All Forum Posts by: Carlton Ellis

Originally posted by Aaron Mund:

I read an article today that said that jumbo loan foreclosures are on the rise here in Colorado. Many due to the lack of loans.
First the businesses must grow, then they must hire more people. Then the people can buy homes and get back on there feet. Time will only tell.

The one part of the equation that you are missing is wages must also rise. Along with all the other problems in the economy add this to the pile. With the current oversupply of labor is just about every sector of the economy there is really nothing to drive wage growth. Granted the decreases in home prices will eventually drive some growth as employment begins to increase. But the long term prospects for appreciation of SFR's is limited without wage growth.

Originally posted by Dan Krause:

:D negotiation would be done by buyer and seller-i would only be the introduction agent

Don't even be the introduction agent. Just give the information to the investor. That is really all you can do. Let the investor decide to contact the seller and let him or her completely handle all other phases of the transaction. Unless you yourself have an equity interest in the transaction as a buyer or seller that is all you can do.

Originally posted by Dan Krause:

:D I havent been able to check out the state laws yet. Does anyone have any idea? If you are representing a buyer/investor (finding him properties) in return for a fee and you are not a realtor or attorney? Residential properties? Commercial properties? Anyone know Michigan law pertaing to this? Thank you

It's very interesting you ask this quesiton. I'm currently in Michigan and I've actually been studying a case involving the application of the law. First here is the law:

MCL 339.2501(d) provides:
“Real estate broker†means an individual . . .
[or entity] who with the intent to collect or
receive a fee, compensation, or valuable
consideration, sells or offers for sale, buys or
offers to buy, provides or offers to provide market
analysis, lists or offers or attempts to list, or
negotiates the purchase or sale or exchange or
mortgage of real estate, or negotiates for the
construction of a building on real estate; who
leases or offers or rents or offers for rent real
estate or the improvements on the real estate for
others, as a whole or partial vocation; who engages
in property management as a whole or partial
vocation; who sells or offers for sale, buys or
offers to buy, leases or offers to lease, or
negotiates the purchase or sale or exchange of a
business, business opportunity, or the goodwill of
an existing business for others; or who, as owner
or otherwise, engages in the sale of real estate as
a principal vocation.


So here is the deal you can't offer to sell real estate for somebody else. You can't offer to buy or sell real estate market analysis or listings. You can't negotiate the purchase or sale of real estate for another party. You can't negotiate mortgages for another party.You can't negotiate the construction of real estate for another party. You can't rent of offer to rent for another party. You can't negotiate the sale of a real estate business opporutnity. You can't sell real estate as a principal vocation without a license.

Now in between that there is nothing to stop you with providing information to an investor about a property. The key is how you choose the structure the business arrangement. Right now I'm exploring Joint Venture Agreements with real estate investors as part of the purchase I am a small equity partner. As part of this agreement I put a buyout provision in the agreement that waives my right of refusal to any buyout offer that meets previously agreed upon value. In the agreement I have given full negotiating, managerial and financial control to the investor. This is very similar to equity for intellectual capital stock options agreements that are common in the high-tech industry where I've work for about 25 years. The agreement is VERY investor friendly in terms of control. Yet when I discuss this with investors so far it has met with tepid response at best. It's almost like they would rather pay a higher price to have a property go through a transaction where it's wholesaled to them at a higher mark up then the fee I'm currently offering. The best answer I've gotten as to why this is has been because this is not a "Traditional" way to do business. If any investor can shed light on why a Joint Venture Agreement structured in this fashion makes them uncomfortable or even not the preferred way of doing business I'd love to get some feedback. If they can offer any alternative to another Joint Venture Agreement that would make them more comfortable and of course is within the bounds of the law. I'm all ears.

Originally posted by Tiara Murray:

Hey Eric, how can you go into the closing with no money? I thought that once you sign the papers in the closing with Seller A, that you had to give them a check to? So you're basically saying that the title company collects the check from your B-C closing to give to Seller A at a later date? And where does earnest money factor into these deals?

Another alternative is to use transactional financing. Then you have factor the cost of such financing into the profit and loss equation of your deals. In situations where you may be dealing with a bank or the seller insist on a POF letter having the right transactional financing can overcome those hurdles.

Originally posted by Anthea S.:

Many Thanks to Peter,Curt,djjkl, Lee and Marcus. I am honestly very greatful for your suggestions...

I had a friend insisting that i take the money and do one of the wholesaling 3 day workshop because he said one have to spend money to make money and since i don't know where/ how to begin investing rei he thought i should get sone hands on training on exactly how to begin....

I wanted a rental first because it seems simple if i buy one that already have tenants with leases . Also rental is my long term objective.

thanks again

There is a difference between spending money and investing money. So I'm tend to take the adage "You have to spend money to make money." with a grain of salt. When you invest money you weigh the risk against the expected return. If you go to an real state investment seminar that turns out to give faulty advice or for any other reason you can't capitalize on what is taught then there is no return on investment.

Personally I've found that there are other alternatives to gaining real estate knowledge besides high price seminars and courses. Bigger Pockets is great place to start but there are also books and you can gain knowledge by just searching the web on a given subject matter.

Originally posted by Danny Johnson:

The easiest way to keep track of everything is to make checklists of what is needed for each type of transaction. So, when you get a house under contract you can print out a checklist for that transaction and keep track of all of the different things that you need to do to make sure you don't forget anything. Like putting the utilities in your name.
Then when you sell, you will pull out the selling checklist to make sure you do things like canceling the utility services.

Also, a good file keeping system and having Quickbooks set up to keep track of the financials will help keep you organized.

Don't forget to keep track of all goals so that you don't just get caught up in the day to day.

Hope this helps.

I come from a high-tech background and I think your advice is very good. Personally I document a process for everything that I'm doing. Then I will create a spreadsheet of or database to track my processes. It has been said "If you can't measure it, you can't manage it".

Also if you have some type of contact management software for all the investors, lenders, contractors and others people you deal with it helps.

The more organized you can get the better you will manage your time. If you can improve your productivity then you can improve your earning potential.

Originally posted by Phil Mondiello:

I got a list of REOs from an agent 2 weeks ago, she said they were all vacant. So we went to one of them, snooped around, and a woman came out with a knife threatening us! We got back in the car and got outta there. Turns out the bank is selling it occupied with violent occupants..

That's a great story. I recently came across a property that was vacant but had a for sale by owner sign on it with a phone number. It turns out the number was for a company that sells REO’s brought by investors. In this case most of the properties where brought sight unseen. I had taken some pictures of the property and sent them to guy I was talking with. It turned out I knew more about the property than he did. In return he gave me a list of properties in my area he’s trying to sell.
So many homes are being sold on large REO tapes that in many cases there is serious lack of information on the part of the banks or the investors as to the actual condition of a given property.

Originally posted by Ted Akers:

Carlton,
I agree 110%. I just posted a Blog here with detailed delinquency rates you may find of interest, or you can access it at [LINK REMOVED] . It bodes well for short sale and REO investors but in my oppinion not for the economy.

I just read your blog Ted. Thanks for telling me about it. We are at a time in terms of real estate valuations very similar to where stock market valuations were in 2001-2002. As much as I hate to see hard working people fall on hard times the reality is when there is blood in the financial streets that is when the opportunity as an investor is the greatest. From an investment standpoint the next two to three years are going to be critical in terms of developing a strategy to take advantage of real estate assets that have significantly devalued and executing it.

And let's not forget about commercial real estate either. I have a friend who has a close relative that work in Citi's commercial mortgage division. He was asked to hop on a plane go out to Los Angeles and work out a mortgage modification on a $2.5 million dollar property. The owner of the company literally threw the keys for the building on the table and walked out of the meeting. The value of the property was so underwater he just couldn't justify any kind of mortgage modification.

Originally posted by Ted Akers:

Hello P NW,
I agree they are much more likely to get the property back undamaged and that is is cheaper than a foreclosure. Timewise it will vary state to state, but on average may be close to the same. I strongly agree with you on not dumping in waves if possible. My preference though would be to get the REO's on the market sooner rather than later. This is because I expect a substantial increase in defaults on Option ARM's and Alt-A ARMS. Both have recasts or resets of around $2B in March, climbing to $6B in October, and trending up as high as $13B in October 2012. For that reason I would prefer to add REO's sooner rather than during that later timeframe when I believe substantial defaults are likely.

It is not as much incentive to the homeowner, but if they were to short sale the cost could be about the same minus the $1k incentive and maybe shorter than the 6 months holding period and costs associated. Shorts seem like an alternative to get them off the banks books quicker and avoid dumping them at a time I think will be worse.

Citi's measure is in essence sitcking their finger in the dam to stop the flood. Now granted some people are going to be helped by extra time that may prevent an actual foreclosure. But chances are once a mortgage gets to the point where a Notice of Default has been served most folks simply can't turn their situation around in time.

Between the continuing high rate of unemployment and the number of option ARMs that you mentioned that will reset soon we are long way seeing the end of the current credit crises.

Originally posted by Robert Mack:

I am trying to add onto the financial part of my business plan and had some questions about apartment buildings.

My plan is to purchase a 20-50 unit building in 2-3 years with profits I make from rehabbing and reselling properties which I am currently doing.

Is it possible to purchase a 50 unit building or smaller for $20k per door with rents being around $650 per door? Location does not really matter, but I am going to look into Texas.

Also what would be an estimate for loan terms be? In 2-3 years, based on your estimate, would it be feasible to purchase the above building with 30% down 7.5% interest on a 20 year term?

I am trying to get some better ideas on numbers so I can make more accurate projections, thanks.

*If this is in the wrong section, please move it, thanks.

In terms of rents what you are doing is quite possible in just about any large city in Texas i.e. Dallas, Houston, Austin, San Antonio, or El Paso. A key component will be finding a property in a the right neighborhood and the mix of one and two bedroom units. If you find the right property in the right neighborhood you can easily charge $600 to 700 for a one bedroom unit and $750 to $850 for a two bedroom unit and still be competitively priced.

If you buy in a big city in Texas I'd advise you to pay very close attention to surrounding neighborhood during the course of your property ownership. Because just about every major city is Texas is growing rather fast demographics of a given area can change in 5 to 10 year period. The current slow pace of economic growth might slow this down a bit. A consistent pattern in large Texas cities over the past 20 years is that as higher price property is built in the outer suburbs the more affluent people tend to move there unless a neighborhood has been firmly established as as an "Old Money" neighborhood.