Hello members I wanted to pass along this article from the Federal Reserve Bank of New York.

 

"Flip This House": Investor Speculation and the Housing Bubble"

 The recent financial crisis-the worst in eighty years-had its origins in the enormous increase and subsequent collapse in housing prices during the 2000s. While the housing bubble has been the subject of intense public debate and research, no single answer has emerged to explain why prices rose so fast and fell so precipitously. In this post, we present new findings from our recent New York Fed study that uses unique data to suggest that real estate "investors"-borrowers who use financial leverage in the form of mortgage credit to purchase multiple residential properties-played a previously unrecognized, but very important, role. These investors likely helped push prices up during 2004-06; but when prices turned down in early 2006, they defaulted in large numbers and thereby contributed importantly to the intensity of the housing cycle's downward leg. Read complete story below. Paul

http://libertystreeteconomics.newyorkfed.org/2011/12/flip-this-house-investor-speculation-and-the-housing-bubble.html

 

Tags: bank, business, BUYING, federal reserve, homes, HOUSE, investor, IRS, Licensed, market, money, real estate investor, Realtor, time

Here’s the follow up to last month’s newsletter topic about safety for you and your clients when touring a home. A total of 43 people responded with their stories when going to a home. Here are the results:

43 total respondents

5 said they have been help up at gun point (and not one of them was from Detroit!)

3 people at knife point

4 had the client expose themselves

15 said they were approached in a sexually explicit manner that made them very uncomfortable

16 said they were just made to feel very uncomfortable ranging from the client yelling at them or getting a little too close to the client just starting to act ‘weird’.

As you can see you need to make sure you put yourself in the safest possible position you can. And we have an obligation to protect our clients as well. Here are some precautions that I use when I go to see a house.

I drive the neighborhood first to get a feeling as to what is going on. This also gives me a chance to see the back of the subject property in most cases.

I never park in the drive way or in front of the house. I park across  the street with my car positioned so the driver side door is easiest for me to get to. And in a position that it cannot be boxed in.

I also notify 2 people as to where I am going, how long I think I will be and the name of the people I am meeting. I text them a couple of times. And if I forget they text me. We work as a team and when they are out looking at a property they notify me where they will be.

1. I carry a safety tool box in the car. I have an air horn, mace, door stops, and bungee cord as well as other tools I may need.

I always prop open the front door and a back door just in case I need to get out in a hurry, and especially if the house is vacant. I always announce that I am coming into the house. When I’m with people I always try to stay behind them, not them behind me. I want to see what they are doing at all times.

I carry mace in my pocket and a knife just in case I might need them. And in the rare occasion I feel I need it, I take the 9mm out for a ride. Yes if you’re in this business you should have a concealed carry permit.

Remember you’re on your own and need to consider and prepare for things that could go wrong.

Paul

Tags: air horn, back door, business, carry, client, driver, feeling, gun point, home, homes, HOUSE, IRS, knife, knife point, meeting, neighborhood, newsletter, newsletter topic, obligation, park, people, Property, respondents, safety, safety tool, street, Subject, subject property, time, tool box

This month’s mastermind meeting was quite different. Most of the times we work on building our business but this time the topic of when to fire employees, vendors or clients came up and it was a heated discussion.

It seems one of our realtors had a client that was an absolute pain in the back side. She called every day wanting to know why her property was not being shown. The agent said the house was priced about 30K too high but the owner would not lower the price, period. She kept telling the agent that if she was any good she could sell it.

The realtor spoke to her broker but the broker was no help and said just deal with it till the listing expires, which was still 3 months away. My first answer was just withdraw the listing and tell the client to go elsewhere. The realtor said that she must have her broker sign the withdrawal and he wouldn’t because he just didn’t see any problem.

So she was beside herself and on the verge of tears because of one client who was consuming all her time and energy.

We suggested she try to find another agent in the office to take over the listing. Perhaps there was someone that might be able to show the client that the property is overpriced. Or she should schedule an appointment with the client and broker to go over the comps. And if the client would not move on the price the broker could then see this and she (realtor)  would have a better argument to just fire the client. Her concern was that the broker would not budge on withdrawing the listing. The whole group felt that if the broker was this dead set against dealing with a client who was not  willing to do what it took to get her house sold she (realtor) may want to consider moving to a new office.

To our surprise the realtor was more willing to move to a new office than to have a meeting with the client and her broker. This tells me there are deeper problems and she has been avoiding them for to long. Ask yourself why you would work for someone or with clients who are not willing to help you grow your business. How could you succeed in helping them get what they need if they were inflexible? Are you having this same type of problem in your business? If so you need to face the truth, maybe fire someone and get back on the right track.

Tags: agent, broker, business, client, energy, GROUP, HOUSE, IRS, listing, mastermind, owner, price, problem, Property, Realtor

Since the Real Estate crash pundits from all over have been saying that the new norm is less home ownership and more people renting. The financial gurus have also started saying there is no financial gain in the long run to home ownership. See what happens when the markets drop: people’s homes go underwater and foreclosures sky rocket.

I want to take a few lines of this newsletter to rehash some of the issues of our present foreclosure market. 1) A large portion of the homes that are being foreclosed were sold to investors with 100% financing. Why do you think the hardest hit states are Florida, Arizona, Nevada and California? Another large portion consists of people who had no business buying homes. They got 100% financing with no credit and no incentive to make payments. 2) Wall Street wanted to make their fees so all they (seemingly) required was that the people be breathing in order to get a loan. They knew the FED would back them when the BS hit the fan.

All that and here we are today with people, and even the President, saying we need to rethink home ownership and the mortgage tax deduction.

I disagree with the premise that a community is no better off with a high ownership rate than one with a low ownership rate. Common sense will tell anyone that this doesn’t ring true. A community depends on stability of its people to thrive and continue to make the quality of life better for everyone. In a community with high rental housing people always come and go. The job market is always in flux because people keep moving. They have no ties to the community. As an example, the house next to me is a rental and in the last 18 months they have had 4 different tenants.

This causes a domino effect. The local schools have trouble keeping teachers because enrollment changes so much from year to year. Vital services such as police and fire are always in flux because of the unstable population. Rental homes are never taken care of like homes that are owned by the people living in them. Yes, I know that’s not always the case but in general you can tell a rental from a home that is owned.

Now don’t get me wrong, I own rental property so I’m not against it. There will always be some people who don’t want to be or are not meant to be home owners and who need someone else to take on that responsibility. Unfortunately, that was part of the problem with the real estate mess we have now. The people in the house never really took ownership; most looked at it as a rental with benefits.

One of the problems I see in the future is that people who only rent will always be paying someone to have a place to live, even as they get older. If this isn’t possible, they may have to move in with the kids. Not a pleasant situation in many cases. As investors we need to figure out the best way to position ourselves to provide a service, and make a living.

As I’m writing this piece I have the TV news on. The anchorwoman is talking about how the housing market is continuing to decline and more people will be going into foreclosure. And isn’t it a shame that all these people are losing their homes and the equity they thought they were going to have at retirement. (Equity that, by the way, was highly inflated, but that wasn’t part of the conversation) Wouldn’t they be better off renting? Next some economist came on and gave all the reasons why it’s better to rent.(I was trying to write them down; I plan on using some of them the next time I talk to a potential tenant, the guy was pretty convincing!)

I believe as investors we can insert ourselves into this conversation and let people know we’re the experts and can help them with their choices. By doing this you can position yourself to make money with renters and people that want to buy. Now you’re the expert in both areas. You’re meeting the needs of people who want to own, but aren’t sure what they need to buy a home in the current economy. And you’re helping people who don’t want the responsibility of home ownership. One thing I would do if you’re going to buy single family rentals is buy them in areas that have high owner occupancy. These homes will have a higher value and will be more desirable rentals.

I found this list of homeownership by countries on the Internet. As you can see the U.S. is not even close to the top of the list. I got this from a Google search so you can get more info if you like.

Showing latest available data.

Rank   Countries    Amount  # 1   Ireland: 83%    # 2   Italy: 78%    = 3   Australia: 69%    = 3   United Kingdom: 69%    = 5   Canada: 67%    = 5   Finland: 67%    = 7   United States: 65%    = 7   Belgium: 65%    = 9   Japan: 60%    = 9   Sweden: 60%    # 11   France: 54%    # 12   Denmark: 53%    # 13   Netherlands: 49%    # 14   Germany: 43%      Weighted average:    

 

Home ownership is still important to the country as a whole. As an investor, though, you need to be in both the rental business and the find, fix, and sell programs. Be pro active and get involved in the market and in the conversation.

 Paul J Da Costa is a Real Estate Consulant.

Can Be Reached at 941-716-2597

E-Mail paul@pauljdacosta.com

www.pauljdacosta.com

Tags: business, BUYING, California, common sense, consulant, country, credit, domino effect, economy, equity, estate crash, financial gain, financial gurus, Florida, foreclosed, foreclosure, foreclosure market, foreclosures, Happen, home, home ownership, homes, HOUSE, Housing, housing market, investor, investors, IRA, job, large portion, local schools, market, money, mortgage, mortgage tax deduction, owner, pauljdacosta, people, Property, quality of life, rate, Real Estate, retirement, single family, sold, Tax, wall street

Ok, I know what you’re thinking: Yeah, Paul, everyone says that every New Year and they go right on doing the same things they did last year. And I would say you’re right on with that and the key is …they keep doing the same thing year after year and expect a different result. According to Albert Einstein, that’s the definition of Insanity! Sound familiar? You might even say this is you?

I work with numerous Realtors and Investors and the one overriding theme I keep hearing is the economy is so bad and there’s no money and no one is buying anything. The only problem with that is it’s not true. Yes, finding financing is harder but homes are being bought with bank financing. Investors are buying homes with investor loans. And Realtors are selling homes! Just check those facts with the National Association of Realtors.

I know one investor in my REIA group who has bought 20 properties this year, fixed them up and sold every one with bank financing. Other investors have bought homes with bank financing with 30% down. I have bought 2 homes in the last 4 months with bank financing.

As for Realtors, I am working with one husband and wife team on their marketing program. They had sold a home to a couple from Philadelphia and within 3 weeks they sold another home to a friend of the first sale. So we put together a 3 step mailer to people in their area along with an 800 number to call for more information. They sent out info on the area and as I am writing this they have sold 6 more houses.

Now they are doing the same marketing plan to the surrounding areas and are getting great results. Other agents I know are marketing to the Midwest about all the great deals in Southwest Florida.

I am working on a multi-level marketing program with web sites and a multi-step marketing campaign to California telling people how great it is in Florida: great weather, no income tax, and some of the most beautiful beaches anywhere. I’m using the same program ‘selling’ the Atlanta area.

I also have 5 education seminars scheduled for myself this year. If you plan on succeeding you must keep learning. How many education events have you already scheduled? You should plan at least one on marketing.

The way I see it, everyone has 2 choices: do the same thing as last year then sit around and complain that all the dark forces are against them, or decide to change their mindset and business plans. 2011 depends more on you than any outside factors. I encourage you to look at the things that worked well for you in 2010 and do it again, and to always look for new opportunities to succeed.

Change the people you hang around with if they are negative and surround yourself with positive forward thinkers.

I am available for one on one coaching and help with your marketing. And I will be doing a couple of master mind programs again this year. Call me at 941-716-2597 for more information.

Good Luck and make 2011 your best year yet!! 

1181 South Sumter Blvd Suite 301                      

North Port, Florida 34287                                                          

941-716-2597                                                                            

Paul J Da Costa

Is a licensed Realtor in Georgia. He is a Real Estate investor, educator, and national speaker.

Paul is available for select speaking engagements and can be reached at 941-716-2597

www.pauljdacosta.com

paul@pauljdacosta.com

Tags: agent, albert einstein, Association, Atlanta, atlanta area, bank, bank financing, beaches, business, BUYING, California, coach, coaching, cost, courage, deal, definition of insanity, economy, education, educator, Florida, Georgia, GOOD, great deals, hearing, home, homes, HOUSE, houses, husband and wife, income, income tax, information, Insanity, investor, investor loans, investors, IRS, Licensed, loans, market, marketing, marketing campaign, marketing plan, marketing program, master mind, midwest, money, multi level marketing, National, national association of realtors, national speaker, new year, pauljdacosta, people, Philadelphia, Port, problem, real, Real Estate, real estate investor, Realtor, realtors, REIA, rent, sale, sellingâ, site, sold, South Sumter, southwest florida, Tax, weather

Just the other day I was having a conversation with a couple of realtors from my friend’s real estate office and the topic of investors came up. Both of them said flat out they will not work with investors. When I asked why they said they are too hard to work with, only want to steal a property and don’t care about the seller or the agent.

And when I ask investors why they don’t like working with agents they say they are lazy, don’t return calls in a reasonable amount of time and don’t understand the business of investing in real estate.

So there you have it: a complete breakdown of communication.  And since I am a realtor and an investor let me try to explain each point of view.

The biggest issue I see with the realtor/investor relationship is lack of communication. First the investor fails to make it completely clear what he or she expects from the realtor, what type of property they are looking for and what they are willing to pay for it. Realtors often fail to ask for specifics from the investor, and so can’t understand what the investor is trying to accomplish. As a realtor, when I work with investors, I get the details of what they expect, and also an idea of their exit strategy. If the investor doesn’t have an exit strategy I know it’s going to be a uphill battle. So I work on that before even trying to find a property.

So let me start with the investor side of the story. First and foremost we are buying property to make a PROFIT not to live in it or get a warm and fuzzy feeling about the color of the walls. Many realtors fail to make sure they understand completely what the investor is looking for and not bring a bunch of stuff that doesn’t match their exit strategy or their perceived exit strategy.

Both realtor and investor need to make sure they each have the same definition of what ‘timely manner’ means for returning calls and getting other information. This causes big problems when someone thinks 2 hours is timely and the other party thinks the next day is timely. In dealing with realtors all over the country this is the one issue I find the hardest to deal with. If you say you will have it to me by 6 PM you need to get it here or call and say it’s going to be late. This is nothing more than the same consideration you would want from me.

As a realtor, I know I’m not alone in finding that too many investors think their own time is valuable and treat everyone else’s time as unimportant.  I can’t tell you how many times I’ve talked to investors who say they have ten realtors trying to find them homes in the same area. I ask them why and they say who cares, it’s free and not my time. Too many other investors don’t value the relationship they have with a realtor; they will see one house with one realtor and write a contract with a different one.  Eventually these people will find that no realtor will work with them, and they’ll wonder why.

All these issues cause needless problems for the realtor and the investor and make the buying process much harder. Clear communication and the respect of one professional for another would eliminate this.

                 1181 South Sumter Blvd Suite 301                                             695 Mansell Road – Suite 120

                   North Port, Florida 34287                                                           Roswell, GA  30076

                    941-716-2597                                                                                  678-287-4800

Paul J Da Costa

Is a licensed Realtor in Georgia. He is a Real Estate investor, educator, and national speaker.

Paul is available for select speaking engagements and can be reached at 941-716-2597

www.pauljdacosta.com                                                     

Tags: agent, amount of time, business, BUYING, contract, country, exit strategy, Georgia, homes, HOUSE, information, investing in real estate, investor, investor relationship, investors, IRS, lack of communication, Licensed, national speaker, pauljdacosta, people, point of view, professional, Property, Real Estate, real estate investor, Realtor, realtors, rent, s real estate, seller, specifics, timely manner, uphill battle

I recently found myself talking to a number of people who came to this country and became successful.

I’ve also spent some time with people who were born in America and who tell me that they can’t make it because there are no opportunities here anymore.

I find that hard to believe because I truly know in my heart that America is the only country where opportunities abound. The question you need to ask yourself is how willing are you to work for them.

Recently I was in Baltimore, Maryland. The driver who took us to our motel and a few other places is here from Ethiopia. He was telling us that he came to America seven years ago because he wanted a better life for himself and his family. He mentioned he was from a village where there were no cars. Villagers walk everywhere; the closest phone was 27 miles away. He laughed when he told us he had never even heard a car engine in his village.

He said he was one of the lucky ones because he got a visa, via lottery, to come to this country. He came by himself, left his family behind, not knowing the language, not knowing anything about America other than what he’d been told. Now here’s the most important part: seven years later he now owns the fleet of vehicles that runs 24/7, driving people around Baltimore, Washington and New York. I don’t want you to think he’s living in a hovel and eating beans at every meal to do this. I’ve noticed his thousand dollar suits! He says the best thing that’s ever happened to him was coming to America. He’s still concerned with his language (which is nearly perfect); he takes classes nightly at the local college to learn to read and write English. I just have to ask: if this gentleman can come to this country with no language skills, no driving ability at all, and within seven years own a fleet of automobiles and employ seven full-time drivers, how on God’s green earth can someone born in this country with all its advantages have  the audacity to say they can’t make it in America?!  America is not the place for the future? Says who??

I believe too many Americans have convinced themselves that they are victims and that someone owes them something. Too many people believe they’ve been wronged (somehow). The Government has helped propagate this fallacy by putting more and more people on government programs and telling them “your lot in life is not your fault, you’re not responsible, somebody else did this to you and we’re here to help you get them back”.

It’s not only people on the government dole who think this way. Just recently I was speaking to a friend of mine who commented that the American dream is over; we will be no better than a third world country within one generation. When I asked him why he felt that, his answer was amazing. He said there are no opportunities left in America between the government taxes and greedy corporations. The average man or woman doesn’t stand a chance and your best bet in life is to hope that you can have a place to live, a few dollars in your pocket and food on the table and wait for the government to help you when you need it. I was absolutely amazed with this defeatist attitude. I asked him why he felt he was such a victim and that his life was so miserable, (while we sat out on his back porch looking at the pool, drinking a cold one and looking at brochures of places he was thinking about for his family vacation.) He said he didn’t see his business going on for much longer and didn’t see America going on for much longer because too many people are depending on the government and the government is taking too many liberties when it comes to taxes and government regulation.

My friend sees America moving into second world status, like Europe, where people have a job, a little house, and depend on the government for everything ‘from the womb to the tomb’. Well, one thing for sure is that America was not born on government mentality, and government is not what has made this the greatest country in the world. America is not a victim country; America is the country where anyone can have a good life, money and freedom.

If you just look at these two examples, you can see where the problem lies. On the one hand are people who know they need to work to be successful, and who look for any opportunity. And on the other are people who believe the myth that they are victims of the economy, the corporate giants, Wall Street or whomever, and that only the government can help them now. Our founding fathers would be disgusted to hear these people call themselves Americans. Until people start taking responsibility for their own actions, for their own lives and for their own circumstances in life, this country will continue to have uncontrolled budget deficits, 10%+ unemployment, jobs going overseas, government spending with no results, and more and more people feeling that they cannot make it. Wake up, America!

Paul J Da Costa

Is a licensed Realtor in Georgia. He is a Real Estate investor, educator, and national speaker.

Paul is available for select speaking engagements and can be reached at 941-716-2597

www.pauljdacosta.com                                                      paul@pauljdacosta.com

 

 

Tags:  America, advantage, America, audacity, automobiles, Baltimore, baltimore maryland, baltimore washington, business, coming to america, cost, country, economy, employment, Ethiopia, Europe, fleet, food, freedom, full time, generation, gentleman, Georgia, government, green earth, heart, home, HOUSE, language, Licensed, local college, lottery, Maryland, mentality, New York, opportunity, people, Real Estate, real estate investor, Realtor, regulation, Tax, taxes, time, vacation, wall street

This weekend I held another “Real Estate For The Next Decade” education day in Atlanta. We had a packed house of Realtors and investors. Guest speakers included experts in Real Estate Law, Taxation, and using self directed IRA’s in Real Estate. We also heard from a mortgage specialist from Bank Of America talking about the FHA Rehab loan. I spent time on exit strategies and my Three Tier System on property location, as well as on marketing.

All the attendees agreed that the information definitely pertained to their business, and said they really wanted to start using it. But the overriding complaint from the members was, “I’m so tired now and don’t have time to do things I need to do, how on earth can I do this stuff as well??” After hearing about 10 people say the same thing I knew too many of them were working in their business and not on it.

So I started asking the group some questions and we (speakers) were all were surprised at how many of these people were doing everything in their business. To give you an example: out of 32 Real Estate investors only 2 were using a property management company. The biggest concern for the rest was the cost of using a company, and of having someone other than themselves or their own people handle the repairs. I explained to the group that those costs were minimal if you just consider the costs involved in answering all those phone calls about exploding toilets or broken windows, then doing the repair job yourself. This is working in your business. I asked how many people needed money to buy more homes. They all raised their hands. Well, you can’t raise money if you’re fixing toilets. Raising money is working on your business.

Let’s handle the issues of cost.  All said the property managers’ fees were too high. Most property managers charge 8% of the rent so if you have a rent at $ 650 their fee is $ 52.00. This is nothing in the big picture of your business. They handle all the calls and the issues with tenants who don’t pay. You can negotiate that they also handle all evictions at their cost, and I do this. If you’re doing it, how much does it cost you in hard cash, not to mention your time and that’s worth a lot. And in most states you have to go in front of a judge. They look at property managers as just doing their job but an investor is seen as just a greedy slumlord trying to throw this poor person out just because they did not pay rent. Some get all self righteous and benevolent, and tell the tenant they can have 60 days to move out and there’s nothing you as the corrupt landlord can do about it. Yep, they do it and you know it’s true. So now did you save yourself any money?  Nope, just gave yourself more aggravation. And how can you take time to go to court if you have to answer the phone all the time?

Most of the investors thought you must use the property management fee schedule or else. I explained that’s not true and you can set your fees by the number of properties they handle for you. Also if you use a handy man you can have the property manager call that person first. In case of emergencies if your guy doesn’t answer then they can call their guy.

Some of the Realtors felt they could not work any harder and adding more would send them over the top. Their biggest hurdle was paperwork. They said they spent hours for each listing and sale. I then asked if they had someone in their office whom they could pay to handle that for them. Most said yes but did not want to pay the $ 295.00 fee. I asked them how much was their time worth per hour and what the value of a customer was. None could answer these questions. I also asked them if they had to pay the person up front or when the property sells? They all said when it sells. With this information we figured out an option where they might work a deal with the person for a professional discount, if they gave this person all their business. And if they don’t have to pay until the property closes it won’t affect the cash flow now. How many more listings or sales could they get if they were working on their business not in it?

And the last thing that was a complete surprise to me: most do their own taxes! I was stunned! One investor had 30 houses and does his own taxes because he said his accountant charges $ 1000.00 to do them and he thought that was outrageous. I was laughing because I thought he was too cheap! Imagine having 30 rentals with all those deductions and IRS tax laws and loopholes. He’s complaining about a $ 1000.00:  GOD help him if he gets audited!  Folks, there are many things you can skimp on. But for your business to be successful you have to do what you do best- work ON it, not IN it. There are many people who can handle paperwork, reception duties, repair duties, taxes. But only YOU know what it takes to make YOUR business go where you want it.

  1181 South Sumter Blvd Suite 301                       695 Mansell Road – Suite 120

                North Port, Florida 34287                                                           Roswell, GA  30076

                 941-716-2597                                                                             678-287-4800

 Paul J Da Costa

Is a licensed Realtor in Georgia. He is a Real Estate investor, educator, and national speaker.

Paul is available for select speaking engagements and can be reached at 941-716-2597

www.pauljdacosta.com

 

Tags: accountant, America, Atlanta, attendees, bank, bank of america, big picture, broken windows, business, CASH, cost, customer, deal, Decade, discount, education, example, exit, exit strategies, fha, Georgia, GROUP, guest speakers, hearing, home, HOUSE, houses, information, investor, investors, IRA, IRAâ, IRS, job, judge, landlord, Law, Letâ, Licensed, Management, manager, market, marketing, money, mortgage, mortgage specialist, national speaker, next decade, people, person, phone calls, professional, Property, property location, property management company, property managers, raising money, rate, real, Real Estate, real estate investor, real estate investors, Realtor, realtors, rehab, rehab loan, rent, rental, repair, repair job, sale, self directed ira, slumlord, Tax, taxation, taxes, tier system, time, toilets, value

(Secure and Fair Enforcement for Mortgage Licensing Act of 2008)

According to the HUD interpretation of the SAFE Act anyone who sells any single family house or 1-4 units and does not live in it as their primary residence, and who wants to offer the buyers the benefits of a seller carryback note is a potential criminal who needs to be watched, regulated, licensed and taxed. This despite the fact that “seller financing,” “seller carrybacks,” “seller-held notes” or any other synonym doesn’t appear anywhere in the Act — Source the paper source

 

 

These property sellers have to have government approval via licensing before they hold a note or even discuss terms of a note with a buyer who is not a member of their immediate family.  If they are not licensed they will be fined.  If they don’t pay they will go to jail. Source the paper source

 

Ok, now that I have your attention we can move forward.

 

We investors and realtors must pay attention to all the laws that are changing in our business daily and the SAFE Act is a great example of this. I have scoured the internet and have spent time with both of my lawyers to make sure I am following the rules.

You need to know that it’s not as bad as it looks. Some people are making it sound like the end of seller carrybacks or seller held notes.  But only the rules have changed and you need to adjust to them, period.

You can find copies of the SAFE Act on the ‘net so I’m not going to talk in detail about it here. Basically the Act is designed to protect consumers from getting loans they can never pay back or from not understanding what they are signing. So the feds have come up with this Act which requires testing and designates who can talk about mortgages and who can discuss terms of the loans. This is where seller carrybacks or seller financing comes into effect.

I want to look at this as an investor first and then as a realtor. As an investor who has used owner financing, I find it’s a good way to sell property and to improve your bottom line. There are a couple ways this could be done. The first is investors loaning money to other investors so they can buy property and the second is investors holding seller carry backs to the end user.

Investors loaning money to investors, according to both my attorneys, is not as a big of a problem as loaning to an end user. But they made the point of saying the investor lender must have on file all the requirements for a standard 30 year fixed mortgage. Yes, that means you need an up to date credit report, a complete mortgage application with documentation and proof of income, and proof the buyers can pay the loan back. And you need to be careful of interest and points charged as well. You must supply a good faith HUD and all required disclosures.  If you use these tools and consult an attorney, follow all the laws and use proper disclosure you should be ok.

Now if you are an investor selling to an end user you have a different set of requirements and you need to take heed. You are the one who has a “BIG TARGET ON YOUR BACK” if you continue to offer owner financing like in the past. At that time some investors just took their buyers’ deposit, gave them a loan with a high interest rate and waited for them to default on payments. Then they would take the house back and sell it again and again with the same deals. I think you’ll agree with me that those days are over, and good riddance.

The law states that you must be a licensed mortgage broker to offer and discuss terms of a mortgage. It doesn’t say you can’t offer owner financing, it says you must have a mortgage license and they (Buyer) must be able to pay for the loan.

So you need to hook up with a local mortgage broker who will handle all the requirements to meet the law. They will need to do a complete mortgage application, as already mentioned. Debt to income ratios need to be in line with standard FHA guidelines. Loan to value ratios should be the same as FHA.  In my opinion it’s going to be hard for the government to say you misrepresented your loan or cheated someone if you used all the same guidelines as FHA. And the loan should be a fixed 30 year with no points or pre-payment penalties. Very important that you own the property free and clear or pay it off when you offer the loan to the new buyer. None of this ‘wrap-around mortgage’ or ‘subject to’ stuff. If you do business that way, then you default and the end user ends up losing the home you’re going to jail quick, fast and in a hurry. Bottom line is that Congress and the banking industry think of us as parasites taking advantage of people and needing to be watched carefully. They’re more than ready to make an example of someone so use your brain.

As Realtors we have special issues to deal with relating to this law and we need to be careful we know all the facts. A good many realtors are unaware of the law or have not taken the time to look it up. Each state has different views and different interpretations. So first thing is to call your local board and get the most up to date information they have. Spend some time on BING and GOOGLE. As a realtor you cannot negotiate a mortgage without a mortgage license. This causes us a potential problem when we are helping our seller and buyer to negotiate a contract and the seller wants to offer financing. The issue here: is this their primary residence (and how long have they lived there -Check for IRS rules here) or are they an investor. Every state will be a little different here but you must know the Federal Law states that a Licensed Mortgage Broker can discuss terms.

My Real Estate attorney says that if he had a Real Estate license the first thing he would do is double the E and O insurance and triple the malpractice insurance.

We Realtors must make sure we do a good job for our clients and steer clear of any part of the seller financing option if there is one. I also think that each broker office needs a disclaimer form that states the law and how they need to proceed with owner financing. I would interview at least 3 mortgage brokers/lenders and find out if they will be offering loan services for owner financing. I would also look up private lenders and get their information so you can offer them to your sellers and buyers.

To summarize: New financing laws and regulations are being put in place frequently and rapidly. We must keep up with them, pay attention to those that affect our clients and our business and make sure we are doing the right thing and also protecting our selves and offices.

Over time the heavy hand of the government will loosen its grip and we will get a clearer understanding of what we can and cannot do. But in the mean time you need to be very careful how you operate your business.

 

 

 

                    

 

Paul J Da Costa

Is a licensed Realtor in Georgia. He is a Real Estate investor, educator, and national speaker.

 

Paul is available for select speaking engagements and can be reached at

941-716-2597

                                 paul@pauljdacosta.com

Real Estate investor

 

Ok, now that I have your attention we can move forward.

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Real Estate is my full time occupation. I run my business like the big corporations do:  I have a full time Accountant and a Lawyer whom I consult with on a regular basis. I have a Productivity Coach though my Keller Williams office who helps me keep on track and make sure my goals are realistic and attainable.  I depend on experts in these fields to help me become an expert in my own field.

Working with Realtors and Investors from all over the world I find that we naturally move to only associate with members of our own profession and talk about issues that only relate to our industry.  While this may be comfortable, it won’t allow you to grow either yourself or your business to its maximum potential. This is the limitation of an in-house mastermind group. 

If a realtor even knows what a mastermind group is, most likely they belong to one sponsored by their office. My office has a group that is run by our productivity coach. She does a great job, but all the participants are realtors. There may only be 4 or 5 who attend and they are not committed to the group because it’s FREE and there are no other obligations.

This is why, for the serious career person, I highly recommend joining an outside group that has a mix of businesses. Generally you must commit for a year and the cost can run from a few hundred dollars to several thousand. This depends on the group, what its goals are and how many days the sessions run.

I belong to 3 mastermind groups. The group I run requires members to commit for 6 months at $ 300.00/month .Sessions are held once a month for 10 hours. Currently the participants range from a local doctor to a pest control service owner who catches raccoons for a living. It is limited to 6 people so each person has plenty of time to tell us about their business progress from the last time we met:  what’s working, what’s not, and did they do what they said they were going to do at the last meeting. Oh, by the way, this is a tough love group: members have to follow through with what they say they’ll do or be prepared to catch hell.

One of the other groups I belong to meets for 3 full days from 8 AM to 10 PM three times a year. We commit for 1year and pay the moderator SIX THOUSAND DOLLARS. I might add that the moderator is one of the country’s most sought after business coaches. We have 16 people in this group. Occupations vary from doctors and dentists to realtors to an auto repair shop owner to internet marketers. Some of these businesses are making millions a year (and 2 do over 50 million each!) so we are diverse. And, though all have different issues that need to be handled, all have the same goals: 1) have more free time 2) make more money 3) retire.

The big advantage of this group is all the experience of the other participants on all issues that may affect my business. As an example, one member has over 100 employees so he always has challenges and can give good feedback on how to hire and deal with employees. Another member deals with consultants and directly with the public and has the same issues as Realtors do:  people not making appointments, people not understanding the market place, competitors undercutting the price or flat out not being honest. See, Realtors are not the only ones facing these problems. Members get to learn from these people and how they are doing it in their business. Many times group members can move these ideas to their own businesses with only a few tweaks.

 I know that you’re thinking Real Estate is different from healthcare, or manufacturing, but I’m here to tell you it’s not. We all face the same problems: how do I get someone to pay for a house I have listed or how do I get the seller to take my buyers offer. In the end we are still selling something regardless of what it is. And I hear all the time “we can’t get financing for our houses”. Well guess what, we’re not alone. The owner of the 60 million dollar /year business lost his line of credit for no reason other than the banker telling him it’s the economy and there’s nothing they can do for him. And this with a twenty year track record of excellent payments. Sounds like our business.

When he told us how he was able to find some financing, we all worked to give him other ideas. We all help each other on marketing and our marketing pieces. We make commitments to each other and we hold each other accountable: if you don’t meet those commitments there are consequences. And there are other perks that can’t be assigned a monetary value.  You build great friendships. Your career network expands. In my case some of these people have recommend me to their circle of influence. I have had the privilege to speak to their groups and in some cases actually find investors. But the knowledge and help implementing systems and programs to help make my business better and more profitable is PRICELESS.  

If you would like more info on mastermind groups, getting into one or starting your own call me at 941-716-2597.

 

Paul J Da Costa

Is a licensed Realtor in Georgia. He is a Real Estate investor, educator, and national speaker.

Paul is available for select speaking engagements and can be reached at 941-716-2597

        Real Estate Education       paul@pauljdacosta.com

 

 

 

 

 

 

Tags: bank, bankers, business, business people, coach, consulant, GROUP, lending, manufactoring, marketing, master mind, master mind groups, mastermind, mastermind group, money, people, private money, productivity coach, real, Realtor, realtors, retire