How to Buy Bank Properties for Investment

When banks foreclose on  properties, they hire REO agents to put them on the market and get them sold. REO listing contracts are typically for 90 days, so the incentive to sell the properties quickly allows for aggressive pricing.  To be clear, bank owned properties are sold for their true value, they are NOT discounted. The condition, repairs needed, location, and market demand are all factored in determining the list price. The value in buying a banked owned (REO) property is in THE POTENTIAL FOR RESALE, not the perceived low price.  Further, because foreclosure properties often have deferred maintenance issues, the profit margin for fix-and-flip can be excellent.

I sell hundreds, yes hundreds, of REO properties every year. I have contracts with banks, Freddie Mac, Fannie Mae, HUD, VA, and the U.S. Marshalls to liquidate their foreclosed, seized and forfeited assets.  As the gatekeeper,  I can tell you what works and what makes me file your offers in the Rejected file.  REO listing agents know about the current properties available and the ones that haven’t hit the market yet.  We are your first line of information and access to the properties. It’s a smart idea to make friends with a few REO listing agents as well as selling agents. If you are the type of investor we are looking for, there’s no end to the amount of premium information and access we’ll give you to the Bank properties we manage. If you are that “other” type investor, there’s no end to how many of your calls or emails we’ll dodge!

So what can you do to make sure you have access and help finding and securing the best REO property deals to invest.

1). RESPECT THE AGENTS’ TIME. REO agents have tons and tons of reports, phone calls and emails to manage our listings. Our clients are Banks and therefore have banker hours. We have to get everything in between 8 and 5pm. We simply don’t have the time to chat or waste time during the work day. So calling us to “get to know you” or to hear your spiel on how many properties you sell, is a great way to get on the bad list. And calling us late, or at home or any time outside normal business hours is a sure-fire way to be barred from the good list forever. Make calls and emails to us, concise and to the point. Let the listing agent know that you are willing to see the property with any agent in their office.  To see a property first and fast, you must be willing to see it early morning, late evening, weekends or lunch time. Its a good idea to drive by it before you make the appointment. And calling me 3 times a day will not make the bank respond to your offer any quicker.

2). BE PREPARED AND INFORMED.  When calling about a property, have the address or at minim the street name available. Nothing bugs me more than someone calling and saying “hold on while I find the address” or “I’ve called on so many properties, I don’t remember which one I called you on”.  Have pen and paper so when we give you information, you’re ready to take it. Read the full descriptions of the properties available on internet sites like Zillow or Realtor.com. They contain important information that we have taken a lot of time to write and put out there for you. I can’t tell you the number of times I get a call “I saw it online and was wondering how to make an offer” when it clearly states in the online description that offers are made on a website or through the listing agent.

3). DON’T TRY TO NEGOTIATE OVER THE PHONE.  Offers on REO properties like all other properties require seller approval. They do not tell us “the lowest price they’ll take” and even if they did, we still couldn’t tell you. The bank will take the amount of the list price, unless there are multiple offers, and then they will take the highest acceptable offer. Period. If you want to know if they will take less, you have to make a qualified written offer.

4) MAKE AN INFORMED OFFER.  Make sure you see the property so you can make an informed, reasonable offer.  Pictures don’t ever tell the full story, nor can you rely on what another home in that area looked like.  Most REO companies will not reduce the price after you have an accepted contract. Make the appointment with the listing agent to see the property and look at it fully with an inspector’s eye. Trying to renegotiate a contract is difficult. If the reasons you want to reduce the price should have been clearly visible in a showing, the answer will be NO.

5) DON’T ASK ME TO LIE   This business is my career, its how I take care of my family. My reputation among my Realtor peers and customers, is very important.  I will not jeopardize that so you can get the property for a few dollars less. No I can’t tell you how much the highest offer is.  No I can’t hold off putting the property in MLS so you can get in first. No I can’t say the property is under contract so you won’t have competition. No I can not give you the lockbox code to go in un-escorted.  SO DON’T ASK!

6).  HOW MUCH TO OFFER.  It’s ok to ask if there are other offers on the property to decide your opening offer.  If the property is new to the market (3 weeks or less), just come back on the market or has multiple offers,  you need to make your highest offer. Nothing feels worse than to lose out on a good deal that you were really willing to pay more to get. Do your numbers and make the best offer that makes sense for your bottom line. I once had an investor offer 5k under list price because his rule was to never pay full list.  A competitor bought the property for $6500 more and flipped it with a net profit over $98,000.  Ouch, for $7000, he would have made enough to fund his next deal. Instead, he regretfully watched someone else get paid.

7). STRAIGHTFORWARD SALE   REO contracts are NOT assignable.  Some have deed restrictions requiring a 90 days to 1 year waiting period before you can transfer the property to another party. They typically don’t allow changing names on the contract, no-money/net proceed sales or  And/Or titles on the contract.  REO properties are not good candidates for “wholesaling”.  Do not try to slip something by with addenda or back door deals. Your contract will be terminated, you’ll lose your deposit and you’ll get a reputation among agents in the area for not playing by the rules. Listing agents don’t want to look bad with their Bank clients by having contracts fall apart.

8).CASH IS KING    Investment seminars and books tell you how to get authentic looking bank statements and credit letters to show as proof of cash to close. I can spot those from a mile away! And so can any other experienced REO agent. If you are financing the deal, just say so. Hard Money is NOT CASH. You can make a financed offer with no financing contingency (if you don’t get the loan you lose the deposit) which will be treated with almost the same favorability as cash. The agent will appreciate the honesty and fight for an extension without penalty for you, should you need one.

9). NO CONTINGENCIES IS QUEEN  If you don’t have the cash, and still want the high priority of a cash offer, waive your contingencies. Offers without inspection, appraisal or financing outs, are appealing to banks. For experienced investors, viewing the property more thoroughly than you ordinarily would on a showing, can yield valuable information of defects etc. that would be found in a home inspection. If you already know what’s there, and you’re comfortable with your ability to still turn a profit, you don’t need a contingency to get out of the contract.  You can still have an inspection, and I strongly recommend you do, but you can’t void the contract for it.  If you find a more substantial problem, just cancel the contract and forfeit the deposit. Better to lose a couple of thousand than your shirt in a money pit.

10). DEPOSIT  I don’t take any investor seriously who wants to put up a $250 deposit! Deposits say that you are serious and that you’ve got stake in making the deal successful. If you are an investor who doesn’t have money for a deposit, you’re not an investor. You’re a dreamer who’s probably going to waste my time. Deposits should be certified funds. I suggest you open an account just for investment deposits, so you are always ready.

REO properties can be a great investment source. They can often require more documentation and hoops to jump through, but when you find the right one, the profit is  worth the hassle.

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Selling During the Holidays

Should you decorate your home during the holidays when you are on the market?  Absolutely!  Buyers are feeling very cheerful around this time of year and a cheerful home will stick favorably in Buyers’ minds.  Buying a home is usually very emotionally driven.  A home is typically the most important purchase a family or individual can make, and its a decision that takes the family traditions into account.  So take advantage of the opportunity to show that your home has what buyers want: Happy Family Memories in the making.  Classy, warm and traditional is the mantra and don’t forget it!  Here are 5 things you need to remember when preparing your home for holiday home viewers:

  • Go easy on lawn and exterior displays:  Too many lights, inflatables, over the top decorations: these are NO-NO-No’s!  Remember that Buyers decide which homes they want to see by driving by and looking at online photos. First impressions are everything, and the impression you want to lead with is one of elegance and class.  You might love your 10 foot inflatable Grinch or life-sized electric carousel, but many buyers find it busy and distracting at best and tacky at worst.  Better to err on the side of minimal good taste and add traditional touches like natural garland, white lights and single color bows, red or gold or white (not red, gold and white).
  • Faith Neutral decor:  For most people, the holidays are a celebration of faith.  However, there are many different religions, denominations, sub-sects and groups including non-believers.  And a member of any one of them may be the buyer for your home. You don’t want to risk offending any of them.  Homes can hold a certain spirituality for a family, and buying a home that was owned by a family of different, mis-understood or even competing denominations, can be dis-comforting. The one thing all people embrace is family winter celebration.  So decorate with symbols and colors of the season, such as natural evergreen garland, pine cones, nutcrackers, gift boxes, pointsettias and other plants, christmas trees with general ornaments, wreaths, gingerbread houses, and bells.  Avoid religious objects such as nativity scenes, dreidles, and crucifixes, etc.

 

  • Accessorize to accentuate your home’s features:  Got a fireplace?  Call attention to it’s coziness and holiday importance by decorating it with garland, ornaments, candles, etc.  A word of caution though: stockings can distract, so go easy with them.  Use only 1 or 2 very elegant stockings hung in one corner of the fireplace to add to, not block the view of the fireplace.  Great counter tops?  Add a festive bowl of fruit, ornaments or fragrant pine cones or potpourri.  Beautiful spa bathroom?  Decorate with seasonal towels, candles and soaps.

 

  •  Be extremely mindful of the size and scale of your christmas tree.  A very large tree can make a room look really small.    Make sure the base of the tree leaves at least an 18-in perimeter between the tree and the furniture.  Ideally you’ll want to see floor and wall space around the tree, which extends the size of the room  in a Buyer’s view, making it seem larger.  Decorate with simple but  elegant ornaments.  If the tree is too individualistic, it can distract from the qualities of the room.  So leave the personalized ornaments in the box this year.

 

  • Make Buyers remember your home favorably when they leave:  And lastly, give your Buyers and Buyer’s agents a treat.   In the kitchen or foyer entrance, leave a holiday treat and a note thanking them for viewing your home.  Simple treats like holiday candies or cookies on a decorative plate with a note that says “thanks for viewing”.  Light candles, plug-in air fresheners etc. to give your home a warm, festive holiday scent.  Consider scents such as Glade “Peace”, that smells like christmas trees and snow or Air Wick’s “Enchanted Holiday Snowfall”.  My favorite is Aromatique’s “snowy evergreen”. Don’t overpower, you don’t want Buyer’s to have to go outside for air.  Instrumental holiday music can also add to the “good holiday cheer” ambiance to your home.
  • Update MLS, online and flier photos:  Make sure your Realtor is updating the photos of your home regularly, especially if it’s been on the market a while.  New photos make the listing feel new to agents and buyers viewing the home online.  It also highlights that your home is a good buy any time of the year, especially at the holidays.  Of course if you don’t sell by mid-January, you’ll want to update the photos again.  MLS and online photos should be changed every 90 days regardless.

 

Why Realtors really want you to List at a lower list price

Wonder why Realtors want to list your home at a lower price than you do?  If you’ve ever interviewed a Realtor to list your home, you no doubt have experienced in opinion of how much to list the home. Homeowners always want to list for the higher “zestimate” amount or just under the highest priced listing in their subdivision. Realtors seem to always have numbers much lower, no matter what figures you’ve seen in your research.

Plain and simple, we want to cause a stampede of buyers running to your home. We want multiple offers and an all out bidding war for the sale of your house.  We also want to close the deal fast, because the longer you wait for a sale; the more unhappy you are with your Realtor. In the listing presentation, we give you logical reasons why overpricing hurts your chances of selling:

1). buyers look at lower-priced homes first  

2).Buyers express displeasure with their agents when they are shown homes     that they feel are not good deals  

3.) Buyers believe you must be unreasonable if you priced too high, so they       don’t want to negotiate on your house.

But as the Homeowner, you still believe that your home is worth more than the other homes in your neighborhood. You remember your neighbor’s kitchen in the house that sold last month, and so you know your home is worth a lot more than what theirs sold for 4 weeks ago. You know that when Buyers see your home they will make an offer and it will be based on the higher list price, so you’ll be negotiating from a higher starting point.  But let’s look at the reasons why your Realtor thinks a lower or more reasonable list price benefits your bottom line.

REASON 1: The more Buyers you have looking at your home, the more likely one of them will want to buy it. When Buyers are selecting the homes they want their agent to show them, they narrow their choices by PRICE and PICTURES. An average showing appointment includes viewing 3-4 homes. During that first appointment, Buyers are seeing the BEST deals the market has to offer that day.  They are seeing what their mortgage can buy. They are comparing what kitchens they can buy with their mortgage. They are asking themselves and their Realtor: “what’s the best price and quality can I get in this area”.  They don’t choose the least expensive.  They choose the BEST QUALITY FOR THE PRICE.  Your kitchen may be a 10 on the buyer’s scale, but if they can get a 9 for $10,000 less, which do you think they choose?

REASON 2: Buyer’s are at all costs trying to avoid paying too much. Buyers have been listening to the advice of friends and family and of course watching real estate shows on TV. They have been looking at homes for months before they are ready to buy.  They have been visiting open houses in more expensive neighborhoods, just out of curiosity.  They have been gauging the market on homes for 12 months or more.  They have seen homes list and sell and have taken notes.  Today’s home buyers know more about the market than some real estate agents. And these savvy Buyers will not pay above the median price per square foot and amenities. They’ve seen a dozen updated this and remodeled that.  They are not easily impressed and certainly not willing to buy at prices that don’t justify THEIR BOTTOM LINE.

REASON 3:  The higher the price, the longer the days on market. No one wants to buy the house that’s been on the market for months and months. They think that there must be something wrong with the house or with the sellers’ motivation that the home hasn’t sold. When the inevitable “price adjustments” happen, Buyers sense desperation.  They then make lower offers than they would have otherwise.  At that point, the homeowner feels that the agent is at fault that it has taken so long to sell and that the agent must not being doing a good job of negotiating.  No listing agent wants a Seller to be this angry.

So when the listing agent gives you list price suggestions that are lower than you’d like, know that it’s to benefit your bottom line and just consider their advice. If you still feel you need to list for a higher price, ask what you need to do to get Buyers to pay that higher price. And then, DO IT.

What NOT to do at an Open House

Realtors and Homeowners love to host Open House events.  It’s a great way to expose a home to potential buyers and allows neighbors to see the home and recommend it. Buyers love to see what’s available and compare a home to homes they’ve already seen.  And some people just like to visit other people’s houses. Whatever the reason, if you find yourself at an Open House this weekend, here are a few No-No’s to help you have a good experience.

DON’T  show up to an Open House too early or too late.  The homeowner’s and Realtor want to be ready when you arrive. It’s difficult for the agent to show you around the house while they are trying to organize flyers, signs or secure the property.

DON’T overstay your welcome.  It’s fine and even encouraged for you to remain as long as you need to, to get a good feel of the house.  But don’t stay to see who else is coming or wait for the homeowners to return. If you’re not ready to write an offer, look and move along.

DON’T come just to use the bathroom.  This is not a public restroom, it’s someone’s home.

DON’T snoop through the homeowner’s things. You are there to see the house, not the content’s of the house. If the host suspects that you “casing” the house or plan to take something, they won’t hesitate to call the police.

snooping

DON’T let your children go unsupervised. If you break something, you may be asked to replace it.

DON’T make negative comments about the homeowner’s decorating taste, personal photos or their belongings.  It’s just rude. It’s welcomed to comment on something that needs attention ( a leak or running toilet) or question something about use (could this room be a dining room as well?).  But don’t make the visit about the homeowner’s home.  Make the visit about the home as a potential home for you.

DON’T forget to mention to the agent hosting the Open House that you are working with another agent.

DON’T forget to wipe your feet when you enter

DON’T eat or drink while walking through the house.  The last thing a Seller needs is additional carpet or wall stains to deal with when they are trying to sell.

open house visitors

Hurricane Readiness for Your Kitchen

My wife’s family will find almost any reason to get together.  Birthdays, holidays, sunny days, rainy days… You get the picture.  But one of the best gatherings is one my sister-in-law Mary started.  It’s the annual “clean out the freezer for hurricane season cookout”.  All winter and spring you caught sales on meat, cleaned and ziplocked your shrimp for gumbo, put away some of that ham left over from Easter.  It’s all packed in your deep freezer.  Now is the time to thaw and cook instead of buying more.

The last thing you want to have to worry about before hitting the contra-flow is whats going to happen to the food in the freezer if the power goes out for an extended period of time.  You can dump it all in a large plastic garbage bag. That way, if the worst happens, you need only toss out the bag. But if we are spared a direct hit, you have to take it all out and re-pack it in the freezer. No Fun.

Remember FEMA Fridges!

Remember FEMA Fridges!

That’s why I suggest you start your own summer tradition of  grilling the freezer bounty, not cleaning the chicken and seafood that spoiled.  I can attest to the deliciousness of bar-be-cue left-over turkey and grilled shrimp on a stick. It’s a fun way to entertain while avoiding a messy clean up.  Hopefully Mother Nature spares us this season.  But just in case she’s feeling mischievous, be ready with a car loaded with family and an empty freezer.

Should You Pay Off Your Mortgage Early?, pre-payment

I remember the day many years ago, when my father, Donald Julien (the namesake and founder of our Real Estate company) handed my mother the mortgage cancellation after they had made the last payment on our family home.  He smiled at her and said “Now you’re a free woman”. It’s how most of us think about mortgage debt: a prison, a ball and chain we carry around for 30 years, a hostile kidnapper keeping us awake at night.  So it seems obvious that paying your mortgage off would give you an enormous sense of freedom and emotional well-being.  But is it the BEST thing to do financially and for your future? Well, lets consider the pros and cons.

PROS:  You’re getting out of debt, and you don’t owe anyone anything.  You can use the money you used to pay out every month to save for retirement, invest or enjoy life.  You also save tens of thousands in interest. That’s a good feeling. But that good feeling comes at a price.

CONS: Under 26 U.S.C. § 163(h) of the Internal Revenue Code, homeowners who have open payable mortgages can deduct mortgage interest on a principal residence or a second home up to the first $1 million of debt or the first $100,000 of home equity debt. In most cases, that means THOUSANDS off your tax bill: money you keep instead of paying Uncle Sam!  Mortgage interest rates tend to be much lower than other loans, so paying off a mortgage may leave you still paying higher interest on credit cards, installment loans and the like.

So should you use any spare money to reduce or pay off your mortgage? Or, is it better to use it to shore up your retirement savings?  It depends on your circumstances. Here are some guidelines to help you decide:

DONT: If you’ve got credit card debt, pay that off first. It saves you much more money than prepaying your mortgage, and credit card interest isn’t deductible.

DONT: If you’re employed, add any extra money to tax-favored retirement accounts such as IRAs or 401(k)s. Traditional accounts give you a current tax deduction, with earnings tax-deferred. Roth accounts let you accumulate your gains tax-free. And you can invest that money for long-term growth. Consider mortgage prepayments only after you’ve reached the maximum retirement contribution your employer allows.

DONT:  If you don’t have enough retirement savings or income to continue your current lifestyle into retirement.  You don’t want to be house-rich but cash-poor. When your paycheck stops, you don’t want to stress about having enough money for living and health related expenses.

DO: If you currently have or are already on track to having sufficient retirement wealth to continue your lifestyle. You should consider having enough money for healthcare, travel, and increases in cost of living.

DO: If you have sufficient investments and future earnings for retirement. Long term financial planning should include dividend investment, payments from rental and investment property and retirement pay. If you have all three in the right amounts, you are ready to pay off that mortgage.

If you’re considering paying off your mortgage, you’re probably in a good financial place. Consider your options today and for the future. Talk to professional retirement counselors and tax pros. Investing might make more practical sense, but then again, there’s nothing like owning your own home, free and clear.  There’s nothing like being FREE.

INVESTORS: How to Avoid “Tenants from Hell”

Ever had a tenant from hell? If you’ve never had to deal with a truly bad tenant, you should consider yourself lucky. Most landlords have seen their share of awful tenants. The Internet is full of tenant from hell stories. Like the hoarder tenant who died under a pile of her own trash: or the tenant who started a meth lab to make enough to pay his rent. It’s better never to have to deal with bad tenants from the start rather than put up with these problems.

Learning how to avoid them can be difficult especially if you don’t know what to look for. Here are some guidelines for avoiding and dealing with tenants from hell.

Have Rules IN WRITING

IBy having your tenants sign a contract stating that they agree to the policies you’ve set forth, there is no question what is acceptable and what isn’t. You also have a legal leg to stand on if you need to evict or sue the tenant for damages.

Screen Your Tenants Up Front

The first rule of landlording is SCREEN, SCREEN, AND RE-SCREEN your prospective tenants. Run background and credit checks. Contact all previous landlords and references. Verify their employment and their income. If you can, visit them in their current home so that you can see how they live now. You’ll hopefully be able to discover whether they’re a hoarder, drug manufacturer, or have other undesirable problems.

Be FIRM

Even if you’re sympathetic, you need to keep in mind that tenants from hell will take advantage of any weakness on your part. If they’re late on paying the rent, don’t wave the late fee. If you don’t allow smoking and someone is smoking, you need to charge them appropriately, or even evict them for the damages. Whatever they’re doing — or not doing — you need to have them correct it immediately or they will continue to take advantage of you.

Don’t Be Afraid to Evict — or Offer Them Money to Leave

If a tenant from hell still manages to sneak in, and violates the rules, evict them as soon as possible. Hire a good lawyer if you must. If they have not violated rules but are still a pain, you can offer them money to leave. In this way, you get rid of a problem and they can cause someone else a headache. It may seem counterintuitive, but often making the problem go away with cash is better and cheaper than the cost of stress, damages, and your own therapy sessions.

Offer Help

If your tenant has a real problem and you don’t want to be hard nosed, you can also offer to help them by referring them to counseling, whether it’s financial help, addiction help, or mental health counseling for problems such as hoarding. (Hoarding is a mental disease and not just messiness). But don’t expect miracles. It takes a while for the person to change, and they will only change when they decide they’re ready to do so.

Remember that no matter how aggressive, ornery or weird your tenants from hell may be, you need to remember that you are in charge and you don’t have to put up with their devilish behavior. By screening and not allowing the behavior to continue, you can avoid being a victim of tenants from hell.