My plan to turn around the economy.

Good news for some homeowners. JP Morgan / Chase announced today a self-imposed 90 moratorium on foreclosures. Executives said that they want to give the government time to implement their stimulus package, and they want to allow themselves enough time to properly act on the changes.

So here is my government stimulus package idea (since everyone has one).  What if we paid off every owner occupied mortgage in the country?  Simply paid them off.  You live there, you have a mortgage, now you don’t. Add a rule that says you cannot borrow more than 25% of the value of that property for 5 years (so people did not go too crazy with there new found windfall). It would stop the foreclosure mess in it’s tracks.  OK, it’s not a perfect plan, I can see flaws with it, but there will never be a perfect plan, and it would definitely stimulate the economy. It would also loosen up the credit crunch. Many will argue that it does not help the poor. Sure it does.  As soon as money begins flowing again, we all win.  Businesses will begin to thrive again.  Jobs will be created because those businesses will need employees.  And I like that it rewards people who were financially savvy enough to own real estate in the first place. As for investment property or a second home, modify all mortgages to an affordable payment, but don’t lower the principal owed.  That way, those investors will have to hold on to the property, and provide rentals for those that need them until prices return to more than is owed on the property.  No more short sales.

 

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They finally recognize that we are part of the solution.

They finally figured out that we are not the enemy. For more than a year real estate investors have been called very nasty names, been blamed for the housing market and been generally dismissed as ‘the problem’. There is no doubt that speculators contributed to the current state of the economy. But in most cases, we were just trying to capitalize on certain opportunities. I think that is what makes this country great. And the truth is, investors, if given the opportunity, will help the housing market settle down and turn around. Why, because we will buy.

So, last week, FNMA announced on their website that the 4 loan limit has been removed, and, under favorable circumstances, they will allow an investor to have up to 10 loans. This is great news for investors who are picking up foreclosures and other distressed properties and keeping them for rental or selling on lease-options.

You can get all of the details at FNMA’s website by clicking here.

What does this mean? Well, certainly it is not an end to the credit crunch, however, if you have some cash and good credit, you can own more properties and ensure your ability to prosper when all of the dust settles. Let’s face it, people have to live somewhere, and someone needs to provide that housing. Now please let me remind you. Being a landlord is not rocket science, but you should take some time (and probably some money) to learn how to be an effective landlord, so that your tenants help make you wealthy instead of miserable. I’m actually in the process of getting ready to write a home study course for landlording – but it will be awhile before it is finished. Come to think of it, I have to finish my negotiating course first.

Are you ready to buy more now? Are you interested in Las Vegas real estate? (You should be.) Drop me a line and let’s see what we can find you. Visit me at http://www.MyFastEasySale.com

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Facebook

I read somewhere recently that 600,000 people a day are getting a facebook account (www.Facebook.com).  I’m open to trying anything twice, so even though I don’t know much about it, here I go.  If you read my blog, then I consider you a friend, so if you don’t have a facebook account, get one (at least try it). If you do, drop me a line and I’ll add you as a friend.

The Facebook site is interesting. I have only 2 ‘friends’ as of this moment, but I reconnected with an old friend from high school and I keep hearing how great it is as a networking tool. I uploaded some photos, and filled out my profile. I’ll see how it goes.

So click here to Facebook me!

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New Real Estate Contract Guidelines?

I have probably written over 200 real estate contracts. I have had 35-40 offers accepted, and entered the due diligence phase on those.  I have closed on the purchase of 25 properties now.  There is one item that has been a hassle for me on 3 different occasions.  Getting my earnest money back.

First, in case you are not aware, let me explain some important elements to understand about escrow.  Usually, the seller gets to decide who will hold the earnest money in escrow. This never concerns me because the fiduciary duties of the escrow agent are clear. They must remain impartial and only do as instructed by both parties. The reason this is key, is that if the sale does not go through for any reason, the escrow agent will not release the money to one party without the other party’s permission. If there is a dispute, it is not for the escrow agent to preside over the dispute. In some states, the escrow is held by attorneys, in others, like Nevada, it is held by a Title Company. 

So on 3 different occasions as a buyer, I have had a seller try to ‘strong arm’ me into giving them some of my earnest money when I did not buy. As near as I can figure, they determined that it would cost me a certain amount of legal fees to prove that I had done no harm, and not been in breach of the contract. So, if I just give them an amount of money less than that, I come out ahead. 

I read somewhere recently that the United States has 20% of the worlds population, and 80% of the worlds civil lawsuits. This is a large part of the reason why. People want money that they are not entitled to. And so contracts get longer, and longer, and longer.

The first time this happened, was over a pretty small amount of earnest money ($2,500) and the seller eventually gave in and signed the agreement. I believe their realtor may have convinced them to. 

The second time, the earnest money was $10,000 and the purchase was in another state (Tennessee) and we eventually decided to give them $2,000 – not because we were wrong, but because it was going to cost us at least that much to fight them.  I call that extortion.  You call it what you want.  It happens often in our legal system. Someone files a lawsuit that has no real basis, and the defendant pays them some amount of money without admitting guilt – because it’s cheaper.  The media will always paint this settlement as an admission of guilt.  It’s just sad.

I’m currently involved in another scenario, where after I cancelled the contract, the seller said to me, “You have cost us time on the market. How much of the $6,000 earnest money are you willing to give us?” The answer was “none”. Again, we were within our rights to cancel, but they want to strong arm us. Now we are getting a lawyer. At some point, even though it costs more, you fight them, on principal. The bummer is, that we could technically spend more than $6,000 to get our money back if this goes to trial, but we don’t want them to have any of it, because it is just wrong.

So what can be done about this?  My Real Estate contracts are about to get longer.  When I am the buyer, the first thing I will do is insist that during the due diligence phase, the escrow release has to be single signature – MINE.  This means that if I cancel the contract for any reason during that time period, I get my earnest money back; no questions asked.

After the due diligence phase is over, if there is a dispute, the contract will require binding arbitration.  That way if they try to strong arm me, I have a less expensive option in front of me. Then I will stipulate that the prevailing party shall be reimbursed for costs and fees associated with attempting to resolve the dispute.

A friend of mine who is a business consultant says that he is amazed that this is not part of every real estate contract already. In all of the ones I have seen, I don’t even recall seeing it. Maybe it has been in plenty of them, but not in those 3.

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The Mechanics of Buying Real Estate

I talk a lot about the good deals in Las Vegas, but I think it’s fair to say that some of you who read this may not even be familiar with how to purchase a property, for an investment or personal use. If you have only done it once or twice, or if you have never done it, there may be some things you don’t know.

Unless you are paying cash, finding the right home starts with finding a good lender. You need to know how much home you can afford, how much money you will need for down payment, and closing costs, and what your monthly payments will be, before your real estate taxes and insurance. A lender can pre-approve you for a loan and issue an approval letter. This is imperative when you are negotiating on real estate! If more than one comparable offer has been received and none of them are cash offers, the seller will always choose the buyer who has the financing in place. Many sellers will not even look at your offer without a pre-approval letter. (If you need lender recommendations, I have them for you!) Of course, cash is still king!

The next step is determining which neighborhoods you prefer within your budget. Since the first rule of real estate is location, location, location, if the property will be your home, I suggest choosing the best community you can afford even if it means choosing a somewhat smaller or less luxurious home, as long as it will accommodate your lifestyle comfortably. Then when you are ready to sell the home and move on you will be assured of a better pool of buyers. Of course location is important for investment properties as well. You want to be in a neighborhood poised for appreciation, but where the tenants are not going to have the Home Owner’s Association (HOA) after you all of the time. Make sure you look into the real estate taxes and insurance costs when determining affordability, and know that landlords have different types of insurance coverage than homeowners. (If you need a great insurance agent, let me know.)

Once you have identified several neighborhoods to look in, I can customize your search to fit your special needs. I can search by size, number of bedrooms & garages, school zones, lot size, pools, fireplaces, floor plan style, etc. I will preview the homes for you, and only show you the ones I know are the best on the market for price and condition. And don’t worry, you will know the home when you walk into it! It will feel like your space. For investors, the best buys typically have more bedrooms and less square footage.

Next we need to negotiate an offer with the seller, often a bank. The two most crucial points in the contract will be the selling price and the closing date. To find the proper offer price, we will do a market analysis on the neighborhood for you and determine how much other similar homes have been selling for. The seller will not want to spend a lot of time waiting for you, however you must have a reasonable time to inspect the property and evaluate the HOA. Then your lender’s job (if you have one) is to close quickly.

Don’t be afraid to offer the seller an amount that the property is really worth – having said that, if a property is priced right to begin with and you waste time making low offers to save even more, someone else is likely to swoop in and buy it out from under you. Sometimes trying to save a couple of thousand dollars is not worth losing the home of your dreams or a great investment property.

After the offer is accepted it is time to choose a home inspector. I always recommend having one. In fact, if the property is bank owned, I suggest spending a few dollars more and getting an engineer to inspect. Your inspector will go through the home and up in the attics checking all the major systems. They will find defects a normal buyer could not reasonably expect to discover and often the seller doesn’t know about them either. A few hundred dollars invested here can save you thousands. Of course also understand that the inspector’s job is to point out every single defect in the property, so don’t let your inspector scare you away.

The lender will eventually be sending out an appraiser. The appraiser’s job is to make sure you are not paying more than fair market value for the property.

Just before you have ‘closed’ on the purchase, contact the utilities to get those into your name including water, sewer and trash. If you will be hiring contractors to do work, you will want to schedule them now, as the good ones are usually busy.

The day of the closing you will want to do a final walk through of the home. (I can do that for you if you are not in Las Vegas) You will check to make sure everything in the home is still in good working condition and anything that the seller was supposed to fix has been. Then we will go to the escrow office to sign the final loan documents and turn in a cashier’s check for the balance of the down payment and closing costs. Of course if you aren’t in Las Vegas, this will be done by overnight courier and wire transfers.

The day your home is recorded at the county recorder’s office is the day you get your keys. You can now either begin to work on it, move in or get it rented!

Are you ready to buy real estate in Las Vegas? Visit www.MyFastEasySale.com, click the “Wholesale Buyers” link, and fill out the form. Let’s get you going.

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Two great words that can really get you in trouble.

What a game yesterday!

One of the best big games that we have ever seen. Someone help me understand this please.

We are not allowed to call the event by its name. (You know, the two words – the first word starts with an ‘S’ and the second word starts with a ‘B’). 

As I understand it, radio stations, TV stations, bars, restaurants, etc., can’t say it because it is copyrighted. We can say that the Pittsburg Steelers played the Arizona Cardinals at Raymond James Stadium a short 2 hour drive from Disney World in the big game this weekend.  After the big game people went back to the Marriott Hotel and drank Budweiser or Jack Daniels with Coke to celebrate. That seems to be OK.

We can say that the Tampa Bay Buccaneers were not present for the big game at Raymond James Stadium.

Why is it we can say Pittsburgh Steelers but not S**** B***?  How come everyone who says Arizona Cardinals is fine as long as they don’t say that they lost the S**** B***?

I can understand not allowing people to sell items that use the logo’s, but when I’m chatting with my friends in a public place, if I call it its name, instead of the big game I hope I don’t get in trouble – because I said those words today a few times (of course I don’t dare write them).

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Happiness is plenty of cash flow!

I just flew back into Las Vegas, and boy are my arms tired! (OK, that was cheesy).  I was in Rhode Island closing on a small apartment building that I had bought at a foreclosure auction.  Are you thinking why Rhode Island?  The answer is simple.  Abundant cash flow.  As excited as I am about the future appreciation of real estate in Las Vegas, I am just as excited about the incredible cash flow of 3 family apartments in Providence and Cranston Rhode Island.  Now, I certainly don’t expect them to appreciate at near the rate  as Las Vegas, but check this out. The building I bought was $131,000 and needs a little over $5,000 worth of work. 

On the first floor, I have a tenant that has lived there for 10 years paying $850 per month. I have a tenant living on the second floor that has lived there for 14 years paying $850 per month.  And the third floor is vacant and needs most of that repair money, but has 1 more bedroom, so even though it is on the least desirable third floor, with the extra bedroom, we will get at least $750 for it. If we get a section 8 tenant (don’t cringe – section 8 can be wonderful if you screen carefully) we can get $975. So let’s add that up without the section 8 tenant.

$850 1st floor
$850 2nd floor
$750 3rd floor
—————–
$2450 per month gross rent.

The annual real estate taxes are going to be $2,376 ($198/mo) and the annual insurance is $2,977 ($248/mo)

If I had a mortgage for the entire investment of $137,000 (just for illustration), and I were paying a high interest rate (by today’s standards) of 7%, my Principal and Interest payment will be $911/mo

So my monthly budget for expenses is;

$245 Vacancy (figured at 10%)
$245 repairs/misc (typical)
$196 Prop Mgmt
$198 Taxes
$248 Insurance
$96 Water & Sewer
—————-
$1420

after I pay the mortgage, I still have $509 every month

Here is the beauty – this is worst case scenario. I have 2 tenants that have lived there for years, so they are not likely to be leave or not pay rent. The new tenant is likely to be section 8 which pays an additional $225 per month (most of there rent will be paid by the state) and I will likely have very little vacancy. 

Do you like that?

BTW – I closed with hard money because of the nature of the repairs, and am open to flipping this property. Are you interested?

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