Foreclosure auction properties are a H U G E risk in this 2012 economy because you don't know the property and can't inspect, before bidding, what you might be buying.
People have been pushed to their, financial, limits and are losing/have lost their homes and livelihoods.
In many cases, people have tried every, reasonable, option to resolve their financial shortcomings with the banks/lenders that hold the mortgage on their home, only to be denied and, ultimately, foreclosed upon.
**Understand that this economy has had a devastating effect on home values which, in turn, has compromised earnest owner's ability to, even, sell their homes at the price equal to the debt that they owe on the home.**
That means that many people are stuck and can't sell, but can't continue to pay for, the home that they (And the lender) own.
So - this helpless feeling can - AND DOES - lead to resentment, where some of these "displaced" sellers act out by vandalizing the homes that they're forced out of.
Another major concern is that foreclosure auction buyers, traditionally, NEVER get to inspect/view the interior of the property BEFORE bidding.
BUYER BEWARE - because you might think you're getting that sweet deal at the foreclosure auction - only to find that your winning bid leads to untold secrets that lie in waiting for the rehabber that purchased that "bargain" property.
Go with the REO (Real Estate Owned - Bank owned property).
Because, in most cases - you get 10 days to have the property inspected AND, because the bank has already taken possession of the home, it's a "non-performing asset", meaning the bank needs to free up the cash reserves they need (Usually double the amount of the foreclosed debt) and liquidate this liability ASAP !
Once the bank owns (REO) the property AND it sits on the market for 30 + days, cash buyers can buy these up for pennies on the dollar.
This equates to amazing opportunities to buy properties for tens of thousands of dollars less than what someone may have purchased it, at the foreclosure auction, for AND you get to inspect the property BEFORE committing.
Short term, it's damaging to surrounding property values - but long term, the shadow inventories (Properties that the lenders have already foreclosed upon, but cannot put on the market) are cleared out and we can get back on track to a healthy housing value economy.
During that transition from pennies on the dollar to higher values - investors who get in, NOW, stand to do extremely well.
Remember this simple economic fact - when everybody starts to jump in, values climb.
Real estate has a sound history of creating more wealth than ANY other investment.
Get in, NOW, before everyone else does - because when everyone starts getting in, that's when it's time for you to take your profits/margins and move on......
Today's opportunities are historical AND they're all around you.
Don't blow it !
This will be short and to the point -
You don't have to be a real estate expert to know the past values of real estate, understand the historical cycles of real estate AND to see the "potential" of values to come - history repeating.
I've said it and I'll keep saying it - values WILL climb and the economy will improve, despite all the naysayers/doomsdayers.
Look, life is pretty straightforward, right ? - relating to opening a 401K, investing in stocks, bonds or whatever investment strikes your fancy.
You save for "X" number of years and interest - maybe even compound interest works in your favor, ensuring you a comfortable retirement.
Truth is, instability has ruled the stock/bond and mutual fund market over the last 5 + years and many nesteggs have been compromised, forcing many back into the workforce and extending other's plans for retirement.
Real estate has, always, been the number 1 creator of wealth.
It's tangible, physical and always in demand - though supply is always a governing factor.
What sets real estate apart from other investments is the consistent returns - "high markets" excluded from new investments (Meaning those who buy at the height of the market, for investment purposes, will lose - and learning to recognize those heights can be a painful - and costly - education.)
If you have some cash that is accessible, have enough understanding of your, local, real estate values - or enough sense to align yourself with someone who does - and you're willing to invest in real estate, as opposed to the current stock "casino", this market offers you astounding opportunities to grow your wealth, significantly.
Educate yourself. Learn about your local real estate market/opportunities and open your mind to the possibilities.
Right now, real estate is for sale at scratch and dent prices.
If you learn your markets, do the math and see the optimistic future, you have a window of opportunity to make great things happen - to your bottom line and future possibilities.
Get excited and get going !
16% ROI is a VERY real possibility - on EVERY property you flip in 2012.
Flip 2, 3 or 4 this year - each at 16% ROI - and you're a rockstar !!
I'm cool with them - just ask.
You've thought about it lots of times -
IF I had the $$, I could buy that house, remodel the interior and make a great ROI.
I like the word "IF" because it sparks the imagination and, for those of you who pursue your dreams, that little 2 letter word leads to your solution.
So, in terms of obtaining the needed capital, from private investors, to start your house flipping business - here's what you need to do:
* THE MATH: What's the ROI you can fetch your investors ? What's the average pricepoint of the market(s) you're going to invest in ?
How many homes have SOLD, in that market, over the last 45 days (You always have that answer, because YOU ARE the expert in that market, RIGHT ?) ?
What's the minimum investment you'll need - as in HOW MUCH ? HOW MUCH needs to include the closing costs, rehab/remodel costs, taxes, insurance, utilities, disposal (of debri) and any other related costs to that, proposed, project.You should, also, account for the costs associated to selling the property, once it's complete, like taxes, closing costs and agent commissions.Have the math done BEFORE you move on to the next step - because if you do identify and find an investor AND that investor asks you questions, right there and then, and you don't have the answers - wave bye bye.Know your shit, man !
* PROSPECTIVE INVESTORS: Capital investors do, usually, understand that real estate is a gamble - just like stocks and other, significant, investments.
The ones who understand that risk are the ones you want to attract AND do business with.
Ok, so HOW do you attract these investors ?
My favorite method is public records that relate to recent home sales in the areas that I'm an "expert" in.
You can utilize the county recorder's website, which is - usually, free.
There, you'll find documents, or reference to documents, that tell you whether, or not, a mortgage/lien is recorded against that property.
Some documents you can view online, some you can't - for privacy reasons.
Also, the tax assessor will be on that same county website, to see if the taxes are current, assessed values and other data that you might be interested in.
Most important, you're primarily interested in homes that are being purchased by cash buyers - where there's no mortgages or liens - it was purchased, and is owned, outright.
Once you indentify 1 or 2 of these owners/investors, you can do a separate records search based on their name - to see how many properties come up/they own.
You'll also find, with the "serious" investors, that they're buying these under corporations, or LLCs.
Roll on out the your state's secretary of state website and you can, usually, identify the corporation or LLCs members - if that info helps you.
At any rate, it will provide you the contact information for the company/member(s), which is really what you need, right ?
Another way to find this data is to become a real estate agent's best friend !
They have "private" access to sales and mortgage history, as well as LOTS of additional data that will help you - like recent sales and other critical aspects of your business that will make you that "expert".
And another way ?? - I like Realquest/Corelogic (www.realquest.com/). It's a membership that can be costly, depending on your needs.
What makes this a great option is the organization and accessibility of that data.
It's all, right there, on one easy to view/access webpage.
It's pretty obvious, from here, how to proceed once you're an "expert" in your chosen market(s), you know the math and you've identified your, prospective, capital investors.
Real estate investing is NOT an easy path and it's wrecked more lives than its made - BUT - if you have the stomach for it: work well under pressure, are persistent, easily relate to people, easily adapt to changing situations - meaning you DON'T freak out, and like the prospect of being your own person while making a living, real estate just might be for you ; )
Interested in investing with us ?
Contact Mik: email@example.com
Investigating an income property is a lot like a detective story. You're never quite sure if what you're seeing is the whole truth, or even relevant to solving the case. We wade through reams of facts in search of bits of information that, when considered as a whole, point to the right conclusion.
This article addresses the legal standing and physical condition of the property.
Legal and physical informationThe deed, title report, and survey, are often combined into one document--the title report. I always order a title report for a property independent of whether the seller supplies an existing title policy. It is relatively inexpensive and it provides an update for the existing report.
The title binder (a preliminary commitment to issue a title policy) will reference and copy the deed and list all known encumbrances on the title to the property. Pay attention to the section called "Exceptions," as those are the matters the title company is not insuring against.
It is customary and expected for the report to except matters of zoning, easements of record (listed by recording instrument), and any known encroachments and covenants. But a report that, for example, excludes "all matters of survey" is a major red flag.
The survey is one of the most important documents in real estate. Most sellers will have some sort of survey, but its quality may not be sufficient. The gold standard is a survey drawn to "ALTA" standards. The acronym stands for the American Land Title Association. An ALTA survey is prepared in conjunction with a title report and shows any easements, encroachments, or other burdens on title.
I strongly recommend that any buyer obtain a detailed and accurate field survey of the property. Encroachments and other matters of survey can hide potential liability, and the sooner you know about it the better.
Third party reports and inspectionsStandard third-party reports required by lenders and owners are the appraisal, environmental, zoning compliance, and building/engineering reports. These reports are usually not ordered until all other due diligence has been examined and accepted. They are prepared at the buyer’s expense, so there is no reason to incur the cost if problems are found in the financial or operational conditions.
The seller may have an existing appraisal and be willing to share it; however don't be surprised if the answer to a request for a copy is "no." In most cases the property or the market will have changed in the interim, and the value may not be relevant. If you do get a copy of an old appraisal, it can be of some help in gathering market information and establishing the competitive set for the subject property.
Phase I Environmental Reports are the minimum standard for most lenders. Based on the findings, a conclusion will indicate whether or not any further action is recommended.
For a site with suspected contamination, a Phase II report with sampling may be required. A site with confirmed contamination from a prior user, or with an environmental risk identified in a Phase II project, will require a Phase III environmental report, remediation, and ongoing monitoring. Once closed, an "NFA" (No Further Action) letter is issued. This is a key document for any site with an environmental issue.
An important note about the use of environmental reports prepared for the previous owner: It offers no evidence of performing adequate due diligence (important when establishing liability) for you as a buyer. The report plainly states that it is for the use of the original parties only and not to be relied upon by others [emphasis added].
That means you will not be able to use the report to establish that you performed proper due diligence to avoid liability for any problems found after closing, even if pre-existing.
There are two solutions. First is to commission a new report. Standard Phase 1 fees range from a low of around $1,250 to a high of $2,500. Competition among engineering firms works to the owner's advantage.
If the previous report is available and has a finding of "clean" or "no further action (NFA)," then get a less detailed report known as a Transaction Screen. This is a review of the property conditions brought down-to-date from the previous report.
A transaction screen usually costs a few hundred dollars and does not have to be completed by the same firm that prepared the original report. Most importantly the transaction screen qualifies as adequate due diligence in any future dispute.
Except in the most severe cases, environmental problems do not spell the automatic death of a deal.
Get a zoning certification from the planning office of the appropriate jurisdiction. The current zoning compliance can usually be verified with a phone call--and it is essential. Do not accept anyone'’s opinion or belief about zoning compliance. Make the call personally.
Also read the zoning district regulations, usually online. Land-use ordinances are the rules of the road in real estate. Without knowledge of how they affect the property, you are essentially sitting down to a poker game and asking someone else to tell you what cards you have and how much to bet.
Look for maximum density requirements, development standards, and other information that may indicate the property can be expanded or eligible for a change of use.
The Building/Engineering Report is the commercial property equivalent of the home inspection. The inspector will test the property systems, evaluate structural components, and note any deferred maintenance. Depending on the property type, additional inspections may be required for HVAC systems, Fire Suppression Systems, Elevators, Boilers, health permits or other licensing.
If you're not familiar with building systems, you'll want to commission an independent inspection. Many HVAC contractors will conduct an inspection and give a written report for a nominal fee. It doesn't take but one blown HVAC compressor to eat up an entire year's capital improvement budget.
Leave No Stones UnturnedDon't think that by hiring professionals, the full extent of property condition is known. The pros are human, too, and even the most experienced veterans make mistakes, including this author...
A couple of years ago we had an office building under contract for which we had completed all the above inspections, accepted the property, and set the closing date.
One evening, I had to meet the surveyor to get a corner remarked. It was the first time I had been on the property after business hours, and as I walked through the parking lot, I was astonished to see a huge pothole in the pavement that everyone had missed.
How could that happen?
Simple. During business hours the lot was full, and the cars hid the pothole. Which just goes to show we'll never get it perfect.
NOTE FROM Mik: In 2008, I purchased "Dealmakers Guide to Commercial Real Estate" - by Ray Alcorn.
Over the years, I regularly use the book as a reference guide - It's an amazing resource.
Ray's knowledge is vast and his candid, straightforward approach has served me well.
Thank you, Ray !
What if everything sucked, but you remained optimistic ?
What if part of the everything sucking included the economy - heck, it included the WORLD economy - but you remained optimistic AND....slightly creative ?
How about this:
What if, despite the struggling world economy, you were in tune with serious opportunities all around you AND, because of your contagious optimism, certain "open-minded" individuals were willing to invest $$ in YOU, to enable them to capture those opportunities?
How would that make you feel ?
Knowledge IS power and, in 2012 real estate, that knowledge can make you a boatload of $$$$.
Maybe you tell yourself you don't care about $$, like I used to tell myself ?
Well, I've changed and decided that I'm better off with $$. LOTS and LOTS of that green stuff !
What do you care about ?
Mom ?, Dad ?, Puppies ?, Starving children anywhere ? Environmental ?, Space travel ?, etc.
You'd be better off making lots of $$.
Because you would have an ability to assist/advance anything you care about.
Feeling powerless sucks - and when something/someone you care about needs financial assistance and you can't help, that's a helpless/powerless feeling that you feel to your core.
So, what if you can contribute to advancing whatever matters to you ?
If you're able to respond to whatever situation you care to - financially - but even physically ?
There's a real sense of self when you know you're free to contribute, in whatever way might matter, at a time when your contribution is needed most.
It's the true definition of freedom, really.
While some of you may have skills that enable you to respond, many of you don't and you live feeling the frustration of your limitations.
Well, to those of you who struggle, financially - or even emotionally, due to your inability to "get things done", look deep inside of yourself to find what you're passionate about.
It's not so hard AND it just might be enough to help you to move to that next level, or even make a drastic change in your life.
When you engage in something that fulfills you, deep inside, it changes you - FOREVER.
If you continue to engage in that "something", it can, dramatically alter your spiritual AND financial existence.
Is it real estate, like my passion - or is it something else ?
It's been said, time and time again, that if you pursue something you're passionate about - the money will come.
While, I'm sure, it depends upon what your passion is, it's a great incentive to pursue those passions and live the dream, right ?
At mikcohen.com - we enjoy sharing insights, helpful tips and specific information. Feel free to comment and share your knowledge and experience, but please keep it respectful.