Now, we’re going to get into the specific properties themselves and what type of owners to look for. I’ll actually give you the scripts—the cheat sheet I created—that allowed me to represent investors, and execute 110 transactionsin a single year. And I had no assistants helping me. I did it all by myself. This system absolutely works, and that system was based on what I did myself as an investor to buy 250 units in five years.
Right now, the economic environment we’re in is well into recovery from the greatest recession since the Great Depression. We have inventories just starting to loosen up liketraditional inventory. These are not necessarily all bank-owned properties and REOs—those are still out there in various degrees. The counties who burned through their inventory are recovering faster than the areas that still have a lot of bank-owned inventory.
Areas in Georgia and Texas, even parts of Florida and North Carolina, even Hampton Roads, Virginia, down around Virginia Beach, Norfolk, Chesapeake, Hampton, the seven city area, there is still a lot of bank inventory down there.So in any case, it’s an odd market right now, but an awesome opportunity because prices are still low relative to historical averages, and interest rates are as low as they’ve been in 50 years. Interest rates have simply not been this low since the 1960s.
If you’ve ever thought about buying properties, now is the time. I’m telling you! Use this strategy. Don’t use other strategies. Use this one, which is exactly what I did to accumulate 250 units.
Five years ago, I could do a search in the Pittsburgh area and find 3,000 properties in foreclosure. Now I could find maybe 300and that’s good. In Hampton Road, Virginia, their arm’s-length inventory is pretty tight, but there are still a lot of short sales there.In Southern California and Phoenix, Arizona, property values are escalating as high as 15% annually—in certain areas like La Jolla and San Diego—while Laguna Beach is shooting through the roof.
Whether you’re a seasoned investoror simply on your way to becoming one, you really don’t care so much what the inventory is like. You just want to find the best deal for you.But that’s all relative to your market, so you need to understand your individual market. You need to understand the rules of engagement.
At this point, I should describe the pros and cons of the different properties so you understand the rules of the game.Everybody who’s ever mastered any game must first learn the rules before they can go on to create new and creative ways to play. Like any other business, you have to learn the rules of the game so you can perform profitably and more competitively.
We’re going to focus on good old-fashioned common sense in blocking and tackling. Let’s start off by talking about the different types of properties you can buy and get the good deals.
The first one is REO. That stands for real estate owned. It’s an accounting term that’s used in banks. They’ve got to categorize properties they’ve taken back in foreclosure.
Five or ten years ago, you could have had your choice of REO properties. There were so many it was crazy. I was going out and buying, sometimes three to seven properties at a time. You know, there were lots of them out there, and banks would take almost any price as long as it was reasonable. I mean, you could get properties for half price. It’s hard to do that right now.
Typically larger banks will hire a real estate broker to sell their properties. Some of the smaller banks will actually sell their own, and sometimes they even have a licensed broker on their staff who will sell properties for them.
In Module 1, I gave you a tool. It was Investigative Reporting. It was a website created by American University for you to look at any bank in the United States of America and see how they’re doing in terms of default assets.
Of course, I was an investor first, before I got a real estate license, and I eventually formed my own broker’s company. I was a good candidate for these banks to hire, as an independent contractor or broker, that is. I serviced a lot of them: HUD, VA, Fannie Mae, and Freddie Mac.
I sold literally thousands of those properties, but I used to be a banker so I spoke their language. Even though I hadn’t worked in the lending division it didn’t matter. But as an investor, I knew what other investors were looking for. I knew how to sell those properties, and that’s why I was able to sell so many.
As the economy began to improve, we started burning through the inventory.Banks started changing the rules because they wanted fewer investors and more owner-occupants to buy their properties.
I understand their logic, but I don’t agree with it. I think investors provide a valuable service to the economy. We take properties that are not producing—nobody’s paying property taxes on them, they’re an eyesore—and we fix them upand rent them. We bring families in who conduct business in the community, and generate revenue and commerce. Investors pay the property taxes and everybody wins.
First I learned the rules of the investing game, then I learned the rules of brokerage.Finally, I applied the rules of brokerage to investing. It’s a different set of rules. You can’t go about investing the same way you go about buying or selling your own personal home. It doesn’t work. Those are two different processes, and the rules of engagement are 180 degrees different.
Now I work with investors on a broader scale, and we’re not focusing so much on REOs because that’s not where the economy is right now. Instead we’re focusing on occupied, multi-unit rental properties—properties that are already up and running.
In this market banks don’t like it when you come to them and say, “Hey, I got this great project. It’s a real dump, but I’m going to fix it up. In six months, it’ll be cash flowing.”No, no, no. Banks want to see cash flow today. They want to see cash in your pocket, the day you close.I’m going to show you how to do that.
As our government tried to step in and save the day, short sales became the mainstay of a lot of investors and real estate agents. I have to admit, short sales now are going much better than they used to.A short sale is laymen’s terms for properties that are technically in default but have not yet gone through foreclosure. As of this writing there are still a lot of short sale properties in inventory. More in some areas, less in others! When our government twisted the bankers’ collective arms to not foreclose as often, the answer was the short sale.
It used to be a horrible activity to engage in. Short sales were taking well over a year to get closed. You know, the asset managers managing the properties, they would change file servicers like you and I change underwear, and every time they did that, you’d have to start all over again. It was ridiculous!
Banks would also at the last minute force real estate agents to take less on their commission before the bank would cooperate on the sale, even when the agent had a contractual agreement with the owner of the house for a specific percentage. In all of their unethical glory, banks would go as far as to say that if the agent didn’t cooperate they would blame the failed sale on the agent for being greedy. Many distressed homeowners gave up during the short sale process because it was easier to just walk away and allow the foreclosure to happen.
After a few years of pain and agony the banks finally began to improve on their short sale processing. It’s far from perfect but it is better. Short sale means that a person is falling short on their ability to pay their loan, and the bank is going to allow you to step in and save the day and buy the property before it goes into foreclosure.
Finally, things started changing the last several years. Not so many short sales in some parts of the country, but other parts there are lots of short sales. Again, like in Hampton Roads, Virginia, lots of short sales, lots of them in Texas and Georgia. Now there are intermediaries who step in,typically attorneys who help the process go much more smoothly.
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