Bill O'Rafferty's daily info of importance

The joke of 2010 is federally sponsored loan modifications. There might be some options for some folks in some circumstances, but someone will win the lottery too - will that be you? As a general rule, loan modifications set out to keep the bank from having to show the loss by giving the borrower a low interest rate (1%) for a period of time (perhaps 5 years) so the borrower can keep the property and keep the debt. When they do the loan modifications, all past unpaid payments, fees and foreclosure costs are tacked on to the loan, raising the balance. The bank gets to pretend to stockholders that it has a collectable debt of whatever the new balance is, (including all unpaid payments, fees, etc) you pay smaller payments for a while (treding water) and at some point, the payments kick back in. Banks hope prices will recover in this time such that if they have to foreclose in 5 years their losses might not be as great - or better yet, you can sell and pay them this new balance. Should you really want to keep the property and get life better situated such that you can pay the new, higher payment in 5 years, the loan modification might be for you. Sadly enough, almost all who get the loan modification are back in default in less than one year.

If you have clients that have missed many payments but want to keep the house, the loan modification might be for them but most likely, it is just another stop sign on the road to foreclosure or short sale.

Hi Bill,
Availability? I know properties are limited in CA but in Phoenix AZ, well-
We're in the top 5 for foreclosures, let along shortsales. probate and other.
Phoenix, AZ is also roughly the 6th largest city in the U.S. let alone the
surrounding cities. In other words, the pickins' Really good here Bill!lol.
It's an Excellent place to be as far as REI is concerned.
But I did understand exactly what you were saying and your advice is Oh-So- Helpfull!

Thank you again for your time and Great advice!

Mary in AZ.

Even the most experienced flippers feel if they make bucks on 4 out of 5 they have done well. I bought a flip in November and assumed I would make 40K on the 6 month long deal but prices have come up 6-8% in that time so my profit margin doubled - great for me but my point in this message is to warn that if the market softened 6-8% in that time, my profit would be gone on this project. Here are some thoughts:

do not gamble if you can not sustain the loss

you will win on flips more than lose, but lose you will from time to time

those that buy to flip and have the ability to hold will never lose - 2 exit strategies are 3 times better than one

if you must sell to break even or perhaps lose a bit, sell anyway to release your money for the next deal on which you might made the big bucks

every property in almost every market will be worth more in 5 years than it is today - hold if you can - if not build some equity so you can hold later, but in order to make the big bucks, you have to hold at some point

always have reserves, keep reserves and never give up the reserves - folks with no options do things (dumb things) they would not do if they were not in an economic panic - nothing sucks worse in this industry than not having money to pay the payment -

Hard money is a temporary experience not a way of life - use credit wisely

partnerships are great ways to move in this market but remember someone else will always end up with half the profit from your work - if you cannot live with this do not partner.

Good luck.

On web sites like this one we hear great big stories of success, and I too have some to share. Today I agreed to sell a home at 133K I bought 20 years ago for 126K. In 2006 it was worth 280K. I have rented it out and the rent has paid the payments but why invest 20 years and sell at no gain at all? Was a dumb purchase, I did not sell when I could have made big bucks on it and now I want to dispose of it so I can use the funds I have there for something else as I do not see this appreciating any time soon. I have not lost anything (except my time and use of funds) but not gained either. That is the deal with real estate. Win some and lose some - if you win twice as many as you lose, then you are a winner.

These words means so much specially today. Thanx for the great advise..

You are full of wisdom Bill.

I learned this week that in addition to the California tax code form 593c and 593E (have to do with gain on sales and mandatory withholding on sales thru escrow) - there is now a 593i that requires buyers paying private individuals carrying mortgages to withold from the payment, 3 1/3% of the part of the payment that is principle. What this means is if you pay $1,500 per month to a private individual as an installment on a real estate loan, you must deduct $8.13 per month (or whatever 3 1/3% of the principle is) to send to the Francise Tax Board and pay the remaining to the holder of the note. Yet another issue with private notes we need to be aware of.

Payments would be:

1491.87 to note holder each month
8.13 to Francise tax board each month

what a pain but you have to do it in California and I bet other places as well

I have a client looking for a particular model of home in a particular area (2855 sq ft, plan 2 of a large housing tract). I watch each day to see if an reo or short sale will come on the market such that I can run out and grab the deal. There is a short sale on the market of this model for 298K that no one but us has put in an offer on but for my buyer (273K was our offer) and it has been on the market for 40+ days. There is an reo at 309K that has been on the market for 20+ days, another with a great pool that is a short sale at 309K and today a bank reo of similar condition (bear in mind all from same tract built in past 10 years) came on the market at 349K.

All this means BPO or appraisal or stupid guess, the prices are all over the place and there is no logic in how pricing is set by banks. Opportunity is present where logic is not. I will go back to the one I offered 273K on and offer 269K after it passes 60 days on the market and they just might take it as the listings get stale.

Do not try to figure out the logic, just keep offering pricing that insult the sellers/banks and now and again you will get a deal on which you can make a buck.

You are right about the pricing. I offered on a house not too long ago that had dropped from 189k to 139k then the next week 129k they had already received an offer at 110k that they didn't even counter, then I came in at 103k and the countered me at 127k. I stood at my price and they rejected it. Two weeks later they dropped the price to 119k. I resubmitted at 103k and haven't heard yet. Don't understand their motivation.

Is their a "guideline" that the banks use for BPO to see if your offer falls into their matrix? Any idea how it works? I am closing on shortsale tomorrow (monday) Bank bought at sheriff sale for 157k (what owner owed) They accepted my 117k offer and the ARV on the house is 195k. No rhyme or reason to it, I'm grateful they took it though, the redemption is up on Wednesday.

You have so many posts it is hard to keep up. I am working for a house that probate is supposed to be done by Oct. 3rd. I hope to flip it and clear maybe as much as 6K. If I can work things out, it should bring in 600 to 700 rent and not more than 5K to get ready. I am meeting with the owner (niece of previous owner) who is overseeing the probate issues this next Wednesday or Thursday. I will see what how this all works out. I am hoping to close a tentative deal based upon final probate issues. I am working toward doing deals similar to yours in the 200K and 300K range.

Tim

Cathy and all,

I have contracts to sell reo properties for three large institutions/servicers, although most of the reos I sell are for one large bank. A BPO is as good as the person doing it and I have seen great ones and poor ones. The quality of the BPO is consistent with the quality of the agent and I am not a bg fan of real estate agents even though I am one. Many agents have education and experience and get the job done right. An increasing number have no education or experience but have some relationship (or dare I say participate in payola?) with an asset manager and get the assignments of reo properties and BPO and are ill prepared to do these well. I even get appraisals from large banks prior to foreclosure that are done by appraisers that come from 100 miles away and they are generally not done well as they lack perhaps the most important qualification for the job - an understanding of the communities.

You ask why they reject your fair offers and accept terribly low ones and I will say; garbage in and garbage out. Do not fall in love with a property and always make decisions from an economic perspective. Their dumb decisions will make you money over and over again. Close your eyes and reach into a fish tank and now and again you will come out with a fist - it is that arbitraty.

Good Luck.

Bill

It is great to hear the perspective from a Realtor and investor! I think most of your information is applicable anywhere in the country! Keep it up Bill!

I have developed a pattern of buying the dogs (in terms of property). I like dogs.

Have you seen properties that are similar to others in the area, yet they just sit on the market and not one seems to want them? I suspect we all have. I ask myself why is no one making an offer to purchase the property - what makes it a dog no one wants? I make a list of the items I think make it undesirable and then obtain a bid to repair those items to make it as desirable as others in the area. Surprisingly, it sometimes does not cost all that much to make the changes such that someone will buy the place. I buy it; make the minimum changes necessary to remove it from the dog list and it sells.

I bought a home for 102,500 earlier this year that I thought was worth 120K as is but no one seemed to want it - was listed for 120K. I did 7K in repairs and got multiple offers at 130K. I did not do all that much but increased the value 20% by doing a paint job, fishing the roof and pouring a concrete driveway.

Take them off the doggie list and there is money there for the person with vision.

Back before the housing market went way-south...properties in Awatukee/Phoenix,AZ and also Scottsdale,AZ (most golf courses per capita)...rose at an average of 14%...
Now there are short sales all over...I know that one has to look at all this with
precautions - but Ahwatukee/Phoenix - has a top school system...and Scottsdale has a boys&girls club with paint-ball and horse back riding.

The people that have to move from their ARM's that went crazy and lost their jobs - but got lesser paying ones - they have to live somewhere? The U.S. population is still expected to grow - even in this area.

Bill - did you want to add me to your Assignment of contract-person list?
OR - I could add you to my buyers list?
LOls - but seriously?
I learn a lot with your posts!
Thank you Bill!

Mary-in-AZ

You are the man Bill! I like dogs too...especially ones with fleas!

If prices on homes were down 50% and rent values were down 15%, who would not want to be buying rentals?

Single Family homes are great for building equity through appreciation. Income comes at a higer rate from multi family units (apartments). Buy apartments in high priced times and buy single family homes when the market is down. Then when the market goes up, sell the single family homes and buy multi family units.

Here is my recipie for retirement for you youngsters. Buy homes, sell and 10-31 exchange into apartments - leave the equity in the apartments until paid off and you can retire in 20 years from whenever you start this process. 10 units should bring in enough income to retire as you continue to invest at an easy going pace - when you come back home from the Caribbean or where ever you want to go.

Almost all those with huge, generational wealth made the money in real estate.

I wish someone would have told us that information 25 years ago. I will be able to retire form my job in less than 2 years. So we have a lot of catching up to do with REI.

Thanks for this thread Bill.

Steve and Veronica.

I had a guy come into my office yesterday with 1 million on deposit - this is what he has from a life of hard work, luck and blessings. (Apparently just sold his business) He said he wanted to make enough income off the money to retire but if he starts spending it, the money will be gone in a few years. Here was my recommendation:

Put 500-600 in sold rental units - all investments I put folks like this in reutrn 8+ percent - that is $48,000 per year income and as home appreciate in the next 5-7 years, that 600K will turn into about 1 million.

Put 200-300,000 into flipping homes which conservatively makes 15% per year although most of my clients get 20% or more. That is another $45,000 per year.

Put the remaining 100K or so into private hard money loans at 10-12% with no loan extending more than 1 year - this is another 12,000 per year.

Can he live well on $105,000 per year while still gaining appreciation on the homes he has? That will be his choice, but I did put in an offer on a home for him.

put in 6 offers this weekend for the guy - a great problem to have.

Market is slowing for the holidays already - use the time to strategize - others will be slowing too - more opportunity for those that do not slow.

When calculating the value of a rental or apartment to an investor one must be concerned about FMV, resales opportunities, etc, however, regarding the investor in post 141, here is what I do. He wants an 8% return on investment so I find good properties that are well priced and I take the anticipated rent (let's say 1300 per month) and times that by 125 and you get the price you can pay for the 8% return (162,500 in this case). The home is worth that much as an investment - could be worth more or less by community standards, but that is the value as a return on investment. The bonus is we will see appreciation which in some cases will exceed the rental income. Strictly purchasing for return on investment is a strategy used by commercial brokers almost exclusively.

Bill,

This is great advise, the stock market won't do that for you!

why 125 you ask? Using a algebraic formula (means-extreme analysis) you can either divide the rent into price or using simple algebra, with a constant of 8, and 125 is the multiplyer for an 8% return.

This is a great thread you have going here. Thanks for all the great information.

Steve and Veronica.

Thank you for posting that information about New Mexico. I am starting to invest down in the Las Cruces area. I didn't realize that New Mexico was a Non-disclosure state, so I really appriecate the tip. Like you, I think that hostile take-overs are an interesting niche for this down market.

Janet

I got an email from a colleague upset the appraisal did not match the FMV. This happens all the time and sometimes they are way over and sometimes way under - large banks use servicers that might live out of the area and they are just guessing. If your appraisal is too high, shut up and live well. If it is too low, obtain at least 3 comps (really good ones) and forward those through your lender to the appraiser, asking for a review. IF that does not work, take the the comps (best if with 30-60 days old) back to your lender and ask to have another appraiser take a look without having access to the first appraisal. Always meet appraisers on site and tell them what you want the appraisal to be. Put them on the spot - they will not tell you what they will appraise at but let them know what you think it should appraise at and why and give them the comps. This works - people are people and yield to pressure - especially is they do not know the area - they are guessing to some degree anyway.

I sent this response back to the colleague, she went to the lender and did as I suggested, and the appraisal is being raised.

Best wishes

Some people are the super smart...Your 5 star

You are full of knowledge, ever think of writing a book?

...Thanks for sharing your insight and tips. I enjoy reading your informative posts. Keep up the good work. I think I owe you a few diet cokes or at least a chocolate chip cookie for your assistance. Good luck on all your future real estate deals. Believe and Achieve! - Joe

I was hoping you would make that a post, it is info everyone can use. Thanks for the great information.

Cathyb

I called someone about a house they had for sale on Craigslist, and after talking a while it came out that the house was purchased for cash, but got forclosed on because a HELOC was defaulted. It went through the sheriffs sale, bought back by the bank for 97k. The house is worth around 150k was purchased for 214 back in 2005 or so. The owner wants to stay in the house.
Can I redeem from the bank and sell it back to him? Is their an issue with reconveyence or something. I don't want to be marked as a "predator" or anything. I said I would sell back to him on C4D for what I bought pluse 8k and 1% interest over what my bank is charging me. Want to make this win win.
But don't want to do something wrong. As always thanks for your time.