YES, Real Estate Investing Works In Your Area Too!

Last Friday I was on the phone with a perspective client ofours. Let’s call him “Jeff”. Now, I have to be honest with you here, what Jeff had to say during our conversation was very bothersome to me, and by the end of the call I finally had to tell him that before I could help him succeed, he’d have to change his perception about the Business. After thinking about his comments all weekend I realized thatJeff's limiting beliefs are probably more common than I’d like to admit. But how can I help people change their perceptions? Then, I was browsing around in my neighborhood Barnes & Noble yesterday, looking for a good read, when the newest edition of TIME magazine caught my attention!

Now I usually don't read TIME, but a headline on the cover caught my attention: Home Sweet Home – Why We're Going Gaga Over Real Estate" I grabbed it and found some interesting numbers you need to hear. WARNING: IF YOU ARE ONE OF THE PEOPLE THAT USES THE REAL ESTATE MARKET AS AN EXCUSE FOR A LACK OF SUCCESS, THIS INFORMATION WILL SHOCK YOU! Real estate values are appreciating like wildfire across thecountry. The time to be investing in real estate is right now.Look at these statistics that the Time article provided:

House Price Percentage Increases

Market 5 Years 1 Year

Washington, D.C. 108.1% 22.2%
California 103% 25.4%
Rhode Island 97.6% 17.1%
Nevada 84.7% 31.2%
Hawaii 82.9% 24.4%
Florida 80.5% 21.4%
Maryland 77.9% 21.0%
New Jersey 76.5% 15.8%
New Hampshire 72.3% 12.1%
Massachusetts 71.8% 11.6%


As I travel the country speaking in various cities around the country, I hear a recurrent comment that goes something like this: "I know investing in real estate works where you live, but I live in a Sellers’ (or Buyers’) market. It doesn’t work here” Yet their local investors’ association is filled with peoplemaking money right in their city. What’s the difference between them? Simple. It's their attitude. Whether you live in a sellers’ or a buyers’ market, you can make a killing in real estate! Look at the appreciation thatis occurring across the country. You may need to adjust yourstrategies for the marketplace, but either way the profitpotential is there. If it is a buyers’ market, then motivatedsellers are having even more difficulty disposing of their unwanted property. What an opportunity for you to solve their problem, and create an incredible profit margin. Motivated sellers usually do not realize they’re in a sellers’market. You have to improve and increase your marketing to findthe motivated sellers before they get educated about their market place.When you create these deals, you’ll have absolutely no troubleselling – it’s a sellers’ market. The point is, don’t allow yourself excuses. Look at every market condition as a new opportunity. The real estate investors that truly become wealthy are those that can thrive regardless of the external environment. Learn how to thrive!

I hope you have an INCREDIBLE investing week!

Best of Success,

Tony Saccaro
www.bigdawgsbuyhouses.com

Purchasing Investment Properties with probate issues.

Here is an interesting deal that illustrates the mechanics of probate or estate investment home purchases.

The Seller (I'll call him Scott) co-owned this house with his mom, and both had signed on the loan. Unfortunately Scott’s mother died three years previously.

Scott allowed the sister to live in the house, but she did not make the mortgage payments which were now 6 months in arrears. Scott is tired of dealing with the house and is ready to sell. But when he and his mother bought the house, they did not purchase with ‘joint rights of survivorship”. Had they bought in this manner, if and when either died, total ownership would have passed immediately to the other person.

To complicate matters more, Scott’s mother left no will for her estate with six other siblings all awaiting their share. If that's not enough of an investing adventure for you — the bank is threatening foreclosure so time is of the essence to create a deal.

In fact, the bank is not just threatening….the house is scheduled to go to the courthouse steps in three weeks. Why would anyone even try to purchase a mess like this with a short timeframe? Well, Scott owes $33,000 + $5,000 in back payments. The house just needs cosmetic repairs totaling no more than $10,000, and the house will have a market value of about $140,000.

That leaves approximately a $92,000 margin less expenses until the property sells – definitely worth pursuing as an investor!

I calculate that the most I could offer on the house (and still leave a $30,000 profit) is $79,000. After the $38,000 to the bank, that leaves $41,000 for Scott and his mother’s estate. There is an incredible deal if we can work through the probate issues. But I’m sure you’ll agree that it is worth the trouble!

So, how do we work through the estate controversy? The challenge here is to get all of the siblings to work together. As long as no one contests the proceedings, the probate through the courts is rather simple. However, if just one sibling contests the distribution, then the probate can take a long time, and make some attorneys rich. As an investor, our job in these situations is to clearly demonstrate to each and every sibling how it is in their best interest to cooperate – this is not an east feat.

First, all of the siblings have to agree on the sale of the house, and the percentage that they will receive. Remember, Scott will get his 50% as the half owner, plus he is entitled to 1/7 (he and 6 siblings) of the other 50%. Unless it is a close family, this will often be a sore point. Next, all of the siblings have to agree to appoint one of them as “Administrator of the Estate”.

If agreement is difficult at this point, the leverage is that if they do not reach an agreement soon, they won’t have to worry because the bank will foreclose, and everyone will lose everything. It is clearly in their best interest to work together – quickly.

Once they all agree, then the courts will appoint the Administrator who can sign for the Estate. As the investor, I will need Scott to sign the Purchase & Sales Agreement as the 50% owner, and I will need to the Administrator of the Estate to sign for the other 50%. If Scott is the Administrator, then he will need to sign twice: once personally, and once as Administrator of the Estate.

Next, we need to stop the bank from foreclosing. In this particular deal, there was not enough time to complete the purchase, so I took a risk. I had already run title, so I knew that only the first mortgage existed as a lien. I agreed to make the $5,000 payment of the arrearage to the foreclosing attorney to reinstate the loan, and stop the foreclosure quickly. To protect my interest, I had Scott sign a 2nd mortgage for that amount over to me with a one month maturity. That way, if they did not ultimately sell me the house, they would have to pay me back or I could foreclose. This was a safe rick given the profit potential.

At this point, with all of the probate issues resolved, the Purchase and Sales Agreement signed, and the foreclosure stopped, the closing could proceed like normal. As an investor, the key is to understand how the probate issues work, and help the family reach a quick and amicable resolution so that everyone can prosper.

Best of Success & Abundance,
Tony Saccaro
www.bigdawgsbuyhouses.com

No Cash? No Problem! Fund All

If you invest in real estate, you need cash to buy houses. Even if you have a full bank account and great credit, you’ll eventually run short on funds - or short on time to obtain a loan - for the next deal. Private lending is the answer. It is a bottomless pool of readily accessible funds: whether you have great credit or poor; whether you have cash reserves or not.

“Private Lending” refers to the process of borrowing real estate investment funds from private individuals at rates higher than these lenders can normally achieve in the marketplace. The attraction of private lending is the speed and ease of funding a deal. Go to http://www.bigdawgsbuyhouses.com If you wish to learn more about Private Lending.

Here’s how it works…first you find or do marketing to find individuals interested in earning 8-10% interest (or whatever you deem affordable for you and attractive to others) on investments secured with real estate. You’ll find these prospects everywhere. They belong to your local investors association, your church, your civic club, they’re your friends and family, your neighbor next door. You’ll be surprised how easily you’ll locate them, and soon, they’ll be searching you out. Just let everyone know that you pay high interest for their loans on your real estate projects.

As prospects express interest explain that the investments are secured by real estate and do not exceed 75% loan-to-value (LTV) of the after repaired value of the home. Each investment is based on a specific property, and they can decline any property with which they are not comfortable. All you require is that they approve quickly (within 48 hours), and can fund within 7-10 days or less. Click on http://www.bigdawgsbuyhouses.com Now to learn More and get a free gift!!

Once they have approved the investment, the funds are wired to the closing attorney to be held in escrow. After the closing, the lender will receive a Promissory Note from you (either personally, from your business entity, or both), a Deed To Secure Debt (mortgage) on the property, lenders’ title insurance, and listed as a mortgagee on the hazard insurance policy.

If no single investor can fund the entire investment, then piece several loans together by providing the largest investor with a first position mortgage, and each smaller investor a progressively subordinate (2nd, 3rd, etc.) mortgage. Typically, I pay an additional percentage on the interest rate to entice investors who accept subordinate positions.

The advantages of private lending are that there is a minimal approval process, and so availability of funds is quick. You pay interest only, instead of also incurring a loan origination fee commonly known as “points”. You are never constrained by arbitrary rules as to how many mortgages you can have in your name. In fact, none of these mortgages ever show up on your credit report. In turn, the private lender receives a higher interest rate with a very secure investment. Everyone wins!

Now you may be wondering how many people you know really have $75k -$100k -$150,000 just lying around ready to invest. More than you think - and most of them don’t even realize it! That’s because the money is tied up in their IRA’s which they believe can not be accessed until retirement. That’s only half true. They can not personally withdraw the money without suffering penalties; but the IRS does allow individuals to invest their funds if they rollover into a self-directing IRA.

A self-directed IRA is administered by a third party institution (I recommend Equity Trust Company in Ohio www.trustetc.com ) and allows the IRA owner to make decisions relative to the investment of the funds. In other words, the IRA owner can decide to use his IRA funds to make a real estate investment in your property. Most people do not even realize this as a possibility. They believe their money must stay tied up in an IRA until retirement earning nominal interest. Imagine how thrilled they are when you provide this alternative! Imagine how much money is currently sitting in traditional IRA’s that you could tap into. There are more funds available than you can use. Isn’t that a nice problem to have?

Since Equity Trust Company has all of the forms on their website, I ensure that making a loan is as simple as possible for my private lenders. I prepare all of the required documents so all they have to do is sign and fax to Equity Trust. From that point on, the private lender has nothing else to do. Simple. Easy. Their next task is approving the payoff when the loan is re-paid. Because the loan process is so simple, and the interest rate so favorable, investors are always begging to re-invest. This truly is a bottomless pool of investment cash.

Don’t forget that if you have cash in an IRA, you can also increase the interest you’re earning by becoming a private lender. You can not invest in any property or company in which you or your family have a vested interest, but you can invest in the projects of other investors which you know and trust. It’s a great way to leap frog your IRA size.

Best of Success,
Tony Saccaro
http://www.bigdawgsbuyhouses.com

How Much Should I Pay For This House?

I probably answer this question for investors a couple times every week. The problem is that they don’t have a good formula for determining the most they can pay and still make a profit – so they’re scared to make any offer. Here’s the formula I use for single family homes:

The Maximum Offer (MO) is calculated by first determining what the house will be worth after renovation which is referred to as the After Repaired Value (ARV); less the rehab dollars required; less the Buy/Sell/Hold (B/S/H) costs; less profit amount desired

MO = ARV – Rehab – B/S/H – Profit


Let’s break that down a little further. To determine the ARV, study comparable sales data. Comparable sales are those properties which sold in the last 6 months to 1 year, and within ½ to 1 mile from the subject house. But other factors must be considered as well. The more characteristics between the properties that are similar, the more valid the data. Make sure that the house itself is similar in square footage, bedrooms and baths, age, style, and architecture. Don’t worry about condition except as it will affect the amount of rehab dollars required. Next, look at the neighborhood and the individual street. Do they look the same? Or is the comparable property on a beautiful street while the subject property is on a street riddled with empty littered lots and boarded up houses? The point is to view the potential investment as your end homeowner occupant will. If they could buy your completed investment on the bad street, or a house on the beautiful street – either for $150,000 – which would they choose? The other house of course. Which means your house is not worth the same – it must sell for less to attract a buyer.

Rehab dollars differ from renovator to renovator depending whether they do the work themselves, use less expensive sub-contractors, or use an expensive general contractor. The scope of the work should be the same – it is whatever is required to make the investment look like the comparable houses (unless the plan is to sell well under market value). I do not attempt to obtain all of the various contractor bids when I am making offers. All the real deals would be sold before I could ever have an offer together! Instead I have developed ranges of rehab dollars based on the overall condition of the home. Is it an exact science? No, but neither are the bids – there will always be something missed. So why not work with a guide that is probably 90% accurate and allows for quick offers?

Buy/Sell/Hold costs include expenses such as appraisals, attorney fees, title search & title insurance, loan origination fees, debt service, utilities, insurance, taxes, real estate commissions, and closing fees paid on behalf of the end buyer. Again, these costs vary depending on each investor’s individual situation. In the Atlanta area, 15% of the ARV seems to be a good average allocation for B/S/H costs. If you are the renovator, calculate your specific B/S/H costs, then utilize that percentage for future offers.

Profit margins are the fun part of the equation. How much do you want to make? If you’re wholesaling the property, you also want to consider how much you should leave in the deal for the investor buyer to make the deal attractive.

That’s it. That’s how you calculate the most you’ll pay for a property. But that’s not what you SHOULD pay. It is the maximum you’ll pay. It is the deal-breaker. You will not pay one penny over the MO. Your negotiations should lead you as far below the MO as possible. The difference in amounts is additional profit in your pocket. What you SHOULD pay is the minimum price below the MO that the seller will accept.

I call this the MIN-O.

Best of Success & Abundance,
Tony Saccaro
http://www.bigdawgsbuyhouses.com

How Much Should I Pay For This House?

I probably answer this question for investors a couple times every week. The problem is that they don’t have a good formula for determining the most they can pay and still make a profit – so they’re scared to make any offer. Here’s the formula I use for single family homes:

The Maximum Offer (MO) is calculated by first determining what the house will be worth after renovation which is referred to as the After Repaired Value (ARV); less the rehab dollars required; less the Buy/Sell/Hold (B/S/H) costs; less profit amount desired

MO = ARV – Rehab – B/S/H – Profit


Let’s break that down a little further. To determine the ARV, study comparable sales data. Comparable sales are those properties which sold in the last 6 months to 1 year, and within ½ to 1 mile from the subject house. But other factors must be considered as well. The more characteristics between the properties that are similar, the more valid the data. Make sure that the house itself is similar in square footage, bedrooms and baths, age, style, and architecture. Don’t worry about condition except as it will affect the amount of rehab dollars required. Next, look at the neighborhood and the individual street. Do they look the same? Or is the comparable property on a beautiful street while the subject property is on a street riddled with empty littered lots and boarded up houses? The point is to view the potential investment as your end homeowner occupant will. If they could buy your completed investment on the bad street, or a house on the beautiful street – either for $150,000 – which would they choose? The other house of course. Which means your house is not worth the same – it must sell for less to attract a buyer.
Rehab dollars differ from renovator to renovator depending whether they do the work themselves, use less expensive sub-contractors, or use an expensive general contractor. The scope of the work should be the same – it is whatever is required to make the investment look like the comparable houses (unless the plan is to sell well under market value). I do not attempt to obtain all of the various contractor bids when I am making offers. All the real deals would be sold before I could ever have an offer together! Instead I have developed ranges of rehab dollars based on the overall condition of the home. Is it an exact science? No, but neither are the bids – there will always be something missed. So why not work with a guide that is probably 90% accurate and allows for quick offers?

Buy/Sell/Hold costs include expenses such as appraisals, attorney fees, title search & title insurance, loan origination fees, debt service, utilities, insurance, taxes, real estate commissions, and closing fees paid on behalf of the end buyer. Again, these costs vary depending on each investor’s individual situation. In the Atlanta area, 15% of the ARV seems to be a good average allocation for B/S/H costs. If you are the renovator, calculate your specific B/S/H costs, then utilize that percentage for future offers.

Profit margins are the fun part of the equation. How much do you want to make? If you’re wholesaling the property, you also want to consider how much you should leave in the deal for the investor buyer to make the deal attractive.

That’s it. That’s how you calculate the most you’ll pay for a property. But that’s not what you SHOULD pay. It is the maximum you’ll pay. It is the deal-breaker. You will not pay one penny over the MO. Your negotiations should lead you as far below the MO as possible. The difference in amounts is additional profit in your pocket. What you SHOULD pay is the minimum price below the MO that the seller will accept.

I call this the MIN-O.

Best of Success & Abundance,
Tony Saccaro
http://www.bigdawgsbuyhouses.com

Follow-Up: The Key To Successful Closings

If everyone always did everything they said they’d do, we’d all be a lot richer. Unfortunately, tasks are overlooked, and the ball is often dropped. If you want to have successful closings, you must have strong “follow-up” skills to catch problems early in the process. Follow-up on everyone and everything.

I can’t begin to tell you the number of closings that almost fell apart, or would have fallen apart had I not kept a watchful eye on the entire process to make sure that everything was completed when it needed to be. Here’s a typical scenario: you’re wholesaling a house and you have just 30 days to get it closed before the contract with the Seller expires. You find a buyer who can get a loan and close before the expiration. Then a few days before closing you find out that the loan isn’t ready and closing must be delayed two weeks. But the Seller already has another Buyer ready to pay more than your price, so they refuse to extend your contract. You just lost the deal.

So what is follow-up? I used to think it meant staying in touch with the buyer to make sure that everything was completed for the loan. Then I learned that the buyer is often a newbie and clueless of what needs to be done. Mortgage brokers just usually respond “Everything looks great” until they can’t close the loan. So the real trick to following-up is to speak to the final decision maker for each step. This works whether you’re selling a retail house or a wholesale house, or even if you are the buyer/borrower. The goal is to close without delays.

Assuming that you have already received a pre-qualification letter from the lender, and ensured that the lender will loan on the deal (i.e. no issues with title seasoning, assignment fees, habitability of the property), the first step is to follow-up with the broker/lender that all of the application paperwork was submitted, and have they forwarded it to the lender? If not, what is still required? Determine if the lender requires a termite letter, appraisal, and a survey (most lenders do). If so, have they all been ordered? When is each to be completed? Keep following-up until you verify that each has been delivered. You also want to verify that the appraisal was sufficient for the loan.

If I don’t already own the house, I order a title report as soon as I go under contract with the Seller to discover any defects early in the process, and begin resolving them. Closing attorneys usually do not order the title report until just before closing to receive as current information as possible. But if they find problems, it could delay your closing. It is well worth the $125 to run title ahead of time, and eliminate delays.

Once the broker has forwarded the paperwork to the lender, the next step is to verify the loan has gone to underwriting. If not, what is the delay? If so, was the loan approved? Do any conditions need to be met? What are they and who is handling them? Make sure that once the conditions are met, the loan is returned to underwriting and approved.

Verify that the closing has been scheduled with the attorney, and that they have cleared title. Find out if and when the loan package will be forwarded to the attorney. Then remind all of the players of the date and time of closing, to bring a picture ID to closing, and to bring any funds required in a certified check.

This seems like a lot of work that should be handled by other people, but the reality is that often times something is overlooked. Through your diligent follow-up efforts, problems will be detected early and corrected, allowing your closing to occur flawlessly and on schedule.

Best of Success & Abundance,
Tony Saccaro
www.bigdawgsbuyhouses.com

Rehab Fast

Do You Want To Sell Your Rehab Fast?



That’s an obvious question – we all do! So what is the trick? So much time and money is spent on systems updates, roofs, and structural issues, that many times there’s nothing left for what really makes the sale: what your potential buyers see. And more importantly, what they fall in love with.

People don’t walk into your house, and say, “Wow, they have all new electric. Let's buy.” That’s just a core expectation. The trick to selling houses fast is to seduce your customers to fall in love when they walk through. It has to feel like a home to them.

The two most inexpensive yet surefire ways we have found to create this atmosphere is through color and through decorating.

A tastefully decorated house really stands out from the others. New house builders learned this a long time ago. Why do you suppose they hire interior decorators? But they have the advantage of creating one masterpiece to sell many. Rehabbers don’t have that luxury. But we discovered that a house can be “staged” to feel like a lived in home. Staging is the art of artistically placing décor items around the house. Perhaps a colorful place setting on the kitchen counter along with open coffee beans for aroma, and an open recipe book turned to a colorful picture. Bathrooms dressed up with beautiful towels, sweet smelling soaps, and window treatments as shower curtains. Finally, fireplace mantels decorated as if the family was already living there.

But even staging doesn’t create the ambience you need. It is the warmth that comes from color. You may have heard to use a white-on-white color scheme to remain neutral and not turn anyone off. The truth is – no one is turned ON either. Buyers aren’t attracted to all white houses. At best, there’s no emotion. With the use of contemporary designer colors, however, these same people fall in love with the home. That’s the emotion that sells. When they love, they buy. And they fall in love with houses that are brought to life with full color.

Best of Success & Abundance,
Tony Saccaro
http://www.bigdawgsbuyhouses.com