If you're active in real estate investing, you may already realize one of the biggest issues real estate investors face: Finding Great Deals.
Foreclosures at a 52-year High
With foreclosures at a 52-year high, there are thousands of deals available on the market, if you know where to find them and how to secure them. The first challenge you'll face once you locate the property is that most of these homeowners are mortgaged to the hilt. They have no equity, and big loan payments. In fact, many actually owe more than the property is worth!
Most investors will walk away from these deals because they see no obvious profit. That's because they don't know about the Short Sale.
WHAT IS A SHORT SALE?
The concept behind the short sale is simple: your goal as a real estate investor is to convince the bank to sell for less that is owed as payment in full. Of course, this concept is easy - buy the foreclosure from the bank at a big discount, sell the real estate, and make money! So how does it work?
Success with short sales can be accomplished in the following steps:
Step 1: Do your research.
Many new real estate investors make the mistake of waiting until some subscription service sends you the list. The disadvantage is that a ton of other investors are also getting the list. If your first contact is to send a letter, forget it. Your letter will be lost in the huge pile the homeowner is getting from all sorts of other investors, credit repair etc. 99% of the time these go directly into the trash or a big basket unread. If you go directly to their door you've got a chance.
So if you're going to mail, be the first to act when the default notices are printed in the local newspaper. Or be the first at your courthouse, if that's where they're filed first. The key to finding investment-worthy properties is to act quickly. Be disciplined and mail out the letters the very same day-in fact take them to the post office. In this business, the early bird really does catch the worm.
Tip for Success: If you don't have a company that publishes your notices of default, check with local title companies or bankruptcy attorneys to see if they offer these services; you need somebody familiar with the subject that visits the courthouse often.
Step 2: Develop your marketing strategy.
When you have located foreclosures, make sure your timing is swift. Mail your initial letters of approach to the homeowner the same day you discover the property. Placing ads in your local papers also helps to generate leads and find homeowners eager to avoid the credit penalties involved with foreclosing.
Tip for Success: A typical advertisement strategy taught in real estate training is to get listed in real estate or credit section of the classifieds. These ads typically have a bold, to the point headline, such as “Avoid Foreclosure” or “Stop Foreclosure, Today!” If you are targeting a specific property type, or reaching for higher market values, specify this in your ad. (Instead of simply “Avoid Foreclosure,” add your target market to the bottom of the ad. Example: “Avoid Foreclosure, call 1-800-555-1212. 500K and up.” You'll make more money in real estate by reaching for high-value properties, and an ad like this shows your prospects that you specialize in helping those with higher value homes avoid foreclosure.
Step 3: Work with the homeowner.
You can't get anywhere without the cooperation, and often gratitude, of the homeowner. The homeowner you are working with has obviously run out of options, but you'll need their trust and confidence if you plan to short sale mortgages. Remember, in these situations, you are often looked at as the “rescuer”. Make sure you explain the homeowner's part in the process thoroughly. Once they deiced to allow you to work with them, there is important paperwork you need them to fill out and sign:
1. an “Authorization to Release” form that gives you permission to contact the lenders and the foreclosing attorneys.
2. a sales contract - signed but leave the purchase price blank. You may need to change the numbers as you negotiate with the bank
3. a financial statement - to show they can't afford to make the payments
4. a hardship letter - to explain in personal terms what happened.
Tip for Success: Remember that this is a stressful time for the homeowner. It's easy to get caught in the excitement of a prospective short sale profit. You can get them to make a decision when you are able to convince them that this is the right option for them Emphasize the benefits of working with you, and then ask for them to take action. Make sure to let them know that once your contract is signed, and the bank accepts it; they'll be free to move on with their life.
Step 4: Negotiate with the bank.
Although banks don't enjoy taking a loss, it is a simple fact of the lending business that short sales are a necessary evil for lenders. Indeed owning the property (a non-performing asset) is even more expensive than selling it for a loss. Consider:
Banks use short sales to drop unwanted property quickly without having to deal with the REO office and go through the long process of putting the home back on the market. When you speak with the Loss Mitigation department, remember, this property is actually costing them money! Federal regulations require somewhere between $300,000 and $800,000 (or more!) to be held in reserve by lenders, which is many times over the actual price of the bad debt.
When you call the bank and ask for the Loss Mitigation Department (the department that handles properties that are in foreclosure) tell the person handling the account that you are trying to help Mr. X with his foreclosure and you are willing to buy the property from him, but due to the condition of the property/declining values/etc. you are only willing to pay X amount. This is where your negotiations begin.
Be firm and polite, but don't ever make threats to not buy or be forceful in your approach. Loss mitigators are often busy and overworked, and they want to see you as somebody who is minimizing the damage - and hassle - of the bad debt.
Tip for Success: Larger banks are the easiest to deal with when working with short sales and foreclosures. This is because the larger banks have more resource, more experience, and more loans! While there are some larger banks that don't work with short sales at all, other banks, such as Wells Fargo or Fairbanks Capital, tend to work with a much larger volume of short sales.
Once you have worked with enough short sales, you'll find that you have inside contacts at some of the larger banks; be friendly, ask them about their day, Develop a rapport. Sometimes, they'll open up about problems they're facing or current trends, which of course, you'll need to keep on top of!
You don't have to be a real estate pro to see the potential for making money with short sales, and now you definitely have some great tools to get started. Great deals in real estate are out there, and with today's market, your potential for profit is limitless. Just keep in mind: do your research, market your services, and treat the homeowners and lenders with respect. When you use this approach with short sales, you can make a win-win for everybody, especially the officers at your own bank when you cash in on your profit!
In the next article, we'll discuss the tricks and tips in convincing the bank to take a big discount on the short sale.
Best of Success,
Richard Odessey
About the author:
Go to www.InvestorWealth.comfor these Real Estate Profit Secrets: * Super Success Short Sale Secrets (*Best Course)
* Deal Evaluation Tool
* Free Teleseminars on the latest and most effective real estate profit techniques
The True Cost of
Self-Employment
by: Kenny Herbold
Do you think you are ready to make that leap to full self-employment?
The profit from your part-time (up till now :-) business is matching or
exceeding your regular paycheck, so you think it’s time to fire your boss
and make do without that paycheck. Before you take that final step to
personal freedom, make sure you truly understand what you are giving up.
Your employer paid benefits may cost you more than you realize. For many
people it will take more than $40,000 of profit per year to replace a
$40,000 annual salary.
When I talk about your employer paid benefits I’m not referring to the
“free” office supplies, subsidized soft drinks, or even the occasional
free meal at the holiday party. The items that you need to consider are
the benefits that are going to cost you the most money. Although if you
really like soda I guess you might want to include this too! According to
a survey published by the US Chamber of Commerce in January 2004, employer
paid benefits averaged 42% of an employees salary in 2002. That means you
need an additional 35 – 45% more than your current salary to make up for
these lost benefits.
If this number shocks you, then let’s take a look at some of the
typical benefits employers provide. Again, based on the US Chamber of
Commerce's survey medical insurance cost approximately 15% of an
employee's salary. However, employers also cover the cost of many other
forms of insurance. They include
Disability,
Dental,
Vision,
Life,
Unemployment,
Long Term Care Insurance, and
Workers Compensation
You might be thinking that you pay premiums for these products already.
Even if you do, your employer is most likely paying the lion’s share of
the cost. Not to mention that many times the premiums you are paying are
using pre-tax dollars. This means you end up paying less in taxes because
the amount of your premium is deducted prior to calculating your taxable
income.
When you own a home-based not only are are you going to be responsible
for the full cost of all forms of insurance using after-tax dollars, you
are going to be responsible for self-employment taxes. Self-employment
taxes include the employer paid portion of Social Security and Medicare
taxes. This means your bill for these taxes are going to double. Instead
of paying 7.65% of your income for these, you will now pay 15.30%. And
don’t forget about having to pay estimated taxes. You will have to file
and pay taxes 4 times a year now, instead of just once. Not only do your
taxes increase so do the headaches and the cost of filing!
The second highest benefit cost is your retirement benefits. Your
employer’s 401(k) match guarantees an immediate return of up to 100% on
your money, depending on how much your company will match and how much you
contribute. If your company has a defined benefit pension plan, you are
losing a guaranteed income in retirement. You are also taking on the
additional risk because you are 100% responsible for investing the money
to replace it.
These are only a few of the largest items that make up the 30 – 40% of
your salary that will become your responsibility when you become
self-employed. Your company might be paying for many other perks also.
Some other things you might want to consider are
company car (this includes gas and maintenance)
annual or performance bonuses
professional training or expenses (including professional journal or
society dues)
software license that let you use programs like Microsoft Office
programs on your home computer
vacation pay (that’s right, you no longer get paid when you take
days off)
All of these, and any others you might be able to think of will needed
to be included in the total cost of becoming self-employed.
I hope you don’t think I’m trying to discourage you from finally being
able to become your own boss. I just know that the excitement of finally
making this move can make us forget about some of the “extras” we are
receiving. You are considering a very serious change and need to make sure
that the benefits are going to outweigh ALL of the costs.
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