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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.

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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.

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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.

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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.

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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

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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

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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

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Today’s Real Estate News 10.24.2013

Summary:
In today’s news, CNN Money shares about “impact investing,” and how 50% of the country’s foreclosed homes are still being occupied. Reuters reports that jobless claims remain high yet manufacturing is slowing. According to Market Watch, BofA is slashing 3,000 mortgage jobs. CNBC states that 9 banks are being probed on mortgage-backed securities and Fed easing’s effect on mortgage rates. Mortgage apps fall less than a whole percentage according to the UPI. Housing Wire reports that the fed “proposes minimum liquidity requirements” for the big banks. Bloomberg is full of news today sharing that Bank of America’s Countrywide is being held liable for selling thousands of defective loans to Fannie Mae & Freddie Mac, the city of Vallejo is set to sell water-bonds for the 1st time since before it’s 2008 bankruptcy filing, all-cash buyers make up nearly 50% of all home sales and Warren Buffett says that while the housing market has made some headway, it still has a way to go. Dr. Housing Bubble shares the story of how it’s possible that a 932 square foot home can be priced at $895,000.  

Can you make money and feel good about it?
“Want to make money while helping the people around you? Impact investing may have the answer.”

Half of nation’s foreclosed homes still occupied
“Foreclosure sounds like the end of the line, but actual eviction can take months or years — even after the bank has repossessed a home.”

U.S. jobless claims stay elevated, manufacturing slows
“(Reuters) – The number of Americans filing new claims for unemployment benefits fell less than expected last week, but a lingering backlog of applications in California makes it difficult to get a good read of labor market conditions.”

Bank of America to cut 3,000 jobs in mortgage unit
“NEW YORK (MarketWatch) — Bank of America Corp. Inc. BAC -0.25% will cut approximately 3,000 mortgage jobs in the fourth-quarter as it looks to make cutbacks in its expenses, said a person familiar with the matter.”

Jury Finds Bank of America Liable in Mortgage Case
“Updated, 9:20 p.m. | Bank of America, one of the nation’s largest banks, was found liable on Wednesday of having sold defective mortgages, a jury decision that will be seen as a victory for the government in its aggressive effort to hold banks accountable for their role in the housing crisis.”

US task force probes nine banks on mortgage-backed securities
“At least nine banks face investigations by the U.S. Department of Justice into their sales of mortgage-backed securities as part of an effort by the task force that reached the $13 billion pact with JPMorgan Chase, people familiar with the matter say.”

What more Fed easing really means for mortgage rates
“Now that the Fed is expected to keep its foot on the easy money pedal for months to come, don’t expect to see interest rates go much lower.”

U.S. mortgage applications fall less than 1 percent
“WASHINGTON, Oct. 23 (UPI) — U.S. mortgage activity dropped less than 1 percent last week, the Mortgage Bankers Association said Wednesday.”

Fed proposes minimum liquidity requirements for big banks
“For the first time in its regulatory history, the Federal Reserve Board is proposing a rule that would create a standardized, minimum liquidity requirement for banks deemed systemically important.”

BofA’s Countrywide Found Liable for Defrauding Fannie Mae
“Bank of America Corp.’s Countrywide unit was found liable by a jury for selling Fannie Mae and Freddie Mac thousands of defective loans in the first mortgage-fraud case brought by the U.S. government to go to trial.”

Vallejo Water-Bond Deal to Be City’s First Since 2008 Bankruptcy
“Vallejo, the Northern California city that sought Chapter 9 bankruptcy protection in 2008, is set to sell about $19 million in water-revenue bonds next week in its first municipal-debt sale since the filing.”

Families Blocked by Investors From Buying U.S. Homes
“Home purchases by institutional buyers reached a record high in September and all-cash buyers accounted for almost half of sales as investors responded to rising demand from renters.”

Buffett Says Gains in Housing Fall Short of Equilibrium
“Warren Buffett, the billionaire chairman and chief executive officer of Berkshire Hathaway Inc. (BRK/A), said the U.S. housing market has made progress and still has a way to go in recovering.”

The Grand Republic of Santa Monica: 932 square feet for $895,000. How housing built before the Great Depression can fetch wild prices.
“The mania in certain California neighborhoods is so dramatic that my e-mail box is now filled on a daily basis with Real Homes of Genius.  It isn’t as high as it was in 2007 at the apex of the last bubble but I’m seeing some pretty outrageous properties being listed for pipedream prices.  Targeted markets are definitely benefitting from the investor fever.  First, many of the homes being sold are actually being sold for the land.  Given the headline cost plus construction costs this is a very tiny market segment here.  Yet the froth is very obvious in these regions.  Santa Monica is prime Westside housing.  It is hard for anyone outside of the region to understand the crazy prices in Santa Monica.  Even those in the region have a hard time understanding.  Today we’ll focus on this area and pull up a property that only an investor could love.  Welcome to the wonderful Republic of Santa Monica.”

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Tony interviews Jeremy Geng Part 1 of 4

Don’t miss out on this interview! Jeremy got accepted to a TOP medical school & found himself choosing between continuing with his degree or investing full time. How did Jeremy get started & WHY was he interested in the real estate business? Find out his creative & interesting jump into the business & find out how Steve Jobs influenced Jeremy to follow his passion.

To view this interview in its’ entirety & to catch Bruce Norris’ interview, go to www.HDREIN.com & sign-up for a FREE membership!

 

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Tony interviews Andrea Esplin Part 1 of 4

Join us as Andrea Esplin tells us how and why she got started in the Real Estate business and what kind of background she has! Did Andrea have any special Real Estate education when she first started the business? Does Andrea think it takes any special skills to get started? Find out by tuning in to this one-of-a-kind interview of a true, hardworking investor making it big in the real estate world!

To view this interview in its’ entirety & to catch Bruce Norris’ interview, go to http://www.HDREIN.com & sign-up for a FREE membership!