| The new home sales index came out today and it | | | | I mean by this is try to avoid having contingencies that |
| reported that 46% of new home purchases in this | | | | might cause the seller to not accept your offer. If you |
| market are foreclosures. Construction is down 65%, | | | | are trying to sell your home now, and take the profits |
| building permits are at an all time low, and the | | | | from that sale to buy your new home, is an example |
| deepening housing values are making it harder for | | | | of something being contingent on you being able to |
| homeowners to refinance to lower rates or pull cash | | | | purchase the home. A banks will look at all offers, and |
| out of their homes. Is it all doom and gloom? Not for | | | | if there are multiple offers on a bank owned properties, |
| the first time home buyer or investor looking to make | | | | they will usually see who will pay the most for the |
| a profit on buying a foreclosure. The following are ten | | | | property. Also, be aware that real estate investing is a |
| tips that will ensure you a smooth process from loan | | | | career for many people, and they are here in Colorado |
| application to closing and funding your first deal. | | | | in big numbers. Hedge fund groups, private investors, |
| Foreclosures are at a record number right now, and | | | | wall street types, all have representatives here in |
| each and every day, more and more of these | | | | Denver, waiting for properties to come on the market |
| properties are coming on the market, which means | | | | at a deep enough discount, so they can buy it for |
| opportunity for you. The buyer. | | | | cash, and flip it for a profit. It happens every day. |
| TIP #1 | | | | Usually the bank is willing to go with the investor on a |
| Get pre-qualified | | | | multiple offer purchase, because the investor will pay |
| This is the first and most important step in the home | | | | cash, while you are financing the loan for up to 30 |
| buying process. With the tightening of credit with all | | | | years. Some banks have even commented on the |
| lending institutions, you need to be prepared on this | | | | type of loan you are getting and will go with the |
| step, and get with your mortgage broker and loan | | | | investor for that reason. A recent example is of a |
| officer to find the right mortgage product for you. | | | | lender who said FHA were not strong, and that |
| Within minutes, a good loan officer, can tell you how | | | | worried the lender, with the tightening of credit. The |
| much of a home you will qualify for, with the | | | | lender opted to go to the investor who was paying |
| information you give them for your income and assets. | | | | cash. |
| Normally Debt to Income Ratios will not exceed 45%, | | | | TIP#4 |
| however, even in this market, we have seen | | | | Be Aware Of Cash Investors As Property Drops On |
| automated loan approvals up to 65%. Getting a | | | | the Asking Price |
| pre-qualification letter from your loan officer is vital to | | | | A perfect example of this was on a duplex for sale in |
| the home buying process, and should be given to either | | | | the Denver, CO area. The asking price was $165,000 |
| your real estate agent, or the agent of the seller, to | | | | and the comparables in the neighborhood had the |
| prove that you are fit to buy the home, and that you | | | | property listed at a 10% discount. This was in quarter 2 |
| willing, able, and ready to be a buyer. | | | | of 2008. My client put his offer in at $155K, and it was |
| TIP#2 | | | | denied or rejected. In early November of this year, |
| Receive Daily and Weekly MLS Lists | | | | which is Quarter 4, which is the indication of the last |
| Let's quickly define what a bank reo is. It simply means | | | | quarter of fiscal year business for many banks and |
| that the property owner went into a foreclosure, and | | | | companies. The property still did not sell, and the bank |
| no one bought it for cash at the auction. When this | | | | dropped the price to $130K. That is another 10-20% |
| happens, the foreclosing bank, will hold onto the asset, | | | | drop in price, and my client offered the fill ask of |
| which is (REO) Real Estate Owned, by the bank. Each | | | | $130K. What happened at this point, was that the |
| and every day that this property is not sold, the bank is | | | | investors watching the property, knowing their profit |
| losing money on this property and paying interest on it. | | | | points, entered on this deal in a cash only deal for |
| Normally, with many lending institutions, their fiscal year | | | | $130K as well. The bank reviewed both offers, |
| ends Dec 31st, so they are more willing to negotiate on | | | | however the deal went to the investor because they |
| better terms for you, the buyer, so they can finally get | | | | had cash to close in full for $130K right away. You |
| this asset off their books, post their 4th quarter loss, | | | | need to be aware that there are many great real |
| and move forward. | | | | estate deals out there, however the deeper the |
| Once a property is bought back from the bank as an | | | | discount, the more eyes are on the property. A smart |
| reo, it is normally listed with a selling agent assigned | | | | thing to do would be to try and obtain property at least |
| from the bank, to list the property on the MLS. Multiple | | | | 10-15% below value, since many of these cash only |
| Listing Service. A good way to get these lists emailed | | | | investors are looking for equity positions on the |
| to your inbox, would be to first find a Real Estate | | | | purchase of 30%-40% below market value. |
| Agent that you are comfortable working with, and | | | | TIP#5 |
| who can accommodate your request to start | | | | Have The Bank Pay All Closing Costs and Minor |
| receiving these reo lists. You can even tailor it to equity | | | | Fix-Ups |
| position, zip code, square feet, seller contributions, etc. | | | | On owner occupied properties, you can receive up to |
| TIP#3 | | | | 6% seller concessions on your loan. What that means |
| Be Prepared To Make a Solid Offer | | | | is that the seller will agree to pay up to 6% closing |
| Many potential buyers and investors get excited when | | | | costs, to induce you to buy the property. A good |
| they are sitting with their real estate agent, who is | | | | example is of a VA loan I did for my clients last month, |
| preparing to write an offer to the seller. An offer is | | | | where they bought the property using their VA benefit |
| only binding when it is accepted by the seller, so many | | | | for $315,000. Under VA guidelines, the seller can pay |
| people take advantage of this. A bad approach for | | | | up to 4% of the closing costs, which in this case was |
| putting an offer together would be to lowball the seller | | | | $12,600. The entire loan was paid for by the bank, they |
| and offer way less then the property is worth. Many | | | | bought down their interest rate to a lower 5.5% rate, in |
| investors will subscribe to this strategy in putting many | | | | addition to the bank fixing up the built in pool in the |
| offers in on properties daily, 40% to 50% below the | | | | backyard, and putting in a new pool liner and cover. |
| asking price, in an attempt to hopefully get a really | | | | Banks will do whatever is necessary to induce the |
| great deal on the property. When putting your offer | | | | buyer to move in, if they have a solid offer. |
| together, make sure that you have a solid offer. What | | | | |