Busy buying houses last few months

Hello guys and gals, it has been three months sine I update build wealth tonight. As you've imagined, I've been busy build wealth every night. I 'm looking into couple hard hit foreclosure area and buy some bargain property. So far I did two deal in last few months. Both were bought below its replacment cost and postive cash flow. It's a real exicting time to become real estate investor. In fact, contrary to most people thinking, right now it's much "safer" to invest in real esate. Home price is very very low compared in 10 year period of time, most home become very affordable. As long as you can survive and hold on property for a few year of time, after all this subprime, foreclosure over, the chance of making money is just HUGE. Let's continue to look for more good deal to come in next few months.

Altosresearch.com

Reading Graph, understanding the trend, learning fundamental data are probably the best way to learn and understand the market. While there are many website provide these kinds of graph and data online, there are few for real estate investor. I recently heard a website provide data for market for professional real estate investor and wants to share it with you. It is www.altosresearch.com. It aim to provide data in graphical format for investor to learn and master the market. It support over 100 metropolitan area in U.S. The data include: median sale price, number of inventory, number of sold transaction, average days on market (DOM), etc. They charge a monthly subscription fees for more detailed graph. I call them this morning and ask for historical data to study more about the market. However, they only provide up to 1 year history data for customers. I was looking for more, like 3 , 5 or even 10 year history. Nevertheless, I still recommend this website as it provide meaningful data for real estate investor to track.

Real Estate 2008 is going to CRASH CRASH and CRASH!

Last month was an unbelievable month to me. I have seen prices in many the so called "prime area" near where I live have experience price dropped in an extraordinary fashion. Price sometimes could go down as much as 100,000 in a matter of days and weeks. With the record high foreclosure still coming to the market, tightened lending environment force out many buyer, losing confidences in real estate market, tons of bank owned property on the market, I really think year 2008 will probably the worst year for real estate price for decades in many many area. Today , the not so desirable get hit , tomorrow, even the better area will start to experience the FALL. Prices is going to toilet. It will be common to see all the equity built up last several year just evaporated over night. Even worst, many more people are thinking to just walk away from the house because they started to think foreclosure is a normal process that many people would just do. Especially with the new tax law "Forgiveness debt relief act 2007 " give people a break from not paying the income taxed owned from a shorted amount when a foreclosure sold, many more will take this "opportunity" to just walk away. There will be tons of foreclosure coming to the market at least until end of year 2008. I think the price would probably dropped back to the year 2000 level in many area. This means a property used to sold over 600K in the peak would probably go down half in value to 300K or even less. Whether you believe it or not, it's happening and can only get worst. If you're upside down already and has no equity in your house, be prepared to hold on your house for at least 5 more years. If you don't think you can Handel the payment for the next few years, call the lender now to work out a solution. Worst come to worst, be prepared and seek advice from CPA or attorney to plan for the foreclosure soon because price is going to drop even more down next few months. Whether you like it or not, be mentally and emotionally prepared to this greatest Market Fall in year 2008. See you at the bottom.

REO Auction After thought

Last week, I was busy going to the REO auction in the area I lived in. I went to the one hosted by REDC AND Hudson & Marshall. It was a great learning experience. The auction is very fast-paced and exciting, especially auctioneer speak so fast and make it more exciting. However, I didn't buy any property. The prices were a discount compared to the market price but it's not a discount that I hope for. I selected a few of the houses I'm interested to bid, and I went with my agent to see the property condition. After that, I make a note and determine the maxi um bid I'd like to bid for. Basically, I'm targeting to buy house that can generate positive cash flow for me with small down payment. The auction was very packed and price bid up quite dramatic compared to the starting bid price. I didn't end up getting the price I want so I didn't bid.
I talk with the official from the auction in the end and they said they're coming back in 6 months. I guess the market is continue to go down more with more bank owned properties popping up. I just need to continue to look for good deals and watch the market . This could be a very best opportunity to buy more houses in next few months or so.

Going to my 1st REO auction

In next couple day, there will be couple REO (bank owned property) auctions in the area I live in. It will be a new learning experience as I have never attended these kind of auciton before. I did some homework and check out some potential properties I 'm interested to bid. It will be quite exciting to see what the atmosphere and the final winning bid price compare to the market value. I will update all of you after this weekend to tell you how I did.

Foreclosure.com

As you should probably know, the number of foreclosure in many area of the country has experienced a significant increase in the past 6 months. There are more people behind or can't afford the payment and walk away from the mortgage obligation. House prices continue to fall as a result. This is quite an exciting time for buyer. I've been looking for foreclosure listing last several months. I rely the resources from Internet. While there are many website program out there charge you a monthly fees for seeing the listing, I found a site that is pretty informative in providing the foreclosure listing info without a charge. Foreclosure.com. It covers all the 50 states in U.S. While the address is not complete , (it only show the street name, city, and state), it is useful enough as a first step. After I review the listing, I 'll call my agent in the area I'm interested invested in. I give them the street name and ask him/her to do more research for me. Check it out and let me know how you like the site?

Buy low , refinance high!

From the last post "25 cent for a dollar", I blog some of my friends were able to get a super bargain discount price from Bank owned property. It 's very lucrative business and I decide to do a similar deal in the area I'm interested on. I'm going to make numerous offers on the area I'm interested on R.E.O properties. I will start out with 75% discount as my initial offer price. I expect there will be many rejections before I can nail down one deal. But it will all worth my effort. After I acquire the property, I will refinancing it with the market value, so I can pull out equity loan from the house and roll it over to next deal. This is going to be very exciting. I'll update my progress to you from time to time.

25 cent for a dollar

Recently, I met a friend sharing with me a very inspiring story. I thought that was very interesting and I want to share this with you. Recently, one of the area he lives nearby has tremendous amount of R.E.O available in market. R.E.O stands for Real Estate Owned. These are the property that the bank bought back from the auction when the previous owner fails to pay back the mortgage obligation and bank foreclosure upon it. Because bank is not in real estate business, these properties holding bring no financial benefit from the bank point of view. The bank would like to GET RID of these R.E.O houses as soon as they can. First, they list the property at the market price. However, with recent slowdown in real estate market, houses become harder to sell. The Bank starts to accumulate more of these R.E.O as more foreclosure pop in the market. What my friend did is that he focus in these type of R.E.O. He use a creative criteria to narrow down the properties of interests and he is able to get a bargain deal with 25cent for a dollar. This is his technique
1)R.E.O
2)Has been on market for more than 100 days
3)Asking price 10% below fair market value
After he narrow down the houses into these criteria with the area he is interested, he make an all cash offer with 25% of the asking price. After many many rejections, he finally got one bank accept his deal. It's amazing how cheap he can purchase the property from R.E.O.

Holiday Real Estate on Sale

Tonight, I received a phone call from a home builder representative. His name is Mike, he is sales agent for this new home tract I went to visits six months ago. He called me around 9pm tonight. I was quite surprised he worked so late. Basically, he told me on this weekend, there will be a special deep discount on all the houses for sale. The discount is as big as 20% with special in-house financing, no money down required, no closing cost, interest rate can be offered as low as 5.5%! Wow, I told him, this sounds too good to be sure. And Mike explained, "Yes it is a great deal, the builder is doing the year end sales push and want to get rid of all the inventories. While I think this is a great bargain, my gut feeling tells me to be patient. It's because I'm believing the price could come down even more in the next few months. So, I told Mike, I'm very interested, but I'd pass on the opportunity. I'm waiting for more and more mouth-watering bargain at a even deeper discount price pop out in next few more months or so.

House Price v.s Rent

Tonight, I want to share an interesting relationship I learn between house price vs rent. In the area I live in, the house price has increased dramatically over the last three years. In this year, house price have been stable. In the same time, rent is pretty flat , if not declining over last three year. But this year, the rent has increased quite a significant amount. I find that this is also true in another area that I invested real estate in. House price and rent has a inverse relationship. When price increase intitally, there will be more people interested to buy house, this reduce the number of renter in the market. When the price has increased a significant level, house become less affordable and lesser buyer are interested or qualify. When it happens , the renter increase and drive up the market's rental value . Therefore, the rent is always lag the house price. As a investor in real estate, this is quite a good news. This means that the rent we're able to collect is likely to increase in the next few years down the road since house price in most area tends to become stable over next few years. This will certainly help our cash flow position.

A must read for flipping real estate

Flipping: A buyer purchase the property, fix it up, and put it for sale for profit in a short period of time. I have done a flipping deal two years ago. I bought this run down property and intend to fix it up and put it on market for sale for profit. I did my homework and estimated the potential profit by estimating all the number: the cost to fix up, the buying and selling cost involved, the purchased price, and finally, the projected selling price. It turns out that all the amount I estimated are pretty close to the actual number. I thought I did great and I've made the projected amount of profit. However, I found that I've missed one important number in my original profit calculation: The CARRYING COST! From the time I acquired the porperty, fixed it up, to the time I sold it for a profit, it took total five and half months for the whole process. In the meantime, I'm responbile for all the holding cost that a normal buyer are responsbile: the mortage, the insurance, the tax and the utility. Each month, these cost add up to over $3000 dollar in my case! $3000 X 5.5 month =$16500! This is almost half of my profit! This is a big mistake I 've made but I learn from it and I'd do it differently if I do a flipping real estate again in future ==> Instead of closing the deal 30 days (normal real estate transaction), I'd ask for a longer closing time, say 3months. In the meantime, I ask for seller's permission to get in the property and do fix up and rehab to increase the value. Once the rehab is finished, I'd bring in an appraiser to appraise the property. Certainly, the new appraised value would increase. Then, I'd obtain a mortgage based on the new appraised value. Once 3 months period reached, I then acquired the property. Immediately, I'd put it back on market for sale. In essence, I will be minimizing my holding period, reducing the expense, and potentially get a better mortgage rate to further reduce the expense and increase the bottom line profit.

A creative method to buy property with Nothing Down

Tonight, I just have a dinner with a successful real estate investor. Remember I blog earlier, your net worth is determined by your network, it is always great to hang around with smart and successful people to learn their wisdom. Basically, he share with me his experience of one of his new real estate investment. The coolest part is he is able to buy this property with NOTHING DOWN payment. This is the step he took
1) Target Bank owned (REO) properties. Bank is more willing to negotiate than a seller in general.
2) Identity fixer upper property that need some paint or carpet to bring to livable condition. The asking price of this type of fixer upper is usually 5-15% below market value.
3) Negotiated with the Bank to accept a even lower price offer PLUS three months period for closing
4) Ask for permission from the bank to enter property during the three month to do rehab and repairs
5) As soon as the repair are done, he brings in an appraiser to reappraise the repaired house. The appraisal value come out to be about 20% over his purchase price.
6) He bring this appraisal report and get a 80% Loan to Value Loan base on the Appraised price.
7) He bring no money down at the close of escrow in three months to close this transaction.
This is a very creative method to buy property with nothing down. Traditionally, the bank can only loan you 80% of the purchase price. In his case, he is able to buy the property lower value, delay the close of escrow period, fix up the property in the meantime, and get a loan using the new and higher appraised value. This is an excellent example of create value in real estate.

An excellent website to research the real estate market

As a real estate investor, it's crucial to gather
information about the city to decide whether the market you're interested to invest is in growing, declining or stable phase. The fundamental data include: population growth, the job growth, unemployment rate, cost of living, cost of housing, household income, demographic data, crime rate, climate, education level, property tax rate, percentage home rented vs home vacant, on and on... Basically, the more data you 're able to collect, the more educated you become about the market, and more intelligent decision you could make about your potential real estate investment. These data could usually be found in library or in the city's website. However, most of these data are not layout in a easy-to-read format. You might end up spending a lot of time to gather the information together from different sources, and process could be very tedious. Tonight, I found a excellent site provide these important data for most cities in U.S in a very easy to read and search format. WWW.BESTPLACES.NET It's very easy to search information about the cities and you can even compare it with national average data. The membership is FREE. Check out this site whenever you need any data about the city you're interested investing. It will definitely help you make a better decision about your investment.

Subprime mess and what can you do.

Three years ago, when mortgage interest were at historically low (~4%), many people take advantage of this incredibly low rate and refinance their home with a fixed period of low interest rate. Many choose the 3 year or 5 year fixed program and because of the lower monthly payment, they could afford the house otherwise wouldn't qualify. Now after 3 years, many of these short term fixed rate program become expired, and mortgage rate has increased to 2-3% higher. Many people are experiencing a payment shock! A 2% increase in interest for a 400,000 home could means as much as 1000 dollar increase in the mortgage payment. This is a big burden and lot of people just couldn't afford it. Many end up losing their house in foreclosure. This is what you should do if your loan program is about to expire and you know that you will not be able to afford the payment increase: CALL YOUR LENDER to negotiate a solution. Many people have payment behind too long (3-4 months) and the bank couldn't do much to save you. It's too late! But if you call your lender before you have any late payment, and explain to them your situation, many banks will try their best to work with you to help you continue to make payment. It's bank's interest to reduce the default property. Ex:the bank can extend the current interest rate for one more year, or the bank can gradually increase the payment such that you have more time to adjust and save for payment. Foreclsoure can be avoided! Dig into your statement and call the 1-800 to initiate the talk with bank. Give the bank time to come up a solution. If you waited and you have late payment already, the bank most likely cannot help you but foreclosure your property.Do this tonight if your mortage progam is expireing soon. Don't wait!

7 things to consider before buying your first house

Tonight, I want to share the experience I gone through of buying the first real estate property as my own primary residence. There are things to consider before you jump into the market. Let me do my best to summarize below:
1) Emotionally be prepared. Buying a real estate is a long term commitment. There are sacrifices. Ex: Unlike living in apartment or renting a room, you can't move around every 3 to 6 months whenever you like. Make sure the property you're going to buy is really the place you want to live in for the next 3-5 years
2) Carefully calculating your budget. Before you consider to buy your own place, you should know very well the expense that incur about owning a real estate in your area. I blog on this subject few weeks earlier, check it out
3) Know what you want. After looking into the expense, you should have a brief idea how much the property you can afford. A qualified mortgage agent can help. Then you decide which area and which type of property you can afford and like to live in.
4) Consider a roommate to help out. I was a single when I bought my first condo. My idea is to rent out a room to get extra money to pay for my expense, so I can save more money for other investments
5) Select an agent that understand your needs. Interview with agents, check his/her background, ask him what is his speciality. If you're first time buyer, I strongly recommend you find an agent who has expertise working with first time buyer. Finding a right agent is crucial part of the whole process, spend time to select agent. Do not just go with an agent because he is your cousin or neighbour. Try to ask for referrals if possible.
6) Prepared to save down payment. The norm in today's market is 10%. Most banks require the source of down payment to be in your bank for at least 2 months history. If down payment is an issue, consider borrowing money from your friends or family members at a market return. Using the house as a collateral if needed. (Most private money lender charge + 10%) Create a deal such that both you and the borrower can benefits.
7) Stay clam. Find the right property, finding the right type of loan, working with the right agent, preparing the down payment, structuring an offer, negotiating with the seller, closing the transaction etc, ....are long and complicated process. Expect to run into problems. Don't let your emotion make decision, use your judgement. You're making the probably biggest purchase in your life. There are many things to learn in the process. Be positive and look for the bright side. After all, buying real estate is proofed to be one of the most rewarding and stable investment you can ever make.

Create Value in Real Estate

When I buy a stock, I ask myself "What can I do in this moment to increase the value of the stock I own?" Answer: Tell all my friends to buy the stock I own and hope my friends will tell his / her friends to do the same, and eventually, the stock's demand increase and it's price value increase. This is certainly not very practical if not impossible. Basically, the answer is NOTHING. One of the biggest advantage in investing real estate is the buyer can have many many ways to increase and create value of the property he / she already bought. It's only limited by imagination. Tonight, I want to share a few classical ways an investor can do to add value to the pieces of property already owned

• Add number of bedroom or bathroom. The more rooms your property has, usually the more it's worth
• Convert a open carport into a enclosed garage
• Remodel the kitchen and bathroom. If you have limited budget for remodel, always start with kitchen or bathroom first. These are the two places most buyers pay attention
• New paint, New Carpet, New fixtures, New lighting. A minor improvement detail could significantly add value to the property.
• If your property is rental or multi units, research into the rental market and consider increasing the rent whenever possible. Increase rent could increase the property's value dramatically. Vice verse, reducing your monthly expense will have a positive impact to the value as well.
• Consider an expansion, especially if you 've big lot. You must get permit to make it legal and recorded properly with the county to make it official approved. Careful budgeting is vital to monitor the anticipated value increased after expansion is more than the cost itself.

These are just few example I've considered to use. The goal is to THINK VALUE. It's only limited by our imagination. Let me know what have you done to increase the value of your property?

Can a $100,000 single family house really cash flow ?

Tonight, I went to seminar presenting opportunity investing in Dallas single family house (SFH) opportunity. House price of a 3b2b is around $100,000 and the rent is around $1000 dollar a month. At first glance, this look like excellent postive cash flow producing property. This is the breakdown of the calculation
Rent: $1000
Mortgage: $525 (assume 7% interest only, 10% down pay)
Insurance: $50
Tax: $250 (assume 3% of property tax)
Total PITI Expense in this case is $825 per month
So, the positive cash flow we're looking to get is $175. Multiply it by 12 , you get annual income 2100 a month. Dividing 2100 by 10000 to calculate your return of investment (ROI), you get 21%. This seems VERY Impressive. Plus, the potential of the house price appreciation over years in future. Look like a deal!?
But wait, let's look into further, first since I will not be managing it myself, I will need to hire property manager to take care renting. 10% of the rent is deducted. This reduce your annual income to only $900 and ROI to only 9%. Well, it's still ok, at least it's still comparable to stock market average return. But, here comes the BIG BUT, there could be unexpected expense that can pop up once a while and eat up all your cash flow. EX: A roof repair cost 2500, a carpet change needed cost 750, a paint need to be repaint once a while cost 500, heater breakdown cost 300, a window issue cost 350, a foundation problem cost 3000, the list could go on and on and on.... So, I'd say the reason to buy this deal should not be purely for cash flow. The profit is too slim to see them working. We should look more into the equity build up potential as a consideration and investment objective.

Staging is a MUST

Staging is a MUST if you 're looking to get top dollar in your investment property when you're ready to sell and capture the profit. The picture you see is one of my property that my agent decorate before we put on the market. Decorating is like helping a model dress up before presenting to the world. It can turn an average house into fantatistic and high class house. Buyer will like it and hence, you have better bargain power to ask for your price. Staging does not need to be expensive. Negotitate with agent to include it as part of the listing service. Not all agent willing to do that, interview few more until you find the one. Also, check his/her pervious work to see the quality of his staging skill. If you couldn't find an agent can do a quality staging work, consider hiring a staging company to do the professional job for your property. The budget should be kept under US 1000 dollars. It will be worth.

power of LEVERAGE

Leverage is probably the most important word in investment and business world. With the proper use of Leverage, one can achieve success and come out miles ahead compared to others who don't. It's just critical to understand the power of Leverage.
Leverage: the use of small initial capital to gain a very high return in relation to its capital by using other people's_____ (use your imaginations to fill in the blank)
In real estate investment world, we can use leverage by using other people's money to complete a transaction that would otherwise be impossible. EX: We borrow 90% from the bank and put in 10% down pay to acquire the property. It is a 9 to 1 leverage.
In business world, boss use leverage by using other people's time to complete job that produce reward more than the salary paid out. EX: we get paid by 50,000 annual salary and we help the company bring in 100,000 revenue. It is a 2 to 1 leverage.
Of course, leverage work both ways. It has negative effect if not used properly. In pervious example, if an employee produce instead only 10,000 revenue to his boss, the business is actually lossing more money by hiring more people. We have to manage the leverage closely to make sure it's always in full force working for us.

Assest protection tips

Tonight, I went to a real estate seminar which taught the subject on assets protection. I thought it was an excellent information and want to share all of you what I learnt tonight

1. Sole, Joint Venture, Teannet In common are bad way to hold title
2. General partnership is the worst way to hold title. You may lose your personal assets if your partner get sued! Double liability!
3. Land trust offer no assets protection
4. LLC or LP is the most recommended way to hold title.
5. Two kinds of attack: A) Tenant fell in your property and sue you B) You had bad car accident and get sued
6. LLC can protect you from attack B, but not attack A!
7. LLC is most recommended to be formed in Nevada or Wyoming. These two states has the best state law in the property owner's interest.
8. You should buy a Umbrella insurance policy to cover your personal liability.
9. Consider putting your brokerage account under LLC instead of your own name to shield against potential lawsuit
10. After transferring your title from personal to a LLC, don't forget to inform the insurance company for the change
11. Use 1 LLC to hold 1 property in the state, and have a central LLC manage each individual LLC. You're the ultimate manager of this one central LLC
12. Debt is good way to discourage creditors.

For more information, I'll recommend you to visit the speaker for tonight's seminar www.sutlaw.com Garrtt Sutton is very knowledgble real estate attroney.