A few years ago, this may not have been a problem. But now, as time matures, and the once real estate boom is behind us, we are seeing lot of those "flips" hit the market again. This time, however, they are all repaired, rehabbed and staged... just like you would expect to see on HGTV or TLC.
The problem is that those late night TV shows and infomercials didn't teach everything there was to know about how to fix a flip. Yea... we know what kind of spanish tile to install, and we know how to get a good deal on marble floors or granite counters. We also know how to maximize the space we have so the entire home flows.
But what we do not know is the most important thing: And that is... how in the heck do you fix up a house. I don't mean cosmetically! I mean structurally and functionally. It's like going into battle with an instruction manual and no real combat training (huh??)
I am on my high horse right now because I have seen several supposed flips lately that look beautiful on the outside, but on the inside... it is a different story. I just closed on a home in North Raleigh with a wonderful couple from out of town. When we looked at the home, it was beautiful! Granite counters, hardwood floors, antique fixtures, stainless steel appliances and the whole nine yards. But when we got around to inspections, the home showed a lot of flaws. The Sellers was very agreeable in fixing things, but during the month we had the property under contract, they didn't fix a thing. That should have been our red flag. Instead, we settled for a couple grand as a seller concession and my Buyers closed on the home. Since then, they have had nothing but issues. Leaking faucets, plumbing mains leaking everywhere, improperly installed flooring, counters and appliances... you name it! You just never know what is underneath all those band aids.
Another couple that I worked with recently put a home under contract. Same thing... beautiful on the outside, but on the inside??? The inspection once again showed a lot of deficiencies and structural defects that were simply not completed correctly. How about mold?? Don't play around with mold.
Many of these nine-to-fivers who buy run-down homes at low prices with every wonderful intention of fixing up a home simply fail to succeed. They start with all the gusto in the world. But when the process takes months longer than they had expected, certain items tend to get lost and corners are cut. In addition, budgets are always under valuated, so as the prices go up and the cost to fix increases, more corners are cut. Of course, this is not the case with every contractor, rehabber and flipper - like I said, I am on my high horse right now after seeing some of my buyers very distraught.
It is so easy to look at water stains on a wall and just figure you can paint over them. If something doesn't leak right now, there will never be leaks, right? Do many flippers know how to correctly install a dishwasher using the high loop method? Do many flippers really know how to install a GFCI breaker? How about properly istalling the discharge valve on a hot water heater?
My point is that it can be so easy to put a cosmetic band-aid on a flip. The band-aid makes the house look, feel and smell wonderful to potential Buyers. But what lies underneath those bandaids? Part of the problem is lack of funds. Part of the problem is lack of knowledge. Part of the problem is a flipper's ability to simply overlook what isn't a problem now, but will be a problem doen the road. Some of those red flags simply go unattended.
If you are contemplating purchasing a home that is 'flipped', consider the following:
1) Have the home professionally inspected
2) If there are red flags, investigate further. Do not take for granted that the home inspector is the final word on whether a home is a good purchase
3) Try to get pictures from the sellers with images of what the home looked like when they purchased it.
4) Try to get the home inspection from the sellers when they purchased it.
5) Try to meet with the sellers to find out exactly what repairs they made. It doesn't take a rocket scientist to figure out if they did mostly cosmetic repairs or if they actually fixed the nuts, bolts and bones of the home.
6) Was the work done by sub contractors, or was it done by the actual sellers?
7) How long did the work take and what was the budget? This will be difficult to get, but any information might be useful. If their budget was $10,000 and the house is more than 20 years old, you might start to think that some corners were cut.
These are just a few of the items to look out for. If you have any others, feel free to leave a comment or send me an email. Remember, purchasing a home that has been 'flipped' can be a great purchase. But it can turn out to be a big ol' headache too!
Monday, October 29, 2007
Press Release - Waterproof Notepad
Here is a little something I am involved with in my spare time:
New Waterproof Notepad Premieres in Stores Across the Country
New Waterproof Notepad Premieres in Stores Across the Country
Sunday, October 21, 2007
What To Expect When Selling
Here is something that I give to all my Sellers when they list with me...
What To Expect When Selling Your Home
There are many ‘gotchas’ along the way from contract to closing. Many times, Sellers are so thankful that they received an offer on their home that they conveniently forget that accepting an offer is only one step in the myriad of obstacles along the escrow process. It is your Realtor’s job to minimize the stress, negotiate the terms and bring everything to a successful ending. However, please keep in mind that there are many situations that are out of your Realtor’s control. Please understand and keep the following points in mind when selling your home.
• Your home will be advertised to hundreds of thousands of people nationwide and thousands of agents locally. There is a 95% chance that another agent will show and sell your home. Your Realtor will work with this agent to bring the sale to a complete and successful close. Please remember that the majority of showings on your home will be performed by other cooperating agents. Just because your Realtor is not personally showing your home does not mean that he/she is not working for you!
• Once a potential buyer shows interest in your home, there will be several to many rounds of negotiations. This is all part of the process. Please do not get discouraged if you spend several hours on the phone with your Realtor discussing various offers and counteroffers.
• Once you accept an offer on your home, there are still many hurdles left. You are not home free until you sign the deed at the attorney’s office many weeks later. There will be inspections, appraisals, re-negotiations, repairs, qualification and underwriting issues and final closing stipulations.
• After you and the Buyer finally agree on price and terms, your home will be professionally inspected by the Buyer. No matter how well you keep your home, the inspector will find issues of concern. The Buyer may ask you to repair some or all of the items on the home inspection report. This is the beginning of the second round of negotiations. At this point, the Buyer may also ask for further financial concessions relative to the extent of concern on the home inspection report. You are not obligated to fix everything the Buyer requests. However, if you refuse, you will leave the Buyer free to terminate the contract and receive a refund of his earnest money if he so chooses. PLEASE PREPARE FOR THE ROLLERCOASTER RIDE WE KNOW AS THE HOME INSPECTION PROCESS.
• Once you complete repairs on your home, the Buyer will ask for a final walkthrough. Be advised that if the repairs are not done in a workmanlike manor, or if they are simply not complete, you will not close, and you will most likely enter into yet another round of negotiations.
• No matter how much you feel your home is worth, and no matter for how much your Realtor has valuated your home, there is a chance the appraiser and underwriter may feel differently. If your home does not appraise at or equal to the purchase price, your Buyer is free to terminate the contract or ask for another price reduction.
• Although a pre-qualification letter is required from your Buyer before you will accept an offer, there is a chance that your Buyer may not properly manage his finances after that acceptance. All Buyer information is verified before closing, and if the status of his credit has changed, this may or may not affect the ability for the Buyer to obtain financing.
• Although a date may be set to ‘close’ on your home, there are many things that may delay the closing process. Holidays, over-extended workload, lazy underwriters, miscommunications, uncooperative attorneys… and the list goes on. Your original closing date may be extended anywhere from one day to two weeks. Please keep this in mind when making final moving arrangements.
• You, as Seller, will have to pay some closing costs which may or may not include transfer taxes, property taxes, HOA dues, attorney fees, courier and copy fees, commissions and of course your current mortgage payoff. Also keep in mind that the current balance on your mortgage statement is NOT your payoff amount. Please contact your lender to obtain the payoff amount as of the estimated date of close.
What To Expect When Selling Your Home
There are many ‘gotchas’ along the way from contract to closing. Many times, Sellers are so thankful that they received an offer on their home that they conveniently forget that accepting an offer is only one step in the myriad of obstacles along the escrow process. It is your Realtor’s job to minimize the stress, negotiate the terms and bring everything to a successful ending. However, please keep in mind that there are many situations that are out of your Realtor’s control. Please understand and keep the following points in mind when selling your home.
• Your home will be advertised to hundreds of thousands of people nationwide and thousands of agents locally. There is a 95% chance that another agent will show and sell your home. Your Realtor will work with this agent to bring the sale to a complete and successful close. Please remember that the majority of showings on your home will be performed by other cooperating agents. Just because your Realtor is not personally showing your home does not mean that he/she is not working for you!
• Once a potential buyer shows interest in your home, there will be several to many rounds of negotiations. This is all part of the process. Please do not get discouraged if you spend several hours on the phone with your Realtor discussing various offers and counteroffers.
• Once you accept an offer on your home, there are still many hurdles left. You are not home free until you sign the deed at the attorney’s office many weeks later. There will be inspections, appraisals, re-negotiations, repairs, qualification and underwriting issues and final closing stipulations.
• After you and the Buyer finally agree on price and terms, your home will be professionally inspected by the Buyer. No matter how well you keep your home, the inspector will find issues of concern. The Buyer may ask you to repair some or all of the items on the home inspection report. This is the beginning of the second round of negotiations. At this point, the Buyer may also ask for further financial concessions relative to the extent of concern on the home inspection report. You are not obligated to fix everything the Buyer requests. However, if you refuse, you will leave the Buyer free to terminate the contract and receive a refund of his earnest money if he so chooses. PLEASE PREPARE FOR THE ROLLERCOASTER RIDE WE KNOW AS THE HOME INSPECTION PROCESS.
• Once you complete repairs on your home, the Buyer will ask for a final walkthrough. Be advised that if the repairs are not done in a workmanlike manor, or if they are simply not complete, you will not close, and you will most likely enter into yet another round of negotiations.
• No matter how much you feel your home is worth, and no matter for how much your Realtor has valuated your home, there is a chance the appraiser and underwriter may feel differently. If your home does not appraise at or equal to the purchase price, your Buyer is free to terminate the contract or ask for another price reduction.
• Although a pre-qualification letter is required from your Buyer before you will accept an offer, there is a chance that your Buyer may not properly manage his finances after that acceptance. All Buyer information is verified before closing, and if the status of his credit has changed, this may or may not affect the ability for the Buyer to obtain financing.
• Although a date may be set to ‘close’ on your home, there are many things that may delay the closing process. Holidays, over-extended workload, lazy underwriters, miscommunications, uncooperative attorneys… and the list goes on. Your original closing date may be extended anywhere from one day to two weeks. Please keep this in mind when making final moving arrangements.
• You, as Seller, will have to pay some closing costs which may or may not include transfer taxes, property taxes, HOA dues, attorney fees, courier and copy fees, commissions and of course your current mortgage payoff. Also keep in mind that the current balance on your mortgage statement is NOT your payoff amount. Please contact your lender to obtain the payoff amount as of the estimated date of close.
Wednesday, October 17, 2007
The State of Our Market
While searching for ideas on this week's blog, I came across a post by Jim Cronin who quoted his client's view on the current state of the market. "We're basically in a Mexican Standoff," he said. "Sellers are having visions of 2004 and buyers want to wait until the prices come down even further."
To me, that says it all! Mind you, that client is reporting on the market in Naples, Fl. In the Triangle region of NC, we are not necesarily experiencing the same woes as they, but we are experiencing a slowdown nonetheless.
Typically, I try to manage no more than 10 listings at a time. This is so that I can give all my clients most of my undivided attention when needs arise. Rather than sporting a team of 5 to 10 assistants and maintaining 50 listings, I try to keep it manageable. I never really do get up to 10 at a time because my listings usually sell within a reasonable time frame (30 days).
No so true anymore. Gone are the days that you get 20 showings the weekend a listing premieres. Gone are the days of multiple offers. Gone are the days of bidding wars. And gone are the days of pushing the pricing envelope.
We here in the Triangle region of NC are definitely experiencing some pain. Although most of our market is still appreciating unlike most of the troubled markets nationwide, homes are simply not moving as quickly as they used to move. I don't have to tell you that. You can read it in the press and hear about it on TV.
"Why", my sellers ask "is my house not selling?" Here are some of my responses:
1) There has been a mortgage fallout. The buyers who once were able to afford this home can no longer qualify. Some can still purchase a home, albeit a smaller, less expensive home. Yet others can't even buy a stick of gum.
2) Buyers can't sell their homes in the regions from which they are moving. Buyers used to have more confidence, and thus they would make a contingent offer on a home (contingent upon their home selling). But now, they are afraid of making such offers and possibly losing their earnest money. Further, Sellers are much less likely to accept contingent offers. Buyers feel this and are reluctant to make offers altogether. Another vicious cycle.
3) There is way too much inventory. Competition, competition, competition.
4) New home builders are slashing prices and offering incentives that we resellers can not compete with.
5) There are fewer buyers in the market place because more are 'staying put' longer. Consumer confidence is low, many buyers have been forced out of the market, and thus many are making the decision NOT to buy.
6) Just like the inspiration for this blog, many Sellers are still remembering the days of old... the days when they could get a premium for their home - unrealistic pricing. And as a result, Buyers are waiting for prices to come down.
7) My best answer is that THIS is the way the market really is. The past few years have been a boon. And those years were the unrealistic and unusual years. Yet, no one questions the market when it is riding high. Only when there is a let-down do people question. The truth is, the market is correcting itself, and THIS is how things really happen.
Your interpretation of my answer number 7 will intrigue me. Let me know what you think.
Just be thankful that most of the Triangle region of NC is still experiencing growth. Most our home values are not declining. We are just taking a much needed recess.
To me, that says it all! Mind you, that client is reporting on the market in Naples, Fl. In the Triangle region of NC, we are not necesarily experiencing the same woes as they, but we are experiencing a slowdown nonetheless.
Typically, I try to manage no more than 10 listings at a time. This is so that I can give all my clients most of my undivided attention when needs arise. Rather than sporting a team of 5 to 10 assistants and maintaining 50 listings, I try to keep it manageable. I never really do get up to 10 at a time because my listings usually sell within a reasonable time frame (30 days).
No so true anymore. Gone are the days that you get 20 showings the weekend a listing premieres. Gone are the days of multiple offers. Gone are the days of bidding wars. And gone are the days of pushing the pricing envelope.
We here in the Triangle region of NC are definitely experiencing some pain. Although most of our market is still appreciating unlike most of the troubled markets nationwide, homes are simply not moving as quickly as they used to move. I don't have to tell you that. You can read it in the press and hear about it on TV.
"Why", my sellers ask "is my house not selling?" Here are some of my responses:
1) There has been a mortgage fallout. The buyers who once were able to afford this home can no longer qualify. Some can still purchase a home, albeit a smaller, less expensive home. Yet others can't even buy a stick of gum.
2) Buyers can't sell their homes in the regions from which they are moving. Buyers used to have more confidence, and thus they would make a contingent offer on a home (contingent upon their home selling). But now, they are afraid of making such offers and possibly losing their earnest money. Further, Sellers are much less likely to accept contingent offers. Buyers feel this and are reluctant to make offers altogether. Another vicious cycle.
3) There is way too much inventory. Competition, competition, competition.
4) New home builders are slashing prices and offering incentives that we resellers can not compete with.
5) There are fewer buyers in the market place because more are 'staying put' longer. Consumer confidence is low, many buyers have been forced out of the market, and thus many are making the decision NOT to buy.
6) Just like the inspiration for this blog, many Sellers are still remembering the days of old... the days when they could get a premium for their home - unrealistic pricing. And as a result, Buyers are waiting for prices to come down.
7) My best answer is that THIS is the way the market really is. The past few years have been a boon. And those years were the unrealistic and unusual years. Yet, no one questions the market when it is riding high. Only when there is a let-down do people question. The truth is, the market is correcting itself, and THIS is how things really happen.
Your interpretation of my answer number 7 will intrigue me. Let me know what you think.
Just be thankful that most of the Triangle region of NC is still experiencing growth. Most our home values are not declining. We are just taking a much needed recess.
Monday, October 8, 2007
Wake County, NC Schools
The number of people relocating to the Wake County area who ask about our schools is astonishingly large. Every day, it seems, I get asked questions: "How are the schools?", "Which are the better schools?", "Are they building more schools?" and so on.
I attempt to answer each question individually, but the requests have become so large, that I decided to put together a list of links to help you learn more about our schools in Wake County. Remember, Wake County includes popular cities like Apex, Cary, Holly Springs, Fuquay Varina, Raleigh, Wake Forest, Knightdale, Wendell and Zebulon.
I attempt to answer each question individually, but the requests have become so large, that I decided to put together a list of links to help you learn more about our schools in Wake County. Remember, Wake County includes popular cities like Apex, Cary, Holly Springs, Fuquay Varina, Raleigh, Wake Forest, Knightdale, Wendell and Zebulon.
- First, start at the Wake County Public Schools System main website: http://www.wcpss.net/
- If you want to know which schools you will be assigned to, based upon your address: http://wwwgis2.wcpss.net/cgi-bin/Production/MainScript.pl?MainOption=StreetMain
- Wake Co School Report Cards (2005-2006) great stats!: http://www.ncreportcards.org/src/search.jsp?pYear=2005-2006&pList=1&pListVal=920%3AWake+County+Schools&GO2=GO
- Newcomer Resource Center: http://www.wcpss.net/newcomer/getting-started/
- For information on year-round schools in Wake Co: http://www.wcpss.net/year-round/
- Wake County public schools system demographics: http://www.wcpss.net/demographics/
- For a list of Wake Co schools and their ratings: http://www.greatschools.net/schools.page?district=171&state=NC
- Wake County Charter Schools: http://www.wakegov.com/schools/charterschools.htm
- Another Wake Co public school directory: http://www.wcpss.net/school-directory/
- Wake County private schools: http://www.privateschoolreview.com/county_private_schools/stateid/NC/county/37183
- Wake County magnet schools: http://www.wcpss.net/magnet/
- Meredith College: http://www.meredith.edu/
- NC State University: http://www.ncsu.edu/
- Peace College: http://www.peace.edu/index-flash.htm
- Shaw University: http://www.shawuniversity.edu/
- St Augustine's College: http://www.st-aug.edu/
- Wake Tech Community College: http://www.waketech.edu/
- NC Character Education Partnership: http://www.ncpublicschools.org/nccep/wake_county/index.html
Of course, there is much more information available out there. If you have any questions on the state of NC schools, feel free to contact me.
Friday, October 5, 2007
Short Sales - Part II
For current, up-to-date and relevent information on Short Sales and Foreclosures... please visit my website:
http://drewludlow.com/default.asp_Q_f_E_cpg_A_pg_E_ShortSales
The information I posted below is out-of-date.
Thank you!
-Drew Ludlow
==========================================================
For The Buyer of a Short Sale
By purchasing a property for less than what is owed you may get that deal you were always looking for. Many homes that are within the pre-foreclosure process are nice homes in nice conditions. Other times, these homes may need a little TLC to make it habitable. Regardless of the condition of the property, to you as a Buyer, the end-result of the short sale is that you own a home, free and clear of all encumbrances of record. It will be no different than if you purchased a home at fair market value from Tom and Susie Homeseller, without the pre-foreclosure stigma. The only difference is that the process may take a little longer to complete.
For the reasons stated above, make sure that if you are considering purchasing a home in which the seller is attempting to short the payoff amount, you give yourself plenty of time and maintain a contingency plan in case the process takes a turn to the left.
Be aware that the short sale process is not an exact science. If you see a home that is 'listed' as a short sale, the list price you see may or may not be the price at which you can purchase the home. I know this may sound strange... why can't you purchase a home for the asking price? Many times, the Realtor does not know at what value the lender will accept by the time the home is initially listed. Remember, the whole reason to short a mortgage is to sell it for less than what is owed. The only number the Realtor may know at listing time is what is owed. If the full balance owed is more than the home is worth, (which is the real reason for this entire process) then the seller may never obtain an offer. Therefore, in many instances, the Realtor lists the home at their best 'guestimate' of what the lender may accept. Once an offer is received, whether it is more or less than the list price, the Realtor will submit it to the lender for approval or counter-offer.
Remember, before bidding on a short sale listing, you need to inquire with the listing agent as to how they arrived at the listed price. Is it the fair market value of the home? Is it a shorted payoff amount that the lender will accept, or is it an estimate of what the borrower and Realtor hope the lender will accept?
Why Do Short Sales Take So Long?
We get this question all the time! Sellers want to sell their home quickly so that they don't do any further damage to their credit report. Buyers want to know, simply, if they can buy the home or if they have to look elsewhere. Buyer agents (Realtors representing their buyers) need to understand where in the process they are so that they can counsel their buyer.
Remember, when dealing with lenders, there is red tape, red tape, red tape. A Buyer and their Realtor are dealing with a person sitting behind a desk in some far-away land who has no real interest in the home that is being sold. All they know is that they are to submit specific information to their boss. Furthermore, they are being paid an hourly wage to do so. They simply don't care for expediency. Especially since our economy and housing sector has taken a turn for the worse, the amount of paperwork that is sitting on these desks are mounting and mounting and mounting. Many times, the initial paperwork that is submitted gets lost in a pile, never to be uncovered again. So, after weeks of waiting, the process begins again.
In addition, lenders will not do ANYTHING until the complete short sale package (along with all offers and addenda) are received. Then, they perform their due dilligence to make sure a short sale is warranted.
Please be patient! We have seen short sales completed within a couple weeks, and we have seen them take as long as 120 days before the lender calls to accept, counter or reject the offer.
For more information on our short sales, please click:
3521 Wood Duck, Wake Forest
8701 Attingham Dr, Raleigh
For more information on the short sale process, or if you are considering a short sale purchse, please contact us. We can review the situation and assist you in selling or buying a home.
Call 919-303-6722 or email drew@drewludlow.com
http://drewludlow.com/default.asp_Q_f_E_cpg_A_pg_E_ShortSales
The information I posted below is out-of-date.
Thank you!
-Drew Ludlow
==========================================================
For The Buyer of a Short Sale
By purchasing a property for less than what is owed you may get that deal you were always looking for. Many homes that are within the pre-foreclosure process are nice homes in nice conditions. Other times, these homes may need a little TLC to make it habitable. Regardless of the condition of the property, to you as a Buyer, the end-result of the short sale is that you own a home, free and clear of all encumbrances of record. It will be no different than if you purchased a home at fair market value from Tom and Susie Homeseller, without the pre-foreclosure stigma. The only difference is that the process may take a little longer to complete.
For the reasons stated above, make sure that if you are considering purchasing a home in which the seller is attempting to short the payoff amount, you give yourself plenty of time and maintain a contingency plan in case the process takes a turn to the left.
Be aware that the short sale process is not an exact science. If you see a home that is 'listed' as a short sale, the list price you see may or may not be the price at which you can purchase the home. I know this may sound strange... why can't you purchase a home for the asking price? Many times, the Realtor does not know at what value the lender will accept by the time the home is initially listed. Remember, the whole reason to short a mortgage is to sell it for less than what is owed. The only number the Realtor may know at listing time is what is owed. If the full balance owed is more than the home is worth, (which is the real reason for this entire process) then the seller may never obtain an offer. Therefore, in many instances, the Realtor lists the home at their best 'guestimate' of what the lender may accept. Once an offer is received, whether it is more or less than the list price, the Realtor will submit it to the lender for approval or counter-offer.
Remember, before bidding on a short sale listing, you need to inquire with the listing agent as to how they arrived at the listed price. Is it the fair market value of the home? Is it a shorted payoff amount that the lender will accept, or is it an estimate of what the borrower and Realtor hope the lender will accept?
Why Do Short Sales Take So Long?
We get this question all the time! Sellers want to sell their home quickly so that they don't do any further damage to their credit report. Buyers want to know, simply, if they can buy the home or if they have to look elsewhere. Buyer agents (Realtors representing their buyers) need to understand where in the process they are so that they can counsel their buyer.
Remember, when dealing with lenders, there is red tape, red tape, red tape. A Buyer and their Realtor are dealing with a person sitting behind a desk in some far-away land who has no real interest in the home that is being sold. All they know is that they are to submit specific information to their boss. Furthermore, they are being paid an hourly wage to do so. They simply don't care for expediency. Especially since our economy and housing sector has taken a turn for the worse, the amount of paperwork that is sitting on these desks are mounting and mounting and mounting. Many times, the initial paperwork that is submitted gets lost in a pile, never to be uncovered again. So, after weeks of waiting, the process begins again.
In addition, lenders will not do ANYTHING until the complete short sale package (along with all offers and addenda) are received. Then, they perform their due dilligence to make sure a short sale is warranted.
Please be patient! We have seen short sales completed within a couple weeks, and we have seen them take as long as 120 days before the lender calls to accept, counter or reject the offer.
For more information on our short sales, please click:
3521 Wood Duck, Wake Forest
8701 Attingham Dr, Raleigh
For more information on the short sale process, or if you are considering a short sale purchse, please contact us. We can review the situation and assist you in selling or buying a home.
Call 919-303-6722 or email drew@drewludlow.com
Short Sales - Part I
For current, up-to-date and relevent information on Short Sales and Foreclosures... please visit my website:
http://drewludlow.com/default.asp_Q_f_E_cpg_A_pg_E_ShortSales
The information I posted below is out-of-date.
Thank you!
-Drew Ludlow
===========================================================
What Is A Short Sale?
A "short sale" is the sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. For owners who can no longer afford to keep mortgage payments current, the short sale is an alternative to bankruptcy or foreclosure proceedings. When lenders agree to a short sale in real estate, it means the lender is accepting less than the total amount due. Not all lenders will accept short sales or discounted payoffs, but, by accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes.
Before considering a short sale, sellers are always advised to seek sound advice from an attorney and/or CPA. Once the legal and tax consequences of a short sale are understood, it is imperative to contact a real estate professional immediately. A Realtor who is trained in obtaining short payoffs will be able to lead a seller through the long process of gathering information, submitting the short sale request, listing the home and procuring a bona fide offer to purchase so that the seller can escape the stigma of a foreclosure on his/her credit report.
http://drewludlow.com/default.asp_Q_f_E_cpg_A_pg_E_ShortSales
The information I posted below is out-of-date.
Thank you!
-Drew Ludlow
===========================================================
What Is A Short Sale?
A "short sale" is the sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. For owners who can no longer afford to keep mortgage payments current, the short sale is an alternative to bankruptcy or foreclosure proceedings. When lenders agree to a short sale in real estate, it means the lender is accepting less than the total amount due. Not all lenders will accept short sales or discounted payoffs, but, by accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes.
Before considering a short sale, sellers are always advised to seek sound advice from an attorney and/or CPA. Once the legal and tax consequences of a short sale are understood, it is imperative to contact a real estate professional immediately. A Realtor who is trained in obtaining short payoffs will be able to lead a seller through the long process of gathering information, submitting the short sale request, listing the home and procuring a bona fide offer to purchase so that the seller can escape the stigma of a foreclosure on his/her credit report.
For The Seller
The short sale process is a very long and lengthy one. It could take anywhere from 30-120 days to complete. If you are a seller in default of your mortgage and you are considering a short sale, the time to speak with a Real Estate professional is on day one. Too often, people wait until the last minute, hoping for a miracle to happen. It never does.
One reason that the process takes so long is that there is a plethora of materials and documentation to gather, before and during the short sale process. Some of these items include:
* A signed copy of the listing agreement with your Realtor.
* A signed copy of a sales contract with all addenda and attachments.
* A commitment letter from your Buyer.
* A written hardship letter stating the circumstances for your missed payments and default.
* Your last two bank statements (checking and savings)
* Your last two paycheck stubs
* A HUD-1 settlement statement (net sheet) indicating the allocation of all sale proceeds.
* Your two most recent state and federal tax returns
* Your most recent summary satements for any 401k, retirement or investment accounts
Once all these items are assembled, your Realtor or agent will then submit them to the lender for review. It is at this point that the waiting begins. The lender must then perform their own due dilligence, some of which may include:
* Re-assembling the materials you just submitted.
* Sending them down the line to the department head for further review.
* Sending them once more to yet another department head.
* Submitting them to their board.
* More red tape.
* Performing a BPO (Broker Price Opinion) to determine the fair market value of the home.
* Losing all the documents your Realtor submitted.
* Reassembling them again.
* More red tape.
* Counter-offer.
If everything goes well, the lender may approve your short sale and you will be free to complete the sale of your home to a Buyer at a lesser amount than what is owed.
(Don't Miss Short Sales - Part II) Coming Next!
Appreciation - Part II
As we can see, factoring appreciation into an investment gameplan is not without its downfalls. It takes time and requires risk. Risk is inherent in almost everything, and real estate investing is certainly not without risk. But for investors with little capital, it is extremely difficult to compete with more established investors. Buying with negative or marginal cash flow requires cash reserves until they can tap into the equity created from appreciation. In a hot market, some investors may purchase property at the top range of its value, knowing that in time, their property will appreciate. This can be a risky play and may not work in many areas. Furthermore, keep in mind that just like the stock market, the real estate market can and does occasionally crash. The real estate market may skyrocket, thus forcing the market value sky high and those that buy at the top of the curve may be wiped out extremely quickly. Over time, market supply and demand will pull everything back into place, but investors that were wiped out may never recover from the loss.
This does not necessarily mean that investors without sufficient capital to buy long term properties for appreciation gains cannot use appreciation to their advantage. It simply requires time, patience and perhaps a different mindset. Perhaps they need to think outside of the box. Some markets that are not currently benefiting from record high appreciation values may still offer isolated opportunities to benefit from appreciation gains.
Take for example, a depressed area that is just beginning to show signs of recovery. I am not speaking of the ‘war-zones’ we have all been warned to stay away from. Rather, I’m referring to an area with potential and perhaps abutting a busy city, or an outlying community with downtrodden properties but with easy access to major travel arteries. With the help of more experienced investors and homeowners themselves, average investors can team up and revitalize an entire community or area within a city. Of course, this will take time, resources and will-power. Nonetheless, once enough properties are rehabbed, a chain reaction might occur. More investors will begin flocking to the area, current homeowners take more pride in ownership, and the dilapidated dwellings that serve to foster drug activity are eliminated, thus displacing some of the crime that often keeps these areas depressed. The city often gets involved, and before you know it, the area has returned to its pre-depressed state. Guess what happens to the market value of properties in the area? Appreciation, and often lots of it!
Another example of this type of ‘forced’ appreciation can occur in an area that experiences infrastructure changes. It could be simple for investors to pick up on these changes before appreciation begins working its magic. For instance, a neighboring city to the one in which I reside, is likely to experience significant growth in the decade to come. Some investors have already picked up on the signs. Knightdale used to be a small, outlying community to the capital of North Carolina. Inhabited primarily by the working class, Knightdale will soon prosper from the construction of a major highway bypass that will encompass the city, thus making travel from outlying areas to the major cities much smoother and quicker. Guess what will likely happen to property values after the construction of this bypass? Appreciation!
For investors, appreciation can be a valuable tool in creating long-term wealth. It does require time and planning and is certainly not without risk. By all means, do not abandon the other investment profit centers of cash flow, tax deferral and equity from loan reduction. Building your cash reserves is also paramount in creating working capital and a rock-solid investment business plan. Understand and learn to focus on building long term wealth through appreciation!
With the right mindset, education, teamwork and most of all, patience, you can watch your investments increase in value over and over again,and before you know it you will be wealthy indeed!.
This does not necessarily mean that investors without sufficient capital to buy long term properties for appreciation gains cannot use appreciation to their advantage. It simply requires time, patience and perhaps a different mindset. Perhaps they need to think outside of the box. Some markets that are not currently benefiting from record high appreciation values may still offer isolated opportunities to benefit from appreciation gains.
Take for example, a depressed area that is just beginning to show signs of recovery. I am not speaking of the ‘war-zones’ we have all been warned to stay away from. Rather, I’m referring to an area with potential and perhaps abutting a busy city, or an outlying community with downtrodden properties but with easy access to major travel arteries. With the help of more experienced investors and homeowners themselves, average investors can team up and revitalize an entire community or area within a city. Of course, this will take time, resources and will-power. Nonetheless, once enough properties are rehabbed, a chain reaction might occur. More investors will begin flocking to the area, current homeowners take more pride in ownership, and the dilapidated dwellings that serve to foster drug activity are eliminated, thus displacing some of the crime that often keeps these areas depressed. The city often gets involved, and before you know it, the area has returned to its pre-depressed state. Guess what happens to the market value of properties in the area? Appreciation, and often lots of it!
Another example of this type of ‘forced’ appreciation can occur in an area that experiences infrastructure changes. It could be simple for investors to pick up on these changes before appreciation begins working its magic. For instance, a neighboring city to the one in which I reside, is likely to experience significant growth in the decade to come. Some investors have already picked up on the signs. Knightdale used to be a small, outlying community to the capital of North Carolina. Inhabited primarily by the working class, Knightdale will soon prosper from the construction of a major highway bypass that will encompass the city, thus making travel from outlying areas to the major cities much smoother and quicker. Guess what will likely happen to property values after the construction of this bypass? Appreciation!
For investors, appreciation can be a valuable tool in creating long-term wealth. It does require time and planning and is certainly not without risk. By all means, do not abandon the other investment profit centers of cash flow, tax deferral and equity from loan reduction. Building your cash reserves is also paramount in creating working capital and a rock-solid investment business plan. Understand and learn to focus on building long term wealth through appreciation!
With the right mindset, education, teamwork and most of all, patience, you can watch your investments increase in value over and over again,and before you know it you will be wealthy indeed!.
Appreciation - Part I
It all started many years ago, after I purchased my first home. It wasn’t an investment property, but rather the one in which I was to live. I knew nothing about real estate and even less about investment strategies. I simply wanted a place to live, hang my hat and call my own. The house was new construction, in an up-and-coming neighborhood, and I was excited about finally becoming a homeowner. After 9 months of watching the construction process, my wife and I finally closed the transaction. A good while later, I decided to establish an equity line in order to access my down payment in the case of an emergency. To my surprise, the bank’s appraisal determined the property was worth $20,000 more than when we had purchased it. Somehow, over the course of time, I had minted money. Somehow, my original investment was now worth more than it was originally.
What I had discovered during my first foray into the real estate world was due in part to the power of appreciation! This phenomenon enabled me to create money out of thin air! Since I wanted to repeat my efforts and purchase more property, I had to figure out how to use this wonderful tool to my advantage.
Shortly thereafter, I discovered other ways to make money in real estate investments. In fact, investors can make money in four unique real estate profit centers: 1) profits from positive cash flow 2) equity growth from loan balance reduction 3) tax savings and of course, 4) equity from appreciation. With a rock-solid game plan and a fundamental understanding of each of these profit centers, investors can create a monthly income from their cash flow, receive tax savings by writing off expenses and depreciation, and can mint money through tenants retiring their debt and through appreciation. Since appreciation is based on the full value of the asset and not the amount of money you invest therein, it can often yield the greatest gain of any of these profit centers.
Unfortunately, appreciation is not usually a short-term money-maker. Appreciation may take effort to harvest, and since significant appreciation occurs over time, it usually requires tenacity and perseverance on the part of the investor to hold a property for years in order to ‘mint’ money. Keeping this in mind, we also know that there are two approaches to real estate investing: short-term and long-term. Most beginners are anxious and feel they must create an income right away. These investors are sometimes referred to as ‘wholesalers’ or ‘flippers’. They purchase property below market value and resell it almost immediately at a higher value, thus realizing a short-term profit. To me, this is simply a glorified salary, a job. They rarely realize the benefits of appreciation. Then, there are your buy and hold strategists. These investors have longer range goals in mind. Rather than concentrating on purchasing property and immediately turning it to another investor for a small profit, they are more interested in keeping the property long-term in order to realize the long term benefits of property ownership, especially gains from appreciation.
Many investors are hesitant to buy and hold for long-term wealth creation. “What if I can’t rent out the house? Will property values really rise in this area? I need cash now! I don’t want to be a landlord!” Of course, the list of excuses continues. The truth is that in order to create long-term wealth, investors MUST factor appreciation into their game plan. In other words, they must be willing to buy and hold. Certainly, I am not advocating that you use appreciation as the cornerstone of your investment strategy. Use several strategies, working in tandem with one another to produce a successful game plan and profitable investing business. Some investors use appreciation and tax deferral from depreciation as their ‘gravy’ money. These investors make sure than an investment is sound on a cash flow or short-term profit basis before they proceed with their purchase. However, others are willing to put their plan in a negative cash flow position if they feel that the end justifies the means. In other words, they may feel they can make $30,000 if they can simply hold onto a property for 5 or more years. Yet, in order to get from here to there, they must accept less in rent than they are paying in monthly debt service and expense outflows.
Once again, I reiterate that appreciation is a long-term wealth creation strategy. If investors are willing to wait, they just may find themselves minting money through appreciation.
(Don't miss, Appreciation - Part II) Coming soon!
What I had discovered during my first foray into the real estate world was due in part to the power of appreciation! This phenomenon enabled me to create money out of thin air! Since I wanted to repeat my efforts and purchase more property, I had to figure out how to use this wonderful tool to my advantage.
Shortly thereafter, I discovered other ways to make money in real estate investments. In fact, investors can make money in four unique real estate profit centers: 1) profits from positive cash flow 2) equity growth from loan balance reduction 3) tax savings and of course, 4) equity from appreciation. With a rock-solid game plan and a fundamental understanding of each of these profit centers, investors can create a monthly income from their cash flow, receive tax savings by writing off expenses and depreciation, and can mint money through tenants retiring their debt and through appreciation. Since appreciation is based on the full value of the asset and not the amount of money you invest therein, it can often yield the greatest gain of any of these profit centers.
Unfortunately, appreciation is not usually a short-term money-maker. Appreciation may take effort to harvest, and since significant appreciation occurs over time, it usually requires tenacity and perseverance on the part of the investor to hold a property for years in order to ‘mint’ money. Keeping this in mind, we also know that there are two approaches to real estate investing: short-term and long-term. Most beginners are anxious and feel they must create an income right away. These investors are sometimes referred to as ‘wholesalers’ or ‘flippers’. They purchase property below market value and resell it almost immediately at a higher value, thus realizing a short-term profit. To me, this is simply a glorified salary, a job. They rarely realize the benefits of appreciation. Then, there are your buy and hold strategists. These investors have longer range goals in mind. Rather than concentrating on purchasing property and immediately turning it to another investor for a small profit, they are more interested in keeping the property long-term in order to realize the long term benefits of property ownership, especially gains from appreciation.
Many investors are hesitant to buy and hold for long-term wealth creation. “What if I can’t rent out the house? Will property values really rise in this area? I need cash now! I don’t want to be a landlord!” Of course, the list of excuses continues. The truth is that in order to create long-term wealth, investors MUST factor appreciation into their game plan. In other words, they must be willing to buy and hold. Certainly, I am not advocating that you use appreciation as the cornerstone of your investment strategy. Use several strategies, working in tandem with one another to produce a successful game plan and profitable investing business. Some investors use appreciation and tax deferral from depreciation as their ‘gravy’ money. These investors make sure than an investment is sound on a cash flow or short-term profit basis before they proceed with their purchase. However, others are willing to put their plan in a negative cash flow position if they feel that the end justifies the means. In other words, they may feel they can make $30,000 if they can simply hold onto a property for 5 or more years. Yet, in order to get from here to there, they must accept less in rent than they are paying in monthly debt service and expense outflows.
Once again, I reiterate that appreciation is a long-term wealth creation strategy. If investors are willing to wait, they just may find themselves minting money through appreciation.
(Don't miss, Appreciation - Part II) Coming soon!
Thursday, October 4, 2007
Cash Flow
As a Realtor, I am always asked the seemingly simple question: “Where is the best place to invest in real estate?” My answer is: “It depends.” What may be a good place to invest for appreciation may not be the best place to invest for ‘cash flow’. Let’s focus on cash flow.
Considering our competitive rental market, my rule of thumb for inexperienced investors is to target the ‘bread and butter’ neighborhoods of homes priced below $125,000. Even with 100% LTV financing, the ratio between the gross monthly rent and the monthly mortgage payment, (debt service) will be more favorable than had you purchased a home in a more affluent area. Cash flow investors want good ratios.
Inexperienced and motivated investors sometimes make the mistake of calculating ‘cash flow’ simply as the difference between the gross monthly rent and the debt service. Be careful! When calculating cash flow, one must not only consider the principle and interest (PI) on your monthly mortgage payment, but one must also factor in the taxes and insurance (TI). Combined, is the monthly PITI that we have all heard so much about.
But wait, there’s more! Make sure to subtract other costs including, but not limited to management fees, maintenance fees, servicing fees and any other pennies and dimes it costs in order to ‘hold’ your investment. Once you subtract the PITI and fees from your gross monthly rent, you are left with your ‘Net Operating Income’ (NOI). Only when you have figured your NOI can you subtract the debt service to calculate your positive (or sometimes negative) cash flow.
Remember, setting your goals is paramount to a good investment strategy. Are you looking for appreciation or cash flow? The answer to that question will drive the answer to the query, “Where is the best place to invest in real estate”.
Considering our competitive rental market, my rule of thumb for inexperienced investors is to target the ‘bread and butter’ neighborhoods of homes priced below $125,000. Even with 100% LTV financing, the ratio between the gross monthly rent and the monthly mortgage payment, (debt service) will be more favorable than had you purchased a home in a more affluent area. Cash flow investors want good ratios.
Inexperienced and motivated investors sometimes make the mistake of calculating ‘cash flow’ simply as the difference between the gross monthly rent and the debt service. Be careful! When calculating cash flow, one must not only consider the principle and interest (PI) on your monthly mortgage payment, but one must also factor in the taxes and insurance (TI). Combined, is the monthly PITI that we have all heard so much about.
But wait, there’s more! Make sure to subtract other costs including, but not limited to management fees, maintenance fees, servicing fees and any other pennies and dimes it costs in order to ‘hold’ your investment. Once you subtract the PITI and fees from your gross monthly rent, you are left with your ‘Net Operating Income’ (NOI). Only when you have figured your NOI can you subtract the debt service to calculate your positive (or sometimes negative) cash flow.
Remember, setting your goals is paramount to a good investment strategy. Are you looking for appreciation or cash flow? The answer to that question will drive the answer to the query, “Where is the best place to invest in real estate”.
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