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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.

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Precautions/Concerns with Condos

Question:

Do you write offers on condos and apartments? And what precautions/concerns does one have to take if you do?

-W.G.

Answer:

At this point in the market, I’m not making offers on condos because it doesn’t make sense in my market. I’m buying houses way too cheap.

Some of the things you want to watch out for when you are buying condos:

1. First and foremost is the percentage of owner-occupied units to rental units in the complex. In other words, how many units are occupied by owner-occupants and how many are rentals. You need to know if you’re buying a unit located within a nice, quiet, well-maintained building that reflects pride of ownership or whether you’re about to buy a unit within a building full of low income subsidized tenants which is the equivalent of a zoo. This also affects your financing, whether you’re going to keep it and refinance it or flip it.

2. Homeowner’s Association dues may be excessive. HOA dues are tied to expenses and reserves for major repairs such as replacing the roof in the future and will only increase over time.

3. Location of the unit within the complex. For example, in high rise buildings, the higher the unit’s location, meaning the higher floor the unit is located on such as a penthouse, the higher the value. In smaller buildings and townhouse type units, end units with one common wall are typically valued higher than interior units with more common walls. Whether they have views of the ocean or whether they have views of the back of the building parking area affect the value. Everything affects the value. You’re basically buying an apartment.

4. Whether utilities are master metered, or if they’re individually metered to each unit and whether you have electric as well as gas or if it’s just electric.

5. Type of parking facilities that come with the unit whether it’s an actual garage or a subterranean parking structure, how many parking spots come with the unit (one or two), whether they’re side by side or tandem – all of these factors affect the desirability and ultimate marketability.

6. Whether the building is actually converted as a condo or co-op ownership type.

As far as apartments go, I assume you mean apartment buildings and this is considered a whole other animal than single family’s individual condo units. And if that’s correct, depending on the size of the apartment building (meaning the number of units) they are typically valued on either net income and Cap Rates (capitalization rates) or Gross Rent Multipliers (GRM), or a combination of both. There are many factors that go into calculating these values and they include but not limited to:
• Unit mix (as in number of bedrooms & baths)
• Square footage
• Year built of the building
• Quality of construction
• Desirability of location
• Amenities (pool, Jacuzzi, laundry facilities, etc.)
• Master or individually metered buildings
• Gated and security building
    

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Getting a RE License

Question:

Do you recommend getting RE agent license? If not, what is best way for newcomer to get direct MLS access vs. just getting listings emailed to me?
    
-Student

Answer:

1. Real Estate License – YES!!

2. Get friendly with starving buyer’s agent and get approved as assistant. Get password for access.

3. Money talks – make it worthwhile for someone to cooperate with you and give you access – usually an agent.

NO BRIBES!! What’s wrong with having them work for you? Regardless if an agent does research for you – you must get your own access and learn to do research yourself!

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Finding Vacancy Rates

Question:

How do I find a vacancy rate for a particular neighborhood? I have found vacancy rates on city websites, but they don’t have it broken down by neighborhood?

-Student

Answer:

There are various ways to get vacancy rates both free and paid

1) Internet Resources Include:

Free:
www.rentbitz.com (info, not broken down) www.redfin.com (info, not broken down)

Paid:
www.loopnet.com
www.costar.com
www.grubb-ellis.com
www.marcusandmillichap.com

2) The best way to get free LOCAL information is basically doing what appraisers have done for years; it’s called a Rental Survey. This includes first calling your local newspaper for rental ads and calling on individual landlords and interviewing property managers that rent in your area and then driving your chosen neighborhoods, writing down information on rental signs and inquiring on the rental as if you were a tenant.

-TA

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What is a “wrap” transaction?

Question:

What exactly is a “wrap” transaction?

-Student

Answer:

A wrap transaction means you’re buying a property that typically has an existing first loan. The seller carries a second loan and you wrap both of them to make one payment. That is a simplistic explanation of a wrap. Wrap around loans are used in many different creative way. Creative financing is a world unto itself. Back in the 80’s it was just about the only way we could get deals done. I suggest if you ever have a chance to listen to Bill Tan, Shawn Watkins or Aaron Mazzrillo, this is exactly what they attempt to do every day.

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Original Owner regaining ownership

Question:

Does the original owner reserve any rights of regaining ownership?

-Student    

Answer:

Whether an Owner/Seller has actually reserved any rights has to do with how the actual sale was consummated and whether the law was violated in the process. The law that governs how to approach a seller in default in California is extremely specific and detailed and if you intend on pursuing sellers in default I strongly urge you speak with an Attorney who specializes in this area before attempting to do this on your own. The California Association of Realtors CAR) has a purchase offer form called, “The Notice of Default Purchase Agreement” which highlights the items that must be addressed. Also Tuesday Forms sells a an offer form that is also customized for this specific use.

Having said all of THAT, I must warn you, this is a highly sensitive area of real estate especially inside this real estate storm we are experiencing. government agencies, as well as, lenders are extremely sensitive to protecting Homeowners’ rights because it is being perceived as being politically correct. Their regulations, restrictions and (protectionist) laws are going way beyond anything we’ve ever seen before in the real estate industry. Keep in mind that just because something is legal, it may not be perceived as fair and prudent by controlling government agencies or by the courts.

-TA

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ARV or Cash flow for REOs

Question:

Tony, what is the highest percentage of ARV that you will offer for an REO? Or, do you strictly look at your cash flow?

-Student

Answer:

I look at my cash flow. Each case is different. I’ve paid probably as high as 70%, but it depends on what I’m going to do with the house. If I know it’s a house that I don’t want to keep as a rental, but I’m not going to have to fix anything, I can just turn around and flip it and make $10,000 after all is said and done, why would I say no to that? People sometimes think “oh I don’t want to waste my time with that.” GET OUT OF HERE! Listen, if I can do $10,000 on a house and do $50,000 a month, I’ll take 3 of those a month. The rest of you guys can keep the rest of them. So, yeah, I’ve done as high as 70%. But again, everything is in line, if you look at the way I calculate numbers on my stuff, I’ll pay a little more if there’s less repair. I’ll pay less if there’s more repair. If there’s no carrying cost, if I have no hard money loan on it, I adjust the numbers so that it makes sense, because that’s what makes the difference between someone who will walk around complaining that he can’t find a deal or someone like myself or Mike Cantu or any of the successful people that you’ve had an opportunity to meet that understand that it’s not about finding a deal. Once in a while, we find deals and they land right in front of us and we trip over them like a rock. But most of the time you’re making deals, ok? It’s creating deals. You’re looking at something and asking yourself, “How can I tweak the numbers or something on the property?” It’s about being creative in the way that you see real estate. If I only had a dime for every time I heard someone who would walk a house with me and go, “my god why would you even touch that? Why would you buy that thing? Are you crazy?!” I was so happy to hear that because I knew this is why I’m making the money I’m making because most people cannot see that and they get stressed out.

-TA

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Referrals from Trustee’s Sales

Question:

Can you elaborate on getting leads from “referrals from guys at Trustee’s Sale” on 119 of the course book? Thanks

-Student

Answer:

Lovely, yes! You got a bunch of guys out there buying at the trust deed sales. The more remote your area is, the better they love to do this. If you’re in some area, they want to know they got a sure thing to sell something. Sometimes they have what’s called “drop bids.” Where they find out that morning that some property that was going to sell for $195,000 has now been dropped bid down to $100,000 or $110,000, whatever it is. They want to be able to get on the phone, be able to call you and say “Hey, Tony, now I got a house on Lancaster West now here’s the address. Go check it out. They just told me I got 15 minutes.” And I’m telling you, I am not exaggerating some of these are like 15 minute deals. But I can go there, knock on the door, see if the property is vacant, see if there’s a person living inside, and find out quickly. I try to find out if it’s the owner or not. And there’s little ways you can use to get your foot in the door. If it’s worth buying or not buying, I’ll tell them on the spot. I have Sabrina doing the comps, immediately, and I say “okay, here’s what I’ll give you. I’ll give you $65,000 max.” So now, he knows what he’s got to add to that so he can get that to the price I’m willing to pay. And trust me; I just had another meeting with two guys in my market that do this. And over the course of time, I don’t work with a lot of different people doing anything. I’m very specific about who I use. But I use people that are very good at what they do and people that I can trust. That’s the whole thing for me is trust. If I can get some money where I can rely on them and I can trust their word, I’m in!

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Does Tony make loans to Students?

Question:

The Norris Group is now offering 9% loans, that have 2yr prepayment penalty, 8 years amortization. Do you make loans to students?

-Student

Answer:

I do not make loans to students. What I do is, on occasion, I will go in on a deal or I will participate, I will facilitate, I will do all those kinds of things. But I don’t make loans to students; I make loans to real estate. And it really has to do with a lot of different elements. To be frank with you, I consider The Norris Group to be the best bet for loans.

If you get into a weird situation in the future where you need to twist and bend things and try to figure out deals that don’t make any sense, Bill Tan is one of the best people for things like that. I’m talking about people that I trust. I don’t suggest names just because they’re out there doing stuff. I don’t accept money from anybody for anything except for what I do. And so when I give you advice on something it’s because it’s solid. The Norris Group, I think is a wonderful company and they’re a no-nonsense company. Bruce is a no-nonsense kind of person. When he makes a decision to make a loan he makes it because it’s a solid loan for YOU AND THEM. So if they tell you to walk on a deal, it’s because they realize you’re going to hurt yourself. So, I recommend them.

I get involved, but first and foremost is the stuff I’m doing. I have people bring me deals where the numbers make sense and yeah I bite down like a pit bull, why not? But, I have to be working closely with people to really understand them and trust them. More times than not, I’ll be honest with you, I’ll show you how to do it so you don’t need me, or you can have someone else involved and pay them. Here’s the reason, I don’t need the money.