DEAN GRAZIOSI: DEAN GRAZIOSI REAL ESTATE

REO’s are Real Estate Owned properties. REO in the real estate investment business usually refers to those homes that the banks hold for one reason or another. The most common reason a bank would have an REO is if the homeowner defaulted on the home and the bank foreclosed. Then, the bank would take possession and the house would become an REO. It might seem to the untrained observer that banks could hold onto these homes until the market improved or other conditions were right for the sale. However, there are several reasons banks need to get rid of their stock of REO’s as quickly as possible.

Classification

There is a problem with the classification of REO properties for lenders. They are literally bad debt, but lenders are only allowed to claim a certain amount of bad debt on their books. Otherwise, the lender may be termed as insolvent. Selling the REO property will take care of this problem in the sense that there will be no excess bad debt to be added to the lender’s financial reports.

Focus

The bank’s focus is on dealing with money. They are not in the business of maintaining homes, getting them ready for market, or even selling them. This creates a dilution of the bank’s objectives. The more REO property they can sell off, the more they can stay on track to accomplish their financial goals. A bank which keeps its REO’s to a minimum is a healthy bank, and one which is focused on being a bank above all else. 

Use of Bank Resources

REO properties do not sit empty and take care of themselves. If a bank allowed that to happen, they would be asking for the home to go down in value rapidly. What is more, REO homes do not ordinarily sell themselves. The bank has to devote manpower and money to maintaining and selling every REO home they hold. This diverts resources away from the main purposes of the bank, such as lending money. If you can offer the bank an acceptable price for an REO home, they will be happy. They will be able to free up more of their human and financial resources to be put to use for the bank’s primary goals.

Auction Problems

One way banks try to get rid of REO’s is through foreclosure auctions. However, there are several problems that plague these auctions. For one, banks may place a minimum bid on the property as the amount the homeowner still owes. Yet, the home may not be worth that much. When no one bids on that home, it reverts to the bank. If you can come in and make an offer that will keep the bank from going through that useless process, the bank may jump at the chance to make it happen. It is rarely if ever a good deal for the bank to hold onto an REO property. That leaves you, as the investor, in a position to acquire properties that you might not have otherwise.

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You searched for months for that perfect first home to buy.  You and your realtor looked at everything from foreclosures to new construction.  Finally you found the one that made you say “I could live here the rest of my life.”  You put in your offer and it was accepted.   After the initial joy wears off you realize you need to get your ducks in a row so you can close.  Below are 5 tips that if followed will help you on the road to a smooth and on-time closing.

Get All Back-up Ready for your Mortgage Company.

While you were searching for your home your mortgage company most likely provided you with a list of items you will need to give them before you can close.  Grab that list and start gathering everything you need.  That list will include things like recent tax returns, pay check stubs, identification and recent bank statements.   As you gather them get them to the mortgage provider so they can look them over and make sure they are what they need. 

Get Your Inspection Done

Most offers can be rescinded in the first few days if something is found to be fundamentally wrong with your future home.   A good realtor will have someone they recommend you don’t have to use that inspector, but often times it is good to use someone your realtor is familiar with because they know they can trust them.

No big purchases

Most mortgage companies will require you to have enough money in your bank accounts to cover the down payment as well as a month or two of mortgage payments.  Even after you have shown them your recent bank statements it is a good idea not to spend much money because they may ask to look again the day of closing.  If you need to purchase something for the new home wait until after closing. 

Don’t Use Credit Cards

Don’t use your credit cards for anything until after you are completely closed.  Using your credit cards can affect your overall credit score which could lead to your mortgage provider raising tour interest rate or worse.  Most mortgage companies will run your credit report the day of the closing to make sure you are still within the window of acceptance.  Anything you need should wait until after the closing.

Don’t Take Any New Lines of Credit or Open New Loans

It may be tempting to take a new line of credit to purchase the new floors you need for your new home, but wait until after the closing has been completed.  Opening a new line of credit or getting a new installment loan can lower your credit score and also increase your liabilities.  Both of which can cause your mortgage company to cancel the loan or raise your interest rates.  Anything you need for the new home should wait until you have completed closing. 

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Foreclosures are a great investment option. The key is knowing how to find just the right one. A bank foreclosure could be a house, apartment, condominium or any other type of property that has been seized by the bank. If you are planning on investing in such a property, you will want to consider the following tips.

Make sure the property is investment protected. Always take the time to research, learn more about and investigate any foreclosed property you are thinking of purchasing. Focus on its condition and history as well as the title. The age and location of the foreclosed property will provide answers to these questions. An inspector will also be able to give you advice on the condition of the property you are considering. By doing this, you won’t waste a lot of money on unnecessary renovations and repairs.

Learn as much as you can about the foreclosed property. Research its market value and stick to your budget when bidding. You will get the best deal by purchasing a foreclosed property at less than 50 percent of its market value. This is important as you may still need to spend quite a bit on renovations and repairs that are necessary to keep the property up to code.

Ask questions. This is what you give you some of the answers you are seeking. You will obtain the rest through tips you learn from others. These tips will point you in the right direction so you can continue your research.

Know what you are getting into when purchasing a foreclosed property. If you don’t have the money for renovations and repairs, or if this is just too much of a headache for you, buying a foreclosed property may not be the best option.

Foreclosures can make great new starter homes for some people who have saved up enough money to make the necessary changes and updates. While it is possible to find a foreclosed property that does not require such adaptations, most do so you will need to be prepared for that going into the proposition.

Purchasing a foreclosure will give you the opportunity to buy a lot of house for less than you would normally pay. You can then make the necessary changes, while adding your own personality into the mix. This can be a fun process and will definitely add value to your home. This will serve you well if and when you decide to sell.

Your foreclosure will be a great investment over time. Because you ppurchased it for less than you would have a brand new property, you will have the chance to make money on it in the near future. This, alone can make it a great option. The key is to research the property and carefully consider all you will have to deal with when purchasing a foreclosure. It may just turn out to be the best investment decision you’ve ever made.

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A Variety of Terms

When shopping for secured loans for buying a home, you will come across a number of lending options. Brokers and lenders offer varying terms to numerous consumers, some who even possess similar qualifications. Therefore, you have to be prepared when it comes to negotiation as the difference in the amount you are given versus someone with almost identical information will most likely be dispensed as compensation to the lender.

Look for Overages

An overage can result when the borrower agrees to pay a price that is above the lowest cost that can be given for a secured loan. Overages are included then in the quotes given to potential borrowers, and can be found in loans that have varied rates as well as those that come with fixed terms. Therefore, it is important that you have the financial lender list all the expenses related to the loan product. Once you survey the data, you may be able to make some concessions. Ask the loan officer to perhaps eliminate a charge or reduce the number of points. Ask him if he can improve the terms of the loan.

Locking in the Rate

Once you are happy with the quoted terms, you will want him to confirm these terms in writing. Ask that he include the agreed rate and the points. In other words, have him lock in the rate until a specific date. Be aware that you may be charged a fee for this service. However, you may be able to obtain a refund when the loan closes as well. A lock-in is helpful in safeguarding your loan from any rate increases while it is going through the mortgage loan process. On the other hand, if the market rates fall, you may have to talk your lender into some type of modification.

The Competitive Spirit

Comparison shopping then is essential if you want to obtain the best possible loan deal. Get a good idea of the rates by shopping on the Internet. Interest rates and points can be compared among several lending sources. While rates change day by day, you will want to keep on top of the variances. Make sure that the loan officers who you talk to are aware that you want the best deal for the real estate you select. Let them know that you are making price comparisons among several different loan companies.

Survey your Credit Report

If you have poor credit resulting from reasons such as temporary unemployment, don�t feel compelled to search only for loans that carry a higher interest rate. Even if you have some negative information in your credit history, you may be able to obtain a decent rate, especially if those negative marks can be explained. If your credit report shows items that are negative that aren�t easily explained, ask the lender what you will need to do to acquire a better interest rate. Take time to review your report so you can plan and make the necessary adjustments. It will be worth it in the end.

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As with any other business strategy, people that are successful at investing in foreclosures have learned how to navigate the system easily. Expert foreclosure investors make sure all paperwork is filled out correctly and turned in on time.  I can’t promise that you will turn into a foreclosure expert by the time you finish reading this article. I can however, give you some tips that will help you become a more savvy foreclosure investor.  1.Market Research – Know your area. The first thing you need to know when looking at foreclosure investments is what other houses in the market go for. When you know this information you will know how much to bid at the auction. This will help you to estimate the repair costs better. Knowing this information will also help you prepare for tax time by estimating your profits.  2.Know the Law – Some communities have laws which mandate that a buyer must live in the house for a certain period of time before selling the property. It is important to know if this is the case in the area where you are looking to invest because it will make a big difference in the time and money spent on a foreclosed home. Make sure you consult with a realtor or real estate attorney to verify the laws and rules where you are trying to invest. This will save you a lot of heartache later on down the line.  3.Line Up a Buyer – Try to line up a potential buyer before you attempt to secure financing. This will help you speed up the process. This will also make you look more favorable to the banks when you try to apply for a loan.  3.Plan Ahead – It can be quite a challenge to keeping a step or three ahead of the game. This is because time frames can change when dealing with foreclosed properties. Each county has different rules. Although it is difficult, having a plan in place every step of the way will help you keep it all together and know exactly what is supposed to happen, and when. This will also let the banks know that you are serious, just like a business plan for a new venture. Investing in foreclosed properties can be a very lucrative way to make money in the real estate industry. As with anything in business, you have to plan in order to be successful. Remember when you fail to plan, you plan to fail. Follow the tips given in this article and you will have a good foundation for building a successful foreclosure investing business.

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Congratulations!  You’ve decided to renovate and hire a contractor.  You know exactly what you want, when you want it, and how much you plan to spend.  And you’ve narrowed your search down to a few contractors.

The problem: they all seem perfect for you.  They all meet your minimum requirements, they communicate well, they seem to understand what you want, and are able to meet your needs within your timeframe and budget.  You’ve talked to some of their previous clients and seen some examples of previous work. 

So. where do you go from here?

Now it’s time to request, and compare, estimates from all prospective contractors!

While it is advisable to get as many estimates as possible, as a general rule, three estimates with high-quality drawings and detailed specifications will usually provide sufficient information.  Even with a small project, a set of written specifications is critical and should reflect the needs you have communicated:  the type of flooring, brand of doors and windows, kind of finishes, etc. Keep in mind that a large project can require two to three weeks for a contractor to prepare an estimate.

Ask the contractor to submit estimates in person, so you can discuss outcomes and options, and then compare the estimate carefully to make sure that everything you ask for has been included. Assume that anything not listed is not included in the price, and make sure the contractor provides you with a construction schedule.  Some contractors may give you a “fixed price” quote that includes all the materials, labor, equipment and fees, plus contingencies, overhead and profit. In some cases allowances are established for items which you have yet to select, e.g., flooring and light fixtures. The allowance, which is only an estimate, is later adjusted once you have made your final selection. Again, communication with the potential contractors is key, so make sure you discuss a contingency budget to cover unforeseen costs.    

While cost is always the main factor that drives home renovation decisions, don’t automatically choose the contractor who gives you the lowest estimate. If it seems unrealistically low relative to other proposals, the contractor may not have understood what you wanted or may be underestimating the extent of the work. Basing your decision on money alone could lead to unexpected and additional costs, or an incomplete, unsatisfactory job.

Instead, you should be looking for the estimate that seems faired and most reasonable, relative to the others. A slightly higher estimate may be the result of a more seasoned, in-demand contractor, whereas a newer contractor with little experience may be willing to do the job for less. This shouldn’t deter you from choosing the lower estimate, just remember to factor in everything and choose the contractor you feel will give you the best overall value for your money.

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The closing costs of a real estate loan transaction are concisely defined in one document called the HUD-1 Settlement Statement. If you are going to be involved in real estate investing, it is a good idea to know how to read this statement and understand it. Here is a rundown of some of its features.

1. Loan Identification

The first boxes in the form identify the loan in various ways. There are checkboxes for the type of loan, either VA, FHA, FmHA, conventional Insured or conventional Uninsured. There are identifying numbers so that the lenders and agencies can keep track of the transaction.

2. Names and Addresses

The next items are the names and addresses of the buyer, the seller, the lender and the address of the property being purchased. The settlement agent is also listed, with the place and date of the settlement.

3. Series and Pages

The remaining boxes are grouped into several series. Each series covers a different set of figures. There are series 100 through 1400. There are 3 pages in the HUD-1 Settlement Statement.

4. Gross Amount Due from the Borrower and to the Seller

The 100 series begins with the gross amount due from the borrower and the 400 series is those due to the seller. It lists the total loan amount. Also contained in this section is a listing of all the fees, charges, taxes and other payments that have been made in advance on the property which have been paid early and not used. The buyer will owe these amounts to the seller. The final figure for these credits will show up on the 400 series for the seller. Line 120 summarizes all these adjustments and results in a new gross amount due to the seller before further adjustments.

5. Credits and Debits

When prepaid or unpaid fees or taxes are prorated, they will show up on the HUD-1 Statement as credits to either the seller or the buyer, and debits to the other one. Expect to see this mirroring of expenses in many instances throughout the form. There will be a difference in the sections 100 and 400, because 100 will show the final settlement costs due from the borrower.

6. The 200 Series and 500 Series

The 200 series includes the earnest money and the loan proceeds that will be paid to the seller. In the 200 series, they show up as a credit to the seller, who has already paid them, so that they can be deducted from the seller’s side when the time comes to finish the settlement. The 500 series is for money the seller will pay and they can include payoffs of past loans on the property or pro-rated taxes, for examples.

7. Series 300 and Series 600

These are the final numbers, spelling out the final amounts that will be due to the seller and from the buyer.

8. Page 2 and 3

The second and third pages are used to calculate the first page, and then entered into that first page. Series 700 through 1300 spell out the charges due from buyer and seller for sales commission, loan origination fee, loan discount, appraisal fee, credit report, inspection and survey fees, insurances, taxes, title fees, notary fees, government recording fees and attorney’s fee. The last page is wrapped up with the total settlement charges for each in series 1400.

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Finding the Right Realtor

A realtor is a state-licensed professional who assists you with the sale of your current home and/or the purchase of a new home.  It is critical to choose a realtor with whom you can communicate honestly, and whose judgment and professionalism you trust.

Some tips for finding the right realtor for you:

1.    Ask.  Who in your life has recently sold and/or purchased property?  Were they happy with their realtor?  Dissatisfied?  Unsatisfactory experiences are as noteworthy as are positive ones. Note who to contact, and who to stay away from!

2.    Once you have some names, check real estate information in local newspapers, magazines, and websites.  Do these agents list many properties?  Do the properties seem to be “for sale” for a long time, or do they sell quickly?  Do these agents seem overburdened with so many properties that they won’t be able to devote a reasonable amount of time to you?

3.    By now, you have narrowed your search down to some real prospects.  So start setting up some meetings.  Pay attention to first impressions and “gut instincts” when you meet prospective agents.  Additionally, notice the following:

·         Do you feel comfortable talking to the agent? 

·         Does he/she listen actively and respond appropriately? 

·         Is there an eagerness for the work and an energy that suggests this person will help you meet your needs? 

·         Bring a list of questions to these initial meetings, and write down the answers. Keep track of every realtor you interview so you can make an informed decision about which professional can best meet your needs.

Tip: Standard interview questions should include: “How do you market a home for sale? How do you find listings for buyers?”

4.    Realtors tend to know the most about the neighborhoods in which they typically list/sell/buy. As a buyer, you need an agent who is familiar with where you want to move. Yet as a seller, you want a listing agent that is familiar with where you live now. It makes sense to have two separate agents unless you’re buying and selling in the same neighborhood.

5.    Attend open houses. The best way to meet a successful agent is to watch him/her work.

6.    Check references. If this is someone that you just met, ask for contact information from a few of his clients to call. You should also check with your local board of Realtors to see if any complaints have been filed against this agent.

7.    Request a referral. If all else fails, a local Realtors office can refer you to an agent, at which point you can follow the steps outlined above. Always meet with, interview, and checking references on any prospective realtor.

And always trust your gut when a fit feels incredibly right, or uncomfortably wrong.  Remember: You will be spending a lot of time with this person, so finding a personality that you like is critical. The right realtor for you is out there!

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Real estate investors often tend to rely on emails for a variety of tasks during the process of making a deal. As it turns out, that may not be such a good idea. A recent ruling in New York Courts has shed new light on the necessity of being careful about email interactions. Since the case in question regarded a real estate transaction, it brings home the importance of the ruling to RE investors.

In the court case, a real estate broker sent an email to a potential buyer of a property saying that he would be afforded the right of first refusal. While he did not say that the deal was finalized, he did say that he potential buyer would get a chance to counter any new offers that were made.

This potential buyer went on for a time assuming that he was going to have a chance to buy the property if he still wanted it. Then, one day he found out that the broker had sold the property to a higher bidder without consulting him or giving him a chance to raise his bid.

The man’s response was to sue for breach of contract. As evidence, he used a printout of the email in which the broker had made the original promise. His argument was that he relied on the email as a valid form of communication in conducting the deal. The broker disagreed, countering that the email was not binding.

The lower court where the case was first presented sided with the potential buyer. It said that the email was as valid as a written contract. This ruling was explained as resulting because of the fact that emails are such a common form of communication, and because they can be easily traced to the sender.

A higher court disagreed and said that there was not a binding contract, but not because the email was not as binding as a written offer. Instead, the ruling was handed down because the potential buyer never replied to the email, so the communication was one-sided and may never have been seen by him. The case has been taken to yet another court, but so far the consensus is that an email, properly sent and received, is considered binding.

What this means to you as a real estate investor is that you would be wise to monitor yourself when writing emails during the deal-making process. Never say anything in an email that you would not want someone to later haul back into court. This does make investing a little less dynamic, but it is necessary to protect yourself in the future.

There may be one last alternative. If you include a disclaimer saying that no part of the email is binding, you might protect yourself from legal action. If you plan to take this route, do not just make something up yourself; have an attorney draft the wording so that it will stand up in court. Remember that emails have become the newest form of writing. Watch how you use them or you could face serious consequences in your real estate investing business.

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Whether you’re a homebuyer or a homeowner looking to sell, a qualified realtor can help you to get the best deal out of your investment. When seeking the help of a realtor, there are several questions you should ask to determine if the real estate agent of your choice will be able to help you get the most for your money. By knowing what questions to ask, you can help avoid wasted time and energy with realtors that do not have your best interests in mind. After asking your realtor some basic questions, you will be able to evaluate whether they will be able to provide the service you need to buy or sell your home at the best possible price.
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It’s a good idea to ask your realtor how long they have been a full-time professional realtor. You also need to make sure they can represent you either as the buyer or the seller. Always ask for references from previous clients that can verify their experience with the realtor. Ask your realtor if they have a team of people working with them who you will be working with. Make sure that you have ways to contact any people you’ll be working with when the time comes. A list of staff members working with you, complete with phone numbers, e-mails, and fax numbers would be ideal. A company website should also be included in the information you’re given, and the site should be updated regularly. Have your realtor explain their fees up front, ask for an estimate of all services pertaining to your listing, and get all of the information in writing to keep with your other important documents.

Don’t be afraid to ask your realtor what characteristics set them apart from other realtors. What do they specialize in, how can they help you to find the perfect home to buy or help you to sell your home at the best price, and so on. A good realtor knows their qualifications and is confident in their work; they will have your best interests in mind. Ask for a satisfaction guarantee. If your realtor is not working out for you, you need to be able to terminate the Buyer Agency Agreement. A good realtor understands that no one on the team profits unless you, as the client, profit. So talk to your realtor and find out what they can do for you

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