Bill O'Rafferty's daily info of importance

pioromano@****

they blank it out

Today's stats:

Riverside County Real Estate:

Riverside prices up 5.2% January to August 2010

Moreno Valley prices up 6.7% January to August 2010

California prices up 4.6% same time.

Just for kicks, if you have been to Riverside, you will note there are 300,000 people and about 100,000 homes. The average price is $212,000. If the increase in home prices has been 5.2% then the average home has increased just over 11K. That is an increase in net worth for the city of 1.1 Billion dollars in the value of its real estate. My only concern is I did not get a bigger chunk of that 1.1 Billion. buy, buy, buy

I get quite a number of personal emails from DGers and am always happy to give some advice or muse a bit - I do not charge anyone for any thing which does 2 things: is respectful to Dean and his folks that provide this venue and gives me the right to be honest and straightforward. I had a conversation this week with a lady from Northern California that read one of Dean's books, saw an interview I did with Dean and wanted me to tell her she wasted her money on the book, Dean's products are useless and there is no future for her in real estate investing.

Here was my response to her and perhaps it is for others as well. Education is expensive and there is not always a direct payoff for the expense but what she learned reading Dean's books could help in any form of business, not the least of which is purchasing her own property - and face it Dean's books alone are not the $150 you pay for a college text written by the teacher that you rarely will use in the class. They are very inexpensive and provide solid proven techniques. Will each thing work for each person? What do you think? If any one technique works for you or stimulates you to be prepared to think of other ways of making money in real estate, then that education paid off.

Here is the bigger picture. I have a bachelor's degree in Criminal Justice and yet I am no longer a police officer nor do I engage in any work related to that field, but it did prepare me to go to graduate school to get a master's degree in Counseling - can't get into graduate school without a bachelor's degree in something. The master's degree in Counseling has no direct impact in my real estate business but it helps me think more broadly, find things in common with others, be familiar with various personalities and things that drive people to make decisions, etc. If I knew when I was 20 or 30 that at 50 I would be selling and investing in Real Estate would I have taken those studies? - not likely - but it all adds up at some point. The things we do make us who we are and who we are gives us opportunities for success.

At one point in my life I worked in a community college. The great majority of those in community college that complete a degree in Automotive Technology, Cosmetology, Welding, Drafting, etc, do not make a living doing the thing they studied. Did they waste their time or the public's money that funds the college? I think not. The guy with a Welding degree might be working in sales and he knows what type of metal to sell to what company because he welded for a while. The girl that got her Cosmetoloty license might not cut hair but she may work in other business endeavors, having learned business functions taking Cosmetoloty classes.

For those not having luck in real estate after reading a book you bought from Dean or anyone else - be glad you have more insight now than you had before this current learning experience. Use one of the techniques you studied or be creative and make your own road, having traveled (in your mind) the roads blazed by others you have studied. You cannot buy a book for a few dollars, read some of it and wonder why the bucks are not rolling in. If it were that easy, others would be out ahead of you getting the dollars off the street or wherever they fall. Roll up your sleeves and invest some time and it might pay off in real estate or in something else, but you can not sit back and wait for it to come to you. Publisher's clearing house only brings a fortune to one person per year - most likely it will not be you or me - we will have to work for it.

In California, we have universal default which means if you take out a loan to purchase a property and it is foreclosed upon, the lender that takes the loss cannot come after you for the losses - all they get is the property back. The other 49 states wish this were true there but no, just the golden state. Here is the questions we should be talking about. On the 80/20 loans of the 2002-2007 time frame, the 20% at the top was a home equity line of credit and lenders are trying to come back and collect after short sale or foreclosure. It was purchase money (exempt from recourse) but a line of credit (not exempt from recourse). Any one have any experience here? I suspect this will impact the decision of under water owners that are contemplating short sale v. foreclosure.

A blogger asked How to figure FMV.

Here was one opinion:

Websites only give estimated ARV. You need comps sold in the last 90 days, comps that are currently on the market and comps under contract. You must know your area! Sometimes comps can vary street to street! You must drive the comps and see how they compare to your property. Then you will know FMV before rehab costs. You must deduct any repairs and what you need for yours and/or your(or whatever your exit strategy is) buyers profit and then you have your offer amount.

Good Luck,
Michael Mangham
MD Home Acquisitions LLC

This is what I would add:

Zillow is garbage in garbage out (uses zip codes and too vague), value finder (used by banks) is too general - the best factor for fair market value is lsited above by MC - I would add to that checking the comps that closed 90-180 days ago and you will know which way the market is trending. We are at .5% increase per month now and if I buy a property today to close in 90 days, I can could on 1.5% increase in the time I have it - this makes the difference in a low, low inventor market like we have.

who cares - buy to hold and short term moves are of no consequence. Buy to sell - do it fast, do not hold our for higher offers - take the deal and move or you might be sitting in the market in December. End of summer brings fewer buyers which looks like more homes to buy for the remaining buyers and the holiday effect begins Sept 1. All this means flippers and wholesalers must move fast. Hold that property 30 days or more and you might have to hold it for 5 years. In this market, buying is great and really fast turns are great but our market is changing so you cannot make a plan thinking it will be the same market in 90 days - it will not be.

I am doing a deal with a buyer short on cash and taking a note for almost all my commission. It is due in 12 months and the interest can be 2% higher than prevailing rate. If he defaults, I get the property and the terms he negotiated with the seller, credit for his down payment, etc. I would rather have the cash now but I will be able to use it in a year and that was the only way to make this deal work. As long as the deals keep turning, money is to be made.

You always seem to amaze me Bill, I love your mentality on things. You always think outside the box as Dean says.
good luck and god bless.
p.s. how is your grandson doing?

Richie.

Been keeping up on your posts, but sometimes do so much reading I dont take the time to post all the time. Wanted to make sure though and tell you how much I always enjoy reading your valuable and informative posts, and to thank you for taking the time out of your incredibly busy life to always share your knowledge here with us all! I have 4 flips right now - one on the market and 3 almost done....now I'm a little nervous after reading your most recent posts on this. Gonna get out the whip on the rehabbers LOL.

Bill,

I cannot find the "listed above by MC". Please fill in the missing info.

Tim

on figuring FMV - My comments are the second paragraph - Fair market is illusive with a market flooded with reo, short sales and regular sales - often you can find 20% from top to bottom of the same market for the same property. Look for why it sold for so much or why is sold for so little - for example - on a short sale, sometimes the banks dump them for less than fair market becaue it is cheaper than foreclosing - with regular sales, some buyers pay more than FMV after putting in 10 offers on reos or shorts with no positive result - they get tired and just say get it done - logic does not always win the day - follow the money and the motivation and huge variations in price begin to make sense.

prices and plung prices further in the mid-west and northeast but the west coast, Florida and other markets that have taken a hit of 50% will likely be safer bets. If you live in the mid-west or east and plan to sell or are holding flips - get them on the market and closed before the holidays or you will be crying in your egg nog.

The rising tide raises all boats - the diminishing tide lowers all boats - California, Florida and Illinois have taken a 50-60% fall in prices yet Virginia, Montana and Kansas prices are off 15-20%. Watch the tide, areas that have faired well so far are on the edge of softer markets and lower prices - but if your market is off 50% like mine, I believe we will do better as folks in the midwest sell this winter at higher prices and come to the golden state to purchase snow free property at fire sale prices. In volatile markets the most important thing is whatever you do - make it happen fast. 90 days of rehab work can kill your profits as market fall. 5% off the price and there goes your profit and maybe your real cash as well.

Just after the above post, national news sources reported the lowest sales in 18 years for July - 27% lower than the month before. Reo wave 2 is upon us and the market is beginning to feel it now. Do not be afraid to buy and hold but if you want to buy and flip or wholesale, you must move fast. There is money to be made but 5% one way or the other is no significant for a buy and hold yet it is everything for the flipper.

Just read those figures on the plane this morning! And you posted it a day ahead Lowered the price on my active flip and all is set for others which should list at the end of the week or beginning of next. Have figured my bottom line to move em quick as suggested and still come out ahead of course.
My realtor said "you look like a motivated seller" and I laughed and said "I am!" haha. Thankfully my next set of deals in the works are set to be rental props and lease to own :)Thanks again for sharing your wisdom!

There are many, many defaults out there like a short sale I an doing where the homeowner is 34 months behind on payments and there is no move to foreclose. Think about all the folks trying to modify their loans and they will be in the pipeline too. Almost all trying to modify will face foreclosure. A slow road to recovery for all of us - California led and the mid west is seeing our 2008.

If the Feds would make loans easy for anyone that can pay them off (as many as you want), investors and those who lost homes would flood the market and much of that inventory would go away. If they keep money tight, prices will continue to lag. If the Feds would allow all loans to be assumed removing the "due on sale" clause, prices would go up and we would have a market like 1982 when low interest assume-able loans led the sales. Where is this market going? It is up to the Feds - if they take any positive action, move fast and you will have the luck of an inside trader - only a legal one.

Hi Bill,
Just read your first two posts and am so impressed with what you've shared.

A friend knows a couple that are ready to buy and I didn't know where to start until I read what you shared here.

I joined the Success Academy on the 17th of this month so I'm definately in the game now!

Anyhow...thank you Bill!

Mary E.

When the market flopped a few years ago, banks would approve short sales if it would net them more money than a foreclosure would net them on the property. Now we are getting counter offers on appraisals from banks that expect to receive fair market value for short sales because the inventory is low on the west coast and there are multiple offers on short sales. They do not believe they need to sell at less than fair market value to get the sale. I know that sounds tough, but purchasing a short sales is a long drawn out series of unexpected turns, and for that patience, sellers should get a discount. Escrows are falling out like crazy as the banks counter back 20-40K above listed price.

The answer: wait it out. Another round of reos are on the way, holidays are coming, buying will slow and the banks will come back to the table.

Money drives the market.

Hi Bill,

Would you happen ot know if assignment of contract is legal in AZ? Would you reccomend a realtor in AZ as well? I know you're in CA but thought I'd ask you anyhow.

My goal is to do a few assignment of contracts then move to REI. (Will be building my personal and business credit as well).

Thank you again for your time and advice!

Mary

To assign a contract is legal anywhere but will the seller allow the assignment? - that is the question. Deal fairly, always be up front and honest about your intentions and you will hardly ever go wrong. As far as a referral, send me a private message and I will reply.

In tight markets like we are having now (sparse inventory) you must work harder for the deal, but they are still out there. I put in an offer at $270K weeks ago on a short sale and the bank said, no. I put in an offer at $273K on the same property and the bank said, no. Tomorrow morning I will resubmit an offer at $270 on that property and I might get it. They want 300K but no one is paying that as it is still on the market at 300K. Maybe tomorrow I get a worn down asset manager or another asset manager or it has ticked past 30 days on the market or what?

I keep offering and I get them some times. It takes 15 minutes to put in an offer and sometimes it saves me 15K when I get the right sequence of events - I do not usually earn 15K for a string of 15 minute time periods so I flood the sellers in tight markets with lowball offers - sometimes it works. In this case, I am looking for a win of 25-30K. I have picked up these deals a number of times - it just takes repeated efforts.

In So Cal we have a shortage of inventory. I have a client looking for a specific model of home in an area of town. Since there are few of that particular model available, I searched the mls and tax records for other similar homes. There were 38 homes of that model in the tract and of them 6 have been sold as repos. 16 are under water (loan greater than value) and 4 are in some form of foreclosure. One of them (my listing) is occupied by a family that has not paid a payment in 34 months and the bank has yet to file any form of foreclosure notice. Wonder how many more of those there are?

I talked to a local think tank recently and was told 24% of homes in Riverside County (3rd largest county in country) are under water financially.

All this tells me what I have done recently makes some sense. Prices are so low buying and holding is good business because homes are valued at much less than the cost to build. Flipping might make sense as the ebb and flow of inventory pushes the price up and down. Banks are going to have to do something soon as this cannot go on forever. Lastly, and most importantly, if your intent is a short term ownership, you must do it quickly. Holding a property 90 days in this market can cost you money or leave you holding a pig no one will buy. Move them quickly.

I know this is not on topic but I wanted to say how much I enjoyed your teachings in the Edge 2010 DVDs. Your information comes out at us like trying to drink water from a fire hose. Real good stuff Bill.

Steve and Veronica

Bill,

We agree totally with your post #97. Everyone needs to know that Real Estate investing does not happen overnight. I am amazed at the thinking it's a get rich quick when it is not. If it was so easy everyone would be wealthy. Thanks for all your information.

Bill
You have provided a lot of great information time and time again. Thank you for taking the time to answer these questions. You are one of a kind my friend!
Sissy

Thanks for the positive reinforcement in the above messages - I am humbled.

I have a pearl to share today that has served me well. I recommend you not buy big ticket items with your cash. Cars, stocks, private school tuition, investment in 401 K (unless your employer contributes based on your cont) etc. I was talking to Chad this week abount doing my 10th deal with him and I told him I was going to purchase a new car but would not just go out and write a check for the car. I use the cash to purchase a house or partner with someone else on a house and let the positive cash flow pay for my car.

I could take 60K out of the bank and buy a Lexus this weekend if I wanted to, but instead, I would purchase a low end home or partner with someone on a home and likely get 500-600 per month from my investment of 60K. I could then buy a Lexus for 60K (with no money down) with payments of about 450 per month, let the postive cash flow pay my payments and in 4 or 5 years, I either own the car and use it a few more year, trade it in or whatever - and I still have the house or interest in a house. If I just bought the Lexus for 60K, guess what I would have in 5 years - yep, a 5 year old car - that is all.

Leverage any cash you spend because in a recession, cash is King.

just wanted to say i enjoy your journal and have it bookmarked to refer to quickly,although it seems you get so many posts if i don't keep up i have to skip ahead lol.thanks again and keep moving forward,rob

This sound exactly what Dave Ramsey says all the time. Stay away from those high ticket items and put your money where it will grow and increase as the years go by. He calls a monthly car payment or lease a "fleece."

Hi Bill,
Thanks again for your time.
If I can ask your advice, please?

1)Joined the Success Academy on August 17th - I Love it!
2) Want to get properties and do lease purchases with no money down...
A)get the property and walk away from the table with $ at closing.
B) Lease the property and collect a monthly residual.
C)Make money when the home is sold.

My challenge is that my credit is bad.(Feb 2006 I had a good faith estimate to buy a $256k home-but decided to wait - since then some things have happened and my credit took a nose dive, lol)... My attorney is working on my personal credit and I will soon LLC and build up my business credit as well.

3) I want to make money in REI a.s.a.p!!!

Can I still pursue Lease Purchase with no money and crappy credit - or should I do a few - 'Assignment of Contracts' first - untill I have either saved some money or have better credit?

Mary inAZ

One can do anything with nothing in theory. If you have lots of $, great credit and a supurb team to work with, your options are many. Take all these away and your options are few, but that does not mean you have no options. In your case you have 2 great assets: willingness to try anything and nothing to lose. Owner carry back notes are a good option for you as money in the bank and credit are of no big interest. You can do assignments given the availability of properties. You should also look into partnering where you do all the work using someone elses money and split profits. The main thing is you need to get a get one deal done, even if it makes no profit - it is education. One step leads to two. Good luck.