Tax Sale Auction – How To Prepare Yourself For Tax Sale Auctions

Tax Sale Auctions Are Great For Buying Bargain Real Estate Investments. Here’s A Video That Will Prepare You For A Tax Sale Auction…


https://www.youtube.com/watch?v=hGFfp_u6KJU

Understanding Short Sales And The Short Sale Process Part II

If you are now joining in on this real estate investing training discussion on Understanding Short Sales,  we are picking up where we left off in Understanding Short Sales and The Short Sale Process Part I. Once a property is “in foreclosure” the bank will be more willing to entertain offers that are less than the full value of the mortgage balance owed to them since the bank now has an incentive to negotiate.

How Banks Analyze Short Sale Offers

The bank has to carefully analyze what they believe the house is worth, and what they think it would sell for at a foreclosure auction or as a bank owned REO property. Then they need to consider the time it would take to get the house back and how many months of monthly interest payments they would lose and how much that would cost them. They also have to consider the legal costs of the foreclosure lawsuit as well as the holding costs and disposition costs to sell the property. The bank also looks at the current condition of the property and if any repairs are needed.

Occasionally the bank will consider selling a property for as little as 50% of the fair market value which can be much less than the face value of the mortgage. Usually this occurs when there is substantial damage and rehab required to bring the property to a marketable condition. A more typical short sale is probably at around 80% of current fair market value although each property is different and there are no set guidelines (although with some lenders there are). I have seen banks decline high offers which they should have accepted and I have seen banks accept very low offers where I was surprised that the offer was accepted. Each case depends on the property in question, the comparable sales, the condition of the property and many other factors. The ability to have a good short sale negotiator and a good working relationship and understanding of loss mitigation is also a key factor in the negotiations.

Of all the factors that the bank considers, the condition of the house and how much damage it has is one of the most important from the perspective of the lender. Houses that are in pristine move in condition do not sell for a lot less than fair market value. Some lender guidelines allow for an offer of no less than 88% of current fair market value. However if the property is substantially damaged from fire, flood or any other damage that makes the property uninhabitable then the bank will be willing to accept substantially less than the 88% guideline. If the house is abandoned, or is in a high crime area with visible signs of gangs, graffiti, squatters or illegal activity such as drugs then the bank will be very willing to negotiate a quick sale at a reduced price since the bank does not like the liability of these types of properties. The key is to communicate this information to the bank which is why it is so important to have an experienced short sale negotiator.

Negotiating a short sale is a time consuming and cumbersome procedure. It can typically take a few months of back and forth negotiations between the buyer, the seller and the banks loss mitigation department. This is best handled by an experienced short sale negotiator who negotiates short sales full time.

The next installment of  Understanding Short Sales and The Short Sale Process will cover Short Sales Negotiators, required documents and buying short sale investment deals.

Understanding Short Sales And The Short Sale Process Part III

The short sale negotiator will request supporting documentation from the seller that the bank will request in order to process the short sale file. The ultimate goal is to have the short sale offer approved by the bank so it is imperative to give all documents to the negotiator as soon as they are requested in order for the short sale file to be processed as quickly as possible.

The bank will request the following items:

• Documentation and pictures of any damages to the property (the more the better). If there is mold or severe damages to the property then the bank will be much more willing to negotiate.
• Comparable sales supporting the cash offer from the buyer and why the bank should accept that low price. This must be based on solid comparable sales number of other bank owned properties and short sales that have recently sold.
• Broker price opinion (BPO) as to the value of the property according to a local real estate agent (damaged properties will have much lower BPO’s). If you can you should try and meet the BPO agent to ensure that your BPO is not out of line. This is not always possible.
• Financial hardship letter indicating why the homeowner can no longer afford to pay their mortgage. This letter should be written by the homeowner and should explain to the bank why the homeowner can no longer afford to pay their mortgage.
• The bank will request at least 2 years of tax returns
• The bank will require 3 to 6 months of recent bank statements
• Any other relevant information as to the financial situation of the homeowner for example job loss, disability or any other reason that resulted in the homeowner wanting to sell their house.
• Proof that the seller is prepared to file bankruptcy can help the case of the seller since this can significantly delay the foreclosure process. Many sellers facing foreclosure are behind on all of their bills and so bankruptcy is a real option for them to consider. This scares the banks since it means more time until they get to recover the property. If the homeowner has met with a bankruptcy attorney and is contemplating filing bankruptcy then make sure that this information is in the file and is also mentioned in the hardship letter.
• Estimate of damages and repairs needed and the cost of these repairs for the property to be in marketable condition. You can use an estimate from a general contractor for this since in this case high repair estimates from a general contractor will help justify your low offer.
• A solid case for why the buyer is not prepared to offer more for the property with supporting evidence. Good examples are current REO sales prices and estimates of repairs costs for the property. Sales at the same price as the offer price, or other low comparable sales by cash buyers on bank owned properties and short sales.

After all of this information is gathered by the short sale negotiator, it needs to be put together in a “short sale package” and then submitted to the bank. The loss mitigation department at the bank then reviews this package and takes it to their supervisors for review. The process is extremely time consuming and cumbersome and there is no guarantee that loss mitigation will even be interested in negotiating at all. They can also ask for additional bank statements, more documents repeatedly so it is important that the seller is willing to cooperate with the negotiator in a timely manner.

Any buyer will have to be a cash buyer so a proof of funds or a bank statement is an absolute necessity in order for the bank to take the buyers offer seriously. The buyer needs to show that they have the ability to pay for the property and that they can close quickly for cash. The buyer must be willing to show the bank a HUD (also called a “net sheet”) of exactly how much the bank will net on the sale of the house after all closing costs, commissions etc. The homeowner cannot derive any economic benefit and must be prepared to walk away from the house without receiving any compensation at all from the buyer or anyone else (violating this is mortgage fraud which is a felony).

It is preferable that the negotiator submit an offer with the condition that there will be a  “non-deficiency judgment” meaning that the bank will not go after the homeowner for the difference between the amount owed on the mortgage and the amount that the bank is accepting on the short sale. The previous owner will be required to report the difference as income (although currently this requirement has been waived for primary residences for another 12 months by the Obama administration). The bank will issue a 1099 since they will be deducting the loss for income tax purposes and the banks loss will be the sellers gain which by definition means income. Filing bankruptcy will not absolve the previous owner from any taxes that are due in the following year as a result of this 1099 so the negotiator should make sure that the seller is aware of this fact.

There is no guarantee that the bank will accept, review or even communicate with the negotiator once they have submitted a short sale offer. However over the past few years banks have become much more receptive to short sale offers than in the past and some banks are expediting the process with some short sales being completed in as little as six weeks.

It can be quite disheartening for a seller to spend a lot of time on a short sale with a negotiator and then to get a denial from the bank. Remember that as the seller there is no guarantee that the bank will accept the buyers offer. Many cash buyers that purchase these properties are buying the property with the intention of keeping the property as an investment property. These buyers will not over pay for the property and the buyer needs to offer high enough for the bank to accept the offer. There is no guarantee that the buyer will offer enough and there is no guarantee that the bank will accept the buyers offer. For this reason it is very important if you are considering a short sale to act immediately in order for the negotiator to have sufficient time to negotiate the offer and in order for the real estate agent to have sufficient time to market for buyers for the property. If you are behind on your payments and considering a short sale please remember that time is your enemy and you must act quickly.

Happy Days Are Here Again?

It looks like the recession of the housing industry is in full recovery. Unemployment remains high in many areas of the country and GDP growth is slow. But the housing market is looking good.

Higher demand paired with lower inventory has led prices to increase across the board. This limited inventory is mainly due to two factors: years of repressed new home starts and lower foreclosure rates.

For the last 5 years, new home starts have been down. 2013 marks the first year since the bust when home builders see promise in the market place. But for five years, building was down. Now that the demand and prices have come back, builders are scrambling to meet demand. Until then, buyers will continue to compete for properties in the current inventory.

Over the last year, distressed property sales have dropped from 25% to 18% of all Real Estate transactions, according to Chris Isidore of CNNMoney. These sales, dominated by bank REO’s and short sale properties, have kept prices low in many markets. I’ve seen a reduction in the number of these types of properties first hand. As foreclosures become less and less a part of the sales inventory, traditional sellers end up as winners.

It’s as simple as the law of supply and demand. When demand outpaces supply, prices rise. The proof is in the pudding of our current housing market.

Though mortgage interest rates have begun to creep higher, they continue to stay near historic lows. Following the restructuring of the lending industry at the end of the last decade, banks are doing a much more thorough job at screening borrowers. People know they’ll need to jump through hoops, and they are prepared. What we are seeing right now is a pool of buyers that are qualified and ready to move into homeownership. This pool continues to grow. Buyer traffic is up 29% from last year, but inventory is down 10% (Gary Thomas, NAR President).

As a Real Estate investor, it’s easy to get excited when I see this rise in prices. It’s time to dust off those rental properties purchased at the bottom of the market and start getting ready to sell. If you weren’t lucky enough to grab any of those great deals, do not despair. There is still plenty of good news.

Last year I saw one of my students make nearly $300,000 doing 4 rehabs. His goal this year was to flip 12 houses, but competition for fix-and-flip rehabs has been pretty cut throat. So what’s the result? He’s only done 2 so far this year. But…the profits from those 2 deals are nearly what he made last year with 4 projects.

The moral of the story is that patience is a virtue. Deals may be tough to get right now. Competition has made it harder to get the right properties at the right numbers. When those deals do come, the reward is the increased profits fueled by the upward momentum of sales prices.

So, are the happy days of quick, easy money back in the Real Estate investing industry? Quick and easy are telltale signs of pending catastrophe, so I hope not. But signs of a full recovery in the US Real Estate market give me a lot of hope for the rest of the economy. There will always be opportunity for smart investors to make money in Real Estate – whether the market is up or down.

Find Bargain Priced Bank Owned Properties & Short Sale Deals

The Foreclosure Crisis has created an abundance of bank owned REO properties and short sales. Many of these properties have been listed on the market and the increase in inventory has caused real estate prices in the U.S to decline dramatically over the past few years. In some states as many as 1 in 10 homeowners are facing foreclosure and cannot afford their mortgage payments. Many of these homeowners would like to sell their home in order to avoid foreclosure and are considering a short sale.

This crisis creates an opportunity for real estate investors. Cheap bank owned properties can be purchased for pennies on the dollar and are selling at a substantial discount to their true market value. These bank owned REO properties are typically listed on the MLS (multiple listing service) and can be viewed on many websites such as www.realtor.com, www.zillow.com orwww.trulia.com.

Buying real estate now is an incredible opportunity for all real estate investors. This is true whether you are buying a house for yourself, a house to fix and flip or a house to keep as a rental property. Prices for U.S real estate are now so low that this represents a historic buying opportunity. And this represents an opportunity for you regardless of whether you do or do not have any cash to invest.

If you are interested in buying a bank owned property to wholesale, flip or keep as a rental property then you might have spent a considerable amount of time searching online on real estate sites for bargain priced properties in your area. And if you have, then what you have found has probably been pretty discouraging. There is so much competition today from buyers looking for bargain priced properties especially lower priced homes. The cheaper the house the more likely it is that landlords and rehabbers that want to fix and flip these houses have already purchased them. If you have been trying to buy a bargain priced bank owned property for cash then you have probably found that almost every house is either sold, contingent or pending sale.

Whatever properties are still available are often short sales where the bank has not even approved the short sale. These short sales are often listed by realtors that may or may not have previous experience in submitting short sale offers to banks. As a cash buyer it can be pretty frustrating to actually try and buy a bank owned property only to find that all of the good properties have already been sold. And this applies regardless of whether you are buying a property for yourself, a property to wholesale or a property to fix and flip or keep as a rental.

Buying properties from other wholesalers makes your job as a real estate investor much easier. All you need to do is sign up for their cash buyers list and then wait for them to send you an email with their latest wholesale real estate deals. If you see something you want to buy then you can make an offer and buy it from the wholesaler who will make a small fee.

If you don’t want to buy properties from other wholesalers and you want to find the properties by yourself then you will need to learn how to find great deals that other investor’s cannot find. And the way that you will do that is by not behaving the same as all the other wannabe real estate investors out there. You will need to look for deals in places where no one else is looking. In other words you will need to learn how to beat the competition (all the other cash buyers). And the way that you will do this is by learning exactly what wholesalers do and how they consistently manage to find all of the great deals before other investors do.

The best way to find great deals is to do what wholesalers do which is to locate them yourself. The way that you do this is by creating your own advertising campaign to find bargain properties directly from distressed homeowners that are currently facing foreclosure and thinking about selling their home. You see, prior to a property going to the foreclosure auction and selling at the courthouse it is still possible to submit a short sale offer to the bank. And right now, with the abundance of foreclosures on the market the banks are beginning to take short sale offers much more seriously than they did in previous years. In fact in many cases they are even paying the owners money to complete a short sale. We have recently seen cases where the banks have paid homeowners as much as $20,000 to complete a short sale.

The reason for this is really quite simple. When a bank has a bad loan on their books they are forced to pay a mortgage insurance premium. This premium can be as much as 15% of the value of the outstanding loan. In addition to this, legal fees to foreclose on a property can be substantial especially if the homeowner hires a foreclosure defense attorney. It can take a bank six months or even longer to finally get the deed to a property and take the property back.

This means that while the bank is waiting to take possession of a property they are losing at least six months or more of interest payments. In some cases it can take as long as 2 years for a bank to get their property back if the foreclosure lawsuit was not filed or served correctly or if the homeowner files bankruptcy.

Dealing With Short Sale Real Estate Investment Deals

Homeowner who is behind in their mortgage significantly usually means foreclosure  in the near future. At that point loan repayment and remortgage plans are no longer viable options. If you want to purchase this home as a real estate investor you will have to deal with the mortgage company or bank directly to acquire this investment. It’s very likely that the house is worth much less then the outstanding loan on the banks books. You will have to arrange for a “Short Sale” in which the bank agrees to take less then what is owed by the current homeowner.

What Is A Short Sale?

A short sale is the selling of a house for an amount that is lower than the balance left on the mortgage loan. It is a better alternative to foreclosure for both the lender and the borrower because the lender avoids the exorbitant fees that a foreclosure entails and the borrower lessens the negative impact on his credit score, compared to the effect of foreclosure on credit score.

A short sale is an agreed upon option by both the lender and the borrower but, if the sales proceeds do not cover the total remaining balance of the loan amount, the borrower is still obliged to pay the remaining amount. However, in most cases lenders forgive borrowers of the deficiency amount, providing a huge advantage to the option of a short sale.

Not all debtors are eligible for a short sale of their house. Most lenders approve short sales if 1) the owner of the house has undergone a hardship, such as a divorce, loss of employment or a medical emergency, 2) the loan amount is more than the value of the house, 3) the owner is incapable of paying the current monthly amortization and, 4) the owner is not eligible for a repayment or remortgage plan.

What Is A Short Sale Package?

Simply put, a short sale package is a bunch of documentation papers that are required to initiate a short sale including but not limited to an authorization to release form, past 2 years of tax returns, IRS form 4506T, 2 most recent pay stubs, 2 most recent bank statements, a hardship letter, a financial worksheet, lien worksheet, sales contract, listing agreement, pre-approval letter for the buyer, a HUD closing statement, current mortgage statements, the Making Home Affordable Affidavit, etc.

In preparing a Short Sale Package or presentation you may run across Short Sale Terms that you’ve never heard of before. It’s a normal reaction to say this is way to hard,  and move on to the next deal.

A short sale may be the best investing strategy for some investment deals. They may require a little more time and paperwork then other types of deals but the can pack a real punch in terms of profit potential. Hope this investing article helps you with your next deal.  We’ve created a informative video for you as well in our video library –  Short Sale Package Checklist

Until next time, Camille……

8 Common Short Sale Questions Answered

Curious About Investing In Short Sales? Here’s A Quick Video Covering Common Short Sale Questions…


https://www.youtube.com/watch?v=kf82Uxm_xX4

6 Reasons To Invest In Pre Foreclosures

Ever Consider Investing In Pre Foreclosures? Here’s A Quick Video Teaching You More About Investing In Pre Foreclosure Real Estate…


https://www.youtube.com/watch?v=vhG3rEZX_qo

The Benefits Of Short Selling A Property After Bankruptcy

When it comes to the big picture, a bankruptcy filing comes with its own list of benefits.  From curing deficiencies to offering debtors a fresh start, bankruptcy can raise insolvent borrowers from the murky waters of bad debt and put debtors back on the righteous path to creditworthiness.  But without a proper strategy, the road back to solvency can be long and hard.  It’s no wonder then that many savvy borrowers are opting to short sell after their bankruptcy discharge.

If you’re among the thousands of debtors who’ve surrendered their homes in a recent bankruptcy, you may be wondering, what’s the point of entertaining a short sale? The bankruptcy has essentially wiped your obligation on the home, so why bother?  Let’s examine some of the numerous ways in which short selling after a bankruptcy can work to your benefit.

It’s not over…

Though you may be relieved to know that you’re no longer liable for the mortgage payments, it may frighten you to find out that caring for the home remains your responsibility.  That’s because, while your personal liability for the debt was eliminated, your name is affixed to the property until your lender has the property foreclosed.

A short sale puts you in control!

A short sale enables you to take the wheel, helping you get rid of the property much more quickly than passively waiting for your lender to foreclose.  Lenders often drag their feet on foreclosures, leaving you to hang in the balance.

In the meantime you will be responsible for the home’s utilities, maintenance, HOA fees and the like.  Not to mention, remaining on the title will make it extremely difficult to qualify for new a mortgage loan anytime soon.

More time at home and less time in wait

For bankruptcies that end in foreclosures, the “seasoning” or waiting time a borrower must wait before qualifying for a new mortgage loan can range anywhere from three to seven years; while the seasoning period after a bankruptcy and short sale can be as little as twelve months!  As a side bonus, initiating a short sale can buy you additional time in your home (at no cost to you!) until the transaction is finalized.

Bottom Line

No matter the type of bankruptcy, having a short sale after a bankruptcy discharge can truly be a benefit to your emotional and financial well being by making the best out of an otherwise unpleasant situation.  A short sale will expedite the recovery time and will result on a much smaller hit on your credit.  If you are considering bankruptcy, or need further guidance on whether a post-discharge short sale is right for you, consult with an experienced bankruptcy attorney to explore your options in greater detail.

Are You An Investor Or Are You A Problem Solver?

I’m always reminded by the plaque on my wall that says, “We are compensated only to the extent that we add value to the other people”. Simple but instructive. The human element should not escape real estate professionals.  The only way to get any seller to work with you is to convince them you can solve their problem.

When marketing to probates, you can convey to the executor that you can close quick on a property, pay all cash, reduce attorney fees, utilities and mortgage payments, avoid repairs, etc, but these are intellectual features, while “people buy on emotions and then justify it with logic”, said the late renowned sales trainer Zig Ziglar. Features are the language of intellect, benefits are the language of emotion.

What would be a better way to sell diamonds?

“This ring features a 1.4 carat, pear-shaped cut white diamond with a Sl1 clarity grade and an H color rating”.

Unless you are gemologist, this ad is gibberish. Here is what might sell diamonds better:

“Imagine that special evening when you gently slip this on your finger and stare intensely into their eyes. She peers at this symbol of your devotion, the promise of your future together, and tears begin to glisten. An adoring smile spreads across her face, and at that moment your love is sealed forever”.

What is in it for the seller of a property that has entered probate? Can they move on to build better memories, get a good night’s sleep by relieving the stress of bills and let go of the loads of bricks on their shoulders? Return to their normal day to day affairs, stop the in-fighting among the heirs, which brings out the worst in people?

These are the problems that executors want to solve. Yet we have seen some campaigns where an investor sends a generic “We Buy Houses Fast” postcards to a grieving family, rather than taking the time to offer their condolences and discover the family’s needs. At best, it is impersonal, and at worst, strikes as disrespectful and generates complaints.

The executor of an estate is not initially concerned with how many homes you have bought, what your track record is or what designation you received. They merely want to know, WHAT’S IN IT FOR ME? HOW CAN I FEEL BETTER?

“I don’t sell. But I can solve problems”

That according to Ken Lawson JD, real estate attorney and owner of Lawson Group Mediation Services, which handles delicate real estate situations such as distressed properties, bankruptcies and separations. The stereotypical thinking of people limits the possibilities that you as a real estate professional provide. They expect an investor to rip them off. They expect an agent to sell their home. They expect a lawyer to advise filing bankruptcy. To overcome this stereotype, Mr. Lawson advertises “debt relief without bankruptcy”.

It is this solution based, problem-solving approach that is attributed to the success of Rick Geha, a partner in Keller Williams Benchmark Properties that leads his team to record-breaking sales. When talking in a YouTube video about working with distressed homeowners, he says,

“When your whole life is spent making sure… clients are well taken care of… that your reaching out to them, say ‘what can I do for you’, without regard to whether they buy or sell real estate from you, your whole life will open up, and people be throwing leads at you”.

In our view, it is this fundamental role change, from Real Estate Investor or REALTOR, to problem solver, that defines success, particularly in the sphere of sensitive real estate transactions such as probates or distressed properties.

How to Flip A House In 9 Easy Steps

Unless you’ve been living under a real estate rock the past 12-18 months, learning how to flip houses is a big deal right now.

With multiple reality television shows like Flip This House and all the others – it seems everyone hasflipped for house flipping.

Just last week, I even got a call from US News and World Report to help them with one of their articles as a “Flipping Expert”. Get this – the report on House Flipping was eventually picked up by Yahoo!

It just seems like there are so many people hyping the house flip thing, it seems a bit out of control.

House Flipping Hits Hollywood?

Even famous and even not-so-famous-anymore celebrities (what’s up Vanilla Ice) are now getting into house flipping…proving that Hollywood too it seems has gone flip-crazy.

And although new foreclosures are declining, the fact remains that there are many great opportunities available to get into good house flips – even as we work through the foreclosure inventory and climb our way out of the great recession.

House flip deals are still available and this makes for an ideal environment for people want to fix and flip houses – which may have something to do with the current frenzy.

So What Are The Steps to a House Flip?

When Kim Kardashian starts talking about house flipping…that’s an early sign that you need to get real.

Although house flipping has been hyped a lot recently, the fundamentals remain the same: it’s a great time to get into not only house flipping but real estate investing in general.

So let’s toss Vanilla Ice and Kim Kardashian aside and get down to how it’s done and what you can do to start doing it.

Make no mistake, house flipping has never been and will never be as simple and easy as the “gurus” would have you think.

Nor is it as easy as the reality shows would have you believe. Even if you ask them, they’ll tell you that it’s not as simple as it’s made to be on television.

House flipping takes hard work, education and in some cases years of experience to do really successfully. But that does not mean that the new real estate investor cannot start doing it successfully….

But to do that, there are some key steps to success – and although there is no way to explain ALL the little details of how to flip a house – it can be broken down essentially into nine basic steps.

So to illustrate the steps needed to flip houses, I’ve put together the following infographic which simplifies what is in practice a complicated process with multiple moving parts.

But knowing the basic steps involved to start can certainly get you on your way to house flipping success.

If you have any questions about this or other real estate topics just LEAVE a COMMENT below.

Flipping Houses: 3 Most Powerful Words In English Language

“Everything you hear, see, touch, taste, smell or sense in any way is an aspect of divinity. It is when you judge it to be something else that it shows up as something else in your life.  Therefore, judge not, and neither condemn.”
- Neale Donald Walsch

Here are the three most powerful words you can use.  I recommend you incorporate them into your daily vocabulary… like now.

1. Appreciation
Appreciation is equal to love.  And love is the most powerful choice you can ever make.  It’s been said that every thought, word and deed comes from either love or fear.  And, if you choose love every time, you’ll have a magnificent life.  Try it…

Oh, and love is a choice, not an emotion.

2. Gratitude
It’s also been said that the most powerful prayers are prayers of gratitude, as if what you are asking for is a foregone conclusion… and you are simply saying thank you.  Expressing gratitude for some- thing before you have it is true faith.

Check out this great article: True Secret To Success

3. Abundance
Abundance is what I’m after… not money.  Money can come and go.  Did Mother Theresa have a lot of money?  No.  In fact, she had none.  She took a vow of poverty in order to align herself with the people she was caring for.  But, she had a world of abundance and resources.  She could travel the world without spending a dime.  And, she raised more money for her cause than any of us will probably see in our lifetime.

Abundance.  It’s everywhere.

So, look around, right now, and take inventory of the amazing amount of abundance in your life.  Abundance comes in all sorts of shapes and sizes – love, money, freedom, possessions, happiness, joy and much, much more.

Now, express your gratitude and appreciation and SHARE!

Andrew “The Maestro” Massaro

Is Flipping Illegal?

Is flipping illegal? This is an extremely misunderstood topic among newbie and veteran investors alike. The legality of flipping is swirling with myths and half truths and although I am not an attorney, I will lay out the facts that my experiences have taught me about it.

(Disclaimer: I am not providing legal advice in this article and for such advice on any legal related issues, always consult a qualified attorney.).

If you are (or are considering) flipping property, read this article start to finish. You are probably going to hear things you have never heard before and this may go against the grain of what you may have read or been taught in the past. Flipping property can be extremely profitable but the real estate industry is highly regulated and the participants involved can be quite litigious, so you need to understand what you are getting yourself into, (or what you are already actively participating in).

In order to get to the bottom of this incredibly important question, let’s first define what “flipping” is. When you “flip” a property, you get a property under contract for a low price and then resell it to a new buyer for a higher price within a short period of time. In some cases you may add improvements to the property prior to reselling to a new buyer but in other cases, you may not perform any renovations at all and simply assign your interest in the property to another buyer. Is it illegal to buy something at a low price and then resell it for a higher price to someone else?

Some would argue that arbitrage, or the act of buying an item at one price and then reselling the same item at a higher price is Capitalism 101. Some would even goes so far as to say, not only is it legal, but it is the foundation of our economy! So surely it can’t be illegal?

Legal pundits will hail the Constitutional right to the free alienation of property as the basis for why flipping is unequivocally legal. Whether you own the property or simply have a contract to purchase it, in either case, you have an equitable interest in the real property and therefore, you supposedly have the constitutional right to resell that interest for a profit. But does this apply in all situations?

Where Flipping May Be Illegal

Despite your Constitutional rights, each individual state has laws pertaining to flipping and some are not as favorable as others. Here are a few examples, although by no means an exhaustive list:

• Washington Law SBH 1843 states that if a person or entity buys real property and intends to renovate it and sell it for a profit and further will be reselling it within 12 months of purchase and, finally, plans to spend more than $500 in renovations, you, or your entity, must be a licensed and bonded general contractor. Notice it doesn’t say you have to hire one…it says you have to BE one. Thankfully for Washingtonian investors, becoming a GC is quite easy.
• Washington Law RCW 61.34 stipulates that flipping real property purchased from someone who is behind on mortgage payments and facing foreclosure may be construed as equity skimming and therefore, may be illegal. Although this particular law has more than one interpretation, the consensus among Washingtonian investors is to not engage in purchasing homes from people in pre-foreclosure.
• Maryland Law SB 761 prohibits those who are not licensed real estate agents, attorneys or mortgage brokers from engaging in transactions with people in pre-foreclosure. The consensus among non-licensed investors in Maryland is that flipping foreclosures is dicey at best, and many steer clear of them.
  • • 90 Day Anti-Flipping Law: This is NOT a law. This is an underwriting stipulation put in place by some mortgage companies and/or certain mortgage loans that require the seller of a property to have been the owner of record for a minimum of 90 days. FHA loans are notorious for this requirement. Even though the ban has been lifted, most mortgage companies that originate FHA loans demand the seller be on title for at least 90 days. Thankfully for wise investors, this 90 day rule is not a big challenge because certain mortgage originators are not required to meet this stipulation. Despite what a mortgage broker may tell you, they are not all created equal and just because one mortgage person must meet the 90 day stipulation, doesn’t mean they all must. Many, many investors have fallen victim to having their mortgage broker convince them that they MUST hold onto the property for 90 days before they can resell it. What nonsense!
    • Only Licensed Real Estate Agents Can Flip Properties: Every state has laws that describe what real estate income related activities require a license to be legally compliant. Most are very encompassing and can be quite frightening to read, especially if you are a brand new, non-licensed investor looking to get into flipping. Thankfully, most states have an exception to their licensing requirements that sound something like Alaska Sec. 08.88.900: Exceptions. A person who is not licensed under this chapter who manages or makes a real estate transaction with respect to real estate the person owns or is seeking to own so long as the compensation the person receives does not include any portion of the commission or other compensation paid to a real estate licensee in the transaction. The bold emphasis was added by yours truly. Having a contract in place with a seller signifies your intent to own the real property. This is actually an example of state law upholding your Constitutional right to the free alienation of property. However, as you learned in the previous section above, there may be situations, such as when a homeowner is in foreclosure, where you may need some sort of license to flip property.
  These are but a few examples of when flipping may be illegal. What others are out there? Please comment at the bottom on any examples from your state so we can all learn and benefit.

  Flipping Real Estate Myths

  The greater level of freedom of speech expanded by the internet has ushered in a ton of bad and inaccurate information. Here are some flipping myths circling real estate communities across this country that need to be cleared up.
  Hopefully this article gave you some clarification and food for thought. But if you are, or want to be, flipping, it would be wise to consult a qualified, local, real estate attorney and ask him/her, “In what situations or scenarios is flipping illegal?”

Flipping Houses – Market Your Properties Like A Rock Star (pt 1 of 4)

When I was learning to flip houses, the rule of thumb was, if it’s a good deal, it’ll sell. Well… let’s just say that’s not exactly the case today.

Why? Because there are a ton of wholesalers out there. And, because cash buyers have a lot of buying options. So, you need to be smart, clever, diligent and effective in your marketing. If not, you’ll end up canceling a lot of contracts.

Canceling contracts sucks. It’s a ton of wasted time, effort and since time is money… MONEY!

Not to mention the profit you missed out on.

So, I’m going to give you a step-by-step blue-print on exactly how to effectively market your available properties… so they sell. This is the exact stuff I teach my students… so pay attention.

Days 1 – 3 after you’ve received a signed contract:

1. Record and a video walk-thru, and take pictures, of the house.

It doesn’t have to look like it was produced by Marty Scorsese. It just needs to be something your buyers can see. And, don’t shy away from the parts of the house that need repair. Buyers want to see that stuff. Doing this will endear you to them and gain their trust. And, if you add a quick intro and outro to it, it’ll stand out that much more.

2. Upload the video to your “buyer” website… or use VFlyer.com as your site.

Add the video, but also add all of the info about the house, including % of ARV, CAP Rate and Rate of Return (if applicable), repairs (especially), taxes, HOA fees, pool, curb appeal, neighborhood, etc, etc, etc. And, really sell it!

3. Call all of your VIP buyers.

Let them know what’s available and where to find all of the information (either direct them to a website or send them an email). Throw in a few of the benefits, like “You’re going to love this one. We’re talking 30% annual ROI! It’s a landlord’s dream.”

4. Blast out an email to everyone you know.

Send it to your buyers, friends, family members, realtors, other wholesalers, etc, etc. You never know who is going to either want to buy it, or know someone who will want to buy it.

Make sure you offer cash at closing for referrals ($500). And, also make sure your email has this on it somewhere… “Non-refundable $2,000 deposit required.” This is a big one. No deposit… No deal. And include the pictures you took earlier. Your “buyer” website should include a feature allowing you to turn your posting into an email. Use it.

5. Put out 50 yellow bandit signs.

Put something like this on it:

3/2 block at half price!
20% annual ROI!
won’t last long
(XXX) XXX-XXXX

6. Post your property on online classifieds.

This needs to be done every other day. Post an ad on craigslist, backpage, kijiji, oodles and any other online classified you can find. To post to many at once, use postlets.com. And make sure you point out the benefits of buying thisfixer-upper you’re selling.

7. Use biggerpockets.com and connectedinvestors.com.

Biggerpockets.com has hundreds of thousands of visitors each day to the site. It’s a real powerhouse in our industry. And, you can post properties for free.

Connectedinvestors.com was created by a good friend of mine. It’s Facebook for real estate investors. It’s also free. Use it.

8. Print out flyers and plan to pass them out at a REIA meeting.

If you’re not attending your REIA meetings on the regular, you’re simply not trying very hard. You may meet a hundred chumps. But, if you meet just one guy who can help you make money, it’s worth it. Plus, there is usually a lot of good free info available.

OK, this is the end of part 1 in this series. Hope you liked it. Parts 2 – 4 coming in the next week, or so. Keep your eyes out for them.

Andrew “The Maestro” Massaro

How to Sell Your Rehabbed House Flips

No doubt, one of the most exciting parts of house flipping is selling. You have worked so hard and the sale is the sum total of the multiple steps you have taken. You raised some money having learned how to flip houses with no money, you bought the property, you repaired it and rehabbed it and now you’re ready to sell it.

When Selling – Go Back to ARV

When you first started house flipping, the ARV was the most important number to determine what you thought you could sell the house for once it was rehabbed; now you are ready to sell this sucker. You are probably extremely excited to see if your numbers will all come together.

All those many months of hard work are finally coming to fruition and you are looking forward to leveraging your success to maybe quit your job, start your own business or go along to your next house flip.

ARV is a cornerstone concept for any new house flipper and is the single most important number you need to know when house flipping. ARV is a the sale price you think you can get when you first did your house flipping analysis. ARV or after repair value is the price you hope to get when you sell your house flip.

If you stop and think, the price you sell for is the most important number to crunch when you flip. That number sets the tone for the entire project. If you can get houses really cheap, it doesn’t mean it will make you money.

So the ARV from your initial assessment is a huge number that sets the tone for the whole house flipping project. But the real number as to what the “after repair value” is now. This is the number of what you can sell the house for today.

ARV – How It Works When You Sell Your Flip

For example, your broker tells you can sell your house flip for $200,000. Chances are that your real estate broker got the pricing from using comparative houses which have sold in your area. Now, six months after you started, the house looks very nice and you feel that the ARV you projected 6 months ago, you can get it…or maybe more. All you need now is a buyer.

So because the broker tells you the price should be $200,000, do you go out and list the house for $200,000? Definitely not.

Especially when you’re first learning how to flip a house, and even if you’ve flipped dozens of houses, always get the advice of your team. You should ask the opinion of your real estate broker…she knows the market better than you. Chances are pretty good that there is nobody who knows the market as well as she does.

Chances are she may list the property at 5% above what you want to ultimately sell it for. In our model, to sell our flips fast, we price all our flips aggressively to move quickly as the profit depends on fast sales.

How to Use Real Estate Brokers When Selling

In an ideal scenario, the broker you list the house for sales with is the same one which you bought it from at the start. If you did promise the buying agent that you would sell the same property with her as well, you should keep your word and make sure you do actually list it with her.

This alone will do much for your house flipping reputation. It proves to the real estate broker that you are a credible and honest person, which will come back to you in the end. So if you made this tacit agreement to start, don’t start shopping around for another real estate broker; this is your credibility at risk.

Keep your word and keep your reputation. The house flipping and real estate world is tight knit, so its important to keep your reputation intact.

When your real estate agent does the market analysis and comps, this is vital info to determine if you will get the price you want. Chances are that you kept your eye on the market conditions so you probably have a good idea what to sell it for.

Selling Your Flip: The 2 Likely Scenarios

When you do get all the data back from the market analysis, there are two scenarios: higher or lower than your original ARV. If it’s the latter, that’s when the 70% Rule will save you. The 70% Rule is like an insurance policy against potential harm for you. It insures you against sever market fluctuations as well as overages in costs like rehab, financing costs and other soft costs.

Make sure all your safeguards are in place when you do your initial analysis to make sure you ensure against loss. You do this by buying at 70% or more below what your ARV will be and the 70% includes your repair costs as well.

If you do this properly, you will make money flipping houses – and if you avoid the temptation to break the rules, you will make a profit.

Believe You Can Flip Real Estate Investments In 2 Hours?

I was recently talking to a pretty successful Real Estate Investor who invests full time. He claims that all of his real estate investments pay for his mortgage, kids tuition and his twice-annual vacations. I said come on, and he said “well to be truthful my wife is a school teacher and her salary provides for our health care benefits, buys groceries and pays for gas.” My response ” Excuse me Mister, so how much time does a wholesale real estate deal usually take you? His reply – “flipping real estate properties takes me just about 2 hours a week…rest of my time is spent on marketing and networking to get ready for the next deal“.

So how do you flip real estate property ….

- Without paying more than lunch money on a property
- Without speaking to sellers
- Without speaking to buyers
- Without even visiting
- And still collecting a LARGE check

You can begin to wholesale real estate property rather quickly  with this simple two part answer:

1. Identify property that can be purchased for 40% or greater below the Market Value
   • Max Value (in good condition) x 60% (accounts for repairs, profit splits, closing costs) = Wholesale Offer Price
2. Network with Rehabbers, Contractors, Investor-Buyers and Hard Money Lenders for your real estate investing

It’s really that simple.

Let run through a Wholesale Flip Real Estate deal example:

7109 Laura Koppe Rd Houston, TX 77028

Listed Price: $21,000
Beds:3 Bed
Baths:2 Bath
House Size:1,148 Sq Ft
Lot Size:9,148 Sq Ft Lot
Year Built:1986
Area:Northeast Houston
Average Listing Price:$54,000
Average Sold Price:$40,000 – $64, 000

Agent/Seller Comments: GREAT RENTAL! Residence showcases PLENTY of potential & space; EXTREMELY open: and a HUGE yard w/ back porch.CALL NOW! Will rent for $825 per month, TAKE ADVANTAGE! Needs some TLC, such as trash hauling, cleaning, painting, flooring, appliances, and front landscaping. Quiant neighborhood.

So you find this real estate deal on craigslist, zillow, trulia, realtor.com – it does not matter. From here on out it’s all about numbers – no emotions.Your deal offer scrap sheet should look something like this.

Average Sales Price in Good Condition:  $54,000

Multiplied by Max Offer Percentage: $54,000 x .65% = $35,100
(Now this is your ceiling and you only go DOWN from here)

Deal Listed Price: $21,000 ($14K below your max offer)

Discounted Repair Estimates: $6,000
(In this example Agent comments gives you an idea)

Wholesale Flip Deal Offer Price: $10,000
(Listed Price – Estimated Repairs – Wholesale Profit $5K)

Now you have your agent or sellers agent submit an offer for $10, 000. Do not put up more than $10-100 in earnest money. If your offer is accepted or countered then you are in business.  Even if your seller counters with $15,000 and a quick close, don’t you think that you can find a real estate rehabber, contractor, investor-buyer who would pay $18 – $20, 000 for a property that can rent for $825 per month or retail in fixed up condition for $40 – $64, 000?

As a real estate investor reading this quick wholesale how-to article, the very next thing I would recommend is start networking with various types of investors and real estate players: rehabbers, landlords, wholesalers, hard money lenders, property managers, contractors. So when you have a real estate deal that takes you 45mins to 2 hours to identify and put a contract in the works -  you can quickly off load for a profit.