2010, Freddie and Fannie (with some help from the Veterans Administration) have underwritten nearly all new home mortgages for the year; throw in the assumption of non-performing assets and bail-outs and the combined total for the defunct duo now accounts for nearly half of all the mortgages in the entire nation. With bank lending standards showing little sign of relief, experts are wondering what the delisting of Fannie and Freddie may mean for the future of a struggling real estate industry.


Aside from the loss of shareholder value…which is expected to be significant as neither entity has retained any level of significant value…the immediate impact is expected to be minimal. “Business as usual” is the anticipated motto for the time being. However, experts predict the long term consequences could dramatically alter the landscape of mortgage lending for years to come. There is significant support for privatizing the role of Freddie and Fannie while liquidating assets to recoup some of the anticipated $1 Trillion in losses currently shouldered by the tax payers.


But what would that really entail? According to AEI think tank guru Peter Wallison, a combination of liquidation followed by privatization is the preferred method of reform and would allow both to compete in the marketplace for securitization and the goal of providing affordable housing. Bernake is also an advocate of the privatization plan but suggests the prior operational model was unsustainable prior to the collapse but suggest the new footing would establish a firm foundation going forward. Critics argue this is a rehashing of the same trends that put us here in the first place and seek nationalization instead. Time will tell but as of this writing, it appears there is strong support for a push toward privatizing.


© 2010 Marco Santarelli


Norada Real Estate Investments


www.NoradaRealEstate.com


View the original article here

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