Dean Dretske » real estate

Updated Active Properties

Dean Dretske — Wed, 08 Sep 2010 04:25:07 +0000

The ‘Active Property’ page was updated to show a new hot property and to clean off the previously sold properties. Go take a look!

New Active Property

Dean Dretske — Tue, 20 Jul 2010 19:13:10 +0000

The ‘Active Properties’ page of Real Estate For Fun And Profit was updated with a new hot REO that was listed in my office. Here is a brief walk thru that I did yesterday:

Click here to get more information about this property.

D3TV – Just Do It!

Dean Dretske — Thu, 01 Jul 2010 18:56:30 +0000

The paralysis of analysis can keep us from accomplishing our goals! It is really just a manifestation of fear – like other methods of delay, avoidance, and procrastination. We fear that we might do it wrong or that it might end up bad for us.

The problem is that we need experience to know if these fears are unfounded and we won’t get the experience without doing.

I am big on education. I think we don’t need to suffer every mistake ourselves – we can see the mistakes of others and take precautions.

However, we have to convert the knowledge into our own experience. If the knowledge stays as just a theory, it won’t change our lives.

Just Do It!

D3TV – Reluctant Negotiating

Dean Dretske — Wed, 30 Jun 2010 19:30:39 +0000

Negotiating as the more reluctant party is a powerful strategy for getting what you want.

As real estate investors, it is easy to be chasing the other party. They are reluctant and this puts us to a disadvantage.

I talk to a lot of people who want to sell their houses. Some of them are motivated to sell and some are curious about what they can get. I only have so much time and money available, so I need to focus my efforts on those that are truly motivated.

I realize now that putting myself in the reluctant position is way to filter out the simply curious. If I take a moment in our conversation to explain a bit about my business model and then ask the seller how their house will fit in that model, then the sellers filter themselves. The motivated will work with me to make it work. The curious will not play.

In my case, I buy houses to rehab/flip or rent. I explain to the seller that I can’t buy at retail prices – I need to fix the house and then sell it and still make money. I also tell them that if I have to give them cash up front, then my costs are higher and I will not be able to pay them as much. I can pay more if I get to make payments over time – either seller financing or delayed payment. Then I ask them how they can adjust to make this work for both of us.

They need to convince me. The simply curious do not care about any of this. They just want their price or they want me to just make an offer. The motivated understand that solving their problem is going to require them to work with me to come up with a solution.

Have you had a similar experience?

Updated Properties

Dean Dretske — Tue, 22 Jun 2010 23:23:15 +0000

Just wanted to let you know that the active properties page over at RealEstateForFunAndProfit.com got updated. There are some great deals there!

Private Lending Poll

Dean Dretske — Fri, 11 Jun 2010 07:09:41 +0000

Here is a poll that I created at LinkedIn to find out how much folks know about private lending in real estate.

The poll is multiple choice. Please add a comment if you would like to provide more information about your experience with private lending!

Thanks!

D3TV – Can We Help These Sellers?

Dean Dretske — Fri, 14 May 2010 17:31:27 +0000

Case studies of 2 sellers who are motivated to sell their houses. Can we help them out?

The second case that I talk about is a seller who bought a house to rehab it 2 years ago. She has not done any of the work and now needs to sell since she is going to move to another town. The problem is that there is not much margin in the deal.

In the past, I did not have enough lead generation working for my business. When you have few leads, it is easy to get fixated on deals that are difficult and not very profitable. The key is to focus on lead generation so that you see more situations and can find the better deals.

Anybody else have this problem?

Can Ike Buy Now With No Credit?

Dean Dretske — Sun, 02 May 2010 13:13:23 +0000

Yesterday, I saw an interesting question. A seller, who we will call Sally, was talking to an investor, who we will call Ike, about selling her house. Sally is very motivated to sell now, but she has no equity. The house is in good shape and was built a couple of years ago.

Although Ike would like to buy it, his financial picture makes it difficult to borrow from the bank (there could be lots of reasons!). Ike contends that he will be able to borrow the funds needed within 2 years. He wants to buy the property, but is not sure how he can.

There are a couple of solutions that Ike can try.

Subject-To

Ike can purchase the property now, subject to the underlying mortgage. This means that the ownership passes to Ike now, but Sally’s mortgage stays on the property in a superior position. If that mortgage defaults, then its foreclosure can take the property away from Ike. This is often described as ‘taking over Sally’s payments’.

The advantage for Ike is that he does not have to qualify for a loan – he just starts making the payments. Additionally, this mortgage will not show up on Ike’s credit report (it is Sally’s mortgage and stays on her credit report). The advantage for Sally is that she can move on with her life – her house is sold now.

The disadvantages are some risk for each party. They should both be concerned with insurance and with default. Let’s talk about default first.

Sally’s mortgage is likely to have a ‘due on sale’ clause. This means that the lender has the right to ask for a payoff of the balance when the property changes ownership. Lenders started adding this clause back in the 1970’s when interest rates went sky high – the banks wanted to force the new buyer to originate a new loan at the higher rates. However, in the current market, interest rates have been fairly stable and the banks have more foreclosed properties than they should. As long as payments are being made, and there are no other issues that draw too much of the bank’s attention, most banks are not exercising their right to a payoff. Sally and Ike both need to recognize this risk, even if small, since it will destroy this transaction.

The mortgage is likely to have an insurance requirement to protect against the loss of the collateral (the house). Prior to the sale, the insurance shows Sally and the lender as payees in the event of a loss. Changing the insurance to show Ike as a payee will alert the bank of a change of ownership. However, if a loss occurs, then Ike will not get any money if he is not on the insurance. A possible solution is for Sally’s insurance to stay in place and Ike buy additional insurance for his investment.

Wrap-Around Mortgage

This is a type of subject-to transaction. In this case, Sally takes back a mortgage from Ike for the purchase of the house. This new mortgage wraps around Sally’s existing mortgage. In general, the new mortgage balance, interest rate and term are set to be at least equal to the existing mortgage – this way the payment of the new mortgage covers the payment on the existing mortgage. Ike pays his mortgage payment to Sally and she makes her own payment to the existing lender(s). Or Ike sends a check to Sally and to Sally’s lender. Or they may decide to use an escrow service – this gives Ike assurance that the underlying mortgage is being paid.

Insurance is usually kept separate – Sally keeps hers and Ike buys insurance for his part of the investment as it grows.

This method has an extra advantage to Sally – if she tries to borrow money for another house, the new mortgage shows as an asset that balances out the mortgage that continues to show on her credit report. The lender may discount Ike’s payment some, but the bank will still consider that it is reducing the outgoing drain on her finances.

Lease Option

Ike can rent the property with an option to purchase it at a later date. In this case, the deed stays in Sally’s name until the option is exercised. Ike and Sally can set the rent at the market value or any value they choose. Some of the rent can be counted towards the purchase price (usually as part of the down payment).

In the previous methods, if a default happens, Sally would need to foreclose to get back the deed to the property. In this method, she can just evict Ike. Evictions are often quicker and cheaper than foreclosures. If the option is recorded, then some additional action will be required to clear the cloud from the title.

In all three methods, Ike benefits from any appreciation of the property. However, in this method, some of that appreciation can be shifted to Sally by setting a higher purchase price on the option. Basically, let’s say that the current purchase price is $200K, and the option price is set at $220K in 2 years. Now, Sally will get the first 20K of appreciation in those 2 years and Ike will receive the rest of the appreciation as equity.

Commercial Lenders Troubles Can Be Your Gain

Dean Dretske — Mon, 29 Mar 2010 22:47:42 +0000

The March 28 issue of BusinessWeek had a story reports

“You’re going to continue to see smaller institutions fail because they have no access to capital and they have too much concentration in residential construction and commercial real estate,” said Paul J. Miller, an analyst at FBR Capital Markets in Arlington, Virginia.

U.S. lenders are collapsing at the fastest pace in 17 years amid losses on loans made at the height of the market. The number of banks on the FDIC’s “problem” list climbed to the highest level since 1992 in the fourth quarter. FDIC Chairman Sheila Bair said on Feb. 23 that the pace of failures will exceed last year’s total of 140.

The latest closings will drain $320.3 million from the FDIC’s deposit insurance fund, the agency said. The FDIC and the four banks acquiring the shut-down lenders agreed to share losses on $870.9 million of assets

I recently had a discussion with a commercial loan broker about this. He indicated that the bank examiners are ‘reclassifying’ existing commercial loans and causing the banks to ‘get rid’ of some of their performing loans. They are ‘encouraged’ to not issue new commercial loans until after they have ‘cleaned up their books’. It sounded like this was happening at every commercial bank.

I am not sure how anybody expects every bank to force some of their customers to refinance when no bank is allowed to issue new loans. Duh!

Now the good news here, for investors, is that there are and will be some great properties that need to be sold. Some of these sellers are going to be very motivated to clear their debt. This will take some creativity by the investor (and possibly some access to private lenders).

D3TV – What is a Closing?

Dean Dretske — Tue, 02 Mar 2010 01:18:39 +0000

In this video, I explain what a ‘closing’ is, the major players involved and some different types of closings. This video came about because I had to do some explaining about how a double closing should work – I thought that it would be useful to share the concepts to a wider audience.

Dean Dretske » real estate

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