I have been speaking with a lot of my mortgage broker friends and they are all despondent and depressed.Apparently some bank regulations are kicking in on April 1st.From what they're telling me, broker compensation from banks such as Bank of America,Wells Fargo, Chase, Citi ect...will be severly curtailed.This,they(brokers) believe will help with the demise of their industry.Looks like the "Government" sponsored crony banks want the consumer to deal directly with them for everything.I will post better details once I can verify the specific regs.
 
 Also, FHA mortgage insurance premiums are jumping from .9% of loan per year to 1.4% of loan per year as of April 15,2011.
 As an example $200,000 loan FHA, the premiums currently are approx; $1,800/year or $150/month. it will go up to $2,800/year or $233/month . Keep in mind the premiums used to be .5% or $1,000/yr or $84/mo. Rates may be low but everything else is going up(except incomes and the value of our fiat currency)
 
 Banks are also looking for six months mortgage PITI reserves for each property owned.If you are a brand new landlord,no dice !!!They want to see 2 years tax returns showing your rental property income.
 
 The above are reasons enough for you to learn creative financing.

Want to read a real-life example?

Stay tuned,In my next blog I'll show one I did in December. 

In my previous post, I put out some thoughts and observations of the current market and "Short Sales". As the overall Economy deteriorates (remember by one measure unemployment is 9.6% and when you throw in the under-employed,it's 17%+ ) the Banks are going to feel even more pressure with ever increasing defaults.The threats of Forclosure litigation against them is a huge problem. To absolve themselves,they would rather have the "Distressed Homeowner" deed the property to the buyer.This will get them off the hook.

Remember,the Banks are large multinational corporations that answer to stockholders, they need to make their quotas and quarterly numbers.You will start to see a push from the banks to close on the "Shorts".Problem is...the banks and many real estate brokers in their infinite wisdom have made it extremely difficult for investors to buy.For some reason they seem to only want to deal with homeowners(which have really dried up).Perish the thought that you may make a profit off their poor loan decisions !!! Its like a person in shark infested waters holding on to a bar of gold as he's sinking and refusing to hand it off to the person holding a life line.He rather sink or be eaten then let the person trying to save him make a profit. BofA comes to mind with their 30 day re-sale restrictions. Now the point of this blog was to explain why I think "Shorts" will become more profitable, In my next blog,I will suggest some strategies and tactics

I will give you my insights as someone involved in analyzing tens of thousands of "deals" and being involved in some fashion in the settlement process since 1994 from the view point of a principal partner of a formerly large Title Insurance Agency.in New Jersey My primary role was Vice President and Head Underwriter/Examiner besides my ancillary role as baby-sitter to a staff of 25+(back in the boom years). Even back in those days,flips were frowned upon, but tolerated if properly disclosed,coordinated and executed by honest ethical "Wheeler-Dealers".The Title Insurance business is a volume game with low profit margins and "high expenses" to the Agent/Insurer. We hate risk and litigation. The Title Insurers have been scared by "Pretender Lenders and Attornies" Almost All Will NOT Allow Participation to a Flip by their Agents" So don't call me on flip/double closing questions. I'm not gonna lose my Underwriter/Agent contract to make a few hundred bucks to your tens of thousands. Simple Math...I could be a blunt person at times.

The Pretender Lenders are now choking on their own arrogance and restrictive rules with increasing inventory and loses. We are in a "Buyers" Market, but they act like Real Estate at retail prices are a hot commodity?

Now why read my blog? Well, I'm am now one of those "Wheeler-Dealers" in Real Estate. For the last year I have been preaching that the opportunities lie in REO's and not so much in "Shorts". The banks prefer shorts because they end up with more not less,while once they take possession they become the "Distressed Seller"

Now without making this blog too long here are a few thoughts of mine;

1) Almost ALL Foreclosure suits(in NJ) could be dragged out for YEARS. Values are dropping

2) Almost ALL could be challenged by a half way descent attorney,but MOST aren't because they would ask for a large retainer(opportunity here,for those thinkers out there"

3) Most Investors think "Short Sale or REO's are all deals" THEY ARE NOT, They are Opportunities and Possible Deals.

4) Pay attention to the news about the validity of MERS,Robo-signers,Title Insurability, Foreclosures being challenged after the bank forecloses.

5) Most Investors think that knocking the lender down and getting 60cents on what was owed is a good deal.Not True !!! Example; Amount Owed $350K, you talk them down to $210K,but the market value now is only $240K.You want to flip it,but you just took on a high risk retail flip.You have it at 87.5 cents on the dollar,after closing costs,transactional lender fees,sellers concessions,realtor/attorney fees figure 10% your left with about $6,000....might as well been the realtor. By the way, this is typical !!!

6) The above example is NOT a deal but could have been if structured differently

Stay Tuned...for some of my Solutions

I bet the headline "Why Paying 50% after paying 10% more+ 0% is Better than Paying 15% after paying 9% less+6%" got you just a little bit confused. A lot of investors with little cash or credit rely on "Hard Money" lenders(HML) to fund their transactions.Let me illustrate a "hypothetical"scenerio using a typical investor formula;

ARV= $250K repairs=$50K. You have to buy at around 60%ARV if you could find a 65-70%ARV HML so you can pay the points and closing costs(or its coming out of your pocket) so lets works the numbers;

Purchase price(pp)= $100K + Fix up=$50K= $150K, but now you have to pay the HML its points and you also have closing costs lets call it 6% which will be usually financed in the loan(note** I am simplifying and rounding#'s) So you end up borrowing around $159K. Lets say that you were really good and from soup to nuts you sold the property in 6 months for $225K(oops the market dropped 10%). Take away about 11% in selling costs(taxes,legal,concessions,commissions) and your net sales price is now $200,250- $159K loan= $41,250.....but wait,in the interim you had to pay $12,000 to the HML in mortgage payments by borrowing $14,000 off of high interest rate credit cards !!! Your left with $27,250, still a respectable sum, but what if you took a year to sell, your left with $10K,what if he market dropped 5% more...Your wiped out !!!

Well What if....

You induced the seller to sell to you for $110K(thats right, 10% more !!!) but only if you can pay them after you rehab and sell(+ 0% financing). Instead of debt financing you get Equity financing for the closing and rehab at the cost of 50% of the profits....Lets do the #'s as in the previous HML example;

Sales price after 6 months=$225K, net sales price=$200,250 - $55K(rehab and purchase closingcosts) - $110K owed to previous seller= $35,250 you give 50% or $17,125 to your Equity partner(62% annualized return ) and you made $10,000 less than if you used the HML ?

You may be asking why I think the second example is more preferable?

1) No Stress of Payments...where and how was I going to get the money to pay the HML, How much time am I dedicating to finding "Bill Money"when I could be more productive looking for my next deal

2) Safer Hedge against the downside.The market could drop an additional 15% and we would not be wiped out !!!

Hard Money Lenders definately have their place ,I am friends with some of them and have occasionally utilized that resource,so this is not a slight to them.

Learn this technique from the "Millionaire Maker" himself; Peter Fortunato on October 23rd

Do you watch the News? You know the headlines and topics.

Real un-employment over 17%

Banks using Robo-Signers, Forclosures being challenged

Rates at all time lows,but no one is lending

Tight credit conditions,...Inflation...Deflation...Double Dip....it goes on and on...

Isn't it true that lots of people these days are either; broke,going broke or afraid of going broke? Ask the average person in Real Estate on the outlook of business, and they will give you a pessimistic answer.

What I find strange is the dis-connect of why Investors at all experience levels, STILL DO NOT REALIZE THAT THE BANKS DO NOT WANT TO BE IN THE MORTGAGE BUSINESS THESE DAYS. Think about it....They have tons of bad loans and inventory, tons of new regulations, threats of class action law suits, and yet the average person expects a loan from a Bank to buy the very same property that has caused the lenders headaches in the first place,and for a lower rate to boot.

Isn't it SAFER, EASIER and MORE PROFITABLE to CREATE AND CRAFT YOUR DEALS ON YOUR TERMS?

What do you think was the fastest time, from Contract to getting a Deed ,that I have bought a house in?

Answer; less than 2 hours !!! (May 2009, and it was a nice house in a nice neighborhood,I also had it sold in a little over 90 days for a $38,000 profit)

In October 2009, I bought a house in 2 weeks, and that was because the sellers needed time to pack(I offered to close in 48 hours!!!)

None of the prior situations was a short-sale or REO,but rather houses with big equities and motivated sellers that needed a solution to a pressing problem. I also never went to a bank to beg for a loan(they wouldn't give it to me anyway)nor would these deals ever take place if I had to wait 60-90 days to hear from a bank.

I created my economy on my terms because I knew how.

Peter Fortunato is the master of these techniques. He will be teaching a workshop in New Jersey on October 23,2010 sponsored by this group. People all over the country usually have to fly to Tampa,Florida to attend his workshops which are few and far between.

I mentioned thru blogs that I recently sold a property. As I was sitting at the closing congratulating the 1st time home-buyers,It reminded me about when I purchased my first property in 1996.It was a 2-Family REO in Union that needed major rehab.I purchased it for $94,000 with 15% down($14,000...all borrowed) and my mortgage was 12.5 % !!! I borrowed around $25,000, rehabbed it(2 new furnaces,roof,siding,gutters,2 kitchens,2bathrooms ect..)needless to say,I busted my rear for months doing a lot of the work myself nights and weekends. I ended up refinancing it around March 1997 to pay back the loans, so I had a mortgage for $125,000 at a cheap 9% !!! I rented the first floor and rented the second floor to friends and myself. The rents collected paid for everything (my portion of the rent was $50/month).I was paying $600 that 1st year for living expenses and living for free plus making money the 2nd year. I stupidly sold the property in 2000 for $195,000.

Now, the reason I bring up this story,is to illustrate "what could've been"if I never sold the property or refinanced and kept paying at 9%.To keep this simple, I will pretend that I never moved,and all the rent increases and cashflow went to pay taxes,improvements and maintenance;

I would owe around $104,000...I could kick out my friends and have the apartment to myself,living for $400/month...The property in this market is still worth $280,000+ (In 2006 worth around $380,000) I still would have equity of $176,000 and living for under $5,000 a year !!!

Which brings me to my point;

1) The buyers of my property Wednesday paid close to retail (87% of $260K= $225K +/-)

2) They have a 4.25% 30yr fixed total payment $1,967 PITI/mo

3) They put down+ closing costs around $15,000 (money invested)

4) They could easily rent 2 apartments for combined $1,600(very conservative #, I know I'm a landlord)

5) They are living in the third apartment for $367/month + $200/mo utilities,water=$567/mo or around $7,000/year

6) 10 years from now around $172,000 will be owed

7) The 2006 Value was around $450,000, is it a safe prediction that in 10 years or by October 2020 that it'll be worth the 2006 price? That's around $280,000 in Equity

Can you see now that you can buy close to retail and retire wealthy in 10 years.

A few weeks back I posted a blog about troubleshooting last minute deal-killers. I am proud to report that the deal finally closed. The problem I had was that although the "Fair Market" set the price,the deal hinged on the buyer getting financing from a bank. The Banks are running scared and so are their appraisers.

I could've risked re-marketing but I was now 6 months in,and buyers were drying up. Here's what I did;

I was willing to take the reduced $225,000 price only if I could get something I valued at $25,000 in exchange

I was not willing to take compensation in the form of a 2nd mortgage note, You may be wondering why?

a. Although borrowers were qualified for a higher mortgage amount, the lenders these days rarely allow secondary financing.I was not about to do a "silent second" without disclosing to the lender and if I disclosed,the deal would more than likely die.

b.Even if I decided to take it,I would create a tax liability of around $10,000 due by April 2011 !!! It's one thing to collect $25K and owe $10K in taxes but entirely unacceptable to collect $750 in payments this year and owe $10K because of it (sidebar- as an investor, do not forget your silent partner ...the IRS)

The solution for me was to purchase from the buyer an Option to re-purchase the property anytime until September 2022 for $225,100. There is no tax liability for the Option until exercised or abondoned

The buyers are a really nice,hard working family.They really love the home and it is affordable.I have no plans right now or the near future to purchase back the property. However in time, when this chaos is behind us,values will correct. Someday the buyers will come back to me.

by the way,even without the Option we still realized a pre-tax profit of over 25% in 7 months, close but not quite 50% annualized, but good enough

PETER FORTUNATO will be here in New Jersey October 23rd he is the Master of these types of techniques

Scenerio; You have a property for sale for which you conservatively priced.Many recent comps and your right there in value.You even had 3 offers within 5% of your sales price.You accept the $250,000 offer,get thru Attorney Review,home inspections and various other speed bumps.After 50 days,you are one week from closing and a nice payday and BAM !!! An obviously inferior property in the interim is reported as sold and the bank does an appraisal review and chops 10% off their appraisal (according to dictionary.com definition of Appraisal; an estimate of value,as for sale,assessment,or taxation). Value is subjective. I could go to 10 different appraisers and get 10 different answers. The bank is not cutting any slack. They will base their loan on a $225,000 purchase price. You can close in 7 days and lose $25K (of your potential profit) or you can Troubleshoot..... I am currently in this situation. You may be surprised of the proposed solutions I came up with to avoid losing the $25K.....I'll keep you posted.............

If you are one of the few qualified borrowers that plan on buying an owner-occupied home that so happens to have a long job history with documented W-2 income,lots of assets(other than real estate,which is taboo these days) and a perfect credit score ....don't read this. For all others read on...

Would you come to me for a loan if I demanded all of the following;

1) Since you are an investor, I want you to put down 20% + in traceable"seasoned" cash from your bank account

2) My rate and terms,take it or leave it

3) You have to use my "low opinion of value"(appraisal)

4) I will lend to you only personally,so if something goes wrong, I can ruin your credit,seize your funds,take the house,garnish your pay,levy your bank account and go after everything you own

5) Give me 4-12 weeks to make a decision,but keep in mind I may say OK but I reserve the right to change my mind at the last second

6) I want you to sign about 50+ pages of documents, none of which you have any say

Sounds HARSH !!! but people regularly routinely agree to the above, when they borrow from a bank !!!

Never mind that in a declining market,all of the increased delays adds market risk to you....remember alot of times you have to deal with this,over again with your buyer when you are selling.

It's much safer, and more profitable to learn how to buy and sell without the banks.

Learn these techniques, and become more prosperous.

We all know opportunities abound from "Distressed" parties in todays market. By "Distressed" parties, I am not referring to homeowners. We have all dealt or heard stories about banks losing paperwork,short sales taking 2 years,restrictions on re-sale,non-assignable contracts,per diems and "fines" for not closing on time, the list goes on and on.Somewhere along the line we have been taught to only deal with "Motivated" sellers,but for some reason, even though the banks are really the"Distressed" (I sympathize with the homeowners plight,but they are living for a reduced cost or free) the banks do not seem really motivated because they are still in denial. Many Real Estate Entrepreneurs and Investors spend countless hours,days,weeks,months and even years dealing with "Unmotivated Distressed Banks" and get frustrated.Thats why whenever I have a "short sale" I outsource to specialists.

What seems to be overlooked today are "Motivated Sellers" that are not in Foreclosure,behind on payments or "not underwater". People that need "Solutions" to their real estate "Problems" abound. Believe it or not, almost 40%+ of all properties are also "Free and Clear". You can buy/sell/option/lease/flip in weeks if not days without dealing with the banks !!!

I strongly encourage everyone to learn techniques which fall under the umbrella of "Creative Financing"

Pete Fortunato is holding a workshop in October, he has been dubbed "The Millionaire Maker" for teaching countless successful people these techniques of acquistion and dispostion of Real Estate without banks.

Thanks for reading,

Winston