BiggerPockets

How To Make Acceptable Offers To Buy Properties In Real Estate Investing

Monday, February 07

The biggest challenge facing most real estate investors is making acceptable offers.  The basic foundation of any real estate investing business is buying properties.

 You can only make money if you buy properties.

Here are a few tips on how to make sure your offers get accepted.

The offer you make depends on the type of property you are buying.
1)    Buying from motivated sellers
 It is important to have the following pieces of information if you buy houses from motivated sellers:

a)    Market Value
Do your due diligence to find out conservatively how much the house would be worth in a perfect condition.   You must have this information before you can make any offer.

b)    Mortgage balance
 You must know the mortgage balance before you can make an offer.   If a seller is not willing to provide this information, they are not motivated enough.  Move on to a motivated seller.

 The mortgage balance must be low enough to allow you to make a profit when you buy the house.  Thus means that the offer you give must allow you to own the property free and clear and still make money.

c)    Repairs needed
Based on the information given by the seller, you can estimate the repair costs even before you drive to see the house.

 You must know how much you need to fix up the house before you can make an offer. Of course I prefer to see the house myself.

d)    Asking price
 Taking into account the 3 pieces of information above, if the owner is asking for too much, you might never make it work.

A  good asking price must take into account the market value, mortgage balance and repairs.   Your offer can then be based on the asking price. If at all the mortgage balance and repairs allow you to make an offer that can leave you with a profit, by all means do it.

No offer can be too low, but you also have to take into consideration the seller's needs.   If they face foreclosure, their asking price might be to just walk away from the property, or they might need some moving cash.

If the mortgage balance is too high compared to the value of the house, it does not make sense to make an offer.  Move on to the next deal.

When all is said and done, the only bad offer is the one you have not made.   Always make all the offers that make sense to you.   You'll be surprised how many get accepted.

2)    Buying foreclosed properties
 The asking price and repairs are the only important considerations to make in this case.  Banks selling these properties are willing to negotiate.

In today's market, most REOs will be listed below market value.  Depending on your exit strategy, if the numbers are close to making sense, by all means make an offer.

Remember the banks are willing to negotiate, so always make an offer lower than the asking price.

Successful real estate investors know that to succeed in this business, you must increase efficiency and close more deals while spending less time, money and effort. Learn how you can accomplish this with an automated real estate investing website.

Challenges Facing Real Estate Investors In Today’s Market

Tuesday, February 01

Until recently, real estate investing was so unrestricted that real estate investors could do most types of transactions with no restrictions.  Real estate investors have been forced to re-discover themselves with the real estate and economic bubble.

Here are a few things that affect real estate investing business.

1)    Taking over mortgage payments

 This business model earns real estate investors lots of money.   Deals with lease options, rent to own, owner financing, form a big part of most real estate investors income.

 Lots of states are now requiring that you disclose and get permission to the lender before you can take over payments.

They also require you to disclose to the buyer. Some states do not allow you to do a lease option more than 180 days.    You must therefore be ready to do a lot of paperwork.

2)    No stated income loans
 If you are self employed, you are unlikely to get a loan.  It used to be you just provided proof of your current assets, state what you make per year and you could get funded for a mortgage.

You can no longer do this, so if you are self employed you have to re-think how to acquire your properties.

3)    Hard money credit based?
 Surprising, even hard money lenders are lending based on credit and income.

Even though their rules are more relaxed, you have to shop more carefully to find a real hard money lender for your deals.

4)    Limit on number of properties you can finance
Currently you can finance up to 10 properties if your  income is fully documented and have a credit score of 720 or more.

 It is also necessary to have at least 6 months worth of monthly payments in cash reserves.

 Of course if you are self employed you cannot document your income!

5)    Seasoning rules
 You cannot refinance a property to cash out until you keep it for 12 months even if you bought it with cash.  In other words you cannot just move on to the next deal when you want!

If you buy rental properties, you have to take this into account.

 If you are self employed, can you refinance if you cannot document your income?

6)    No refinancing properties held in an LLC
This means you have to hold properties in your personal name if you want to refinance.  If they are held in an LLC, you have to hold them in your personal name for six months to refinance them.

So what do these new limitations mean?  Does this spell the end of real estate investing?

The answer is no. Real estate investors know how to re-discover themselves and are flexible enough to adapt to changing market forces.

As a successful real estate investor, you must close as many deals as possible spending little money, effort and time to increase profits. Learn how an automated real estate investing website can simplify your work and increase your profits.

How To Wholesale Short Sale Properties

Saturday, January 29

Selling a property to another real estate investor at a discounted price is called flipping properties, or wholesaling properties.  It also the quickest and easiest way to make money in real estate investing.

 So can you flip a property negotiated in a short sale with banks to another real estate investor?
This article explores the possibilities of wholesaling a short sale property.

 Successful wholesale real estate investing must allow you to make a profit between your buying price and your selling price.

Wholesale real estate investing involves finding greatly discounted properties, then finding a buyer, usually a real estate investor to buy it.

 You sell it at a wholesale price because your buyer has to do any repair work needed.

 You can make profits from $3000 - $15,000 per deal this way.
 If the equity is not enough, you can negotiate with the bank to accept less than the mortgage balance. This is called a short sale.

 Short sale properties usually have to be closed within 30 days after lender's approval.

Let us explore different scenarios:
1)    Assigning a contract
 To wholesale a property, you can assign the contract so that your real estate investor buyer closes the purchase.
 You contract needs to have "and or assigns" to assign a contract.  Bank do not allow this clause, so you cannot use this method to wholesale properties.

2)    Simultaneous closing
 Alternatively, you can buy and sell the property on the same table in a simultaneous closing, also called double closing.

 Your profit is the difference between your buying price and your selling price.
 You can use the money from your buyer to close the first transaction, then use it to close the second transaction.  A lot of hard money lenders did not mind this.   Most of them do not accept this any more.

In addition, if you negotiate a short sale, the bank will not allow you to use the buyer's funds to close the first transaction.   You therefore need the cash to close the transaction.
Hard money lenders also offer transactional funding, used for just closing the first transaction, making this transaction possible.

3)    Seasoning issues
Lately, if you negotiate a short sale, more and more banks are now requiring that you hold the property for at least 30 days before you sell it.
 So you can finance the first transaction with a hard money loan, then flip the property 30 days later.  Of course you must consider your closing and holding costs in this transaction.

 Lots of deals will be eliminated by this clause unfortunately.  A deal making you a profit of $3000 - $5000 is most likely eliminated.  Properties that make you more money are better for this type of transaction.

In order to run a successful real estate investing business, it is necessary to increase efficiency so you close more deals using less time, money and effort. Learn how you can automate real estate investing business from an interactive real estate investor website from real estate investing website

How To Buy Investing Properties For No Money Down

Wednesday, January 26

Most people fear venturing into real estate investing thinking they need a lot of money to start.  Others fear the "No money down" scams out there. S
 Can you spend little to no money investing in real estate?  This article dissects this topic.

 To buy real estate traditionally requires that you have cash, or get a loan, which also requires a lot of cash as down payment.
 If you are a real estate investor looking to do many deals, this can become unsustainable.

 There are a few methods of investing in real estate with little to no money:

1)    Wholesale real estate investing
Flipping real estate involves looking for a highly discounted property, then putting it under a contract.  You then turn around and get a real estate investor to buy it at a wholesale price.

 You can do a contract assignment to the new investor, or do a double closing where you buy and sell the property at the same closing table.

 If you assign the deal, only earnest money is needed to put the property under contract.  This is usually $100-$500.

 Your real estate investor buyer must produce earnest money, meaning you come out with no money of your own.

If you do a simultaneous closing, a few scenarios can happen.  You might be able to use your buyer's cash to close the first transaction when you buy the property.   The same cash is used to close the 2nd transaction.   The difference between the two transactions is your profit.

In this transaction you spend no money.

In a simultaneous closing, you might need transactional funding to close the transaction where you buy the property.  Typically hard money lenders will not need any money from you to fund such a transaction.

 Again, no money of your own is spent.

2)    Seller financing
Sometimes, you may negotiate with the owner so they accept monthly payments instead of all cash for the purchase.

 Some down payment might be needed to make this happen.

You then turn around and look for a buyer who will also be making monthly payments, typically higher than you make.   Their down payment is typically higher than yours, meaning you end up spending none of your money.

Such deals are owner financing, lease options, rent to own, etc.

In this case you will need the down payment to make the deal happen.

3)    Partnership
 Your real estate investing transactions can be funded by a money partner.   You spend no money of your own, but share profits.

4)    Financing
 An equity line of credit, such as home equity, can finance your real estate transactions.
You will pay interest, but again you spend no money of your own.

No matter what type of real estate investing business model you do, it is important to close as many deals as you can spending as little money, time and effort as possible to be profitable. Learn how an automated real estate investor website can simplify your business putting more money in your pockets.

How To Locate Profitable Short Sale Deals For Real Estate Investing

Thursday, January 20

Real estate investing, real estate investor website, real estate investing website, motivated seller, short sale

BODY
 Negotiating with mortgage lenders to accept less than the mortgage balance for a property can make you lots of money in real estate investing.  Not all short sales are potentially profitable, while some can make you lots of money.

 This article points out sources of the most profitable short sale deals.
Even though short sales involve negotiating with banks to get a discount on the mortgage, some short sale deals are a waste of your time.  
 You should target only the profitable short sale deals as a real estate investor.

1)    Target motivated sellers directly
 The best properties for real estate investing come from motivated sellers.
This is before the property gets foreclosed.

 To qualify for a short sale, the motivated seller must be at least 2 payments behind on their mortgage.

 People in trouble who own real estate are the best motivated sellers.  These include people going through divorce, burned landlords, people with liens, people who have inherited properties, vacant houses, expired listings etc.

 These people mostly need to sell their properties, even though they have not put them on the open market.

2)    Make sure you have enough time
 In some states such as Texas, you only get 3 weeks from the time a foreclosure notice is filed to the time foreclosure happens.  Other states allow several months.

 Ensure there is enough time before foreclosure happens.   It can take weeks to months just to get the bank's attention.

3)     Multiple mortgages make better short sale deals

 A lender for a second mortgage can lost all their investment in foreclosure.   They therefore typically offer bigger discounts.

 A second mortgage lender can accept 80-90% discount on the mortgage.   If the first mortgage lender offers 10-20% discount on the first mortgage, you can make a clean profit on the deal.


4)    Avoid short sales listed in the MLS
  Real estate agents approach banks and list deals as short sales.  Of course they are looking to get high offer; the higher the better!

 Almost no real estate agents will disclose the mortgage balance. And of course you will never know if there is one or two mortgages.

This means you can only make blind offers.  As a real estate investor, it is in your best interest to get the mortgage balance before you can make any offer to buy a property.

Even though you can get good deals from listed short sales, you are most likely to offer more than you normally would if you had the mortgage balance.   And most of your offers will be rejected, wasting too much of your time.

 You are most likely to find the best short sale deals from motivated sellers.

In order to be a successful real estate investor, you must attract motivated sellers, convince them to sell you their houses, make offers that are acceptable and close deals that make you money. Learn how you can achieve this with a real estate investor web site for buying houses from http://www.realestateinvestorswebsites.net/website-types/buying-houses.php

Is Short Sale A Viable Business Model In Real Estate Investing?

Monday, January 10

Negotiating with a mortgage lender to buy a house for less than is owed is called a short sale.  In other words, the lender accepts less that is owed on the mortgage and lets you buy a property at a discount.

  A home owner must be at least two payments behind to qualify for a short sale.

 You as the real estate investor identifies motivated sellers who qualify for a short sale and you negotiate with lenders.
 Here are importand factors to consider before doing short sales.

1)     Qualify your properties properly
Not all properties qualify for a short sale.   Selecting the wrong properties for short sale will be a waste of your time.

A home owner must be behind on their mortgage at least two months.   You must consider the mortgage balance.   A property with only one mortgage needs to be profitable if you get only 10-20% discount.

 If there are two or more mortgages, negotiating all of them can produce a lot of profits.  You can get as much as 80-90% discount on a second mortgage.

 The best short sale properties are the ones with more than one mortgage.

Of course if repairs are needed, you must factor all the costs.

2)     Be prepared to wait
A short sale can take 3-6 months, sometimes more.  If you are a new real estate investor, you must take into account this time factor before adopting short sales as a full-time business model.

You must have some good capital that will sustain you through months of not making a profit. .  Otherwise adopt short sales as a part-time model in your reale state investing business.

3)    Be prepared for rejection
 Your short sale application can be rejected for any reason.   They can still say no even when it looks like an obvious candidate.  Be prepared for rejection.

Obviously, having several short sales at a time helps.    Expect a 60-70% success rate if your candidates are selected well.

4)    Time is of the essence
 You might not have enough time to stop foreclosure if a property is about to be foreclosed.. Select properties that allow you time to negotiate with a lender.

5)     Have an exit strategy that is acceptable
A lender will not accept certain types of transactions for short sale deals.   For instance, lenders will not accept wholesale dels with "and or assigns".

You must be able to close after the short sale is approved.  Normally the bank will give you a number of days like 30 days to close.

6)    Be prepared for big pay days
Some properties will produce big pay days for you.  As long as you can qualify them properly it can be a source of big profits for you.

 <!--[if gte mso 9]><xml> <w:WordDocument> <w:View>Normal</w:View> <w:Zoom>0</w:Zoom> <w:PunctuationKerning/> <w:ValidateAgainstSchemas/> <w:SaveIfXMLInvalid>false</w:SaveIfXMLInvalid> <w:IgnoreMixedContent>false</w:IgnoreMixedContent> <w:AlwaysShowPlaceholderText>false</w:AlwaysShowPlaceholderText> <w:Compatibility> <w:BreakWrappedTables/> <w:SnapToGridInCell/> <w:WrapTextWithPunct/> <w:UseAsianBreakRules/> <w:DontGrowAutofit/> </w:Compatibility> <w:BrowserLevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--><!--[if gte mso 9]><xml> <w:LatentStyles DefLockedState="false" LatentStyleCount="156"> </w:LatentStyles> </xml><![endif]--><!--[if !mso]><div classid="clsid:38481807-CA0E-42D2-BF39-B33AF135CC4D" id=ieooui></div> <style> st1\:*{behavior:url(#ieooui) } </style> <![endif]--><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman"; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} </style> <![endif]-->

Simon Macharia is a real estate investor in Dallas, Texas. He has done a lot of short sales among other transactions. His business is run and automated by real estate investor website from http://www.realestateinvestorswebsites.net