Posted on

Conflict of interest

Question:

On page 88 [course manual] Raising Capital you state using a RE agents be careful not to create a conflict of interest, can you elaborate?

-Student

Answer:

You have to be careful when you work with agents because you get very close to working with listing agents and the agents that are going to hand you the deals. It could be a conflict of interest for them if they’re getting too close to you, in other words, if they’re going to lend you money because sometimes those agents have a ton of money and they want to participate in the market, but they don’t know how to do these deals, believe me. And I know some of this may sound silly. I borrowed money from some and used it on another agent’s deals. NEVER use it on the same deal they’re selling you. You have to be careful with stuff like that, that’s what I mean by conflict. You get a smoking deal from an agent and the agent calls you and says, “Hey, you know I want to be on this that’s why I’m giving you the deal,” WALK AWAY! Tell them thanks, but I can’t do that. It’s a conflict of interest for that agent but believe you me when the mustard hits the fan, you’re both getting handcuffs and free food and living arrangements for a while. So, you have to think before you do stuff, just do what’s proper.

Posted on

Repair Costs for Comps

Question:

 Where do you get the repair costs for the comparables?

-Student

Answer:

We just estimate that from the information we get from the MLS. If you can estimate repair for your own property, you can simply do it by looking and it’s not going to be the exact thing, but what you were looking at was an exercise we put together [in the course manual] pretty much fictitiously. As far as the numbers are concerned, we just created those numbers for the exercise.

But if you ever want to estimate what repair costs are like if you’re looking at comparables and something in your area sold low, you must get the MLS information and you must get to that listing agent and get as much information out of them as you can. But you can usually tell when you go to a house, if you look at pictures in the MLS, you can interview that listing agent and then you can drive by and see what it looks like after. And this is one of the reasons I tell everybody to stay on top of your market as best you can because as you’re working in an area you’re developing information.

We’ve been holding information in our area that goes back all the way to 1993. We’ve been warehousing statistics on spreadsheets. So, we want to know anything about our area and we want to graph it. I mean, come on, it’s not difficult!

We’ve been in markets; we’ve seen them change from one thing to another. This is why it doesn’t matter if you’re starting out. Don’t compare your stuff to mine because that’s nonsense. You may learn ten times faster than I do. Okay, you may be college educated. I’m a high school drop out, but you have to start at some point creating data, putting together information for your area. You’re not going to get past the first step if you don’t take it. So, if you’re out there and you’re looking at houses everyday and you’re following my instructions and taking my direction, you’re out there looking at houses ALL THE TIME until you get to see houses you won’t end up buying. By this time, you know what the condition is so that the guy who does end up buying it, you know what he must do to that house to make it market ready. Then when he’s all done fixing it up, you go back and see what he did, see what he sold it for, and from there you can extract whether any of the repairs he made made sense. You can find out what he paid for central air conditioning, for new windows, carpet, and paint, but that won’t vary too much from what you end up paying for it things like that.

Posted on

Chosing an Exit Strategy

Question:

Tony, given that you stated you do the majority of your investing in Antelope Valley where the price points of the homes are relatively close to each other and the price range is narrow, could you briefly discuss when you would apply the various Investment Exit Strategy scenarios? Does your exit strategy depend on your tax bracket? If you sell before 1 year cap gains, right?

-Student

Answer:

First, I don’t agree with your assessment of the Antelope Valley. We have condos and houses for under $100,000 and we have custom homes that sell for over $1,000,000. Everything is geographically specific.

I only buy if the properties qualify for both of my Exit Strategies:

  •     Buy, fix and sell, with at least a 10% net profit.
  •     Hold as long-term rental for at least a 10% cash on cash return

   
What he’s saying is, if you sell before 12 months, you’re going to get wacked, but here’s the thing when you’re starving and you need money, capital gain should be the last thing on your mind. It’s all an individual thing. It’s not just your tax bracket, it’s your food bill, your rent, your mortgage, whether you have kids or not or whether you lost your job. There are many other things that come into play, but what I think you’re trying to say is yes it’s an individual situation.

For me, nowadays, I like to buy and sell just enough to cover all of the expenses in my office. The rest of my houses, I like to keep them as rental houses, because I know where I made all my big bucks. I don’t need to go to anybody’s seminar to tell me how to make $10 million dollars; I know how to do it. So, I know it’s not going to be “buy and sell,” and “buy and sell,” all this “flip this house” nonsense. Yeah, that’s lovely if you want to have Uncle Sam as your partner. But if you want to make some serious dollars, look at the guys who have been around. And you know what the problem is? The guys who really make big money in the real estate business, they’re what’s known as the “silent majority.” They’re quiet; they’re the guys sitting at the back of the meetings, the older guys that are very polite to everybody and they’re bringing in $100,000 a month in rental income and you wouldn’t know it by the way they dress.

But you’re very, very accurate, you have to be very specific, you have to know what your tax ramifications for your decisions are, but when you have no other choice you have to flip or you have to wholesale to someone. You have to get a finder’s fee, something to start working in the business.

My perfect example for that is the kids who started in San Diego, Erin and Joey. And they’re on the website, I’ve told you a million times, if you haven’t seen that video, shame on you! Go to www.tonyalvarez.com and click ‘video interviews” and listen to those kids that started with nothing.

Posted on

How to determine GRM for 4 plex

Question:

How do you determine the GRM for a 4-Plex property? or for the inland empire area?
-W.A.

Answer:

It’s the same thing. The GRM is basically the Gross Rent Multiplier. Just look at other 4-plexes in the area, figure out what their rents are, the total yearly rents. And figure out what it sold for. If it sold for $200,000 and the yearly rents are $20,000, that would be ten times gross. Just divide the total purchase price by the rents, by the market rent, and that’ll give you the GRM. That’s for any area. Just look for comps within that area.

Posted on

How do you train an agent to know what’s a good deal?

Question:

When you first start working with a new agent, and he sends you a prop that is not a good deal, how do you “train him or her” on what is a good deal??

-Student    

Answer:

You think they don’t know?! I think you probably have an inexperienced agent, meaning that the agent is new, not the relationship. That’s just a process of really taking them by the hand and really explaining to them and being respectful and sensitive to not insulting them. Sometimes it’s like walking a tight rope when you first start working with an agent and he sends you a property that is not a good deal. When you’re dealing with a professional agent it’s tough. I explain this in my presentations and in the course that you have to go in there and sit with them, show them your stuff and say you can’t make this work, but if these numbers change, I will make the deal happen. Always leave an agent, especially a professional agent, with the possibility of making the deal if they get the numbers to change, because the numbers are going to change. Let them know that you will buy this if they get the price to a reasonable number. You never say “no, I don’t want this deal.” You say you can’t buy this deal because there’s no profit and you show them why. You want to show them that you calculated it and that you know what your fix up and carrying cost is, but if it’s a new agent, that’s even more simple. Unless they have a large ego, then you got to be careful about not stepping in it. It’s basically just a function of spending time with them. And geographically with a map, showing them these are the zip codes I want to buy in, even taking the time to show them some properties that have already sold. That’s why I tell you all to look at the MLS as to what sold because you have investors that have already bought stuff and you look at deals and go “how did I miss that?!” Then you rub salt into your wounds. It’s a very educational process. And you’re able to explain to someone else, it’s a great instrument. I use this in my mentor programs. I use actual transactions, deals that have actually happened to make a point. I say, “Look, this was happening at the time that I was buying this other thing.” You can use that same kind of stuff to train your agent and the more you train that agent, the more you develop that relationship, especially if they’re new, the better they’re going to be for you. Because, you want to get to the point where you guys are working like it’s a symbiotic relationship. I hope I explained that thoroughly for you.

Posted on

Agents “slipping” deals before listing

Question:

Is it considered fraud for a RE agent to “slip” us deals before they are listed? Bruce Norris posted an article on his FaceBook page recently, describing two brokers who were arrested for giving their investors preferential deals, before they were listed.

Just to clarify, the Brokers had other offers, but presented only the low offers of their investor, leading to a low sale and a resale for a profit. Do asset managers demand the property receive broad exposure before accepting offers?

-W.A.

Answer:

Here’s the clincher on this and I want you to understand, this is really important. ABSOLUTELY it’s fraud! Put yourself in the seller’s shoes. You’re going to list a property with an agent. You’re done rehabbing it, you bought it. You went through all the work, now you list it with your agent and you trust him to get you the highest and best deal and your agent sells it to his cousin and takes a low offer and then calls you and says, “Hey I didn’t get any other offers.” You know, I’d want his head smashed like a coconut. So, why shouldn’t the government be upset about that? That’s absolutely fraud!

But what makes it fraud is they purposely held offers. They had higher offers and only gave them this low ball offer for this investor. They should go to jail. Now, when I tell you that an agent will give you a tip on a listing that’s not even listed yet, he’s giving you a heads up. That’s called “prelisting favoritism.” But that doesn’t mean, by any stretch of the imagination, that he’s not going to submit all of the offers that he has on his plate. He will however, when he gets the offers, tell the asset manager, “You should consider this offer, even though it’s lower.” Why? “Because I know this guy’s a closer. Let me give you thirty-five other deals he’s done. Well let me explain to you why I think you should do it. The lender he’s using is solid. And I’ve spoken to them already. It’s a hard money lender it’s not a conventional loan. We’re not going to be in escrow for 30-40 days.” You know, that agent can do a lot of things that are considered proper without violating any laws, without doing anything underhanded. Without, by the way, including you in this scheme because, you’re going to be an accessory to that. I’m surprised they didn’t go after the investor on this. I’ll be surprised if they didn’t because, that’s just down right fraud. This is the criteria I use whenever I look at something; whether it’s improper or not. Do I want it done to me? How would I feel about it if I was on the receiving end of the situation? I’ve made a lot of money in my life in this business. I’ve never once stayed working with somebody who would come close to do any stupid thing like that. Uh, hello? You put your offer in and the guy knows it’s not going to close; he’s got the chance to be a hero. You know, asset managers don’t want those deals falling apart any more than anybody else. They don’t mind eating crow if they screw up and took a high offer and never had the chance in hell on closing.

The answer to your question is yes. It is fraud for an REO agent to slip an investor a deal before they’re listed, but not to give you information before it’s listed. An agent can give you information on a listing any time he wants. But he also will tell you it has to be listed. Some lenders, not all of them, but some lenders require the listing to be exposed to the multiple listing for a certain amount of days. Other lenders have more flexibility. Listen, you have lenders out there that’ll tell an agent “hey I’m listing this listing with you; get me somebody who’s going to close.” They’re really interested in closing. So, if the agent says “hey I can’t get you a $100,000 and it’s an all cash transaction.” A lot of times they’ll say “get that guy in here. If you know the guy’s solid, it’s a done deal.”

-TA

Posted on

Difference with HUD REOs?

Question:

What do I need to know in dealing with HUD REO’s? Any particular approach, lingo, etc. that I may need in order to be taken seriously?

-W.A    

Answer:

The only thing you need to know when it comes to HUD properties is to follow the instructions of a good agent who deals with HUD REOs or HUD foreclosures all the time. We’ve done a little bit of this, we haven’t gone after it like a mean dog as of yet but we intend to because I think that’s an area that’s really developing. But the secret to that is really having an agent who understands and has experience submitting those offers. What’s probably good to do is to find an agent who was in the last market, in the last downturn and who worked a lot with HUD because that’s all there was and they’re very familiar with what you can accomplish and the one thing about HUD that I can warn you about is that they’re detailed because they don’t necessarily hire the brightest staff in the world so they set these stringent rules for themselves and they don’t really respect how much work you put into having to do their offers. Its not so much what you write up to be taken seriously. To be taken seriously, you just have to follow the guidelines that they give you, and that they give everybody the same thing. You won’t shine here. This is not Fannie Mae or any of that nonsense. Basically, it’s just a vanilla, cookie-cutter method. The only thing that could happen is that your agent’s an idiot and drops the ball and doesn’t get your offer in on time, doesn’t have all the appropriate paperwork, hasn’t crossed all the t’s and dotted the i’s. That’s it! And I just read about somebody who in my area had submitted an offer and were waiting and waiting and waiting. They were told they had the deal and they went on and found out that it was back on the market, listed as available again. And this was basically because their agent had screwed up and dropped the ball on something and the property was relisted again. They were able to capture it back again but you know they would have never known. It could have sold to somebody else and when it sells to somebody else you’re S.O.L, you’re toast – that’s it!

So, it’s not so much about any secret weapon. It’s really important for you guys to learn the process that’s involved in these kinds of offers. HUD, you need to understand ALL the elements that are involved in that for yourself so that you double check your agents and I know that sounds a little wacky, but it really is important.
    
-TA

Posted on

What is Wholesaling?

Question:

I still don’t fully understand the term “wholesaling.” Can you give me a few examples? On page 88B it shows a mild fix as a wholesale. I thought just flipping a house, “as is” was wholesaling.

-A.N.

Answer:

A mild fix wholesale, for example, is when you buy a property, instead of doing repairs, you trash out the house and clean it up so that its somewhat presentable. You have the lawns cut and the yards cleaned.

What you’re looking for is just to clean up the property and make it neat. No extensive rehab.

You’re in essence making it appealing for new investors so they don’t get scared off.

You would be surprised at what you can do with a little bit of touch up paint, gardening and clean up. Sometimes you can put that property back into the MLS as a “fixer” that needs TLC and sell it with multiple offers and can sometimes make almost as much profit as a full rehab.

The name of the game is to look at each property, individually, and try to figure out how many different Exit Strategies you can create to dump that property as fast as you can, for as much as you can. A mild fix wholesale is just one type of wholesale deal, it’s just taking wholesaling and slicing it to many different pieces.

-TA

Posted on

Today’s Real Estate News 11.4.2013

Free FICO credit scores coming to millions

“FICO scores are used by nearly every major lender to assess the creditworthiness of credit card and loan applicants. But these scores are mostly invisible to consumers, unless you go to FICO’s website and sign up for a subscription of $14.95 per month — a service you need to cancel within 10 days if you don’t want to be charged anything.”

Home Buyers and Sellers Survey Shows Lingering Impact of Tight Credit

“Although the housing market has shown a healthy recovery over the past two years, unnecessarily restrictive mortgage lending standards are preventing some financially qualified buyers from reaching their dreams, especially singles and first-time buyers, according to an annual study released today.”

Realtors® Report Americans Prefer to Live in Mixed-Use, Walkable Communities

“WASHINGTON (November 1, 2013) – Choosing a community is one of the most important factors for consumers as they consider a buying home, and research by the National Association of Realtors® has consistently revealed that Americans prefer walkable, mixed-use neighborhoods and shorter commutes. According to NAR’s 2013 Community Preference Survey, 60 percent of respondents favor a neighborhood with a mix of houses and stores and other businesses that are easy to walk to, rather than neighborhoods that require more driving between home, work and recreation.”

U.S. to put SAC hedge fund out of business over insider trading

“(Reuters) – Billionaire investor Steven A. Cohen’s days as a hedge fund manager may be finished with an agreement by his SAC Capital Advisors to plead guilty to criminal charges of insider trading and pay a record $1.8 billion in fines and forfeitures.”

Is the ‘End of the Suburbs’ Near?

“In her new book, “The End of the Suburbs: Where the American Dream is Moving,” Leigh Gallagher, an editor at Fortune magazine, argues that powerful economic, social and demographic forces are converging to render suburban living unsustainable.”

International Architects and Designers in New York

“New York City has long been a promised land for architects and designers from all over the world. What better stage on which to showcase a groundbreaking design than NYC’s hallowed skyline? The trend of international creatives contributing to New York’s unique aesthetic has been booming of late.”

Report: New Wave of Delinquencies from ARM Resets Unlikely

“Concerns of a new wave of problem loans caused by unsustainable rate resets on adjustable-rate mortgages (ARMs) are largely unfounded, according to Lender Processing Services (LPS).”

What Does Fannie Mae’s New LTV Threshold Accomplish?

“As of November 1, Fannie Mae is no longer purchasing loans without minimum down payments of at least 5 percent. Industry experts with the Urban Institute’s Housing Finance Policy Center argue this move is arbitrary and likely to provide little benefit to the GSE or to taxpayers.”

Georgia Real Estate Investor Nabbed for Fraud

“A Georgia real estate investor and his company pled guilty last week for conspiring to rig bids and commit mail fraud at public real estate foreclosure auctions in Georgia, the Department of Justice announced.”

Half of Consumers Fear Another Housing Bubble Is Forming

“While many indicators suggest the housing market is on the road to recovery, some fear another bubble is already forming. Country Financial, a financial services company based in Bloomington, Illinois, found in a recent survey that 48 percent of Americans say the market could reach “bubble” status within the next two years.”

Maxine Waters places housing reform on chopping block

“After several critical years in the wake of the housing meltdown, the market recovery is continue to take shape.”

Two Harbors enters flow sales agreement for MSR portfolio

“Real estate investment trust Two Harbors Investment Corp.’s (TWO) wholly owned subsidiary, Matrix Financial Services Corporation, announced it entered into an agreement with PHH Mortgage Corporation for the purchase and sale of mortgage servicing rights.”

FHA policy transparency fuels Ginnie Mae modernization

“The ongoing push by the Federal Housing Administration toward additional transparency and data disclosure took another positive step toward the modernization of Ginnie Mae.”

Monday Morning Cup of Coffee: ING Alt-A liquidation will relieve lack of supply

“Monday Morning Cup of Coffee is a look at news across the HousingWire news desk with larger coverage to come on bigger issues.”

Single-family rental securitization market boasts near trillion-dollar potential

“The REO-to-rental securitization deal that Blackstone (BX) subsidiary Invitation Homes brought to market is just the tip of the iceberg, with KBW analysts forecasting a nearly trillion dollar market when calculating the lingering possibilities that exist for single-family rental securitization deals.”

Las Vegas September home sales buoyed by move-up buyers

“Despite the Las Vegas area posting a slowdown in sales last month when compared to August, overall activity was still slightly higher when compared to year ago levels, as relatively strong move-up buyers buoyed sales, the most recent DataQuick report reveals.”

Future secondary market remains a challenge

“Government authorities are examining the secondary mortgage market to determine all the elements needed to make it run successfully.”

Bank of America wins dismissal of lawsuit on AIG disclosures

“(Reuters) – Bank of America Corp has won the dismissal of an unusual lawsuit in which shareholders accused it of concealing a $10 billion fraud case brought by American International Group Inc.”

Bank of America could face $6.8 billion fine if it settles FHFA case on J.P. Morgan’s terms

“It’s been a few days since a big bank announced a multi-billion-dollar settlement over dubious mortgage practices. But don’t get comfortable: This saga will keep churning for a long time.”

Dutch Gamble on U.S. Housing Debt After Patience Wins

“The Dutch government’s decision to hold onto U.S. mortgage debt acquired during the 2009 bailout of ING Groep NV has paid off so far as prices of the securities soared, more than doubling in some cases from lows that year.”

Financial firms cutting thousands of jobs

“Financial firms are cutting tens of thousands of jobs because of a slowdown in the mortgage business, the sluggish economy, the growth of online banking and new regulations.”

If It Looks Like a Bank, Regulate It Like a Bank

“Five years after a crisis that almost took down the world economy, regulators are still groping for a way to address one of the global financial system’s most obvious weaknesses: the trillions of dollars in banking activity that happens outside traditional banks.”

Dallas Fed’s Fisher Doesn’t Rule Out Backing Taper by March

“Federal Reserve Bank of Dallas President Richard Fisher, who has criticized the central bank’s bond buying program, said he wouldn’t rule out backing a tapering of purchases by March depending on economic conditions.”

Is the housing boom running out of gas? Pending home sales face largest monthly drop since home buying-tax credit expired in 2010. Median price nationwide drops.

“There are now signs that the unrelenting housing price boom is slowing down. Pending home sales faced their largest monthly drop since the home-buyer tax credit expired back in 2010. If you notice a pattern, any time the government even remotely hints at pulling back the housing market suddenly reverses. The Fed’s hint of a taper ending sent mortgage rates soaring. Of course the taper never materialized and the Fed even became more aggressive in QE. The government shutdown did impact housing from data we are seeing. Existing homes sales pulled out a weak performance and the drop in pending sales, a leading indicator are showing signs of a slowing housing market. In this boom and bust market with no middle ground, are we now to expect a “normal” healthy market after this recent boom?”

HUD ANNOUNCES SETTLEMENT WITH BANK OF AMERICA RESOLVING ALLEGATIONS OF LENDING DISCRIMINATION AGAINST WOMEN ON MATERNITY LEAVE

“WASHINGTON – The U.S. Department of Housing and Urban Development (HUD) announced today that Bank of America will pay $45,000 as part of Conciliation Agreements resolving allegations the lender discriminated against pregnant women seeking mortgage loans. HUD had alleged that the Bank of America refused to refinance the mortgages of two couples in California and Texas, because the women were on maternity leave.”

Posted on

Pomegranate Pickin’ Time!

Tony Alvarez, The Outspoken Investor (aka: Tony the Farmer of the Antelope Valley), brings us along as he harvests his ripe pomegranates of the season. When Tony isn’t looking at homes or dealing with his daily investing business, you can find him in his garden among his various fruit trees & wild flowers!