I’m still training for my marathon and I still want to shoot myself as I jog through the summer heat in my Bill Clinton shorts (maybe I’d be having more fun if I had an intern?). Anyway, I’m in this marathon mess because of a promise I made to a friend. So, I was thinking, what if this friend had an “unfortunate” accident and couldn’t run. Well, then I guess I wouldn’t have to continue running either. If anyone out there wants to pull a Tanya Harding on my friend just let me know. Applicants must have a strong swing and no ice skating experience is required.

Okay, so last week I said I would go over the beginning of lease options. First, you have to find the deal. Here are the top three ways to find lease option deals (all targeting tired landlords).

1. Direct mail – Buy a mailing list from melissadata.com or another company and send out at least 1,000 letters a month to absentee owners.
2. Drive for dollars – Drive the zip codes that you invest in and call every “for rent” sign that you see. Also, write down the addresses of all vacant houses.
3. Craigslist.com – Go to the “for rent” section on craigslist. Scan the listings to find ones that meet your buying criteria. Once you find a property, send the landlord a very detailed email about how you want to guarantee his rent and maintenance and all you ask is that you can purchase the property down the line. Every single day you should get on craigslist and email at least 10 landlords. Doing this every day should get you at least one deal a month.

   Alright, so let’s pretend you are one of the 5% of people who are going to actually listen to me. You have done your marketing and found a lease option deal. Here is the important and detailed paperwork you will need to get signed by the seller:

   1. Residential lease with option to purchase – This is a combo lease and option agreement, that states the monthly rent you will pay the seller, the length of the lease and the purchase price of the property.
   2. Authorization to release – This form allows you to check the mortgage balance and monthly payments on the loan (if the sellers say they own $200,000 on the property, you need to make sure they are telling the truth).
   3. Due on sale disclosure – You need to let the sellers know that if they give you a five year lease with option to buy, that it can trigger the clause (before you freak out, this never happens…but you always give people 100% full disclosure).
   4. Lead based paint disclosure – If the house was built before 1978, go to www.hud.gov to get the form.
   5. Notice of option agreement – This is a very important form that needs to be recorded at your local courthouse. This clouds the title and lets the world know that you have the option to buy the house.
   6. Lease option consultation agreement – Another important form. This is one of my many agreements that cost me more than $1,200 for my lawyer to create. This makes sure that the seller can’t squeeze you out as the middle man and that you get the difference between your purchase price with the seller and sales price to the tenant/buyer. This will be notarized.
   7. Power of attorney – Needed so you can take care of the loan, make the payments…basically do anything you need to the account (since you are the one paying the mortgage. Always pay the mortgage directly to the company with a lease option. Never let the seller do it).
   8. Lender notification – Notifies the lender to send all coupons and loan information to your mailing address.
   9. Affidavit of liens – Must be notarized and the seller states that there are no liens against the property, such as mechanics liens.
   10. Property disclosure/disclaimer – All states have different disclosures that need to be filled out. You can get a copy from a local investor or Realtor (yes, there are a few things Realtors are good for).

   I tell you, I hope folks learn this method. I get properties all of the time with no money down (my only expense is marketing) and of course never use any credit. Also, the tenants are great and never cause problems. Last Friday, I had a tenant call me because they had problems with the HVAC. I kindly reminded them that they are responsible for the first $300 in repairs and that they needed to call the home warranty company (always make your lease option tenants get a home warranty).

   Next week, I am going to go over the detailed checklist of what needs to be done after the paperwork is signed (such as the ohhh so important task of recording the option at the courthouse). So happy trails folks, I’m on a semi-vacation this week because life is good when you’re a real estate investor…because you control your own destiny and you control your time (unless you’re married, then I guess the misses does that).

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Homes sold–up 25.5%. Homes sold–up 17.1 % Homes sold–up 48.6%. Is this happening on Mars? In Russian invaded Georgia? In the Arctic? Would you believe this is happening in, of all places, Southern California!
Well, the figures, as they say, speak for themselves. Apparently, falling home prices over the past year are bringing about a pretty hefty increase in sales for most areas of SoCal, other than Los Angeles itself.

The number of homes sold in Riverside County this July compared with the year before jumped 48.6%;in Orange County, sales rose 17.1% and in San Diego County, the increase came in at 10.5 percent. In LA County, sales continued their downward slide–negative 3.2 %.

Starting to work?
Of course, in some ways, this should be expected. Lower home prices should bring more buyers into the marketplace. But this housing crisis is coupled with a severe credit crunch. So, the prices may be down, but fewer people can get a mortgage to take advantage of the situation.

And yet, some folks clearly are abe to take advantage of the lower prices–the median home price in Southern California last month was $348,000, down from $505,000 just one year ago–more than a 30% drop!

So, it’s over. Right?
Not so fast. The temptation might be to look at what is happening in California and conclude the housing crisis is now finally drawing to a close.

Don’t go there just yet,though.

The mortgage giants Fannie Mae and Freddie Mac are far from robust. To the contrary, an article in Barrons last weekend suggesting the government will have to bail out Mae and Mac after all –which would not go over well with the shareholder crowd–or the taxpayer–caused a dramatic reaction.

Fannie nosedived to a 19 year low and Freddie dropped to its lowest price in 17 years because of the report.

The health of both Fannie and Freddie —directly related to whether this housing crisis will end sooner or later. And, that is still up in the air.

Taking just one part of the country and trying to draw conclusions about the rest of the country would be an enormous mistake it seems to me. We need to see further evidence of increased housing sales, from different regions of the nation, before proclaiming victory.

Didn’t Bush do something like that a few years back with Iraq?

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The first purchase of an apartment building can seem like an overwhelming endeavor for the buyer. There is a lot of information and terminology that is suddenly thrust upon the first time investor and chances are that the new investor doesn’t have the knowledge base to accurately sift through the information to obtain and utilize the most important facets. For example, the new buyer may be staring blankly at the rent rolls for a twenty unit apartment building for the last two years and not have any idea how to dissect that information. Or the new investor may be looking at the income and operating expenses supplied by seller’s realtor and not be able to determine if the information supplied is accurate or even complete. Therefore it is wise to follow a few easy steps before actually purchasing an apartment building, of any size, as an investment.

1) Get an Education — It is necessary for the first time apartment buyer to get the best education possible before actually making the first purchase to make sure that he or she understands exactly what they are entering into and to be sure that they are prepared for any challenges that may arise. The education of the first time apartment buyer should include both an academic and a real world, experiential, component. The academic education should consist of reading as many books as possible about the subject in order to learn the technical terminology and to learn how to do simple financial analysis that will allow the investor to make intelligent comparisons between different properties. The real world component should consist of talking to and meeting with as many other commercial property owners and investors as possible. This can be accomplished by joining real estate investment clubs and meeting commercial realtors

2) Find a Qualified Commercial Realtor — While finding a commercial realtor is not an absolute necessity for finding a great apartment building investment many commercial realtors may know about sellers who don’t actively list their apartment buildings on the market for sale but are anxious to sell none the less. It may also help the first time buyer to have a realtor that will represent him or her when it comes time to make an actual offer.

3) Start Comparing Apartment Building Properties — One mistake that I see novice apartment building investors make, time and time again, is that they let their emotions rule over clear analytical thinking. Because many apartment buildings for sale are priced beyond their ability to be profitable it is important for the first time investor to carefully compare the investment returns offered by one building to many others that he or she has examined to find the one that is the best fit.

4) Find Apartment Building Financing — There are many different methods to obtain financing for an apartment building investment. Some of them include traditional bank financing, hard money loans, a limited liability partnership and owner financing. Each deal will hinge upon the kind and availability of financing for that particular property.

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This post has been a long time in the making, and is something that I think many people can commiserate about.

Adding People to Your Email Marketing Campaigns is Not Only Annoying, but Can Also be Illegal

There is nothing that makes me want to cooperate with a company or investor more than when they add me to their email SPAM list without my permission . . . smell the sarcasm?

While email marketing in the real estate business can certainly be effective if done correctly (and legally), you’re shooting yourself in the foot by adding people to mailing lists without permission, and you’re also putting yourself at risk. Most people who send Unsolicited Commercial Email in the real estate world, do so in violation of the CAN-SPAM Act, because they are too lazy or stupid to take a minute to find out what the laws are.

I know several people in real estate who have made it their mission to see that folks who engage in violations of CAN-SPAM are fined, because they are just sick of the SPAM and harvested emails. With that said, I’m sure that they are not alone in being tired of the crap in their inboxes, so I’m going to share with you information from the FTC’s website that is important for both consumer and marketer alike.

Marketers - If you violate this law, you’re doing so at your peril.
Consumers - If you get email from anyone who violates this law, contact the FTC OR forward unwanted commercial email to the FTC at spam@uce.gov.

Without further comment or analysis, I present:

The CAN-SPAM Act: Requirements for Commercial Emailers

The CAN-SPAM Act of 2003 (Controlling the Assault of Non-Solicited Pornography and Marketing Act) establishes requirements for those who send commercial email, spells out penalties for spammers and companies whose products are advertised in spam if they violate the law, and gives consumers the right to ask emailers to stop spamming them.

The law, which became effective January 1, 2004, covers email whose primary purpose is advertising or promoting a commercial product or service, including content on a Web site. A “transactional or relationship message” – email that facilitates an agreed-upon transaction or updates a customer in an existing business relationship – may not contain false or misleading routing information, but otherwise is exempt from most provisions of the CAN-SPAM Act.

The Federal Trade Commission (FTC), the nation’s consumer protection agency, is authorized to enforce the CAN-SPAM Act. CAN-SPAM also gives the Department of Justice (DOJ) the authority to enforce its criminal sanctions. Other federal and state agencies can enforce the law against organizations under their jurisdiction, and companies that provide Internet access may sue violators, as well.
What the Law Requires

Here’s a rundown of the law’s main provisions:

• It bans false or misleading header information. Your email’s “From,” “To,” and routing information – including the originating domain name and email address – must be accurate and identify the person who initiated the email.
• It prohibits deceptive subject lines. The subject line cannot mislead the recipient about the contents or subject matter of the message.
• It requires that your email give recipients an opt-out method. You must provide a return email address or another Internet-based response mechanism that allows a recipient to ask you not to send future email messages to that email address, and you must honor the requests. You may create a “menu” of choices to allow a recipient to opt out of certain types of messages, but you must include the option to end any commercial messages from the sender.

  Any opt-out mechanism you offer must be able to process opt-out requests for at least 30 days after you send your commercial email. When you receive an opt-out request, the law gives you 10 business days to stop sending email to the requestor’s email address. You cannot help another entity send email to that address, or have another entity send email on your behalf to that address. Finally, it’s illegal for you to sell or transfer the email addresses of people who choose not to receive your email, even in the form of a mailing list, unless you transfer the addresses so another entity can comply with the law.

• It requires that commercial email be identified as an advertisement and include the sender’s valid physical postal address. Your message must contain clear and conspicuous notice that the message is an advertisement or solicitation and that the recipient can opt out of receiving more commercial email from you. It also must include your valid physical postal address.

Penalties

Each violation of the above provisions is subject to fines of up to $11,000. Deceptive commercial email also is subject to laws banning false or misleading advertising.

Additional fines are provided for commercial emailers who not only violate the rules described above, but also:

• “harvest” email addresses from Web sites or Web services that have published a notice prohibiting the transfer of email addresses for the purpose of sending email
• Generate email addresses using a “dictionary attack” – combining names, letters, or numbers into multiple permutations
• Use scripts or other automated ways to register for multiple email or user accounts to send commercial email
• Relay emails through a computer or network without permission – for example, by taking advantage of open relays or open proxies without authorization.

The law allows the DOJ to seek criminal penalties, including imprisonment, for commercial emailers who do – or conspire to:

Use another computer without authorization and send commercial email from or through it

Use a computer to relay or retransmit multiple commercial email messages to deceive or mislead recipients or an Internet access service about the origin of the message

Falsify header information in multiple email messages and initiate the transmission of such messages

Register for multiple email accounts or domain names using information that falsifies the identity of the actual registrant

Falsely represent themselves as owners of multiple Internet Protocol addresses that are used to send commercial email messages.

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It’s 10am, do you know where your building inspector is? You certainly know where he isn’t, he isn’t approving the most recent work so that you can move on with your project. Your inspection was scheduled for first thing in the morning and the inspector finally shows up near the end of the day.  On the one hand you want to yell, scream and complain, on the other hand you know that you need him to sign off on the work so that you can proceed.  Outwardly you are respectful and cordial, inside you are seething and thinking, “next time I’m doing this without permits!”

Do I Really Need Permits?

It’s very tempting to do renovations without pulling permits.  You can save time, money and a big hassle, but at what cost?  The primary reason that municipalities require permits is so that they can be sure that work is performed to acceptable standards and that it meets all building codes.  The codes are created to set minimum standards for safety and appearance.  These standards give home buyers a reasonable level of assurance that a home is safe for them to live in. 

A lot of cosmetic work can be done without permits.  Installing new carpets, painting and simple changes do not normally require any kind of approval.  Major renovations involving plumbing, electric, foundations, extensions etc. almost always will.  A good starting point is the local building department.  They can give you an idea of what the local requirements are.  When in doubt, give them a call.

We Don’t Need No Stinkin Permits!

When working with contractors you need to be careful.  If they tell you that they don’t need permits to do the project you should check to be sure.  It could be that they are unlicensed or they may be looking to cut corners.  Be especially wary if they say that you can save money by not pulling permits, you may end up paying a lot more in the end.

Big City vs. Small Town

When working with a building department in a large city you a probably dealing with a bureaucracy and may not see the same inspector twice.  In a small town the local inspector may be the entire building department.  You need to adapt to whatever the situation is.  In a large city you want to develop a good reputation so that inspectors know that you are easy to deal with.  In a small town you need to make the inspector your friend.  Making an enemy of a small town inspector can be the kiss of death for your business as can a bad reputation in a big city.

Permits, inspectors and inspections can be a big hassle.  However, they are a part of the business and learning to deal with them can make your life a lot easier.

Tact is the ability to describe others as they see themselves. - Abraham Lincoln

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Alan Greenspan, the controversial former Fed Chairman, in an interview by the Wall Street Journal’s David Wessel gave us a few pearls of wisdom to ponder about the state of the housing market.

He starts out with a prediction calling for a stabilized market by summer of 2009. Greenspan admits depending on the size of the bubble certain location will see continued price declines after his deadline. But for the majority of markets, a never-ending price depreciation will end about a year from now…and I happen to agree with him on this point.

Denver, where I live, was first into the bubble (a smallish bubble at that) and will be the first out. We are already seeing signs of this as the Case-Shiller Index for Denver was up for 2 months in a row in May and June. However, Phoenix, Las Vegas and other markets like them were late to the bubble party and saw bigger price appreciation, so they won’t hit Greenspan’s target but will follow soon after.

Greenspan bases his prediction on supply versus demand statistics as well as rent versus own price corrections. He states it best by saying,

“It’s the imbalance of supply and demand which causes prices to go down, but it is ultimately the valuation of the commodity which tells you where the bottom is.”

He uses the current figure of 800,000 vacant homes and figures it will take a year to liquidate enough of those homes at lower and lower prices, that an equilibrium will be hit when investors feel the desire to hold on to the home rather than sell…put another way, when it costs more to rent than to own.

I like this dual methodology for analyzing the bottom in the housing market. Historically, home owners had to see a benefit from owning versus renting and landlords needed a premium to stay landlords. Greenspan knows a “corrected” market will return us to that state. He also informs us the number of households created in a year in the US today is 800,000…the same number as vacant homes, so the supply/demand component is covered too.

If prices could drop fast enough to make a mortgage payment less than rent for the same house…violia…the bottom is reached.

He warns against too much legislation, tax incentive, or bail out activity which could slow the speed in the drop of housing prices. Subsequently, he voiced he dissent on the GSE bailout by saying,

“They should have wiped out the shareholders, nationalized the institutions with legislation that they are to be reconstituted — with necessary taxpayer support to make them financially viable — as five or 10 individual privately held units,”

Greenspan fears a huge taxpayer bill coming due for Fannie Mae and Freddie Mac thanks to Hank Paulson’s new law…and I share his concern.

Wow…I agree with Alan Greenspan a lot here…I’d better go lay down.

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Last week I said I would present a solution to the foreclosure mess in today’s post. However, I was sidetracked by two pieces I read in a friend’s newsletter. Since they are about the recently passed housing bill, I think they are important. After you read them, you too may decide they are important.

The newsletter is: International Council of Online Professionals and is published by jl scott (sic). She is the Director of i-cop located at http://www.i-cop.org. The pieces were in the August 11, 2008 edition.

She gave me permission to reprint the two items as long as I left them intact with the proper attributions. Please pay attention to the ramifications of this thing called a housing bill.

As you read them you will notice several things, one of which is neither author is actively involved in real estate or real estate matters. These are two citizens who took the time to read the damned bill and discovered business as usual is the name of the game under the guise of helping people who are in a terrible life changing situation.

Housing Bill” Affects E-commerce Merchants
by Tom Mahoney

Last week, President Bush signed the Housing and Economic Recovery Act of 2008 into law. Sure, another law will fix it. Hidden in the 700-page bill are a couple of totally unrelated provisions.
One relates to hurricane recovery and gives tax breaks to a Canadian rail car manufacturer in Alabama. Of course, in true government style, this has nothing to do with housing relief but after all, someone had their hand out and got their hand-out.

There are also some provisions in the bill for home buyer credit; provided that you’re a first-time home buyer between April 8, 2008, and July 1, 2009, and make under $150,000 ($75,000 if you’re single.)
And there’s an additional $1,000 standard deduction against property taxes ($500 if you’re single.)
You wouldn’t think any of this has anything to do with E-commerce merchants that accept credit cards, but you’d be wrong. You’d be wrong because there’s also something in the law for us lucky merchants.
Starting in 2011, banks or other companies that process credit cards must report the amount of the payments a merchant receives on card transactions to the IRS. The law will not apply to merchants doing less than 200 transactions totaling less than $20,000.

We can all thank PayPal (thank you PayPal) that the exemption amount isn’t $600. Yep - they tried to make it $600, a whopping $50 per month, but PayPal successfully lobbied to raise it to the current level.
So, starting in 2011, even some smaller e-Bay sellers will have their income reported to the IRS.
Just thought you should know.
————
Tom Mahoney, Founder and Director of Merchant911.org
http://www.merchant911.org
————

More on the “Housing Bill”
by jl scott

I thought you should know, too. I’ve been watching this for a long time. But, as little as about two months ago, I read that Congress was rejecting it. Wouldn’t you know, they’d slide it through by hiding it in the “Housing Bill!”

And, you should know this will include third party processors such as 2CheckOut and PayPal (who Tom already mentioned).

Some self-righteous people will say, “So, what’s the problem? We all have to pay our taxes, anyway.”

True - But There are SEVERAL Problems …
Not the least of which is that government will now have access to information not just of the sellers but of the BUYERS.

Unless it is stipulated differently - which I would seriously doubt - everything you buy online will now be accessible by the U.S. Government - and it will not matter what country you live in.
It may not be on the original report, but it WILL have to be available to back up the data. And, if it’s available, they’ll take it any time they please.

Talk about lack of privacy!

Second, will be the additional paperwork for your tax preparer - which YOU will pay for. These reports to the IRS will ONLY state how much money you received. It will NOT show refunds or any charge-backs, etc. All that will have to be calculated.

Third - the merchant account companies are sure to increase fees. You can bet THEY aren’t going to pay for the extra help and hours to prepare these reports - YOU will.

Fourth - in the past, if the IRS wanted to get information from banks and merchant accounts, it required going to a judge and getting a subpoena. Now, the IRS can step in and audit at any time - with a little or no notice. (emphasis added by Tom Koziol)

I’ve been told by a CPA, who is also a registered agent for the IRS, this law MAY be repealed. SOMETHING definitely needs to be done about the loss of privacy for buyers. And subjecting innocent customers from around the world to surveillance by the U.S. Government, is truly unacceptable!

Don’t panic - but, don’t ignore this, either. Pay attention to whatever is coming next!

This was a rather long post but I thought if you didn’t know the government has pulled another end around your Constitutionally protected rights, you should. The bastards actually used a scammed up housing bill to put greater monitoring and reporting controls on us.

To anyone who says this isn’t germane, I say you probably don’t buy anything over the web or don’t have a web based – even if part time – business. If you use any of the online based foreclosure sites to locate properties, you could be a subject of this bill. If you use the web to make, or apply for, loans, you could be a subject of this bill.

The list goes on and on but I will stop there. I thank jl scott for having the foresight to print this material even though her site has nothing to do with housing or foreclosures.

As it turns out, my proposed solution will put an end to this kind of preying on the people by the politicians. Maybe the above information appeared at just the right time.

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