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

You might be as surprised as I was when I started doing some research on Reverse Mortgage defaults. See, I was working with one of the attorneys I do some consulting with and he was upset that the mortgage holder of one of his clients that had a reverse mortgage would not do a short sale. I explained to him that they are backed by the Government so they were going to get all of their funds so a short sale was not in their best interest

But he said my client was in default on her loan as she has not paid taxes and insurance in years and was in “technical default”. Here was the reason not to do a short sale. If the bank agreed to the short sale, they would lose the funds they had already paid in taxes etc. But if they foreclosed, the government would cover those losses. So then I googled Reverse Mortgage defaults and there was no shortage of information available. This is the first one I saw, and here is the link so you can read all about it.

HUD Issues Reverse Mortgage Default Guidance

http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2011/HUDNo.11-001

According to the Government about 30,000 reverse mortgages (or about 5% of the total) are in technical default.

Florida leads the country in terms of the number of defaults, with nearly 8% of the U.S. total, according to the CredAbility Group, a nonprofit consumer-credit counseling service based in Atlanta

Reverse-mortgage defaults generally have more than doubled during the past two years, as cash-strapped homeowners have fallen behind in paying the insurance, taxes and other household-upkeep expenses required by their loan terms, said Sue Hunt, CredAbility’s director of reverse-mortgage counseling.

This is a major issue for Florida as our property values have plummeted and continue to drop monthly in most areas. As seniors get older, medical bills continue to rise and money may be in short supply. What will they do pay property taxes or buy their prescription or food? This has the potential to be a major issue for the families of parents that have reverse mortgages. Will family members pay back taxes and insurance and deferred maintenance on property that is under water (and may be a home no one wants)? And the final thought: are we willing to put grandma out on the street for not being able to pay her taxes?

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

Now that it’s April, all our members in the great frozen tundra (aka anywhere North!) are finally seeing grass in their front yards and thinking it’s time to get these properties ready for sale. But before you put that house on the market you better do a little homework.

 All winter long people have been getting daily news flashes on how the market is down, in some areas 20%, since the fourth quarter 2010. They have been told that they could get more for less and all the extras as well. What I am hearing here in Florida from home buyers and Realtors is the home better be perfect and looking good. And that’s the same thing I personally found this winter in dealing with buyers from the north as well from ‘across the pond’. Yes they wanted to see a price reduction but more importantly they wanted the house to look like a palace; everything shiny and new. Fresh paint in and out as well as upgraded landscaping.

One advantage we have in the South is we get people from everywhere for the winter and we learn what people are looking for and can adjust quickly. This winter people were looking for bargains and expected discounts but if they found the right house they purchased. Some cash and some financing but they bought and that’s what’s important.

In our market there are so many homes you’ve got to do something to stand out from the rest. The one thing I’ve noticed is people want you to make it easy for them. I’ve always said it’s smart to have an appraisal and a home inspection done and available as well as all your disclosures. This not only makes it easy for the prospective buyer, but for you as well.

Having an appraisal and inspection on hand shows the buyers you’re serious about selling and you have done a lot of work for them. They can see the appraisal and see exactly why you’re priced as you are. This way you have a negotiating tool in their hands that helps to counter what their Realtor or friends say about the price. A home inspection tells them the house is in tip top shape and any problems have been fixed. Having these two items available helps with the bank appraiser and their inspector. It’s hard for them to devalue and question your numbers when there is another report right in front of them. Now you’re represented even though you’re not there. Keeps people honest. Also if there are issues you can fall back on your reports and have ammunition to protect your price. And I always offer a premium package home warranty with each house.

In one case this winter I had the buyers tell me the reason they choose my house was the inspection reports were already done and they had a good understand of the house before they placed an offer. They were concerned about making an offer then paying for an inspection and not being able to getting all repairs done prior to closing. And they liked the upgraded ceiling fans. See folks, people want everything done for them and if you do it they will pay you for it.

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.

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

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                                                     

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

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

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