While we are primarily teaching our Agent Magnet family to make money in real estate without holding the property there will be times when it makes perfect sense to buy and hold, or when you need to put a little money into the project you are flipping in order to get a retail buyer to sign on.

Investing in apartments, multifamily units, or rehabbing an occasional house flip can make sense when the cash flow and long term wealth building potential are large enough to be worth the extra risk of holding property long term.

The problem with buy and hold strategies is that it takes cash to make these deals work, and traditional lenders are still not opening up the coffers to many of these deals.  Even when commercial loans are available, the numbers of properties that can be financed in one portfolio are limited to between three and ten, depending on the rules of the lender.

Generally, the buy and hold Investor will need to come to the table with quick cash.  Fortunately, there are a number of great sources for private money:

1.  Personal sources.  Your 401K can be converted into a self-directed source of funds for property investment.  Companies like Equity Trust and Security Trust can show you how to transfer funds to an account that you can self direct without incurring a penalty for withdrawal.  Whole life policies are also a great source of low-interest funds.  Typically, you can borrow up to 80% of the funds that have been put in and as long as the amount borrowed and interest is paid back over time, the funds are not subject to taxation as capital gains.

2.  Friends, family, and local professionals. These sources will often be willing to partner with you on a good investment that will pay back at a rate that is higher than they are earning in stocks, bonds, savings and retirement accounts.  Since the stock market crash a couple years ago a lot of money has been sitting on the side lines and a well thought out presentation on the returns available in real estate can easily lead to a fund that can be used for investment at a payback rate of 9 to 15 percent per year.  There are some rules that need to be followed to make sure this is not viewed as an investment pool subject to SEC rules.  Each investor should be deeded a mortgage interest in specific property, and no two investors should be pooled in one mortgage.  Be sure to check with an attorney in your state to be absolutely sure about how to structure your dealings with private lenders to keep yourself AND your lenders safe.

3.  Hard money lenders.  There are fewer hard money lenders around since the housing crash as many got caught with defaulted loans, but hard money lenders are still a major source of short term, quick cash for rehabs.  You will pay 12 to 18% and 2 to 5 points for the money lent and will have to pay back the loan in 6 to 18 months generally.  While hard money lenders are primarily interested in the return on investment, they will check credit and may have a minimum credit score that will be required in order to borrow funds, and the credit score may affect interest rate and points.

4.  Partner with cash buyers in your area.  Your local REIA will be a good source for meeting seasoned investors with cash to spend for rehabs and buy and hold properties.  If you have a project that will have a good return, you may very well find a joint venture partner among other investors in your area willing to fund the deal while you farm the deal.

5.  Build up business credit by developing strong relationships with local commercial lenders.  Establish credit accounts with the building supply and office supply companies you work with regularly.  Your business will start getting regular credit applications as it builds cash flow, but this is not a great way to build credit for your company because most of the standard credit cards require your personal guarantee as well as your business guarantee.  Use the help of a business credit consulting service to help you find sources of business credit that report only to business credit reporting services and not on your personal credit, and do not require a personal guarantee.  These credit building methods take time, but over the course of a year or two of successful business, you should be able to build a substantial credit line.

The Senate has introduced a Financial Reform Bill, introduced by Banking Committee Chairman, Christopher Dodd (D-Connecticut).

If the bill is passed it will create a Consumer Financial Protection Bureau to watchdog unfair, abusive and predatory financial services and products.  It will be housed within the Federal Reserve.  Banks and credit unions with assets over $10 billion will be monitored by this new agency, as will mortgage brokers and servicers, debt collectors and consumer reporting agencies.

The bill also includes a council that oversees systemic financial instruments and practices in an effort to avoid the kinds of exotic products that led to instability in the mortgage market over the past two years.

Predictably, the Mortgage Bankers Association and other financial organizations oppose this measure, and the bill probably has a tough road ahead to see approval.

Are you in a market that seems saturated with other Investors all looking for the best Short Sale leads and Agents to present their deal to their short sale clients? Do you feel as if you’ve gotten to the table late?

Take heart.  There is a lot you can do to get attention for your services even in a highly competitive marketplace.

Here’s a story to illustrate the point. When two hunters in a forest spot a lion running towards them, one hunter puts on his running shoes, while they other shouts, “Are you crazy? You can’t outrun a lion!” The wiser hunter replies as he sprints away, “I don’t need to outrun the lion; I only need to outrun you.”

As an Investor, your marketing does not have to beat out all of the competition initially in order for your business to thrive; you just need to do better than the back of the herd when you start out.  With all the resources available to you, that should be easy to do!

Of course, the marketing materials with The Agent Magnet can canvas all of the real estate offices in your marketplace.  Even small cities have one or two thousand Agents, and most of them will not have heard about the benefits of partnering with an Investor to complete Short Sales.  Even those who have been pitched by other Investors have probably been given unprofessional and unsubstantiated presentations and will be impressed both with your depth of knowledge and professional marketing materials.

Second, almost every Agent knows of two or three potential Short Sales just among family, friends and neighbors they can offer to you when they feel comfortable with your professional approach to the Short Sale problem. It takes just three or four of these Agents from smaller brokerages to build a pipeline quickly.

Third, initially you may need to put in a little more marketing work to find motivated homeowners directly.  You can find these by going to the court house and picking up the notice of default leads right after they are filed and several days before they are published in the legal notice papers in your area.  You can also find them by culling through dismissed and discharged bankruptcies on Pacer and sending offers to buy their properties.  You can skip-trace vacant house leads that others just leave to go to foreclosure.  If you optimize your seller website for your local marketplace better than other Investors and Agents you’ll pick up the motivated sellers who look for help online more effectively than most of your competition who are not advertising properly online.

It just takes doing 5% more than others, or going a little out of the box in finding leads in order to start overtaking the pack.  Be the Investor who offers more value to Agents and homeowners in your market, and you’ll find your business thriving soon.  Then, when you have serious cash flow coming in, you can turn your business into a marketing machine that brings in hundred of leads and closes 3-5 deals per month outside of what you do with agents.

Barney Frank, Chairman of the House Financial Services Committee, has called for second mortgage holders to write down these loans in order to relieve pressure on the problem of underwater mortgages.  Once second mortgages are written down it becomes possible for more first mortgages to be restructured into safer conventional plans at current market value.

Frank’s letter of concern has gone to the major second mortgage underwriters, Bank of America, JPMorganChase, CitiGroup, and Wells Fargo. Frank argues that homeowners are often eager to save their homes, but complex negotiations between mortgage holders often lead to frustration and failure.  The result is that homeowners often choose to walk away from their mortgages because it has become impossible to get the multiple mortgage holders to cooperate on the restructuring of a loan.

Frank’s committee has found that, while homeowners and first lien holders are often in agreement on a write-down so that the mortgage can be restructured closer to current market value, the hang-up is often the second mortgage holder who is holding out for full repayment of the home equity line of credit.  Second lien holders are allowed to hold these loans at artificially high values and so, unlike the first lien holders, there is a disincentive to modify these loans.

Only Bank of America has signed on to participate in the second mortgage write-down component of the new HAMP program due to begin early in April. The other major second mortgage lenders have not agreed to scale back on these mortgages.

Serious delinquencies of jumbo loans ($417,000 in most areas and $729,750 in certain high-priced markets) were higher for the 32nd month as of January according to Fitch Ratings, a credit rating organization.  These 60 day+ late loans jumped to 9.6% of the residential mortgage-backed securities market compared to 9.2% in December.  This trend has been in place since 2007 and nearly tripled in 2009.

In California, which holds 44% of the jumbo loans, the delinquency rate was 11.3% in January and expected to climb.  Jumbo prime loan delinquency rates also rose in Florida, New Jersey, New York and Virginia.  Fitch officials indicated that in mortgages written in 2005 through 2007 50% of the jumbo loans are under water.

The luxury home market is another prime area for short sales, particularly in California, Florida, New York, New Jersey, Connecticut, Nevada and states in the Washington, DC beltway area.

Last week we talked about the First American CoreLogic 4th Quarter 2009 negative equity report.  Here’s a list from that report of the ten most under water states and the ten most troubled cities when it comes to negative equity.

Top 10 States with Negative Equity as a Percentage of Total Mortgages

Nevada—69.9%
Arizona—51.3%
Florida—47.8%
Michigan—38.5%
California—35.1%
Georgia—27.8%
Virginia—24.3%
Maryland—22.9%
Idaho—22.7%
Utah—21.1%
National average: 23.8%

Top 10 Cities with Negative Equity as a Percentage of Total Mortgages

Las Vegas/Paradise, NV—74.7%
Phoenix/Mesa/Glendale, AZ—57.5%
Orlando/Kissimmee/Sanford, FL—55.5%
Riverside/San Bernardino/Ontario, CA—54.9%
Ft. Lauderdale/Pompano Beach/Deerfield Beach, FL—54.2%
Miami/Miami Beach/Kendall, FL—49.8%
Tampa/St. Petersburg/Clearwater, FL—48.5%
Sacramento/Arden/Arcade/Roseville, CA—46.1%
West Palm Beach/Boca Raton/Boynton Beach, FL—45.4%
Jacksonville, FL—44.3%
Warren/Troy/Farmington Hills, MI—44.0%

Other markets at or above the national average include Cleveland/Elyria/Mentor, OH; Oakland/Fremont, CA; San Diego/Carlsbad/San Marcos, CA; Washington, DC/Arlington and Alexandria, VA; Atlanta/Sandy Springs/Marietta, GA; Chicago/Joliet/Naperville, IL; Los Angeles/Long Beach/Glendale, CA; and Denver/Aurora/Broomfield, CO.

Most of these markets have seen dropping prices since 2006 and many continue to see drops, though at a slower rate than in the past two years.  These will remain the foreclosure capitals of the country for the foreseeable future and the greatest opportunities for Short Sale Investors because of the large inventory of homes that cannot be sold without a loss.

We believe that especially for students just starting out it is best to stick with Short Sale property because of all the assistance available in negotiating deals and transactional funding that makes property flipping relatively easy.  For more advanced students and pros, however, eventually you will probably enter into the world of buying bank-owned property.

Here’s a list of the free websites that can be used to locate bank-owned property:

American Home Mortgage Servicing, Inc
https://re.ahmsi3.com/staticBroker/rePropertiesNew.jsp

Bank of America (including Countrywide)
http://bankofamerica.reo.com/search/propertysearch.aspx

BB&T
http://www.bbt.com/applications/specialassets/search.asp

Chase
http://mortgage.chase.com/pages/othe/co_properties_landing.jsp

Citi
http://www.citimortgage.com/Mortgage/Oreo/SearchListing.do

Compass Bank
https://www.compassbank.com/appforms/properties/index.jsp

GMAC  and CapMark- Now Berkadia
http://www.berkadia.com/Berkadia/REOProperties.aspx

HomePath by Fannie Mae
href=”http://www.homepath.com/

HomeSteps by Freddie Mac
http://www.homesteps.com/hm01_1featuresearch.htm

HSBC

http://www.banking.us.hsbc.com/HICServlet?cmd_PropertySearchDefault=cmd_PropertySearchDefault

HUD – Housing and Urban Development Listings
http://www.hud.gov/homes/index.cfm

IndyMac (now OneWestBank)
http://apps.indymacbank.com/individuals/realestate/Search.asp

M&T
http://services.mandtbank.com/personal/bank_owned_prop.cfm

Ocwen
www.ocwen.com/”>www.ocwen.com/

Regions Bank
http://realestate.regions.com/servlet/Ore/ForeclosedPropertySearch.jsp

SunTrust
http://suntrust.res.net/

Wachovia
http://reo.wachovia.com/

It was bound to happen!  Scapegoating only works for so long…

http://realestate.msn.com/article.aspx?cp-documentid=23616063&gt1=35000

The Obama Administration is considering further sanctions against Lenders who foreclosure before all Home Affordable Modification Program options have been explored.  The HAMP guidelines strongly urge Lenders to look at all options before foreclosing, but falls short of requiring Lenders to examine every severely delinquent account one by one before sending out a Notice of Default.  If the more stringent requirement is enacted Lenders would need to contact all borrowers who are 60 days or more late in order to determine eligibility for a HAMP modification or HAFA short sale.

The change would also require Lenders to stop all foreclosure activity against those who have been accepted into the modification program.  There have been many complaints from families who have begun making approved modified payments and have still been subjected to foreclosure filings.

The Administration says an outright ban on foreclosures before all other measures are exhausted is just one of the options under consideration in order to salvage what has widely been seen as a failed foreclosure rescue program.

Another proposal under consideration is a mortgage write down, which will require rewriting the net present value formula used by lenders to determine whether they will make more money by foreclosing or by modifying the loan.

Grab Your Piece Of The House Rehab Pie
by Bob Massey

How low can you pay for a home in your market?  Can you get one for $30,000? $10,000?  How about one dollar?  Investors who live in the Rust Belt or other areas that were overbuilt and were slammed by the housing bust can find some incredible buys right now.

A Realtor.com search of the Chicago area shows over 150 homes, condos, and multi-unit buildings for $10,000 or less.  Detroit has more than 3400 available for under $25,000, and some even as low as $40.   Minneapolis has over 130 available for $7,000 to $30,000.  In Cleveland you can find some nice little places for under $20,000.  There are even 520 homes with a starting auction bid of one dollar!

The common characteristic of most of these houses is that they are bank owned.  The bright side is that banks tend to be more worried about getting these properties off of their books than they are about making a decent profit off of the asset. Due to the extremely low prices and the banks desire to get the deals done quickly, most of these are all-cash deals.

Most of these houses need significant rehab work.  Many are burn-outs that require gutting. Often liens, real estate commissions, and all required permits and fees must be paid by the buyer.  Buyers must do all the due diligence to get surveys, inspections, and other work done before signing anything permanent.  Homes in this price range are always “as is.”

There could be local factors that you need to be on the lookout for.  An example of this is that most of the 33 listings between $10,000 and $20,000 in Cedar Rapids, Iowa, are in areas of the city that have been flooded.  You would need to find out beforehand if the house is in an area of the town that is going to be town down, and quickly any work in the area is going to be done before buying anything there.  The policy is “let the buyer beware” in these sales.

In Cape Coral, FL many of the properties listed in the $20,000 to $39,000 level are located in the Northeast quadrant, an area due to be assessed $25,000 for city water and sewer services soon.  Many of the low price homes in this community do not need a lot of TLC, but whether the assessment has been paid or not is always an issue in determining the real cost of owning a home in the northern half of Cape Coral.

Both the Housing and Economic Recovery Act of 2008 and the American Recovery and Reinvestment Act of 2009 contain several billion dollars for the rehabilitation of blighted neighborhoods, particularly in areas where foreclosure has been the highest.  At least $4 billion of the Neighborhood Stabilization portion of the 2008 bill have been distributed to the neediest cities.

Investors can’t really expect to receive any money from these grants directly, excepting portions of the bill that provide money for making energy efficiency upgrades for low income housing.  Investors could benefit indirectly if they rent out their properties to Section 8 tenants because these emergency programs are providing money to get people below the poverty level into improved housing via Section 8.

Some cities as well as non-profit organizations could offer grants to investors to get them to buy houses in need of rehab and foreclosures.  Check with your local Housing Authority to see the options in your area.