All Forum Posts by: Hal Thompson

In a rising market with low interest rates, then in the short term you are "missing out" on opportunities by not leveraging to the hilt. However, all of those people who are doing the same will be the ones giving their properties back to the bank in a downturn.

I don't think there is any such thing as "dead equity". Your equity is only realized when you sell. If you get in front of your skis by leveraging yourself based on the value of that equity, how is that any different than the equity being "dead" in your property? Both are phantoms that can only be realized when you sell.

Equity is based on the theoretical sales price of your property. Like anything else theoretical, it isn't real. I have a couple properties that I bought cheap for cash, and have now massively appreciated. They have approximately $200-250k in equity each based on being sold at today's market prices.

I could lever these properties and take out $500k in cash. But then I have to REINVEST at today's high market prices! I don't want to do that. So instead, I bank my $3000 a month and wait for the market to take a turn. I'll be the guy standing at the courthouse steps with a bag of cash when something bad happens.

Learn how to crunch the numbers, and then you won't have to ask simplistic questions like this:

https://ocw.mit.edu/courses/urban-studies-and-plan...

Even the term "cash flow" is subjective. Cash flow on day 1? Cash flow over the next 1 years? Cash flow over the next 10 years?

We have properties where we put 25% down on day 1, in order to get the best possible interest rate over 30 years. On a 150k property, that is $37.5k cash out. But that property only "cash flows" $500 per month. Oh no, I lost $31k in "cash flow" my first year!

Real estate investors don't really speak in terms of "cash flow". We use NOI, cash on cash return, IRR, etc. to describe these things.

I will generally analyze my properties as if I have financed them 100% at the prevailing rate, and then if I am break even or greater after all costs, then that is generally a pretty good deal. In real estate finance, we assume a certain percentage of rent growth depending on the market, while our financing costs are fixed (I do 30 year loans). You also have to look at tax rate growth in your area as well, in addition to HOA fee growth if you're buying in a condo.

Does it sometimes make sense to buy a property that has negative month-to-month cash flow on day 1? Sure...it all depends on what your assumptions about rent growth vs. costs is for that property. Maybe you know that Whole Foods market is scoping out that property for their next store and will be announcing the move in the next 6 months.

http://www.rclco.com/advisory-wholefoods-effect

You would obviously never buy a property that you predicted never to cash flow. So the obvious answer to your question is no. But as I have noted above, it's not so simple as a yes or no answer.

I am considering purchasing a property at tax sale. It is raw land, and is essentially part of the back yard of another house. The other house has about 20,000 sq ft of land, this parcel is about 5,000 sq ft. My thought is I can buy the raw land, and sell it back to the owner of the main parcel, who recently purchased it from a bank as an REO.

The property has access to a main road without going through the other parcel, but is currently behind a contiguous fence from the other parcel.

Does this strategy make sense, or am I putting myself in a poor position by doing this. I am dipping my toe in tax foreclosures, but haven't really dealt with these types of deals before. Any thoughts or comments would be appreciated.

@Thomas S. I can't agree with your thinking. Leverage has its own risks. If you constantly refinance out your equity in a rising market, and then use that equity to reinvest in the same market, it is not too dissimilar to selling your properties, taking the cash, and then rebuying into the market at the current market rate. The cash you obtain from your refinance can be used to purchase new property, but only at current market prices. If you will take that cash to explore opportunities in other markets, that might be a different thing. But if you get overlevered and rents drop, and your financing costs stay the same, you have a problem. If rents drop, home prices drop and interest rates rise (heads up!...it's coming), then you have a really, really big problem. The refinance at every opportunity crowd will take a bath if the market takes a dive.

There are deals in every market. Form relationships with brokers who have banking relationships, start looking at deed of trust and sheriff's sale foreclsoures, and pay attention to short sales on the MLS.

Just realize, this is the kind of business where it's better to start it as a side gig, and turn it into a full time job. If you want it to be your full time job straight away (without being a broken or having a second job), that might be tough. Patience pays in this business.

@Jason R. Just to be clear, this deals with FHA preemption, not preemption by HERA and Freddie/Fannie owned loans.

Also, it's not clear to me that the Nevada Supreme Court is the final say on this. This is a question of federal law, so it seems likely that the 9th Circuit will end up having the final say. Most legal scholars I've spoken with think it's way too much of a stretch to protect federally insured loans from foreclosure, especially since the law contemplates the bank losing their ability to collect FHA insurance if another entity forecloses. So I think the Nevada Supreme Court ruling is correct.

But you never know what the 9th circuit will rule...Nevada Supreme Court and 9th Circuit came down on opposite sides regarding constitutionality of old HOA law (Bourne Valley).

@Renande Emile @Kesa Wiley Can you post the address or parcel number/county of the properties you purchased? Usually, you're probably in trouble here. But sometimes there are outs (defective foreclosure auction, equity in the property above the mortgage, etc). I can at least take a look and see if there is a creative way to play this.

Regardless, I'd start renting the property immediately (assuming it's rentable), and starting bring in some income until the foreclosure. You might also be able to figure out a way to throw some wrenches in the cogs of the bank foreclosure.

@Chris L. If you throw an extra $500 at an appraiser, I can't imagine they won't do it for you same day. Or, find a broker to pull last 6 months of raw land comps in your area, then analyze for similarity and come to a conclusion about the right price range. There is never going to be an exact right price, but you can at least sanity check and make sure the offer is in the right range. Unless there is an undiscovered gold mine under your property, you'll be able to see if you're close enough or not.

@Chris L. Your comps are other empty lots, ideally in your neighborhood, minus the teardown cost of your house and cost to clear the property. You seem to be overthinking this. If you don't know how to do an appraisal yourself, then hire a real estate appraiser as Wayne suggests. Why don't you want to hire an appraiser?

Then, supplement with your own research.

BPO's are beyond worthless. Brokers don't know much about real estate appraisal. You're better off just pulling last 6 months of comps off the MLS...that's all the broker is basically doing anyway.

The only real X-factor in raw land sales have to do with zoning and easements. If your property is upzoned, or will be soon, then there is the potential for outsized profits. If it has crazy easements or other encumbrances, then there is the possibility for an undermarket sale. Otherwise, local comps are your best way of estimating value.

Does anyone have any experience with the assignment of rights under a title insurance policy?

Basic facts are that property purchaser bought a condominium unit that subsequently fell into litigation over the validity of an old deed of trust on the unit. Purchaser subsequently died and his estate is now in probate. I am interested in purchasing the unit from the estate, including any rights under the title insurance policy (the property was supposedly sold free and clear to purchaser, but the outstanding lien will implicate the title insurance policy).

Is it possible for me to purchase the property and also become the beneficiary under the deceased's title insurance policy?