Sudeira Real Estate Investing

Real Estate Investing, Consulting and Education

Archive for November, 2009

Short Sales, Flipping Homes and Added Value

Nov 30

Posted by Cliff in REO, Short Sales | No Comments

I should know better than to read all the backlogged posts about real estate on a Monday after a holiday.  This one has me irritated.  This blog post is ripping on real estate investors for flipping short sale properties and in the process defrauding the banks.  I have several problems with this.

First is that flipping homes is in no way illegal.  The only time that it is, is when the seller has a buyer for a higher price and doesn’t disclose it.  Of course there are always other ways to make it illegal, but the simple act of buying a home, then selling it for more money is not illegal.

Banks are trying to force buyers to not flip the home they are buying.  Banks are:

banks are requiring everyone involved in a transaction, from the real estate agent to the mortgage broker, to sign affidavits swearing they have aren’t in the flipping business with anyone else involved in the sale.  Source

Of course they are doing this at the same time as they are jacking buyers around, not processing short sales for 6 months or more, and demanding buyers to use them as the lender.  Effectively they are forcing people to buy all cash, and who has the cash?  Investors of course.

Then there is complaints that flipping drives up prices.  How can that be?  Didn’t the new and improved lending rules make that impossible by making the appraiser report to the bank not the borrower?  Oh, and while they are at it, the banks cut the fees to the appraisers who now outsource as much of the work as they can.  Can you say ‘super accurate Zillow based appraisals?’

What about the ‘added value’ issue?  Part of the complaint is that flipping homes doesn’t add any value.  Two thoughts here.  One, is that I have yet to see a house get flipped that didn’t get at least a minimum of cleanup and repackaging done to it.  That is added value.  Second is that by screwing around with buyers like they have, the banks have created a situation where a property is more valuable simply because it is not a short sale or REO! 

Buyers are sick of the games the banks are playing and are paying more for properties that won’t have to have bank approval to sell.  This of course drops the price of bank owned ones even further.  As I see it, simply having the cash and patience to fight with a bank for 6 months to close the sale of a home is added value enough to warrant a flip.

Enough ranting from me on the banks and how they are screwing up the market and blaming it on everyone else.  Now that you know my opinion on this, let me know what yours is.  Are the banks to blame, or are they being hurt by dirty real estate investors that are flipping properties?

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How to avoid scammers: Brokers, Investment and Financing Institutions

Nov 30

Posted by Cliff in Financing | No Comments

Are you shopping around for private investors and investing companies to finance your next real estate project?  I came across this excellent post by Gavin Sorensen on how to avoid scammers that say they can loan you money, but are really just out to shaft you out of yours.  Be sure to read this and pay attention when you are approached by someone that wants to loan you money.  Thanks to Gavin for letting me re-post this!

 

Avoid individuals and organizations which:
- do not have a company website.
- cannot easily lead you to their corporate documentation.
- do not have legal counsel, regulation and guidance
- do not maintain strict client confidentiality standards
- do not perform the KYC check
- do not have a strict and transparent business model to protect the client and themselves from fraud

Legal Counsel – Any reputable organization shall have legal representation to ensure transactions and communications (paper and electronic) meet the strict standards of client confidentiality, the US Patriot Act and other International regulations that may be applicable.

Visit http://www.fincen.gov/ – Financial Crimes Enforcement Network: US Dept. of Treasury
Visit http://insidetradellc.com/ – Source for blacklisted companies and brokers

Any reputable company shall perform KYC (Know Your Customer) checks, which refers to the regulatory compliance mandate imposed on financial service providers to implement a Customer Identification Program and perform due diligence checks before doing business with a person or entity. KYC fulfills a risk mitigation function, and one its key requirements is checking that a prospective customer is not listed on any government lists for wanted money launders, known fraudsters or terrorists.

If preliminary KYC checks reveal that the person is a Politically Exposed Person (PEP), for example, Advanced Due Diligence must be done in order to ensure that the person’s source of wealth is transparent, and that he or she does not pose a reputational or financial risk in terms of their finances, public positions or associations.

In order to meet KYC compliance requirements, financial institutions must:

  • Verify that customers are not or have not been involved in illegal activities such as fraud, money laundering or organized crime
  • Verify a prospective client’s identity
  • Maintain proof of the steps taken to identify their identity
  • Establish whether a prospective customer is listed on any sanctions lists in connection with suspected terrorist activities, money laundering, fraud or other crimes.

Gavin Sorensen, FICArb.E, Deputy Registrar – International Court of Arbitration in Europe
Managing Partner – Untad Global – worldwide financing
UNTAD GLOBAL – worldwide financing
(division of Lestrade Law Associates International LLC Group)
Email: gavin.sorensen@untadglobal.co.cc

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Real Estate Investing Today

Nov 30

Posted by Cliff in Real Estate Investing | No Comments

A few days ago I read a spammy little blog post supposedly about ‘Real Estate Investing in the Age of Government Regulation’.  Turned out to be lousy, and pointless, but it did hit on three good points that I wanted to touch on.

Real estate investing is filled with myths, gurus selling hype and until recently, TV shows that had just about anyone making a big money doing flips.  Most of that isn’t true.  These items are though, and you should give them some thought.

1. You will always get a positive result from investing in real estate education.  Before you go plunking your IRA money into a rental property, or a chunk of raw land that ‘just has to go up in value’ it is essential to learn the game.  Books are good tools for getting started,  and I have one real estate college that I can vouch for.  I avoid the gurus that are more interested in selling you more seminars than teaching you anything.

In any case, reading, taking classes and going to (good) seminars is always a wise investment.  If you spend $500 on a seminar and learn one tip that helps you put together one deal, you are going to make back the investment in education several times over.

2. Real estate investing is possible in ANY economy!  Despite all the noise you are hearing, there is always a way to make money in real estate.  It doesn’t matter if markets are going up, down or sideways, there is always money to be made.  What changes is the way that money is made.  I would suggest looking back at #1 for figuring out what is working right now!

3. You don’t have to have a big chunk of money to get started investing in real estate.  While you don’t have to have a big nest egg to get you started in real estate investing, I do have to say it helps!  If you don’t however, it isn’t impossible to get started investing.  What it will do is change what part of the game you are in.  Instead of immediately buying apartment buildings, you may have to start out doing some wholesaling or other such transactions to build up your cash reserves and contacts.

What you do need is a team and the skill/desire to network heavily.  Especially if you are short of funds to start, a good team and network is important.  Mentors and private investors can help you put deals together once you find them, but only if you have them on your team ahead of time!

Real estate investing is the #1 way to generate long term wealth, regardless of the economy or what is going on in the world.  The benefits to owning rentals are many, and you should really put a tax accountant and attorney like Mark Kohler on your team to really maximize your  rewards.

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Distressed Multifamily Properties are a Big Opportunity!

Nov 29

Posted by Cliff in Housing Market, Multifamily | No Comments

apartment 
Distressed multifamily properties may be the next great bet for real estate investing!

MHN is reporting that there is about $18 billion in distressed multifamily properties right now and that this could increase dramatically over the next few years.  While some would look at this as a bad thing, I see this as a huge opportunity.

With many markets seeing a pull back in rents and an increase in vacancy rates, investors are watching as the value of their multifamily projects vaporizes.  That is the dinner bell for savvy investors. 

NEED TO SELL?
Do you have a multifamily property that you need to sell immediately?  Contact us and we will see what we can do to help you get out from your former investment!

Currently we are searching for multifamily properties across the Seattle area and in Northern Idaho.  To compliment this we are looking for lenders and partners to make this happen. 

From talking with the other real estate professionals that deal with multifamily properties, I am convinced that they are the way to go.  Single family housing is just too unpredictable right now, plus apartments offer the power of scale.

Contact me today so we can start making deals happen!

 

 

Photo courtesy of: Timm Suess

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Socialism and Communism in America – We are failing our founding fathers.

Nov 27

Posted by Cliff in Government | No Comments

Someone posted a link to this video from 1948 about the evils of ISMs.  Namely the evils of socialism and communism.  After watching it, it is apparent to me that our country is failing our founding fathers and is buying into the euphoria and sweet sounds of socialism. 

I encourage you to watch this whole video and consider all of the ways we are signing away our rights to our ‘representative government’ and are slipping farther and farther from the capitalistic system that our country was founded on.

 

If we allow the people that are supposed to working for our best interests to continue to strip away our rights and regulate everything we do, we will lose the ability to succeed and thrive.  Freedom is the basis for our country and if we give that all away then we are screwed!

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2010 will be the year to make a killing in real estate investments!

Nov 26

Posted by Cliff in Real Estate Investing | No Comments

Finishing up 2009, the markets are still a mess.  While there are signs that the American economy in general is recovering, there are also several factors that could derail much of the gains that we have seen.  So things are still going to be ugly.

Those 5 year option arms from 2004 and 2005 are still coming to term and will be resetting soon, so round 3 of foreclosures?  How about the commercial real estate sector where buildings are going empty and predictions are that prices will drop to 40% or less of their values from a few years ago.  Scared yet?  Don’t be, unless you are too scared to take advantage of the opportunities in front of you.

Let us not forget that the credit markets are tight as hell and no one can get a decent loan.  How can we buy and sell homes if no one can get a loan?  Cripes!  How can I be saying that 2010 is going to be the best year yet to invest in real estate.  To make matters worse, a dubious energy bill that our lovely government is trying to pass an ‘energy bill’ that could totally screw home owners.

This all means that the real estate markets will be chaotic.  That chaos will keep the amateurs and would-be real estate investors that don’t have what it takes, out of the market.  Without easy access to funds to buy homes the weak investors won’t  be able to buy properties.  Furthermore, they won’t be able to move them because they will need to sell on conventional financing.

The creative real estate investor can take advantage of chaos, build networks, teams and do deals when other investors are running scared.  Private lending and joint ventures will be critical to making deals happen.  Likewise, being able to offer creative financing to buyers will be important. 

Just starting to invest in real estate?  I encourage you to start building your team NOW!  Get your network going, you are going to need buyers both wholesale and retail, as well as cash partners and investors.  Don’t wait!  Start today.  As I am writing this we are coming into the holiday season.  Things will be busy, but it is a great time to get organized and start figuring out who you need to have on your list.

Take advantage of opportunity while others panic and you will make 2010 a year that can’t be beat for real estate investing!

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Investors at Fault in Housing Collapse – They weren’t alone!

Nov 9

Posted by Cliff in Housing Market | No Comments

Investors blamed in housing collapse Out of the pile of articles to read this morning is one entitles ‘Investors at Fault in Housing Collapse’.  A catchy title and everyone wants to blame us capitalistic money making real estate investors for the current state of the real estate market.  The truth is that there were dozens of factors that played into the current state of the market.

Investors alone could not have crashed the market!

While it is true that builders went insane with how many units they were producing, and that flippers were everywhere, there are two other places that need to be looked at.  These are the loans that were out and out fraudulent and the loan programs lenders were strong armed into making for the subprime market.

Powered by Jimmy Carter’s 1977 Community Reinvestment Act (CRA) ‘community groups like the now deceased and fully discredited ACORN worked for years pushing banks to make loans available to low income families. Using its ties to the government and the Federal Reserve they forced banks do loans they otherwise wouldn’t have.

The Federal Reserve Board has been ACORN’s “partner” in this endeavor ever since 1977, when the Fed was given responsibility (along with the Comptroller of the Currency) for enforcing the CRA. For those who are not yet familiar with the CRA, which was significantly strengthened during the Clinton administration, it works like this: The ostensible purpose of the Act is to get banks to make more mortgage loans in “minority and low-income” neighborhoods. These loans have been defined by the government as “sub-prime” loans, implying that the borrowers have credit ratings just a tiny, tiny smidgen below the “prime” or highest-credit-rating borrowers. This of course is a farce, as nearly everyone now knows. The Fed keeps track of such loans, and gives each lender a CRA ranking. A poor ranking can destroy a bank’s plans for branch expansions, mergers, and other activities.
The Federal Reserve ACORN Racket

So banks were pushed into making loans to high risk individuals.  Not a great business plan, but banks are a business and if they have to play ball with ACORN and the Fed to stay in the game, they will do what they have to do.  Faced with big portfolios of questionable loans, the banks found ways to repackage them and sell them off to investors.  Shady, yes but not surprising.

Fraud on the street had a hand to play as well!

With low income loans available as well as low-doc and no-doc loans, you know fraud was going to show up.  Not nearly enough light has been put on the number of buyers that were put in homes using totally falsified information.  Sometimes these were actually people wanting to buy a home.  I would be willing to bet though that in the areas with the highest home loan default rate, you will find the highest levels of flat out bogus loans. 

Mortgage Loan Fraud
Written way back in 2007 this article touches on a lot of what has happened with the fraudulent loans and scams people pulled

The number of different scams people played with the banks is amazing and bounded only by human ingenuity.  The lowest of our society will always look for ways to scam and defraud those of us that are actually working legitimately to make a profit.

What is the solution to this whole mess? It will be a while before the scars of this crash heal up, but primarily what we need right now is the government to get out of the business of playing with the markets and for banks to start lending again.  If those two things happen, supply and demand will even things out and we will start moving some of these short sale homes off the market and that is what we need to do before things will fully start to turn around.

As for banks doing short sales, as the esteemed cooking show how Alton Brown would put it, “that is another show.”  Right now they seem to be totally insane in musings as to why they are doing what they are would take hours.

Where else and who else do you see at fault for the current state of the real estate market.  Do you have a prediction for when it will turn around and what it will take to make that happen?

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Buying Pre-Foreclosure Homes

Nov 6

Posted by Cliff in Education, Pre-Foreclosures | No Comments

In reading through the real estate articles as I do every morning, my eyes fell on one entitled ‘Buying Pre-foreclosures’.  Opening it I found that it was a nice little article on how you can score big rescuing homes from foreclosure.

The best thing about pre foreclosures is the prices that are associated with them.  In most cases, the owner has no choice but the sell the house, and therefore will listen to just about any offer that he receives.  Due to this very reason, you can find pre foreclosures for sale at nearly 50% off market value.  This is an ideal time to purchase, especially if you are looking to save a lot of money.
Buying Pre-Foreclosures

Ok, that is all fine and good, but I think they are missing out on a few things.  Primarily, this was a strategy that worked better a couple of years ago when homes were appreciating and people actually had positive equity in their homes.  Then you could come in, scoop up a home and do all sorts of things like sell it on a land trust subject to existing financing or roll it into a lease-purchase.

The problem is that few pre-foreclosure homes have any equity left!

Preforeclosure Homes

With homes across the country taking record losses, you almost always are going to find that properties in pre-foreclosure are upside down and in a short sale situation.  Which is a whole other beast unto itself.  Can you still find homes that this will work for?  Sure! But they are far and few between compared to a few years ago.  This doesn’t stop people from selling you their snake oil plan for buying pre-foreclosure homes and making a killing at it.

With my curiosity on the subject piqued about what people are doing with this strategy right now, I did a quick web search.  What I found is a lot of people ready to sell you their ‘secret formula’ to getting rich buying and selling pre-foreclosure homes.’

I am sorry, but I always am a bit suspicious of people selling you their formula for getting rich. A true value at only $97 of course!  Why are they not out making money doing what they purport to be experts at instead of selling eBooks? That never has sat right with me.  Of course what really gives it away is that when you are reading their websites and hit the words ‘instant wealth’.  Real estate investing is a long term business, not an over night get rich quick scheme. 

Save your money and don’t fall for the hucksters selling you get rich quick real estate plans.

If you want to learn real estate investing, there are better ways!

Take it from me, you can’t learn everything you need to know about buying pre-foreclosure homes from reading an eBook.  If you really want to learn how to invest in real estate, you need to be learning it from people that are actually doing the types of deals you want to do, not someone making a living selling eBooks.

If you are looking for some rock solid real estate education, contact me and I can put you in touch with the people that can really deliver.  Until then, don’t fall prey to the get rich quick schemes!

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Top 3 mistakes that kill real estate investors

Nov 3

Posted by Cliff in Real Estate Investing | No Comments

We all make mistakes, it happens.  But when real estate investors make mistakes, they are big and expensive.  Do you know what the top 3 mistakes real estate investors make are?  You should, because any one of them can end your real estate investing career, especially if you are just starting out!

REAL ESTATE INVESTOR MISTAKE #0

BUYING A PROPERTY JUST FOR THE APPRECIATION – This is the top real estate investor killer of the last few years, and I put it in at number zero because you should NEVER buy a property based solely on its appreciation.  This is akin to trying to time the stock market.  Yes you can buy and sell on the up swing and make money.  People were making 15% a quarter on houses in the Seattle area doing this.  But, just like stocks, when the needle swings the other way you get burned.  And many real estate investors have gone under because of this!

 

REAL ESTATE INVESTOR MISTAKE #1

PAYING TOO MUCH FOR A PROPERTY – We all love a good deal and sometimes we get too excited by what appears to be a ‘hot deal’ and jump in before checking out all the facts.  This is where knowledge of the market you are in and having a great real estate agent on your team are essential.  Get your offer in and then follow up to make sure that you are accurate on your estimates of what it will sell for and what your repair and holding costs will be.  Screw these up and you can be upside down and bleeding money in a heart beat.

 

REAL ESTATE INVESTOR MISTAKE #2

NOT HAVING ENOUGH EXIT STRATEGIES – You have probably heard it a hundred times.  “The money is made when you buy the property.”  Sure, but the truth is that you don’t get to have that money until you actually execute an exit strategy.  Which one it is doesn’t really matter.  What is important is having one primary and at least one secondary way of exiting from your property when it is time.  This is a trap a lot of investors fell into with fix and flips.  They bought it, fixed it and now can’t sell it.  With no back up exit plans, they are hosed.  Don’t be that investor!

 

REAL ESTATE INVESTOR MISTAKE #3

TRYING TO DO IT ALL YOURSELF – “No man is an island!”  Yeah I know I am making with the quotes today, but it is true.  You might be able to pull off doing it all yourself but is it smart?  Especially if you are doing a hands on project like a fix and flip, there are things tasks you should farm out, delegate and just plain farm out.  Even if you know how to do everything on the list of projects, it is a good idea to not take it all on.  You will quickly burn out if your face is in real estate projects from before the sun comes up till after the sun goes down every night.  Stay fresh, work smart and delegate out what work you can!

There are top 3 mistakes that will kill your real estate investing business.  There are of course many other pit falls that you can trip in, but these are three of the most common killers of real estate investors.  If you have any questions about real estate investing or have a project you would like to talk over please contact us!

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What is your motivation for investing in real estate?

Nov 1

Posted by JacquieCliff in Real Estate Investing | No Comments

It is no secret that Chris and I are actively looking for real estate investments.  In doing so, we are working with a great group of real estate investors and recently someone posed the question, ‘why is it you are investing in real estate?’

This is a great question!  Many times our first answer is that we want more money, stable income, retirement money or so on.  That is more of the nuts and bolts of what it is we truly want.  For example, you might tell me that you want to buy enough rental units to generate $1,500 a month in positive cash flow.  But the real question is WHY?

What is it that that $1,500 in cash flow will do for you?  You need to drill down and get to the core of why you want that money.  What will that money change in your life?  Who will it help, what will it allow you to do?  It can be a tough question to answer sometimes.  Your true motivation will almost always have an emotional reaction in your core.

Why is it important to know this?  Because there will come a time when you need motivation.  There will come a time when things will get hard.  You may have just had a seller kick you out for making a tough offer.  You may be needing to go talk to a seller that you know is about to lose their home and are nervous.  There may come a day when you are burned out and want to quit.  That is when you need to have your true motivation clear in your mind.

Do your digging and write down your true motivation for investing in real estate on a card.  Put a copy on your mirror in the bathroom, one on your desk, and one in your car.  You could even put one in your wallet or purse.  When you are wavering and wondering what you are doing, look at that card.  It will give you the push you need to keep going.

This will keep you up and going when other people would have given up. That is often times the difference between those of us that succeed and those who fail.  Write down your true motivation for investing in real estate and use that to keep you driving forward!

So, what is your motivation for investing in real estate?

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