Book: Long-Distance Real Estate Investing

long-distance

“Long-Distance Real Estate Investing: How to Buy, Rehab, and Manage Out-of-State Rental Properties” By David Greene
  • “Popular websites like Zillow, Trulia, and Movoto get their information by pulling it from an MLS, regurgitating it, and displaying it in their unique format.”
  • “If you want to know what the property taxes were for any given property last year, you can usually find this information by plugging in a few numbers in a county’s tax assessor’s website. If this is too cumbersome for you, sites like Zillow will report a property’s tax info right there on the page!”
  • “This opened the door for websites like WalkScore.com to provide data to help potential homeowners or tenants determine how friendly an area was for those without a personal vehicle.”
  • “Another helpful tool is Trulia’s crime Heat Maps, which put together a map to provide a quick viusal portrayal of crime that is easy to interpret and universally understood (plus they’re free).”
  • “Rentometer.com has become my go-to tool when it comes to getting a rough idea of what I can expect for rent on any property I’m evaluating.”
  • “Once I’ve checked out Rentometer, my next step is Craigslist.org. By searching for homes for rent in an area similar to your subject property’s, you can get an even better idea of what others are paying for rent and what types of properties are available.”
  • “If you find out the people with houses for rent are struggling to get them rent, that’s your first clue not to buy in the area. If you keep checking and never see the same property available for more than a week, that’s a good sign that the neighborhood is experiencing a lot of demand and units are going fast.”
  • “I just ask my rep to start on the sidewalk in front of the property, start the video, and walk the exterior of the home before entering.”
  • “1. The ‘flow’ of the home. This showcases areas where space may not be utilized most effectively, features that may turn off tenants or future home buyers, or extra walls that don’t serve a useful purpose.
    2. Area of the houses that are connected to one another. While still pictures highlight individual areas, they don’t show the relationship between areas and what walls or spaces they share. Knowing you can turn a den into a bedroom is nice. Seeing the video that shows then den abuts to a guest bathroom really helps determine the viability of strategic rehab planning.
    3. The overall impression of the home. The way the home strikes me will be the same way it will strike the people walking in to buy or rent it once it’s finished.
    4. The areas that need to be fixed and where they are located in the house so that info can be passed to the contractor.
    5. The ability to forward the video in a matter of seconds to the property manager, contractor, and anyone else who is involved in the process.”
  • “Some mobile notaries now use Skype to watch you sign the document without having to be there personally.”
  • “I also use my free Keller Williams home search app to find the price of nearby homes or search for homes available in specific areas I’m interested in.”
  • “If you think about it, the most efficient investors are those who have learned how to:
    • Find properties below market value
    • Prepare those properties to be rented or sold by adding the most value for the least money”
  • “Price-to-rent ratios are very quick and simple units of measurement that indicate how much property costs to buy versus how much rent it is likely to produce.”
  • “Like the other rules of thumb, the 70 percent rule represents a starting point, not the finished product.”
  • “Another common rule of thumb is the 2 percent rule. As the name suggests, these are properties that rent for approximately 2 percent a month of the purchase price.”
  • “If you find yourself analyzing a property that fits this rule, you are looking at either a screaming deal that few ever seen or a property in a neighborhood you do not want to own in long term.”
  • “The 50 percent rule states that you can count on 50 percent of the income that the property generates to go toward repairs and holding costs other than those associated with debt or the mortgage.”
  • “You would never want to buy a property based solely on whether it meets these criteria, but you can quickly determine which properties are worth more of your time and which are not.”
  • “Typically, rental property will be rehabbed with cheaper materials, and house flips will use more expansive ones.”
  • “Platforms like Airbnb, Craigslist, and VRBO assist with this process and have become a hotel replacement in many places.”
  • “Having intimate knowledge of an area where price-to-rent ratios make sense is a huge upper hand when it comes to investing out of state.”
  • “Knowing someone who can teach you what you don’t know is one hundred times easier than having to teach yourself.”
  • “Of all the people crucial to your business, the most important member of your team will be the person finding you the deals.”
  • “As I’ve grown as an investor, I’ve stopped looking for deals and I’ve started looking for the people who have them.”
  • “While I’ll likely refer to the deal finder as an agent, please keep in mind it could be anyone (wholesaler, Realtor, probate attorney, turnkey provider, and so on).”
  • “When you’re buying investment property, and especially buying property out of state, I highly recommend using an agent as opposed to a wholesaler or other means, as least in the beginning. Agents know the laws in their specific area, and those may vary from what you’re used to.”
  • “Zillow allows you to search for agents and see who is doing the most business in an area and what others are saying about them. While I don’t often use Zillow just to find a new agent, I will often use it to do a little background research on an agent someone has recommended to me.”
  • “When you think about who is most likely to come across the best deals, it makes sense to consider that it is often going to be the person with the most contacts and influence in an area. If you want to find who that is, look first to see who’s doing the most business.”
  • “I also told Joshua if he was too busy to be taking on new clients, I would love if he could refer me to someone he trusted.”
  • “When it comes to what to put in your e-mail, there are a few main topics you need to cover. The most important things to include are:
    • That you are an investor who understands real estate
    • What specifically yo are looking for
    • How you intend to purchase (loan, cash, and so on)
    • How you heard about the agent”
  • “In general, it is much more favorable to have an agent who has experience working with investors and even better if the agent is an investor himself or herself.”
  • “There is no substitute for experience, so don’t be afraid to ask whether the agent has ever owned any rental properties or currently owns any. If he or she has or does, ask where they are and what kind of returns the agent is experiencing. Ask how the agent found the properties, what kind of analysis was used, and what drew him or her toward buying them in the first place.”
  • “Another important question to ask an agent is what kind of support he or she can provide.”
  • “When people choose me to be their real estate agent, they don’t get just my knowledge and skills, they also get access to my network.”
  • “Lastly, you’ll want to ask your agent how he or she plans to find you potential properties. If your agent doesn’t have a response to that, you maybe in trouble.”
  • “Be sure to communicate with your agent and make it clear that you want to see only certain properties that meet your specific criteria, and then ask your agent not to send you anything that doesn’t.”
  • “I usually start trying to find a lender before I bother doing anything else.”
  • “The first and biggest metric a lender will look at is your debt-to-income (DTI) ratio. DTI is a simple equation that compares how much money you are obligated to spend every month to cover your debts with how much money you are bringing in.”
  • “The next metric a lender will be concerned about is your loan-to-value (LTV). While DTI isa measurement of how likely you will be to make your payments and pay back the loan, the LTV is a measure used to ensure the bank can recover the money it lends you if you stop making those payments.”
  • “To calculate an LTV, the bank simply takes the amount of the loan compares it with the value of the asset.”
  • “To a bank, a 20 percent down payment really means nothing more than an 80 percent LTV.”
  • ” Bank have minimum credit scores they’ll accept for different loans or interest rates, so making sure yours is in good shape is a pretty crucial part to ensuring your own desirability for lenders.”
  • “Once you have ten financed properties, banks cannot sell your loans to be packaged as mortgaged back securities.”
  • “Most of the portfolio loans I have found are ARMs with rates about one point higher than Fanny/Freddie loan rates.”
  • “What does this all mean for you? It means once you get to the point where you need portfolio loans, two things are going to happen.
    • Your terms and rate are going to most likely get less favorable.
    • Your are going to have to start working a whole lot harder to find financing.”
  • “If you want to have a positive influence on another human being, look for ways to bring value to that person first.”
  • “When reaching out to different banks, credit unions, and mortgage brokers, you want to spell out very specifically what your situation is, what unique challenges you possess, and what kind of loan you are expecting. If you do this right, you can get a yes or no before ever filling out the loan app.”
  • Sample email to lender: “My name is David. I am a California investor looking to invest in Tennessee rental property. I currently own four financed investment properties in Oregon, and I’m looking to start buying in your state, as the return seems much better. I’m looking for a thirty-year fixed loan with an interest rate below 5 percent. I can put 20 percent down and do not want to pay more than one point for my rate. The following is a list of some of my information. Please take a look and tell me whether you have a program I would qualify for.
    • I live out of state.
    • My middle credit score is 680.
    • My DTI isa at about 30 percent.
    • I’ll have $25,000 in reserve after making the down payment.
    • I have six months of reserves for each financial property.
    • I have claimed the income from my rentals on my tax returns.
  • As you may already know, FNMA standards are stricter once someone owns more than four financed properties. If you do not have a loan package I would be eligible for, can I ask whether your institution makes portfolio loans to real estate investors?
  • I plan on keeping a savings account open with your institution and keeping a sizable deposit should we be able to work something out.
  • Than you for your time, and please let me know whether you have done loans like this before if possible.”
  • “Some more popular searches that will yield you more specific results for your needs are:
    • Investor-friendly banks (county you are looking in)
    • Credit union (county you are looking in)
    • Savings and loan institution (county you are looking in)
    • Portfolio lender (county you are looking in)”
  • “Always remember that most of the time, you are going to be told no. It’s OK if you are told no. Your follow-up response should always be ‘Thank you for looking into it. Do you know of or have you heard of any other lender making a loan like what I need?”
  • “One common way people take advantage of this phenomena is by making half of their monthly payment every two weeks as opposed to one payment a month.”
  • “If you want to take advantage of the electronic transfer perks, but your property manager just doesn’t want to take the time to handle this for you, there are still other options–PayPal and Venmo.”
  • “The short of it is, if you are looking to scrimp, save, and keep every penny, it could hurt you when you go to apply for new loans on new properties.”
  • “If your primary goal is to build your portfolio for future cash flow, it is better to show your properties as more profitable on your taxes so it’s easier for you to get more properties in the future.”
  • “Property managers will advertise your unit for rent, find you a tenant, perform background checks on them, coordinate moving them in, collect the monthly rent, and help take care of any issues that arise. This can include maintenance, repairs, neighborhood disputes, code violations, and late or missing rent payments.”
  • “I pay my property managers an average of 7 percent.”
  • “If you can lock down good property managers in the beginning stages, you can save yourself a lot of time by giving them each additional property you purchase.”
  • “Depending on where you want to invest, there are many states where property managers are required to also have their real estate license.”
  • “Even if this is not the case where you are investing, there is still a good chance a top-producing real estate agent is going to know who the best property manager in town is.”
  • “Another resource are REIAs, real estate investment associations.”
  • “When I interview property managers, I like to get a feel for how they run their company. I want to ask them basic questions like what experience they have managing rentals personally, how many doors their company manage, how long they have been in business, and what they feel their company’s strengths are. I also want to ask them how they collect rent, how they enforce late fees, what systems they have in place to make things efficient, and how long they have worked for their current company.”
  • “The main questions I’ll want answers for are:
    • What is the monthly percentage of rent they’ll take?
    • What other fees are assessed to owners? (Half of first month’s rent for new tenants, advertising fees, yearly walk-through fees, callout fees, and so on.)
    • How often will the property be in inspected each year?
    • How will maintenance/repair calls be handled?
    • How will evictions be handled?
    • What is your average turnaround time for vacancies?”
  •  “What I’m hoping to hear this property manager tell me is he or she would first ask the tenant to check the pilot light on the water heater in the garage. … This would be the ideal solution and would solve the problem in the fastest way, costing me the least amount of money and training the tenant to start solving these kinds of problems on his or her own.”
  • “The next-best answer I could receive would be the property manager’s telling me he or she would send the handyman to the house to see if he can fix the issue. Paying a handyman $15 an hour is much, much more appealing than paying a plumber $150 an hour, and a skilled handyman would be able to resolve this issue by checking the water heater to see whether it is operating properly, then checking the plumbing for other parts of the house to see whether they are operating properly as well.”
  • “The thing I want you to understand is, I don’t care that the property management company will work for 5 percent of the rent when everyone else wants 8 percent. I don’t care that the company will do the yearly inspections for free. I don’t care that the manager wont’ charge me for advertising. If the property manager isn’t looking for ways to actively save you money, you don’t want to hire that company.”
  • “If I ask property managers what they would do if I brought them a property in a well-known war zone, I am looking fro them to find a respectful way to answer that they are not the right company for me.”
  • “Why? Because if property managers are willing to take on a war zone property, they are likely not doing very well financially and are desperate for business.”
  • “One way to get started right with a property manager is by appealing to his or her pride by asking whether it was OK to have him or her approve any properties you are considering.”
  • “If you are buying in somebody else’s backyard, you had better make sure you have some advisers on the ground who can tell you which areas are the best for you. The numbers may look good when you evaluate a property from afar, but the locals are much more likely to know whether that are suffers from problems you might not see.”
  • “The first trick you need to know when managing an out-of-state rehab is to ask for the scope of work to be itemized. If you don’t ask for an itemized list of repairs from your contractor, it’s very difficult to know what you are paying for. If you leave it up to your contractor, you will likely get one lump sum for what the job costs. In addition to not knowing whether you are overpaying for the work when the invoice is presented this way, you also have to wonder whether everything that needs to get done is actually getting done.”
  • “If you’re look for a good contractor, you really do need to rely on word of mouth. Whether it comes from online reviews, other investors, or trusted team members, if you don’t have someone you trust vouching for a contractor, you stand a good chance of being disappointed.”
  • “Just as with what we learned in the property manager scenario, if you want people to give you their best (in this case, share their best resources), you need to have something to offer them.”
  • “Your odds are best if you can work over the relationships you have created with real estate agents, property managers, and lenders to see who can recommend a good contractor.”
  • “Keep in mind that there is a good chance you won’t want the same contractor for a flip job as you may want for a rental rehab.”
  • “If you want to see which of your candidates excels the most in this area, make sure you very clearly communicate you would love to hear an opinion on what the or she would do differently or how the contractor would handle this project if given complete control.”
  • “If you already have a property under contract, ask the contractors to go look at the property and write you up a bid for the work they think should be done. I do this, as opposed to telling them what I want done, for several reasons:
    • If I have already explained to them what my goals for the property is (bare-bones rehab, HUD-approved tenant ready, all major issues repaired and the property brought up to modern-level expectations, and so on), they should be looking to do their analysis based on my needs, not one what will make them the most money or allow them to be done the fastest. I want them to prove they are listening to me and looking at this from my perspective.
    • I ca tell how competent they are. If I’ve told them it will be a rental property that will rent for about $1,000, and they recommended crown molding, I know they are in over their head or are plain dishonest.
    • If they point out things I had missed, I learn from that, and it is better for my own education.”
  • “If your contractor refuse to provide an itemized list, ask them why. It may be an honest reason like they do not have time to do it. If that’s the case, ask them to give you a list (when they have time) of all the things they plan to do on the rehab. If they refuse to provide these numbers, that is a bad sign. You don’t want to hire someone who is not transparent.”
  • “My solution has been to pay for the materials myself outside the bid the contractor provides until I feel comfortable with the contractor and have used him or her several times.”
  • “Instead, a much better bet is asking contractors for phone numbers of former clients.”
  • “When you’re speaking with the previous clients of the contractor, start with general questions about their experience. Ask them how they get along with the contractor, how the work turned out, how quickly it was done, and how experienced the contractor seemed to be.”
  • “That being said, if you get a bad review about a contractor, did in a little deeper. Was this a first-time investor who didn’t know what he or she was doing and may have been to blame for what went wrong? Did the person have unrealistic expectations about the contractor or the work that would be done? Often when something goes wrong, it is because of poor communication regarding the expectations of both sides.  Don’t automatically assume that because you are an investor that the other investor was in the right. Ask the referrals for as many specifics as they are willing to provide. Ask them how many times the contractors had to go back to fix mistakes they made, how proactive they were on solving problems, how well they stuck to the schedule, and how many good suggestions they provided.”
  • “Find out just what they will be doing, how many hours they anticipate it will take, and how they came up with the number they did.”
  • “Once I get a number–say, eight weeks–I ask whether there is any reason the contractor shouldn’t be able to finish this project within that time frame. Once he or she has said no, I include in the contract (which conveniently is now just your itemized list of the scope of work–score!) that if the work is done before eight weeks is up, I will include a small bonus to the contractor (typically 2-5 percent of the total job cost). Furthermore, I include that if the job goes over the allotted eight weeks, there will be a 5 percent reduction in the overall costs taken from the last draw. If the job goes over an additional week, another 5 percent will be withheld.”
  • “If your contractor balks at the idea of being penalized for taking too long, after providing that time frame in the first place, it is very likely that contractor is not a person of his or her word and not someone who hold himself or herself to very strict standards. Set the tone right from the start that you are a professional and that this will be a professional relationship based on professional standards.”
  • “In my own projects with a new contractor I’ve never worked with before, I pay for the materials myself and have them delivered to the property.”
  • “However, while looking up comparable homes on Zillow or using the Zestimate feature can get you a decent idea of what your house is worth, the most accurate value you can get is by having a comparative market analysis (CMA) run by an agent with access to the local MLS.”
  • “CMAs are commonly used by Realtors and are the most accurate way (outside an actual appraisal) to determine a property’s value.”
  • “Knowing the underlying forces behind why markets are adjusting allows you to capitalize on opportunities before others do and to recognize market shifts before they happen and exit expeditiously.”
  • “When home prices are rising, you want to be looking for ways to increase your liquid capital. You can do this by selling homes and holding your profits in the bank. You can also do it by taking out HELOCs on your properties and holding the money while you can get it. “
  • “When prices decrease, it’s time to buy new properties. As many new properties as you can.”
  • “One of the coolest things that happens when you invest out of state is you acquire the ability to take advantage of markets that are both rising and falling–in different areas.”
  • “Metrics like where are most of the jobs moving, where are the best schools, and where is the tenant demand greatest would all be incredibly useful to me to know. “
  • “Find out who needs to rent a property, and then find out what that person wants and whether that type of tenant is one you want to rent to.”
  • “Seeing that the winds had shifted against me, I quickly put my house up for sale, collected my equity, and moved it to a growing market with a much healthier rental demand.”
  • “ROI is determined by taking amount of money your property makes you in a year and dividing it by how much money you invested (typically your down payment).”
  • “Your ROE is determined by taking the amount of money your property makes you a year and dividing it by the amount of equity you have, not the amount of money you originally invested.”
  • Signs of of economy slowing:
    • “A significant increase in the average number of days that available homes are sitting before going into escrow”
    • “Abnormal lending practices such as more adjustable rate mortgages, 80/10/10 loans, negative amortization loans, and interest-only payment periods”
    • “A noticeable pattern of companies leaving the area”
    • “Sellers’ having to offer significant concessions to buyers”
  • “Wealth is created most quickly by buying below market value and creating equity through wise decision making and management. Concentrate on building equity first, then turn that equity into cash flow later in your career when you need to live off it.”
  • “Before I ask what a property will rent for, I want to know what kind of neighborhood it’s in. Don’t chase rents; chase information, chase desirability, chase equity.”
  • “If you want accurate information, you need to have the right people. If you want to have the right people, you need to have the right ecosystem where you have aligned their interests with yours.”
  • “One strategy I use is to have all my leases expire in the middle or beginning of summer.”
  • “I set things up this way for three reasons.
    • The first reason has to do with raising the rent. If I raise the rent, the tenant will be more apt to pay the higher rent than try to frantically find a new place to live within a short amount of time.”
    • “The second reason has to do with tenant’s deciding not to renew his or her yearly lease. Should this occur, I have the option of selling the property at the peak of the home-selling season.”
    • “The third reason is I find that often (but not always), rents tend to track in a direct relationship with home prices. This means that home prices rise, rents do too. If I want to find the best time to sign a yearlong lease, I want to do it when home prices have just begun to rise and rents likely will have also.”
  • “By paying for moving costs, offering cash, or even paying for part of the new rent, you are making it easier for the tenant to subconsciously cooperate with you.”
  • “When I first began investing, I was investing only in B+ properties. I knew this was a good long-term strategy, and it ended up being true.”
  • 1031 like-kind exchange:
    • “Upon selling your property, you have forty-five days to identify new properties with which to close on. You can’t buy just anything.”
    • “You then have 180 days to close on one or more of the identified properties. There is no allowance made for weekends or holidays.”
    • “There ca be no ‘constructive receipt’ by you of the funds. Meaning, a third party needs to maintain control of them after your property closes. The funds are then put into the escrow of your like-kind or a replacement property later. If you take possession of the money, my understanding is you just messed the whole thing up.”
  • “I type in a clause that says something along the lines of: ‘Full scope of work to be finished and approved by owner in [however many] weeks. If the project is finished ahead of this deadline by a certain number of days, contractor will be paid a 5 percent bonus based on the total job. If the work runs pass this deadline, contractor will be assessed a 5 percent penalty for the first week. If the job runs longer than a week over schedule, contractor will be assessed an additional 5 percent penalty. Owner to retain final rights of approval for quality of work completed.”
  • “Once we have an agreed on a contract, my next step is to share with the contractor that I am a real estate investor and there will be professional pictures taken of the project once completed. The pictures will be top quality and highly detailed. They will be heavily advertised through multiple media. I make sure the contractor knows that the property will be listed for sale and his or her name will be given should anyone ask who did the work.”
  • “Many contractors often have accounts where they are registered, like Lowe’s and Home Depot. These accounts offer them a discount as high as 10 percent sometimes. When buying materials in California, I’m able to call and order them under my contractor’s name. This gets me 10 percent off regular items, plus an additional percentage on clearance items.”
  • “My favorite way to approach this with a new contractor I’ve never worked with is to ask which of the jobs in our contract he or she will be performing in the first two weeks.”
  • “By looking at our contract, I can quickly determine exactly how much money the contractor will need to complete the work (comes in handy, right?).”
  • “When you include only enough money to pay for the first phase, the contractor knows you’re going to be checking his or her work and will be performing it under the mind-set that someone is going to be checking it.”
  • “If you want to setup a business checking account for your own business, all you need is your contractor’s checking account number and the bank’s routing number. By creating an ‘account’ in your online banking system with your contractor’s info, you can easily wire your contractor money without the hassle of trying to use a credit card.”
  • “The easiest method is to ask for photos and video. While video can give you more of a bird’s eye view, pictures allow you to really get an up-close and intimate view of the work itself.”
  • “So when I’m working with a contractor for the first time and want to make sure the work was done correctly, I’ll send my agent by the house if it’s a flip and send my property manager if it’s a rental.”
  • “If you can make your team members feel as if they are a part of this project, it will be much easier for them to willingly help you in monitoring it. I always refer to it as ‘our rehab,’ ‘our design,’ ‘our property.'”
  • Two categories of upgrades:
    • “What are the aspects of this rehab that I need to do for the house to be livable and in line with my competition?”
      • “Roof
      • Cabinets
      • Appliances
      • Flooring
      • Paint
      • Countertops
      • Windows
      • Showers
      • Vanities/bathroom cabinets
      • Lighting
      • Fences
      • Screens on windows
      • Blinds
      • Sinks
      • Toilets
      • Doors”
    • “What are the aspects of this rehab that would be nothing but additional perks? Nice but not necessary.”
      • “Outside fixtures such as birdbaths or other water features
      • Built-in bookshelves
      • Rock, stone, or brick decorations on accent walls
      • Rainfall showerheads
      • Upgraded mirrors
      • Kitchen backsplash
      • Upgraded baseboards
      • Crown molding
      • Surround sound speakers in house
      • Alarm system
      • Exterior landscaping
      • Heated floors
      • Security cameras
      • Skylights”
  • “If you want to get the most use out of your contractors, start by asking them what work they can do themselves and what work they have subcontractors for. Ask them what type of work they are finding they get the best prices from their subcontractors for. If your contractor tells you he or she has landscaping crew that works cheap and fast, you may want to consider asking how cheap that crew can landscape your backyard and what design options they have.”
  • “Ask your contractors how they got started and which aspects of the job they enjoy most or feel most comfortable doing.”
  • “Don’t ask this during the initial interview phase or with a judgmental or investigatory tone.”
  • “Once you find out a little more about them, start asking how much they’ll need to add certain jobs onto a project.”
  • The upgrade hack: “The concept is based on the premise that since you’re already going to be spending something, sometimes spending a little more can get you a big difference in quality.”
  • “If you can buy expansive materials but need them only in small quantities, you can make an incredible impression at an affordable price.”
  • “A tile shower is the nicest option you’ll have in a rental. Because the area that needs tile itself isn’t large, going for nice, expensive tiles wont’ cost you a ton. A nicely tiled shower will really make a difference to your buyer or tenant, and if you already had to rip out the shower, it won’t cost you much more to use the upgraded materials.”
  • “The first is that cabinets can be repainted. While this is a labor-intensive job, it isn’t impossible to find someone to do this for $500 to $900 depending on where you live and the size of the project. Freshly painted cabinets (dark paint works best for this) can make a kitchen look a thousand times better.”
  • “After painting them, buy new fixtures for the doors. Matching them to your appliance color is easy and really makes the cabinets look great for very little extra money.”
  • “So in all practicality, you usually find there is massive value in turning a two-bedroom property into a three-bedroom property and very good value in adding a fourth bedroom, and then it can be hit or miss with adding a fifth.”
  • “Knowing this, I try to target houses I know will not qualify for conventional financing. I want to pay cash for them and get them at a cheaper price because the owner has very few options to sell to other than me. When targeting home that can be purchased with financing, I am competing with the vast majority of home buyers.”
  • “REO stands for ‘real estate owned.’ This is property owned by a bank that has had a title transferred back to the bank when the owner stopped paying the mortgage. Often used synonymously with foreclosure, REO refers to the state of a property after the foreclosure process has been completed.”
  • “A short sale refers to a seller’s attempting to sell his or her property for less than the amount owed on the mortgage.”
  • “NOD stands for ‘notice of default.’ A notice of default is issued by a bank when a note holder becomes delinquent on his or her payment. Required to be made public knowledge in many state, NODs can be great ways to find motivated sellers because they indicate the foreclosure process is beginning and the seller is facing a nasty credit hit if something isn’t done soon.”
  • “Somebody attempted a rehab but did not finish, and the house is now being sold. Often these are coupled with short sale or REO inventory. In this category, you can also include partially burned houses, hazard material situations, and abandoned properties that need serious work. Ineligible for traditional financing and unappealing to anyone but the most experienced investor or contractor, these project can be gold mines or money pits.”
  • Questions to ask when evaluating REO:
    • “Are there any country/city/government/mechanic/etc. liens against the property that the buyer will need to pay?”
    • “What is the age and condition of the roof?”
    • “Is there WDO (wood destroying organisms) damage of significant value?”
    • “How many other offers have been made on the property?”
    • “Will you be allow an inspection period if your offer is chosen?”
  • For RED: “If the house already has offers in and the seller will be choosing one soon, you may not want to pay for an inspection before you know whether you will win the house. If the house does not have a offers on it yet, it may be worth it to order the inspection before you make an offer and base it on the inspection report.”
  • “HomePath.com is an awesome tool. This website is a place where Fannie Mae sells its foreclosure inventory directly to investors.”
  • “Because the buyer needs acceptance not only from the seller but also from the bank, it can be an extremely long, frustrating, and inefficient way to buy a home. For the average home buyer, short sale are usually not worth the headache they create.”
  • “As an investor buying a short sale, I hold all the cards. If I like where the prices goes while I’m waiting, I can stay in the game and get an even better deal than I thought. If I don’t like where the prices goes, I can call the deal off.”
  • NOD: “If the home in question is worth $150,000, and the homeowner owes $100,000 on the mortgage, you can offer to buy the place for $105,000. You get a property will below market value, and the home-owner gets to save his or her credit, can buy tiem from you to move out of the house without being forcibly kicked out by the courts, and gets a clean $5,000 to start a new life.”

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