You have to love the amount of flexibility there is when running a deal FHA but more often than not, there are too many things left undone that cause major hiccups in the final stages of any transaction.

Technically, many of these hiccups are because of the lack of attention to detail on the part of the mortgage broker handling the file. But for the sake of this post, we will say that it isn’t anyone’s fault why so many FHA processed files couldn’t beat a broken bottle of molasses running uphill to the closing table. I have an associate who wants to purchase a 3-unit apartment building in Washington, DC but he has had no success getting the deal to the table. Let’s call him Investeron.

You would “think” that anyone with 3 bureau scores over 720 and a $100,000/year income is a shoe-in for financing for anything under $500,000. Mais, ce n’est pas vrai.

Problem #1 - If this property is going to be 100% investment than Investoron would have to find 20% for a down payment. That is bad news. It just so happened that Investoron is willing to live in one of the units as a joint-tenancy occupant. Problem solved.

Problem #2 -The decision was made to run the deal FHA. With FHA there is a required 3% down on a multi-unit. No worries. Investoron finds an able friend to provide her with a gift. We know that gifts must come from family members, so Investoron asks his father for the funds. His father agrees, the gift letter is completed, the monthly statements are submitted and all is well. Problem solved. (2 weeks)

Problem #3 - FHA changes their guidelines and gifts cannot be accepted as “seasoned funds” for multi-unit purchases. The gift must then be returned. The only option at this point is to have Investoron’s father add Investoron to his checking account or whichever account has an average balance of the 3% or more. He agrees and all is done. Problem solved. (1 week and an additional week to receive the VOD from Inverstoron’s new banking center)

Problem #4 - The appraisal was ordered within the first 3 days of the application process for this purchase. The hold was that the initial appraisal was not ordered as an FHA appraisal. Problem solved. The appraisal was canceled an re-ordered but did not happen for another 5 weeks. That appraisal was submitted in a timely fashion and all was well. Problem solved. (6 weeks)

Problem #5 - The appraisal that came in was not done in accordance with FHA’s regulations. PLUS, no FHA case number had been filed. YIKES! (1 week)

Problem #6 - Investeron is an investor and he uses a standard investor 2 page purchase of real estate agreement. Processor calls Investeron and asks for the signed contract and the FHA addendums. Investoron has no FHA addendums and calls the broker. The broker alerts Investoron that the contract must drawn up on a standard GCAAR with FHA addendums and signed by seller and buyer. “It’s just the way things have to be done with FHA.” (2 weeks)

As of today, everything is in and Investoron and the seller are waiting for a clear to close and what has been a roller coaster of a transaction. And it really goes to show us investors that sometimes great credit can’t get the job done if the rules and the path are not simply paved in front of us with no surprises in the bushes. I hope all is better in your real estate investing business.

Blessings to your real estate investing successes,

Milton B. Yates

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Tags: Credit, FHA, FHA Loans, invest, lending, mortgage, real estate, real estate investing

In 2004, I held a mini-workshop on the topic of effective mail marketing. At the time, I had already been using my own system for several years but I needed to help the students come up with a letter of their own, otherwise most of the homeowners would have received identical letters and none of them would have been effective.

One of the students was a mother and mostly worked at home. She had a big smile as she asked me to read her letter and wanted to get my thoughts on it.

I read it fairly quickly but it took an extra 30 seconds for me to look up at her because I was horrified with what she had written.

It was awful. It was horrible. It was beyond tacky and I didn’t remember ever seeing a letter that was as bad as hers was. The letters she wanted to send would all be going to homeowners currently in foreclosure. My experience with homeowners in foreclosure has shown me that “gimmicks” and “cute, happy” type letters are not very effective.

What my student had come up with was a letter that had a 3-inch piece of string taped over the words, “Tie this string around your finger to remind yourself to call me.”

I shook my head and asked her if she was really serious about sending it out. I went on to tell her examples of what has worked before and what hasn’t. At one point I remember that I had told her that her letter was quite possibly the tackiest foreclosure letter I had seen and pleaded with her to not send it.

She was such a sport for taking my harsh critique, as it was obvious I had really hurt her feelings (I ended up calling her the next day to apologize for being insensitive).

She sent it anyway.

Out of the 100 or so she mailed out, she got over 20 replies! For those with a marketing background, I am sure you are as amazed as I was. The average response rate for pre foreclosure mailings is about _ of one percent. In other words, one reply out of 200 and her letter got an amazing 1 out of 5!

My opinions and beliefs on mail marketing changed forever after that student taught me that valuable lesson. She taught me that no matter how bad a letter may seem… Send it! If ONE person responds to an awful mailer that results in a deal…Then it was a great success!

Since then, anytime a student asks me what type of letters work best… I tell them that any letter can work. I also tell them that what doesn’t work is… Not trying!

To end on a lighter note…
That student called me a few months later and told me she had sent out a letter that included the words, “Call me because I am your Life Saver.” She had taped a single, wrapped Life Saver to each letter. I asked her how it worked and she told me that the Post Office returned every single letter because the machines at the Post Office couldn’t process them. Considering the lesson she had taught me before that…I was happy she didn’t listen to me and tried anyway.

Tags: invest, marketing, real estate investing, real estate investor, real estate marketing

An investor on our forums recently posed a great question that others out there can learn from. I thought it would be a great idea to share with the rest of you.

“Theres been a property at the end of my street that has been abandon for close to a year+ now. At no point did a for sale sign go up but I haven’t seen anyone living in it at all. The family just kind of picked up and left . . . I guess in short my question would be where do I go to find out more about the house?”

Abandoned properties provide a great source of leads for investors. There are many reasons why someone might abandon a property, but with the right info, savy investors can easily locate the owners of these homes and possibly even get a great deal on them!

One of our members, Wheatie, suggested the following:

You can start with the county recorded for the county where its located. They will have someone down as the owner. May not be correct, address may not be correct, but its a place to start. You can try just sending it a letter with forwarding requested and see if it goes anywhere.

This is great advice! We’ve even made it easy for investors to find their local recorder/assessor’s office online with our free directory of county records’ offices.

Another member, Brandon Schlichter, suggested another path for investors to take:

You can always trace back the history and maybe find a prior owner. Asking neighbors is always a good thing to do (You can get deals from them too!).

Prior owners and neighbors are fantastic resources. I’ve used neighbors to find information on properties in the past and they love to share what they know! Neighbors are a treasure trove of information on any home or other property. I always like to chat with them before making an investment.

A final suggestion that should surely prove to be helpful comes from another member, username REI.

The technical term that some will use is skip tracing. If you search on the term then you will find leads to services or individuals that can do the work for you. Some are rather modest in their costs. Some investors use the net plus pay for a skip tracer as some have access to professional databases that are closed to the public. Some databases are too expensive for a 1 off use.

If you’re willing to pay, then skiptracing services are absolutely worth it. They can simplify and speed up the entire process for you.

All in all, if you try all three of these suggestions and still can’t find the owner of the property, you might be striking out. Maybe a detective would prove to be helpful, but the question that arises is “is it worth it?”.

Tags: abandon, abandoned, abandoned home, assessor, find property, home, house, invest, public record, real estate, real estate investment, recorder, skip trace, skiptracing

I was talking to some friends who were looking at purchasing a condo together. They wanted to know what I thought about the premise of them owning a rental property as partners.

Should friends or family purchase rental property together?

I try to advise people to stay away from partnering with friends or family, because more times then not, the relationship changes and not in a good way. With that in mind, if you are planning on a partnership, there are a few things I’d recommend you do.

Questions to Discuss:

1. How you’ll purchase the property
2. Who will make payments on the mortgage? Utilities?
3. How will you split up any monthly profits?
4. Who will manage the books?
5. Will you manage the property or will you hire a management company?

   If there is NO management company

6. Who will be the point person for contact with the tenants?
7. Who will handle repairs or maintenance issues?

   If there IS a management company

8. Who will be the point person with the manager?

9. How much can one person authorize or spend without the other partner’s consent?
10. What happens if one partner dies? Is incapacitated?
11. If the property is sold, how will the profits (if any) be split?

Once you’ve talked about these questions and have agreed upon the answers, you need to have a sit down with a real estate lawyer. Draft up a partnership agreement and be sure you are both comfortable with EVERYTHING in it.

If you’ve got additional questions to add to the list, please let us know.

Tags: company, general, invest, landlord, LLC, management, manager, partnership