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

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

Everybody knows about the lack of financing and shadow bank inventories. But one major issue nobody is talking about is the crime rate on vacant properties.

How many times you have heard a realtor or investor say “My house on 123 Smith Way was broken into, they took all the copper, wire and air conditioners”.  When you talk to the police they say sure, it’s a major problem and they know not all the crimes are being reported. When you do report it you’re told to just report it to your insurance company they will pay. Sure, after the deductible. Then they raise your premiums or cancel you altogether. Also, the area gets a bad rap and their premiums as a whole go up and everybody complains. If you talk to people who buy copper, wire and used A/C units they know the stuff is stolen and don’t care. The one person I spoke to thinks the stuff may be stolen, but isn’t really sure, and anyway that’s not his problem. OK, so the same guy coming to you with A/C units of all sizes and ages week after week and you’re not sure? Come on man cut the BS. His response: Insurance is paying for it so who cares?

Just think how many times a day this happens all over the country. When a guy in a pickup truck has the bed filled with copper tubing all ages and sizes, I’m willing to bet it’s stolen.

In the past few weeks, I’ve had 3 houses broken into. The thieves took 2 air conditioners, copper pipes throughout all the houses, and in one house all the wiring was taken out of the wall as well! That one house alone now has over 10K damage. The police office said this happens all the time, just bill your insurance. The adjuster said hand over the check for your deductible and we’ll see about the rest. And yep, this is a big issue and there is nothing that can be done.

I disagree! This could be brought under control if the buyers of all these A/C units and copper wiring and all the rest of the stuff knew they would be held responsible for buying stolen goods with big fines and jail. They would stop buying stolen property, just need one good test case.

Buyers should be required to have the seller give driver’s license, Social Security, address and be required to give a 1099 and sign an affidavit that the product was not stolen. I understand some areas have laws on the books but they are not enforced so the buyers just don’t care because they know that nobody’s watching.  And if a buyer is caught not following the rules make it an automatic $ 50,000.00 fine and a 6 month jail sentence for him and the same for the seller. That would help fill the state coffers!

Yes this may be tough, but the cost to the local community is great. And in this economy to someone it might mean the difference between being able to get into a rental and having to live at the local Salvation Army for another month while the place they were going to move into gets repaired. As it stands now the thieves know it’s a free for all and the law is basically nonexistent. And the buyers of these stolen goods don’t care because it’s a quick profit with no repercussions. They must laugh out loud when a guy in pick up shows up with a bed full of A/C units.

I talked with my A/C guy, and the least expensive units for my houses are $2,300 each. But even he said I can get you a used one from I guy I know for around $400.00 each!!!! But they are more than likely stolen…I said how do they sell them? He said there are warehouses full of them in town and a few other dealers sell them as well. It’s the system, don’t fight it! And you want to know why your insurance is so high. So of course I’m getting the new ones since that is what I paid for in the first place. And the adjuster and I can go round and round because he won’t pay me that much for them. Life as a investor in the big world.

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: air conditioners, copper pipes, copper tubing, copper wire, copper wiring, crime rate, crimes, Georgia, government, HOUSE, houses, insurance, insurance company, inventories, investor, investors, IRS, Law, Licensed, national speaker, police office, premiums, Property, rate, Real Estate, real estate investor, Realtor, realtors, rental, response insurance, vacant properties

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

“Real Estate Investing For The Next Decade“

Mark Your Calendar

October 23rd

9 AM to 4 Pm

695 Mansell Road

Roswell Georgia 30075

Room 210

This class is for people that want to invest in Real Estate but not sure they’re ready.

Register at Register

http://www.pauljdacosta.info

 

 

Once again here’s what you’ll be getting

Training by Paul J Da Costa, National speaker and Real estate Investors with 15 years experiences in the trenches

John E. Bagwell, One of Atlanta leading Real Estate Attorneys

Kelly Kelley, CPA with the do’s and don’ts of real esate accounting

Monty Smith En-Trust on using sefl directed IRA to buy Real Estate

Kathy Viitali FHA rehab loans

Marketing idea and tips to get you properties sold

An entire day of education with hands on experience.

 

http://www.pauljdacosta.info

 

 

 

 

Tags: accounting, attorneys, Calendar, CPA, Decade, fha, Georgia, investor, investors, IRA, leading real estate, marketing, marketing idea, national speaker, next decade, October, pauljdacosta, people, Real Estate, real estate investing, real estate investor, real estate investors, rehab, roswell georgia

Last week at both of my REIA meetings members were asking how to figure the value of a piece of property when the comps are all over the place. And how to advertise in this market; just putting signs out is not working like it used to.

Since this is really two different questions let’s tackle them one at a time.

Let’s start with marketing your properties first. Some cities and counties have made it their life’s work to take down our signs as soon as we put them up. In my areas the ‘sign police’ have full time people trying to catch you in the act so they can ask you for a donation to the city bank account.

I’ve come up with something that works for me. I go to private property owners and ask if I can place my signs on their property. I offer to pay them with a $5.00 Starbucks gift certificate if they let me put my sign up. This way I avoid the sign police and I get traffic to my houses. I have other ideas but that will be for another post. Now the big issue: COMPS

Well this is the million dollar question. If I could be right on this one 100% of the time I would be on the Forbes 400 list. The biggest problem is that with all the foreclosed properties you can’t figure out what the real value is. Here’s how I handle it.

First, I look at all the foreclosed properties and figure out which ones need repairs and which ones are in good shape. I get this from the MLS or Realtor .com site. This helps me separate fact from fiction and I get a good idea as to what’s happing in my area. Next, I see how many of those homes are back on the market, under repair or being rented out. Then I get the Sold’s in that area that were not distressed. (Sometimes none were sold that were not distressed). I also try to get rental comps as well; this will help me determine price to some extent. I then get a full appraisal done because this will help get a better picture of value from a third party. All these little things help to put a value on your property, and give you credibility when someone from the lender’s office or tax office asks where you got your numbers. But remember, in the end the value of your property is only what someone is willing to pay for it.

Paul J Da Costa

Has been a Real estate Investor for many years. He is a licensed Realtor in Georgia with Keller Williams Realty Consultants.

Paul can be reached by E-Mail  at paul@pauljdacosta.com

Tags: account, act, appraisal, bank, comps, Consultants, credibility, forbes 400 list, foreclosed, foreclosed properties, full time, Georgia, home, homes, HOUSE, houses, investor, IRS, lender, Licensed, market, marketing, mls, pauljdacosta, people, private property owners, Property, Real Estate, real estate investor, Realtor, Realty, rent, rental, signs, starbucks, Tax, third party, traffic

(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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Most of what I hear from my REIA members and from other investors is that what they really want is to build equity. So when the market turns they can CASH IN… and retire. Although we all want to cash in and retire we still need to make a living now. If you’re buying all your properties for cash and at deep discounts, great. Are you flipping them or holding and placing tenants in them? Let’s say you're flipping them all and making 10k to 20k a deal. This is fantastic, and if you can do 10 to 20 a year you have a nice income but have not built up much equity. Don’t get the two confused. What is your plan when the market changes and all these great deals are gone? You're left with a decreasing income and no equity at all because you sold your properties for quick cash. Nice income but you’re not any closer to retiring than when you started. One thing you want from any business is to make a living but also grow your equity position. Now let's say you purchased all your properties for cash at a deep discount and then picked the best ones to put into your equity pool. You sold off the others for income just like before. But the equity pool deals are there generating cash flow, which is still income, but these properties are growing equity as well for your retirement.  Just do the numbers. Say you have a property that produces $600.00 positive cash flow per month. That’s $7200.00 per years plus tax write offs (See your accountant on that one). In a couple of years you have made the same money as your quick flip and maybe more. (Yeah I know tenants can be a pain, just deal with it. If it really bothers you, hire a manager like I do and let them handle the BS). Let's not forget the property has increased in value especially if you bought it right. And over time the profits from the cash flow plus the equity increase will contribute to your retirement at a much greater pace than the quick flip and repeat method. So what if you're having trouble finding cash at the right time to make these deals happen? Many investors are in the same boat. That’s why, for the right person, investing in groups is one way to go. I invest a lot this way it solves two problems: It cuts my risk and it allows me to get involved in more deals. A lot of investors are not sure if this type of investing is right for them and not sure how to go about it. Check out my site www.pauljdacosta.com I have a complete Real Estate Discovery and Evaluation package designed to help you with these issues. It’s a great way to get a full understanding of your business and also will show you what track you need to be following to reach your goals. Remember, if your goal is to retire with lots of money (and the lottery isn't part of the plan) you have to build equity somewhere. You can’t just earn a good living and expect to retire rich. What I would like you to do is spend some time on figuring out how you can build equity and make a good living. Send me an e-mail I will be glad to help you. Paul@pauljdacosta.com Paul J Da Costa Has been a Real estate Investor for many years. He is a licensed Realtor in Georgia with Keller Williams Realty Consultants. Paul can be reached by E-Mail at paul@pauljdacosta.com Fax 941-423-7964 Available for select speaking engagements: send e-mail for request and available dates. Tags: accountant, CASH, Consultants, deal, equity, equity position, Evaluation, great deals, income, investor, investors, manager, market, market changes, money, person, pool, positive cash flow, profits, Property, Real Estate, real estate investor, Realtor, Realty, retirement, Tax, tax write offs, time, value