Hoarder Strikes Again . . .

Well, I’ve just about had it.  This is a duplex I was selling on contract.  I did the deal with Martha back in ’06 and all was good.

Bu slowly, she started to collect “stuff.”  In the back yard, in the house, and now in the front yard and on the porch.  I’ve confronted her about it, and she insists she “needs” all of it.

The Board of Health has sent me two letters about the junk that has piled up at her property.  The last letter was in April of 2011.  At that time, I wrote her a letter and told her that if I got one more letter from the BOH, I was going to foreclose on her. 

And sure enough, the inevitable happened.  I got the letter last week and contacted my attorney.  She’s not going to be happy but it’s not as if I didn’t warn her!  This is crazy stuff.  It’ll take a while to process the court papers — maybe two or three months at the most — but it’ll be worth it to me to get her out. 

I just hope she doesn’t leave me any of her junk!

Onward and upward ….

1M Foreclosures Delayed til 2012

With the housing market already struggling to recover, RealtyTrac recently reported that an estimated one million foreclosure-related notices that should be filed by lenders this year will be pushed back until next year.  Here’s the full article:  http://www.realtor.org/RMODaily.nsf/pages/News2011071401?OpenDocument

While this may be good news for homeowners who feel they can get back on their feet and get caught up on their payments, this “shadow inventory” of foreclosed properties wil delay the housing market recovery even further.  Given this scenario, RealtyTrac predicts we won’t return to normal foreclosure activity until 2015.  Yikes!

The number of homes repossessed by lenders dropped 30% in the first half of this year compared to last, but delays — lenders taking longer to take action against late payers — are stalling the housing recovery.

Is there any good news here?  For the economy as a whole, I’d say no.  For homeowners who are delinquent, yes.  Perhaps they can get caught up on payments and keep their homes.  For investors, yes.  Foreclosed homes will continue to hit the market and prices will continue to bump along the bottom for at least the next year.  So, now is the time to jump, if you have the drive, desire and determination … oh, and the cash …

Onward and upward!

Still Tumbling Down …

Everywhere I turn, I hear analysts talk about how the economy is on the upturn, and the housing market is on the mend.  I don’t know about the economy, but I’m not buying that stuff about the rosy housing market.

Zillow’s chief economist Stan Humphries is now predicting the housing market won’t hit bottom until sometime in 2012.  Home values have fallen for 57 consecutive months.  Doesn’t sound very rosy to me . . . The full article containing this info appeared in the WSJ on May 9th.  Here’s the link:

http://online.wsj.com/article/SB10001424052748704810504576309532810406782.html?mod=djemRealEstate_h

We saw the surge in home purchases last year, spurred by the $8000 tax credit, but when that expired in late summer, so did the breath of fresh air that had been pumped into home sales. 

There’s just sooo much inventory out there, prices aren’t going anywhere soon.  The glut of foreclosures on the market make it nearly impossible for someone to sell their home at anything near its true value.

Remember the cute three-bedroom ranch I bought a few months ago for $35,000?  It’s on a cul-de-sac with other homes valued at $80-85,000.  With that kind of (foreclosure) competition, those people can’t sell their homes right now. 

So yes, the housing market is still tumbling down, but we investors are taking advantage.  Really, anyone who has decent credit and wants to be a homeowner should be seriously looking to buy right now.  However, the banks have tightened their purse strings — many are demanding a credit score in the 700s — — which makes it challenging for many to obtain a mortgage.  How do we clear the huge inventory of homes on the market when very few are able to get loans?  Cash is king, of course, but aside from the investor segment, there aren’t many potential buyers who can pay cash for their home.  Definitely a “catch 22” situation!

What I know is this:  there’s a huge inventory of wonderful homes out there — single- and multi-family — a lot of value for a little money.  These prices are going to bump along the bottom for at least nine more months.  And I plan to take full advantage.

How ’bout you?

Short Sale? Oxymoron!

I’m always looking for a bargain, whether it’s in home goods, clothing, makeup, shoes, vehicles, vacations or rental properties.  So I’m constantly on the lookout for a great deal.  And right now, there are hundreds of them, in every city in the nation.  I recently purchased a foreclosure for $35,000 that sits on a cul-de-sac with homes that are worth $75-85,000.  It took about $5000 to get it up and running but it looks great, and I’m going to rent it out and make a very nice return on my investment.

Last year, I came a cross a similar deal . . . actually, it was even better.  The house was a little bigger, and cheaper yet, so I jumped on it and put in a full price offer of $25,000.  Of course, so did about six or seven other investors.  When that happens, you must give your highest and best offer.  So, I offered $30,500.  When I didn’t hear anything from my realtor after about a week, I called to see what was up.  “It’s a short sale,” she said.  “This may take a while . . . or a really long while.”

I knew what a short sale was.  The homeowner owed more on the property than it was worth, and the home is put up for sale.  For instance, if he owes $50,000 and my offer is only $30,000, that’s what makes it a short sale.  The sale price doesn’t cover what is owed on the mortgage, but the lender and homeowner work it out.  Sometimes. 

It gets very sticky when there’s a second mortgage on the home.  If he owes 30K on his first mortgage and 20K on his second, the lenders often end up fighting it out as to who gets the money offered up in the short sale.  The primary lender may say the second mortgage holder will  only receive a couple thousand dollars of the proceeds.  But the second mortgage holder can come back and say it will scrap the deal if it doesn’t get at least five thousand or more.  So, you can see how these short sales can drag on and on, especially if there is more than one lender involved.

That was the case with the great little house I bid on last year.  After three months, I got tired of waiting.  Another good deal came along, I put in an offer, it was accepted and I withdrew my offer on the short sale property. 

The lesson learned was this:  in the future, I’ll check to see if there’s more than one lender involved, if I try to buy a short sale property. 

The sad thing is, it’s a lose-lose situation to have these properties just sit.  It doesn’t help the recovery of the real estate market at all.  It doesn’t help homeowners, who are trying to avoid foreclosure by doing a short sale.  It can take months for loan servicers to agree on a price . . .

And sadly, 11 million homeowners owe more than their homes are worth and, according to CoreLogic, another 2.5 million have only 5% equity.  Those people — if they want to sell — must cover the difference or ask the bank to take a loss via a short sale. 

Short sale?  Not!  The red tape, the hassling back and forth . . . they should rename it “long sale.”  And in the meantime, the housing recovery continues to be in stall mode . . .

“Foreclosuregate” Update . . .

What an interesting past couple months it’s been.  Prior to “foreclosuregate,” the real estate market was already struggling.  We were experiencing new lows in homeownership and new residential home building start-ups, and new highs in the number of foreclosures each year.  Well over a million people lost their homes in 2009, and the Federal Reserve’s Sarah Raskin fears that number may top 2.5 million this year and next.

And if that wasn’t bad enough, we’re now dealing with the real possibility that many lenders may have done shoddy work in reviewing and processing several thousand of those foreclosures.  Yikes!  Let’s face it . . . the banks have been overloaded the past few years, with the sheer volume of paperwork involved in all these foreclosures coming through their offices.  Their systems couldn’t cope with the volume of work resulting from this serious down cycle.  Evidently, they may have rushed some of the paperwork, using “robo-signers,” or employees who didn’t read all the details or weren’t qualified to do so. 

The end result?  A huge bottleneck.  Attorneys general in most states, wanting to go through everything with a fine-tooth comb.  Lawyers representing former homeowners, filing suit against banks who may have processed their foreclosures inappropriately. 

Here’s the bottom line:  it’s not a question of whether these people deserve to lose their homes.  They do.  They didn’t pay their mortgages and they won’t be allowed to take back their homes.  But the ones who are still in their homes and are in the foreclosure process will buy a little time.

And in the mean time, there’s a huge shadow inventory of foreclosed homes that haven’t even been put on the market for sale yet.  About 600,000 of them, according to Realty Trac, the big online foreclosure website. 

Unfortunately, this mess will drag on for months to come, and what it means for investors  is that the buying process will be slower.  There are still excellent deals out there, and the prices are going to bump along the bottom through this year and next, and on into 2012.  So the opportunities for the smart investor are endless at this point.  But the wheels will be turning slower, for sure.

So, my advice would be the same as what I always told my kids when they were little and wanting immediate gratification . . . “Patience is a virtue.”   It’s still a wonderful time to acquire property.  We need to be patient with the process until all this foreclosuregate business gets straightened out, and by all means, make sure your loan originator dots all the i’s and crosses all the t’s!

Now is the Time . . .

The beat goes on . . . people are losing their homes by thousands and there’s no end in sight.  Back in 2005, life was good — so good that families who had no business buying a home were given the opportunity to do just that.  Life was good.  Brokers offered these wonderful little deals, whereby they could get into their dream home and pay a nice affordable mortgage payment, say $800/month.  Sounded great.  They bought into the idea, knowing full well that these adjustable rate mortgages (ARMs) would jump in three years.  No problem? 

Well, when their mortgage payment went from $800 to $1400 or higher the reality hit home for these individuals.  They couldn’t pay the new rate, and here we are.  All those garbage loans are worthless now and millions of families across the nation have lost their dream homes.  They’re being forced into rentals, which is a perk for those of us who are in the business, or are contemplating getting into the business.  Now is the time!

In 2008, there were 2.3 million foreclosures, in 2009 that number jumped to 2.8 million.  According to RealtyTrac, a huge foreclosure sales website, the trend will continue through 2010, 2011 and into 2012.

The government is putting out stats that indicate there’s been an increase in new residential building starts, but upon closer examination you’ll find they’re predominantly in multi-family dwellings (apartments).  Many of the families who’ve lost their homes can still afford to pay rent and would rather live in a single family house, not an apartment.

When I began my real estate investing career 15 years ago, my research showed that duplexes gave me a better return on my investment than single family homes, so I bought only multi-family housing.  However, with the glut of foreclosures on the market now and in the foreseeable future, prices are very low and that margin has narrowed.  I’ve been buying single family houses recently because of the great deals out there right now.  This 3-bedroom home below is a good example.  I got it for $25K and only had to put 5K in it to get it in rentable condition. 

It has central air, a two car garage and needed mainly cosmetics to get it up and running.  Before purchasing it, I checked out what kind of return I could get on the investment.  I filled out the table (Diamond or Dud) contained in my book, The Landlord Chronicles: Investing in Low and Middle Income Rentals and found I’d be making 12% on this purchase.  Beats the hell out of the stock market, right?  Here’s a picture of the kitchen, which only required cleaning.

So whereas multi-family rentals used to surpass the single family homes as investments, this is no longer the case.  If you buy them right, single family homes can be great money makers as well.

Now is the time to invest in rentals.  This downturn represents tremendous oportunity for the smart investor.  Banks are being stingy with loans right now, but if you have decent credit and a good relationship with a bank, you shoud be good to go.  They’ll require about 20% on an investment property and the interest rate will be a couple points higher, but it can be done. 

Now is the time . . . educate yourself, trust yourself and go for it!

Your Investment Choice

So you’ve decided to jump into the wonderful, wacky world of real estate investing . . . congrats!  An excellent choice indeed, considering the state of the stock market and how unreliable and inconsistent the returns can be right now.  If you buy the right rental, fix it up reasonably and rent it out, you can earn 10% and above on your investment year after year.  To insure you’re making a good investment going in, check out the “Diamond or Dud” formula in my recently released book, The Landlord Chronicles: Investing in Low and Middle Income Rentals.  It can be purchased through me at barb@thelandlordchronicles.net, $17 softback and $24 hardback (add $3 for shipping) or online through www.authorhouse.com or any of the other big online sources.

The first question is whether to go with a single or multi-family building.  Mainly, it depends on time constraints and your personality.  As you might imagine, multi-family houses are more labor intensive . . . more units, more tenants, more fix-ups and repair issues.  But! more income as well.  For example, the home below is a fourplex I bought for $30,000.  I had to sink $15,000 into the rehab ($45,000 total), but I make $1700/month in rent.  The same numbers for a single family three bedroom rental would only bring in about $800/month.

Even though the single family earns less than multi-family, there are some great bargains to be had right now.  Foreclosures are on the rise, and many of them are in decent condition.  If patience isn’t your strong suit, it might be wise to start with a single family that will bring a good return on the investment.  See if you have the personality to be a landlord . . . and what exactly is that personality??  I’ve been asked that question countless times over the years.

I think there are two main components to doing well at this business.  First, you need to be well organized, starting with being systematic about finding your target neighborhood, finding the “gem” you want to buy, getting financed, organizing and carrying out the rehab, etc.  And second, you can’t worry about the stuff beyond your control.  If you’re Type A+, you may want to find someone to manage your properties for you.  It will be worth the 10-12% you’ll pay them. 

I do well at this career because I’m super organized but am also a “go-with-the-flow” person.  As I said above, your choice of rental will be determined by your personality and time constraints.  Do your homework, prepare well, and go for it!

Now is the Time When Fortunes Can Be Made…

Yeah, I’ll bet that title caught your eye!  But it’s absolutely true.  Consider this:

  • There were 2.8 million foreclosures in 2009, according to Realty Trac, the foreclosure sales web site.
  • There’s no sign that things are slowing down in 2010, and this trend will continue well into 2011, according to most forecasters.

What does this mean for you and me?  Opportunity, and tons of it!  Yes, now is the time when fortunes can be made.  Homeowners are losing their homes all over this country, and where are they going?  Into rental properties.  Apartment rental vacancies are down.  Investors like me are having no trouble filling their rental homes, particularly if they’re three or more bedrooms, perfect for a family.

So, if you have a little extra cash to invest (cash is king, of course) or if you have a good relationship with a bank, now is the time to invest in a nice rental property.  I just bought the home in the picture below.  It’s on a cul-de-sac, in a decent neighborhood/school district, and there were seven other offers on the table along with mine, so I had to put in my highest and best offer.  I purchased this house, knowing I’d need to put about $5000 into it.  But I also know, through zillow.com, that I bought it for about 1/3 of what the houses around it are worth.  Here’s the house:

It needs a little sprucing up, inside and out.  It was a foreclosure, and I guess the homeowners decided to take whatever they could, which included all the kitchen cabinets, bath sinks and vanities, the hot water heater…at least they left the toilets.  The carpets smelled terrible.  I think they had three or four dogs, according to the nieghbors.  This is the kitchen:

I should be done with it in a couple weeks.  Although I couldn’t flip this house (gee, I wonder what happened to that show?  It certainly isn’t timely anymore…..flipping is impossible in this environment) it will be a wonderful rental.  I’ll get a nice family in it, and probably make over 10% return on my investment each year.  I get that percent on all my rentals…….where can you get that kind of consistency in the stock market??

Although now isn’t the time to make a quick buck, now is the time when fortunes can be made.  Buy a home for long term investment, fix it up and rent it out, if you have the wherewithal to be a landlord.  You’ll make nice income while you own the house, and you’ll be building wealth while you’re earning that income.  When the real estate market recovers, you may decide to sell……take the money and run……or buy more rentals!  What a sweet deal, huh?

FHA to the Rescue…

David Stevens is an Assistant Secretary for the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD).   He recently spoke to Congress about FHA’s proposals and their continuing efforts to support the  housing market. 

Granted, Mr. Stevens was appointed to this position and is most probably a dyed-in-the-wool Democrat.  But he makes some good points about the increasing stability of the housing market.  Home prices have been rising since last April, although they had been projected to decline by as much as five percent in 2009. 

Low mortgage rates have spurred home sales and a refinancing boom, and the first-time home buyers’ tax credit is responsible for pushing home sales.  Many of those first-time buyers are purchasing REOs and other vacant properties, which helps stabilize prices and neighborhoods.  Stevens reported that more than 3/4 of FHA’s purchase-loan borrowers in 2009 were first-time  home buyers; the FHA is also the leader in helping minorities purchase homes.                                                                                                                                   

However, as we move into 2010, Stevens and the FHA are proposing more restrictions on loans. . .buyers with lower credit scores (500-579) will be required to provide a larger downpayment (10%).  Allowing qualified, responsible families to purchase a home will strengthen our housing market; we got into this mess partially because peoople who had no business buying a home, bought one anyway.

For us investors, it will be a buyer’s market for several months to come.  Great deals can be found in every segment of the market, whether you’re into single- or multi-family housing.   I believe foreclosures will be on the rise throughout 2010, and I’m going to continue to take advantage of the low prices.

While the market is still somewhat depressed, it won’t stay this way forever.  Buy now, do whatever fixups are needed, and rent the home.  Thousands of families have lost their homes to foreclosure.  For many of them, it’s not that they don’t have jobs or got laid off from their jobs.  They bought a home three or five years ago and, at the time, they were able to afford the mortgage payment.  And then. . .boom!. . .the balloon payment came due, and they didn’t have that extra income to cover it.  When they purchased the home, they thought they’d get a raise or promotion within the three to five year time frame, and it just didn’t happen.  So they’ve lost their dream home.  But they’re still employed.  They can afford to pay rent on a nice home that you’ve bought.  This scenario is happening all over the country, and you can cash in on it, as I am.

If you’re willing to take a chance on one of these unfortunate former homeowners, you might consider selling your rental home to them on contract.  You can charge them a fat interest payment (10% is what I charge) and work out a payment schedule.  Get a decent downpayment of  at least $2000, hand over all maintenance responsibilities to your buyer, and give them the house keys.  You’ll give them the opportunity to once again be a homeowner, it’ll be a financial win for you, and everyone will be happy!   

You can learn more about land contracts in my book, “The Landlord Chronicles:  Buying, Fixing and Managing Affordable Rentals.”  It will be available soon.

Be the Banker

In today’s economic climate, homeowners are being pushed into rentals.  They bought homes they thought they could afford, and then realized they were in over their heads.  Balloon payments became due, and they couldn’t come up with the money.  Foreclosures are on the rise, and this trend promises to continue through 2010.

There are thousands of Americans who’ve been through the heartbreak of foreclosure.  They are now in rental properties, and their credit is ruined.  But, think about this for a minute.  Many of them still hold the same jobs they’ve had for years, and still have decent income.  They just can’t get  a mortgage on another house.  That’s where you and I come in.

I currently have four single family homes and one duplex I’m selling on contract to the tenants who live there.  None of them would qualify for a traditional mortgage, but all of them have the ability to pay what they’re paying me every month.

I’m acting as the mortgage company, and I’m charging them 10% interest on their loans.  You may think this is a little steep, but 1) it’s a risk for me, and 2) they’re willing to pay the higher interest for the privilege of buying the home.   Before I make the deal with them, I find out what they’re comfortable paying per month.  Although I continue to carry the taxes and insurance, I pass these costs to the buyer and include them in the monthly payment.   A financial calculator can determine monthly payments and length of loan for you.  I found a great website http://yona.com/loan/  to help figure out mortgage amounts.  If  you know the loan amount, length of  the loan  in months and the interest rate, this site will pop up the entire payment schedule, and you can print it out and give a copy to your buyer.  My land contract is written in simple language, and the buyers are required to maintain the property, etc., etc.  I’ve included a copy of my land contract in a book I’ve written, which will be available soon.  I’ll keep you posted…

I allow my buyers to refinance in three years if they can.  Most of the time, this doesn’t happen, becuase they either have bad credit or no credit.  But if they can refinance, that’s great.  They can lower their payments, you can cash out and buy another property or reinvest somewhere else. 

I never take less than $2000 as a down payment on land contract sales.  If you charge them $1000 or less, they’re less invested, financially and emotionally, and will be more likely to default. 

To protect myself in the event of a default, I have my buyers sign a quit claim deed at our closing, giving the property back to me in the event of a default.  This has happened only once, but I was glad I had that deed, because my buyer got into an argument with his boss, quit his job, and left for Missouri!  I filed the quit claim deed, which gave the house back to me immediately.  Usually, if people fall behind in their payments, they see the writing on the wall, and they just leave.  You keep the down payment, and find another buyer.

One of my contract buyers, the Castillo family, has been on contract with me for six years now.  They’ve improved the home and are thrilled to be homeowners.  In August of ’10, they’ll own the house free and clear.  Here is a photograph of their home. 

They enclosed the front porch to create more living space.

Although doing land contracts is a great money maker for me, providing these dream homes for my buyers makes me feel partof something wonderful…for these families, the neighborhood, and the city as well.  I love it.