Investing in Foreclosures

Investing in real estate in Silicon Valley is a real possibility right now but there is not much of a margin for error. As prices have fallen and rates are low, it is possible to buy a “rental” property for specifically that reason, to rent it out. This is an opportunity for investors we haven’t seen for many years and they are coming out of the woodwork like crazy. I must get at least 5 e-mails a week from somebody with a new “system” for buying up property. Unfortunately, they’re not “new” and most of them are totally illegal for a licensed real estate professional here in California.

I’m sure most of you have heard that the FDIC is going broke. That FHA is in trouble. Fannie Mae and Freddie Mac have been in trouble. Besides what’s on the market (the MLS) these institutions are dumping properties as well.  It’s amazing some of the bargains you can pick up, although you do have to be careful and do your own due diligence. Make sure you crunch all the numbers. A condo that looks attractive numbers-wise when you figure the mortgage payment, may not be so attractive if you add in a hefty Homeowner’s Association Fee, along with insurance on the unit itself. Remember, the Homeowner’s Association only insures the outside of the unit, nothing inside the 4 walls.

What is amazing to me is that for as much as everyone is saying credit has dried up, etc. many of the same loans that got us where we are today are still out there. Oh sure, for now your credit score has to be a little higher than it used to be, but I’m not sure how long that’s going to last since now even people with A+ credit are going into foreclosure. FHA has laxed a lot of their standards so that their loans are more usable. Not only that but they have a loan program that will help you buy the property and give you “fix up” costs. It’s almost as if they will pay you to fix up your new property. VA still has a no money down adjustable rate mortgage. Some of the conventional lenders are willing to bend criteria a bit to get properties off their books.

The one thing FHA has tightened up on is “flipping”. They have a “no flipping rule” that says if you buy a property using an FHA loan, you may not sell it for at least 90 days. Now to me, if you move into a property you’ve bought, fix it up while you live in it, which is not at all unusual for investors, and you’re flipping houses every 91 days, you can still do quite well. You have to pay to live somewhere anyway. Why not the property you’re buying to fix up and sell? Not only that, but the lenders look much more kindly on properties that are going to be owner occupied.

I realize it’s pretty much a feeding frenzy out there, but if you’re going to invest, invest smart. The “gurus” of real estate don’t talk about the properties they get stuck with, or the holding costs, or the bad tenants. They talk about the upside without the downside. I’m all for investing in real estate to build your wealth, but be prepared. It’s not all the bed of money it’s cracked up to be. And if you think you can go negative cash flow on a house because it’s only $50 or so, think about how much that turns into per month if you do 10 of them, or 100.

If I can help you with any of your real estate needs, whether looking for a bargain on your first home, looking to invest in a rental property, or selling your home for the best price in a down market, feel free to contact me or leave a comment below.

I’m listening to an attorney talking about renegotiating loans. That’s a good thing, but statistics show most loan modifications are not sustainable, meaning it’s a temporary state that is not going to last for the long term. He’s talking about renegotiating the loan and then still taking your house. I have a hard time with that. Most people renegotiate so they can stay in their home.

If you’re in trouble people, there are a number of resources open to you. Make sure you are getting all the information concerning what all of your options truly are.  If I can help you figure out what your options are, please feel free to call me anytime. If you don’t call me, just make sure you take some kind of action now.  Sitting on it is not going to help you. Time is not on your side.

Feel free to comment below. What situation are you in right now? Is your family safe?

Just a quick update: The attorney I’m listening to says his techniques won’t work with states that have anti-investor laws. Big red flag here in California!

Second, I would like to thank President Obama for the shot in the real estate arm by signing the extension on the higher loan limits for Fannie Mae, Freddie Mac, and FHA. Anyone who knows anything about real estate in the Silicon Valley knows we needed this. Until this crisis happened, the loan limits on FHA loans were so low they were almost useless. The only homes they were good for were the lowest priced homes in San Jose and the surrounding areas, and even then the buyer would have to either bring a lot of cash to the table  or do a lot of fix up. The very buyer they were supposed to be helping, the ones on the lower end of the affordability scale, couldn’t afford to go with FHA financing because they didn’t have the extra cash.

Now the next “good news” in real estate is that it looks like the bill to extend the First Time Buyer Tax Credit is going to pass through Congress also. Not only that, but they are going to extend it to current homeowners also. It is not as good a bill as we would have hoped for, but it’s something. It’s unfortunate the the bill is pretty restrictive when it comes to current homeowners and comes in at a whopping $6,500.00. I’m not really sure myself if that would be enough to make me want to move.

Another “thank you” to the Obama Administration’s announced move to provide support to housing finance agencies across the nation. This action will help restart the housing market for low to moderate income first-time homebuyers, including in California, which has been among the hardest hit by the real estate crisis. These loans in California are known as the CalHFA, which had suspended their programs due to all the finance mess in the market. Supposedly this will be a new and better CalHFA.

Last but not least, I would like to render my opinion about all the hype in the news. First I think the news media is getting their numbers and stats from somewhere different than I do. Second, I wouldn’t be singing la, la, la, la, la just yet. I still don’t think we’ve felt the commercial real estate crash in all it’s glory yet, and that also will affect the housing market. Have we seen the bottom of the housing market and bounced back yet? I’m not so sure.

Yesterday I was watching People’s Court on TV. There were two women, one who sold a house to another. Both women used attorneys vs. Realtors. When the woman who was buying the home did the usual walk-through a couple days before the close of escrow, it was quite aparant the woman who was selling the house was not leaving any time real soon. As should have been done, the lawyers provided for a seller rent back for 2 weeks to allow the seller more time to move. They also tacked on a heavy penalty to the seller if she didn’t move within the 2 weeks, which she didn’t.

They held the money for the 2 weeks rent in escrow, which was correct, but they didn’t have both buyer and seller sign a release of the funds with instructions for the money to either be released to the buyer on the date the 2 weeks were up, or to be pro-rated between buyer and seller according to how many days the seller stayed. That was the first mistake. The poor buyer went through weeks of calling escrow, trying to get a hold of the lawyers to release the money, etc.

The reason they ended up in small claims court is because the seller wouldn’t pay the penalty rent for the extra 10 days she stayed over and above the 2 weeks rent back. When the seller finally did leave, she left a ton of trash and all kinds of stuff in the property that the buyer had to pay to have removed. While this kind of thing can happen to anyone, the attorneys were both done with the transaction once the house closed escrow and the buyer couldn’t get either one of them to help her any longer. They ended up in small claims court.

Now, don’t get me wrong. This transaction could have gone this way even if they had used a Realtor. Many Realtors are in a hurry to collect that commission check and would have closed the deal also. Once you close escrow on a house, if the seller is still occupying the property, you have to go through regular legal channels to evict them just like you would any tenant that refuses to leave a property. What should have been done here to truly protect the buyer was to not close escrow until the seller was out of the property. At the very least it should have been explained to the buyer what all could happen if they close escrow while the seller was still in the property, and let the buyer decide what she wanted to do. In the meantime the buyer is paying on a mortgage to a house she can’t even occupy yet.

When I first got into real estate many moons ago, I was told “You wouldn’t want a Realtor defending you at a trial, and you don’t want a lawyer doing your real estate transactions.” Once you close escrow on a home, you have lost all leverage to have things come out the way they should. If things aren’t right when it’s time to close your transaction, don’t let anyone intimidate you into closing anyway. After it’s all said and done is not the time to get what was promised in the contract.

They say you only have one chance to make a good first impression and that’s as true with your home as it is with people, so the place to start is where the buyer will start, with the front of your home. If you were to go out to the middle of the street and try to see your house through new eyes of a buyer, would it look good enough to make you want to see the inside? If not, you need to get started.

Making sure the lawns are cut and manicured doesn’t cost any money, just a little labor. Is the front porch clean and inviting, or cluttered and hard to walk through? Are the bushes trimmed back, or large enough for someone scary to hide behind. Could the front door or the shutters use a little paint? All this stuff takes is a little of your time, but to a buyer it can make a difference on whether they pass your house, or come in and end up calling it “home”. Since you’re competing against homes that are foreclosures and short sales priced below market, your house needs to look worth the extra money.

Inside, it’s amazing what some little fix-ups can do that you don’t really even notice when you live there everyday. Cleaning all the faceplates on the light switches and the finger prints off the doors can work wonders. Polishing the faucets and fixtures makes everything look new. If you have areas of your home that are cluttered, if it’s stuff you don’t absolutely need, pack it up and move it to the garage. You’re planning on moving anyway, right? You’ll be that far ahead of the game. The less clutter the bigger the rooms look.

Pricing your home to sell is essential. If you’re not realistic about where the market is and you price your home too high, all you’ll accomplish is selling other people’s homes that are priced below yours. If you’re using a Realtor, they will give you pertinent info to help you come to that decision. If you’re not using a Realtor expect most buyers to use that to offer you less than your asking price. They figure they should get the savings you would have spent on commissions. You should price your home accordingly and then according to what the market is doing. If the market in your area is still going down, the house like yours that sold 3 months ago wouldn’t necessarily sell for the same price today. I won’t even take listings any more if the seller is asking way too much. All it does is get the seller mad at me and waste my time and resources on a home that’s never going to sell at that price. It doesn’t do either of us any good.

If you have any other questions about selling your home, or I can help with anything else to do with real estate, feel free to contact me direct or leave a comment below so everyone can share.