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Today’s Real Estate News 11.26.2013

GSEs Update Short Sale Policies

“Fannie Mae and Freddie Mac announced changes to their Servicing Guides Monday aimed at helping more borrowers avoid foreclosure through short sales and deeds-in-lieu of foreclosure (DILs).”

Report: October Cool Down in Temperature Only

“Cooler temperatures didn’t necessarily mean a cool down in October activity, according to recent data. Despite a seasonal slowdown in activity, the housing market continued to post some positive metrics in October, reports the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, which aggregates approximately 2,000 real estate agents nationwide each month and provides up-to-date intelligence on home sales and mortgage usage patterns.”

Negative Equity: A New Way of Life in the Recovery

“Fast-paced price increases have helped bring many underwater homeowners afloat. In the third quarter, 1.4 million homeowners rose to the surface as their home values once again outranked their equity, according to the Zillow Negative Equity Report released Thursday.”

Pending Sales Slip to Lowest Reading in Nearly a Year

“Pending home sales slipped a bit further in October, reflecting an overall declining trend amid mixed regional numbers.”

Top 25 Hipster Zips for Returns on Rental Properties

“While the precise definition of hipsters is elusive — which is likely just how they want it — there’s no doubt the culture surrounding the hipster lifestyle has a major impact on local real estate markets, and mostly in a positive way.”

Signs Point to Economic Volatility in the Near Term

“WASHINGTON, DC – The temporary government shutdown and debt ceiling negotiations dealt a blow to consumers in October, and foreshadows likely continued market volatility during the next few months, according to Fannie Mae’s (FNMA/OTC) Economic & Strategic Research Group. In line with previous forecasts, the Group expects modest economic growth of approximately 2.0 percent for 2013 as a number of unresolved fiscal and monetary policy decisions weigh on consumer confidence. Factors including the appointment of a new Federal Reserve chair in January and the budget and debt ceiling issues that will remain until the first few months of next year are expected to suppress consumer spending – a key driver of economic growth. However, growth still is expected to pick up to 2.5 percent for 2014 once the fiscal drags wane and as labor market conditions improve further.”

Freddie Mac Multifamily Prices 19th Securities Offering This Year, K-035

“MCLEAN, VA–(Marketwired – Nov 25, 2013) – Freddie Mac (OTCQB: FMCC) recently priced a new offering of Structured Pass-Through Certificates (“K Certificates”), which are multifamily mortgage-backed securities. The approximately $1.3 billion issuance of K Certificates (“K-035 Certificates”) is expected to settle on or about December 5, 2013.”

Home prices rise 11%

“Home prices continued to climb in third quarter, rising 11% from a year earlier.”

Realtors® Applaud DeMarco for Heeding Warnings, Leaving GSE Loan Limits As Is

“WASHINGTON (November 26, 2013) – The following is a statement by National Association of Realtors® President Steve Brown: “Realtors® welcome today’s announcement from the Federal Housing Finance Agency that the current limits on conforming loans will remain in effect until further notice. As the leading voice for homeownership, NAR opposes lowering the ceiling on loans eligible for backing by the government-sponsored enterprises. Lower loan limits would increase costs for consumers and reduce their access to conventional mortgages.”

Insight: A new wave of U.S. mortgage trouble threatens

“(Reuters) – U.S. borrowers are increasingly missing payments on home equity lines of credit they took out during the housing bubble, a trend that could deal another blow to the country’s biggest banks.”

U.S. residential building permits reach 1 million, a 5-year high

“The number of U.S. residential building permits issued in October surpassed 1 million, the highest level in five years, the Commerce Department reported Tuesday.”

FDIC reports positive trend in loan balances, failed banks

“The bad news about banks in the third quarter is that their net income declined 3.9% from the same quarter last year, according to the latest Quarterly Banking Profile released today from the Federal Deposit Insurance Corporation (FDIC).”

Colony American Homes to launch rental securitization

“Securitization deals backed by rental income continue to attract market interest as more families turn to rentals over homeownership amid tighter lending standards.”

FHA mortgage loans no longer best option after rule change

“The most popular type of mortgage for buyers with low down payments keeps getting pricier and less appealing as more buyers question whether it’s still worth getting an FHA loan.”

Wells Fargo’s Lofrano Was ‘Critical’ to Fraud, U.S. Says

“Wells Fargo & Co. (WFC) Vice President Kurt Lofrano played a “critical role” in helping the bank hide fraudulent home loans that cost the U.S. $189 million, the U.S. government claimed in a filing in Manhattan federal court.”

Some call on city to explore eminent domain to combat blight

“A California city’s controversial plan to use eminent domain to help its residents burdened with mortgages worth more than their homes has caught the eye of some Baltimore leaders, who say the city might benefit from the program.”

What Have Mortgage Settlements Done For Homeowners Lately?

“This week, JPMorgan Chase agreed to a $13 billion settlement with the Justice Department over the sale of faulty mortgage securities that led to the financial crisis. It’s the largest settlement with a single company in U.S. history.”

Chinese buying up California housing

“At a brand new housing development in Irvine, Calif., some of America’s largest home builders are back at work after a crippling housing crash. Lennar, Pulte, K Hovnanian, Ryland to name a few. It’s a rebirth for U.S. construction, while the customers are largely Chinese.”

3 Mortgage Stocks to Buy Now

“This week, three mortgage stocks are improving their overall rating on Portfolio Grader. Each of these rates an “A” (“strong buy”) or “B” overall (“buy”).”

Housing inventory disappears in California for the fall: Number of homes for sale reverses steady increase from February lows. Where did the housing inventory go?

“For most of the year, housing inventory was steadily increasing across the nation. In California, it appeared that inventory hit a bottom in February of this year. At that point, there were 109,000 homes available for sale. The latest figures going out to October showed 127,000 homes available for sale and this was down from 134,000 reached in August. There has also been a steady decline of homes available for rent. The cash investor crowd is still out buying in large numbers. The drop in inventory is typical for the fall and winter selling seasons in normal markets. However this drop in inventory is likely being brought on by other factors including the jump in interest rates and also, the perception that the market may be softening. The number of listings with price cuts was 17 percent earlier this year. Today it is up to 28 percent. Where did the inventory go?”

Troubled hedge fund sitting on real estate gold

“Hedge fund manager Steve Cohen has at least one easy way to make up some of the $1.2 billion he recently agreed to pay the government: Cash in on SAC Capital Advisors’ sprawling real estate holdings that stretch across three continents.”

Chinese real estate influence extends to the Big Apple

“Chinese buyers are fast becoming players in the cutthroat world of Manhattan real estate, and that keeps high-end real estate broker Dolly Lenz busy.”

What Homebuyers Can Be Thankful for in 2013

“Homebuyers have had it tough lately, suddenly finding themselves in a sellers market as summer came along. And mortgages suddenly cost more too — when you could even get one. But of course Thanksgiving isn’t about looking at negatives. So, if you can, look past that elephant-in-the-room that is the credit crunch and take stock of what’s now on the table for those homebuyers with the capital.”

Why Is High-End Real Estate So Hot Right Now? (VIDEO)

“Nov. 25 (Bloomberg) — Ziel Feldman, founder of HFZ Capital Group, and Kevin Maloney, co-founder of Property Markets Group, discuss luxury property market trends with Pimm Fox on Bloomberg Television’s “Taking Stock.” (Source: Bloomberg)”

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No Longer Posting Real Estate News Articles

Due to my eminent retirement, we will no longer be providing articles on a daily basis. If I find anything that I consider highly interesting or valuable, I will post it. For relevant real estate related articles & postings, please “like” The Norris Group on Facebook and visit their website www.TheNorrisGroup.com. Aaron Norris’ “Real Estate News Round Up” is exceptional!

Also, you can click HERE to see all of the sources that I typically go to for real estate information.  

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Submitting a very low offer on an REO, agent perception

Question:

Hello Tony,

Thanks for your excellent “tip” after the Inland Empire Investors Forum meeting in Corona about pursuing the REO Pendings, instead of the Actives, for any that fall out.

I have one question that I hope you can lend some perspective on.

If the REO Broker’s lender accepted the high, over-listing offer that keeps happening in Moreno Valley on the homes that I’m making offers on… what is the conversation like with the REO Broker when I can still only offer 65 percent of ARV minus repairs, and that isn’t very close to the listing price… lower than probably several other all cash or hard money offers they got the first go-round?

Obviously, your brokers call you and they know what you’ll pay. I am dealing with these brokers for the first time, as I will not use my buyers agent. I’m going to be asking these REO brokers (or their own buyers agent) to write up my offer directly if the pending sale falls out… but it will more than likely be much lower than the asking price.

Because of the over-bids on low REO inventory, I get the feeling I would be upsetting them or getting off on the wrong foot with them with the TNG offer I need to make.

Just curious how you perceive that conversation if you were me (essentially unknown to them), how you think that would go, and is it a risk for the first impression or relationship building you teach in your course.

Also, as I mentioned, I’m interested in your small group mentoring program when you get it up and running again.

Thanks for your consideration.

Best regards,

B.S.

Answer:

Sorry it’s taken so long to get back to you. Here’s the short answer, I never worry about how an agent “feels” about my offers or me, for that matter, that’s counterproductive. Next time you’re speaking to an agent, start the conversation with a question. Ask them this, “If you’re listing a property for sale, and you had one of these two offers to choose from, would you like the highest offer or would you like the one that’s going to close escrow?” Obviously, they would love to have the highest one close escrow. But, in today’s market that’s far from reality. There are just too many hurdles to clear from the moment the offer’s accepted to that closing that can screw up that deal. It’s not your job to educate experienced brokers and agents. But unfortunately, that’s exactly what you end up having to do. And this is exactly the reason why I place such importance and emphasis on you staying on top of the specific day to day changes affecting your target market.

40.5% of buyers could not secure a mortgage. 36.5% of buyers changed their mind. 5.6% of buyers did not have a down payment. 0.0% of owners decided not to sell. And a whole bunch of other ones ran like hell once they figured out how much they’d have to spend on fixing that house.

Do yourself a favor, stop worrying about all the other offers – cash or otherwise. Focus your attention on the numbers that you need to hit so you can secure a profitable deal. Stop listening to your mind giving you all the reasons and excuses why everyone is going to hate you. If I’ve said it once, I’ve said it a million times,
“your mind is not your friend.” – Vernon Howard.

Focus on providing a solid offer that you can stand behind and close on without hesitation. Make sure that you remind the agents you’re working with of the percentage of fall outs that are presently being experienced in the market due to all of the reasons that I’ve already stated. Over time, this is what will give your offers their strength and solidify your deals.

This may take a little bit of time and some effort on your part. But just like any other mental conditioning, it’s your job to consistently remind them of the nightmare of accepting a supposedly “higher, better” offer that will, more than likely, crash and burn, in exchange for your superior offer that WILL close escrow and secure them a commission check.

Piece of cake, right?

Best,
Tony

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Soliciting private money for flipping vs. buy & holding

Question:

Hi Tony…and thanks a million for this invaluable forum!

Got one for you about private lenders. I’ve started talking it up. I’m going to focus primarily on flipping in the beginning but I want to hold some as well once I get rollin. When I explain the dual focus some are asking the rate difference. I explain that the rate to retail is higher than holding on rentals. I’d like a better answer.

What should the difference be? If retail is say 9% what would long term be?

(if that was answered in your course…plz forgive me!)

Last one…should the Note provide the ability for the lender to convert if they like? It seems prudent to craft that in with friendly language along the lines of “we have the right to convert” so people know it’s possible from the outset and so I don’t have to go back and explain it once things are in motion.

One person said straight out…”I like the rate and security but aren’t crazy about it being short term.” I’m guessing that on occasion I’ll need to finance out retail money with different lenders who would be happy with less for a longer term. But it would be nice to convert people if I choose and/or if I need to because the property isn’t selling for one reason or another.

Did I say thanks?

Many, many, MANY thanks Tony.

-M.

Answer:

Okay, out of the gate let me just make one point very clear. When you’re trying to solicit money from people that have it, they’re motivation for lending it is as varied and different from one to the other as are grains of sand in the ocean.

You’re job is to attract the money based on the probability of a successful outcome. The two things that anyone lending money is typically focused on is:

1. The return ON their investment
2. And the return OF their investment
(the latter being the most important).

How you structure the notes (conversion) or the interest rates is solely up to you. What they will accept, you’ll soon find out, is solely up to them. I have found that what buys me the most leverage when wanting to skew those negotiations or numbers in my direction, typically have to do more with how good my deals are and how good I am at making them reach a happy and profitable conclusion.

I cannot, in good conscience, give you specific advice on what interest rate you should offer between short-term and long-term money, as I honestly believe this is a moot issue. Industry standards on this topic are clear and available for anyone who cares to look for them. Most investors know they can easily place their money with professional, respected hard money lenders like The Norris Group and earn an easy, effortless 12% on short-term and 9% on eight year financing.

I have found that the more geographically local the investor lender to my specific Target Market, the more familiar they are with my individual properties, my level of knowledge and experience, and successful track record, the more motivated they are to jump on my wagon and the stronger position I hold for negotiating. This typically becomes a “their money is chasing my deals” rather than the other way around.

I hope this helps.

Your friend always,
The Big Cheese
Tony
;D

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Banks not looking at offers less than 85% list price

Question:

Tony:
I am following your course more or less to the letter and made some good listing agent contact. I have to admit I am surprised how these guys are surprised to have me come to their office and just chit chat about general things rather than fly in saying I am an investor and need some good deal. I have never come into their office and said I was an investor and that really seems to take tension down a notch or two. Of the 3 I have met one has already asked me to come again for lunch and he was putting me on his 1 call list. I also have a couple of cash buyers and made a few offers. I am stoked!

One thing all the agents have told me though is the banks (fannie mae) won’t even look at an offer less than 85% of the mls list. The properties I am looking at are for the most part not the ones just on the MLS but older properties and have either been a BOM or had price reductions. Have you faced this “nothing less than 85%” threshold? I am going to keep doing what I am doing but not spend time on the fannie mae and freddie mac properties.

D

Answer:

D, I LOVE YOU! YOU’RE DOING A GREAT JOB! It’s wonderful to see when somebody gets it! It’s not that complicated, is it, D? It’s not like we’re reinventing the wheel here.

The 85% thing is real. However, so are the deals that fall between the cracks. The bottom line is this, all listings that do not sell during the initial listing period MUST be reduced until sold – NO EXCEPTIONS! No one at the lenders office owns this property personally. No one at the lenders office holding the title to this nonperforming dead asset gives a hoot about holding onto this pig longer than they have to, that property has got to be sold at some point. And that always occurs when the listing price is lowered enough to motivate someone to pay for it.

Now here’s the thing, every time an REO listing sells, what I mean by that is goes pending, and then falls out before the close of escrow, the asset manager’s as well as the listing REO broker’s motivation for liquidating that property increases at an alarming rate. When a deal falls out of escrow that’s the time that the REO agent and asset manager are most highly motivated to cut listing price and accept concessions to get rid of that property. And if anyone tries to tell you any different, they are full of crap.

You have to make a lot of offers at your prices, meaning, at prices that make profitable sense to you as an investor. Always respectfully, intelligently, and calmly explain to the listing agent or your buyer’s agent how you’ve arrived at your final offer price. Always remember that if an REO listing agent is hinting at the fact that they do not want to submit the offer on a Fannie Mae or Freddie Mac listing because it is not within the 85% of listing price AND you know that number will not work for you, it is important that you explain to the agent not only that that price doesn’t work for you but that you are still interested in purchasing that property once it is reduced to a reasonable listing price. Remember to always leave the agent with those words “I WILL BUY IT.”

One final note, please remember that all of these regulations, these 85% rules, these 90 day restrictions will all get kicked to the curb sooner or later. The problem is we never know how or when. Here is what I do and I suggest you do, stay the course. Ignore the chatter, be aware of these senseless stupid rules and regulations that they keep adding and removing faster than you can spell them. In other words, this market, if anything is fluid, ever changing and will eventually turn completely to our benefit as investors. And the only reason this will happen is because the lenders are completely motivated by greed and self-interest. This is the only thing that you can absolutely unequivocally rely on. These guys will hand us their butt on a plate when they finally realize that is what will put the most money in their pockets. How do ya like them apples?

Big Hug
Love,

Uncle Tony

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Investor funding falls through, now what?

Question:

How can I keep my credibility intact with REO agents when submitting offers if my investor decides for what ever reason not to fund a deal I was expecting him to cover. This could also apply to rehab contractors I suppose.

Is this just the risks that go with using equity partners?…Any thoughts….

-M.

Answer:

To minimize the possibility of destroying your relationship with an REO agent before you even get started, you MUST make sure that you’re investor/partners are solid and committed. One of the ways you can do this is to have a joint venture entity and bank account that they have committed funds to prior to submitting your first offer. However, no amount of legal paperwork or promises are going to hold someones feet to the fire that becomes consumed with fear over their inability to choose wisely. You must spend time with your fellow investors, especially if they’re new to the business, to make sure that they understand the reality of this business and the true profitability of your proposed deals.

The worst thing you can do to yourself is to get anxious and partner up with just anyone because they have a fat bank account. The responsibility of making good decisions falls squarely on YOUR shoulders. You’re the one that has to be aware of who you’re dealing with. You’re the one who’s responsible for your team showing up and doing what they have to do or at least being prepared with one of several back up plans.

If you’re going to hunt bears, you better have more than just one high powered rifle and one bullet. If not, when you’re head’s rolling around on the ground, and your body’s still standing…you’ll have no one to blame but yourself for being way too optimistic.

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Hard Money vs. Private Money

Question:

What’s the difference between a hard money lender and a private investor and does using one have an advantage over the other?

Answer:

Hard money lender – higher costs/fees, higher interest rate, tougher qualifying.

Private investor – Individual, typically no fees, better rates; longer term.

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Purchasing with an entity, no witholding tax

Question:

I’ve heard that if you buy using an entity, you don’t have to pay some great, big witholding tax (from California)?

Answer:

Questions regarding tax should be directed to your tax person, or attorney. I do not give legal tax advice.

http://www.ftb.ca.gov/forms/06_forms/06_593bk.pdf

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Exchange REO to another property to defer taxes

Question:

Is it possible to exhange an REO into another property in order to defer taxes and if so what would be the minimum time frame?

Answer:

You’re speaking of 1031 Exchange Rules. This is really a question for your tax person as we do not give any tax or legal advice.

However, that being said, it doesn’t matter the source of the property, whether it’s an REO or Short Sale, or owner-seller. Whether or not a property qualifies for 1031 Exchange depends on whether it complies with 1031 Exchange Regulations and your INTENT!

I suggest you do the research by checking with your tax person or the internet (such as the IRS website) for these regulations.

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Unpermitted room or addition

Question:

When a house has an unpermitted room or addition, does one still purchase it and how does one handle this situation?

Answer:

This is a complicated issue. Typically, you’d want all the square footage in the home to be permitted. However, it has to do with the quality of construction, compliance with building codes, if it’s structurally sound and safe, how it will affect your financing such as, whether your intention is to keep it and rent it and refinance it in the near future or whether your exit strategy is to flip it immediately and expect the buyer to get new financing, and whether the code enforcement office has already red tagged your house and wants you to tear down the illegal addition or if illegal additions are typical for your market.