the biker who buys houses forum

[BikerJim]

The REAL ESTATE MARKET is CRASHING!!! I LOVE IT!!!
Hello all,

Well, it's been a while since I made a blog entry.

Still not quite understanding this 'blog thing', but, folks claim to like them, so here we go again.

For those reading this who are not active in the real estate market, are not investors, but perhaps want to be.........be careful who you listen to.

Most major news outlets are reporting that the credit crunch, subprime meltdown, and dropping home prices are a sign that the real estate market has crashed. I could not disagree more!

The market where I am located, and in most other parts of the country, over the last 3-6 years, saw double digit appreciation. Some folks made quite a bit of money during this time, buying houses and selling quickly for profit, monster profits sometimes.

The thing is, the days of buying a house, and selling it for 20% more than you paid, in 90 days, without lifting a finger are pretty much over.............unless you are an investor, NOT a speculator.

What does that mean to you?

A speculator to me, is someone who buys something, and speculates, (HOPES), the value increases, so they can sell that item for a profit.

An investor on the other hand, buys something for BELOW value, and then sells it, or holds it, to create profit, based on it's value TODAY!

I am the second, and investor.

So, with home prices driven high, then correcting to proper levels in most areas, lenders not making loans as easily as before, and TONS more houses for sale today then one year ago today...........can money be made?

The answer is yes, and frankly, hell yes!

Now is THE TIME to invest. Owners, lenders, everyone involved in the conventional real estate industry has pain. As creative investors, it is our job to find a cure for that pain, which also creates a profit for our time.

If you read online, or off, real estate investing 'pitches', or articles about investing (most have something to sell, even me), the majority of them are discussing 'foreclosures', 'preforeclosures', or 'short sales'.

The thing is, these are all BUZZ words, language used to get your attention, that MIGHT make sense to you. However, the reality is, all of these are pretty much the same thing, when used the way I see them in articles (sales pitches) from investors/authors.

When people I meet see that I buy houses for a living, most commonly I hear in return, one of two things, usually both, in one order or another.

"I always wanted to do that" or "So you buy them, fix them up and sell them or rent them?"

Thankfully, most folks assume this, and are clueless...........means security for those of us doing this for a living. :-)

Example: At lunch today with my kids (late lunch, we went out when they got home from school at 2pm), a gentleman noticed the patch on the back of my biker vest. It reads, "I Buy Houses, www.BikerJim.com". The guy flagged me down as we were leaving and said, "I noticed you buy houses, do you buy junkers and fix them to resell, or do you buy foreclosures."

Before I go much further, I should define, what to me (the right way), what the term 'foreclosure' means, and the other terms mentioned above.

Foreclosure; To me, this is a house or property that has been foreclosed on, and the lender is taking it to auction for sale, in an attempt to recoup what they have into the property. Most places, this is a sheriff's auction, others, it's a trustee sale. MANY people improperly refer to houses that are simply behind, or about to be, on payments as foreclosures, and this is not correct. In my opinion.

A 'preforeclosure', is where the house/owner, have not yet gone thru foreclosure proceedings, but will if they do not bring the loan current, keep it current, or sell/refi.

A short sale, as mentioned in most folks articles these days, is simply where the lender who holds a note and mortgage against a property, agrees to accept less than the full amount due, in order to release the note from the property. These are usually done with 'preforeclosure' properties and sellers.

I prefer to not work with any of the above. However, I would say that the vast majority of my sellers, could be considered 'preforeclosures'. Not because some of them are behind on payments when I buy, this is frankly a small percentage of my sellers. But because had they not sold to me, or found cash somewhere, they would have not been able to keep up with their mortgage or their house, and would have been in foreclosure.

Now we've all read/heard the news lately, talking about adjustable rate mortgages (ARMS), where the barrower buys a house, and takes out a loan with LOW payments, for the first couple years. Then, the interest rate increases, and so does the monthly payments. Many of these folks cannot refinance now, as they had planned, and are facing not being able to make their payments. Some are already behind and in trouble. They number in the thousands in my farm area alone, and my area is rather small population wise. This is GOOD NEWS for me.

Buyers are out there, sellers in trouble are out there, and yet houses are still sitting listed by agents for MONTHS with no sales, by the dozen in each neighborhood where I live. I spoke to an agent friend the other day, he had 5 houses go under contract to sell last month, and 4 out of 5, DID NOT CLOSE!

Why?

Because the lenders who had agreed to fund the buyers, changed terms or backed out, most of them within 48 hours of the contracted close date. All 4 of his listings are now back active, with LOWER prices. 3 of them were in the same neighborhood where I just sold a house, after buying it 26 days previous.

That's right, 26 days AFTER I took title, I closed a sale to my buyer. My agent friend was blown away, and hurting because he could not produce the same.

The thing is, my sale was completely different from his that did not close. First, mine did close, and second, I did not bring in a single lender to muck up the process.

Let me tell you about this deal.

Seller calls me a few months ago, owed approx. $120k on a house worth perhaps $160k (if we wanted it sold conventional and to wait 3 months to do it), or $170k, if we'd wait 6-8 months. I don't have that kind of patience.

Anyway, seller wants $140k, cash, and will not discuss anything other than his price, address etc. The house is right in the middle of my farm area, and something in the seller's voice told me to keep his number and address on file.

Sure enough, a few months later, the same seller calls me again, from another advertisement he saw somewhere. (www.BikerJim.com)

Now however, the seller is behind 3 months. Here in FL, traditionally, lenders begin to file foreclosure actions at 3 months in default. This seller was told by his lender over the phone "We don't want your house, we are willing to work with you, please gather your financial info and call us back".

The sellers at this point though, were as they put it 'done with this damn house'. You see, the loan(s) were 3 years old, and ARM's (1st and second mortgages both adjustable), and the sellers had already been in default twice before, paid to reinstate, and remained in the home. Now, on their third run, they just wanted to walk away. I looked at the numbers, and realized, with some 'tweaking', this might be a deal.

The crucial ingredient was there, EQUITY! However, in my slow market, I knew selling it on terms would be the best way to profit. However, with an adjustable rate mortgage(s) in place, cashflow was not possible. I prefer when selling on terms to get three profit centers.

a. Profit upfront (either option money or down payments)

b. Cashflow monthly (what I collect should exceed what I pay out by at least 30%)

c. backend profit. (When my buyers refinance, sell, or cash me out, my underlying financing gets paid off, and I keep the difference, usually this is the most significant profit from a single deal.)

In order for this house to fit into my criteria for buying it, the lender would HAVE to make some changes. So, with written authorization to release loan info in hand, a power of attorney for the barrowers/sellers, and a deed held in escrow conveying title to me, I called the lender. The two mortgages secured by this property where conveniently held by the same mortgage company. This saved me some time. I spoke with a loss mitigation/loan resolution representative for the lender. I informed her that I was now in charge of the mortgage account and was calling to work something out with her to make the account perform and avoid foreclosure. The rep blew me away frankly by stating upfront "we do not want the house, and we are open to loan modification, what can the barrowers pay and when?"

WOW! Never had that happen so easily, and it quickly made me realize, I had all the cards. So, I informed the rep that with the interest rates set to increase again, the sellers, who were not able to come up with the arrears, could not possible start to make payments again unless they were lowered. The rep asked for a financial package from the sellers, and faxed me over the form, along with a sheet to complete asking for a 'loan modification', and the terms left blank.

So, a short meeting with me sellers, and they completed the form for me, listing their jobs, income, etc, all the same as when they bought. They also wrote on it, "We want to do what we can to bring the loan current and perform, but having a baby with no paid leave from work avaailable, we could not make the mortgage for 3 months." That was it, their statement of hardship.

I then completed the next form, asking that ALL arrears be moved to the back of the loan like a balloon payment, and that ALL late fees etc be waived, and the interest rate on each loan be 'reduced to a reasonable rate and fixed'. I included with this, the statement of harship, my poa and fax number and return address for expedited processing. (yes, I worded it that way, lenders like corporate speak).

Sure enough, the next day when my overnight arrived at the lender, the loan workout rep called me immediately. She stated that she agreed with my workout idea, and would submit it for approval. She also told me she had 200 others on her desk, along with at least 2 dozen other reps in the office with the same workload, and that 99.9% of all workouts were approved when submitted. I was optimistic, but not holding my breath.

Three days later, the lender called me to say the work out was approved, and to tell me the terms over the phone. They read me the new terms of the loan, and informed me there would be a package sent out for the barrower/sellers to sign, and a fee for each mortgage to 'modify'.

The package arrived the next day, with a prepaid return ups overnight envelope included. This lender was obviously in a hurry to solve this non-performing account.

The terms we agreed on were as follows:

ALL arrears were placed onto the back of each loan, as 'additonal principal', and payable as a balloon at the maturity date of the loan. (27 years from now).

ALL late fees, inspection fees etc, are waived.

The interest rate on each loan was reduced, 1.5% for the first, and 2.25% for the second, and fixed, for 24 months. Not as long as I wanted, but, 2 years to get the place sold or refied, works just fine for me.

ALSO, the lender agreed to start taking the lower payments, in December, 2007. (this was October when we worked out the loan).

I sold that house today, well, sort of.

I placed a tenant buyer today, who paid me $10k CASH in non-refundable option money. He agreed to buy the house (his option price), for $155k, and pay rent monthly for 12 months, the same length of time he has an option to buy for.

Thanks to the fixed payments for two years, I will cashflow, not a lot, but a couple hundred per month after all expenses.

My three profit centers are firmly intact with this deal, and now, thanks to a lender and seller with problems, and my solution, I'm getting paid.

The fee paid to the lender to get the modification accepted, was $230 for the first, and $125 for the second, a total of $355 in cash to make the loan right.

Other money spent............ $50 for my title search, and another $20 to record the deed. I spent another $200 to market for buyers, and $40 to have the house cleaned when the sellers moved out.

Total invested into this deal $665..cash.

I'll let you in on a little tid bit here. The seller, between calling me the first time a few months ago, and the call that resulted in my buying his house, called TWO other local investors. A schmoe named Steve, and some other guy I do not know. Both of them walked away, because the loan was behind, and adjustable. Apparently they did not spend much time speaking with the seller. The seller was the one who told me his lender was willing to work things out, it was just too late and the seller wanted to move on with life, hassle free.

I offered the seller that peace of mind, and the end result was this............

$10,000 cash upfront

+ $2400 ($200/month-projected for 12 months)

+ $25,000 backend profit when/if my buyer gets a loan.

Total profit created:

$10k + $2400 + $25k - $665 = $36,735.00

Not too bad.......and others walked away, because they were not paying attention.

This was obviously a subprime mortgage, one which was adding to the news articles about the 'credit crunch' and 'real estate market crash'.

And yes, last year, this house very well might have sold for $175k, rather fast.

To some folks, that means the market has crashed. To me, the guy who owns a few houses in this immediate area, it's a correction and one I do not mind a bit............because I bought right. Equity and good terms.

So, how's the market treating you?

Take care,

BikerJim
_________________
The Biker Who Buys Houses!
"Straighten the learning curve!"
www.REmentors.com
Mentoring and FREE discussion Forum.

www.TheBikerWhoBuysHouses.com
"The most comprehensive creative real estate investing course that teaches the method of subject to the existing financing available today for under $200. A sure deal! We give this our highest rating for quality and content."........Green Valley Investors Magazine, January 2007.

"Jim Really knows his stuff, he helped me save some properties and make CASH, when my broker advised bankruptcy. He helped this agent of 25 years avoid foreclosure and embarrassment.".......A Saunders, Remax St. Clare

[Brian]

I just started to market for buyers. Right now I'm using the web and 2 sided flyers (buy/sell). I'm going to try some bandit signs and ads in the Pennysaver and Flyer. Thing is - I don't have a house to sell. I am marketing for sellers also and calls are picking up but until I can put together a deal I don't want to sit around waiting for a deal and then try to find my buyer. I figure if I have tenant buyers lined up it will just make putting a deal together that much easier. Although I am getting some tenant buyers, I would really like to ramp up my buyers list big time. I'm going to increase my marketing - buy and sell - but would welcome all suggestions as to building that list. The only thing I'm really hesitant to use are the major news rags as they're expensive and you can't really target your marketing. Although, this might be less important if going for tenant buyers/buyers only?

Brian

[BikerJim]

Brian,
Some folks teach the method of gathering a list of tenant buyers, and then seeking out property to match their needs.
I am from another school of thought, which says NEVER look for houses.
If you've read my materials before, you'll notice I advocate marketing for sellers, and once secured, a good deal will attract plenty of buyers, or tenants.

The thing is, right now, at least in my market, every investor I know, and many I don't, are marketing like mad to get buyers for their properties.
Some have units sitting for months, vacant.

Me, I usually fill mine within a month, some properties 2.
(We have had a couple 'dogs', meaning they took 3 months to move, but were well worth the wait.)

I do have a buyers list by the way.............
However, mine is from website submissions, folks seeking houses who send me emails, and from callers on previously offered properties that wanted something else.

I also tell everyone we come into contact with, whether they are looking to buy one of our properties, or the grocery clerk, that we pay referal fees for buyers and sellers.
This gets word of mouth out.

If Joe Clerk sends his cousin over who moves into one of my houses for $5k down, sure, I'll toss Joe Clerk a couple hundred bucks for the effort.

I would not run ads in the paper for buyers, even when you have properties, just not cost effective for the response rate.
Pennysaver types etc, do work better though.
We sell 90% with signs in the yards of the houses, and flyers locally.
Craigslist gets a lot of calls and emails for us as well, but the tire kicker ratio is high.

I also watch other investors who have properties for sale, for rent, and rent to own near my own, and frankly, beat the terms they offer.
This keeps my houses filling faster than most.

Example:
Last place we sold 'rent to own', three other houses were also being offered this way, in the same subdivision.
One was only asking for $1k down, and advertised $900/month.
The thing was, the investor was advertising those terms, and when push came to shove, monthly payments went up, when HOA fees, insurance and taxes were added...............buyer beware.
The others all said they wanted $5k down and $1k per month.

I offered mine, with options:
$5k down, $1100/month, and $10k BELOW all other prices in the area, at least, some more.

and then we went UP on upfront money, with lower payments monthly.
Basically, making our money upfront, instead of with cashflow.
I filled that house with $10k down, and it cashflows still, low, but cashflows, at $125/month, and about a $30k backend IF/When my tenant buyers get a loan.
The other three, are still available..........ouch.

My house also needed paint and carpet, and landscape work, the others, were all newly rehabbed.
I sold mine 'as is', and the buyer is happy to be purchasing for less than ANY other price in the area.

When you buy right, this business is good, in any type of market.

There are buyers out there, and in most cases, they are ready to act.
The reason most places in the US have excess inventory on the market, and things are not selling, is simple.
The credit crunch...............the same people who WANT to buy now, cannot get mortgages like they could two years ago.
That's where we come in, offering terms, easy terms.

Sorry I missed your post before, as you can tell, I spend more time online at magicbullets.com than here lately, and not much time online at all really........too busy working potential deals.
This market has my phone ringing like crazy with sellers who are motivated, and it's cherry pickin season.

Take care,
BikerJim
_________________
The Biker Who Buys Houses!
"Straighten the learning curve!"
www.REmentors.com
Mentoring and FREE discussion Forum.

www.TheBikerWhoBuysHouses.com
"The most comprehensive creative real estate investing course that teaches the method of subject to the existing financing available today for under $200. A sure deal! We give this our highest rating for quality and content."........Green Valley Investors Magazine, January 2007.

"Jim Really knows his stuff, he helped me save some properties and make CASH, when my broker advised bankruptcy. He helped this agent of 25 years avoid foreclosure and embarrassment.".......A Saunders, Remax St. Clare

[Debbie]

Jim,

I'm glad you're still doing the blog.

IMHO, a blog is alot like writing a book. Your writing style are identical in your blog and your Ebook and I'm glad to see it still going strong.
_________________
Debbie & Jeff

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