Hook Me Up!

There is really no simple answer to this interesting question. The answer will more than likely depend on the individual. By considering a few basic concepts you can determine for yourself whether you have what it takes to get into buying and flipping foreclosures. You may see the late night infomercials talking about how much anyone can make by investing in foreclosures. Before you dive into your wallet and fish out your credit cards here are a few things to be considered. When you’re not investing money you’ll be investing time to learning and getting things done. You’ll have to get over any shyness as you’ll be meeting and talking to plenty of people, often having to make first contact yourself. Those easily discouraged by rejection need not enter into this realm as you’re likely to hear 100 no’s before you hear 1 yes. After considering this and you’d still like to move forward you’ll want to familiarize yourself with a few key concepts.

The first concept in buying and flipping foreclosures is knowing what a foreclosure is. It is basically a home that has been repossessed by the lending bank for nonpayment. This is good because the loan balance on the home is $0 so the selling bank makes pure profit from the sales price. Normally when you buy a home from a person they are still paying off a mortgage (money they borrowed to buy the home in the first place) which must be paid in full before the seller can sell or make any profit. Along with other factors this is the main reason why foreclosures can be sold so cheap. The downfall of this is that banks maximize their profits on a selling a home by doing as little repair work to a home as possible and often sell homes as is. This will leave a buyer not knowing what problems a home may come with or more importantly how much it will cost to make necessary repairs. Investors know this in advance and adjust their strategies accordingly.

Next is the concept of finding foreclosures. Today foreclosure is a huge buzz word in the world of real estate and pop culture in general. Because of this foreclosures are easier to find nowadays compared to being almost nonexistent in years past. The reason for this is that banks make money by collecting interest on the money they lend. When they have to take back a house that someone stopped paying for it takes money away from monies used for lending and that isn’t something they go around advertising. However due to the recent drastic rise in foreclosures more sources have popped up to help bargain seekers and investors locate foreclosed homes. If you’re a serious buyer you can go to through a real estate broker for free and they’ll do all the leg work for you once you tell them what you’re looking for. There are other foreclosure home locater services that may charge a fee that you can use at your leisure from the comfort of your home computer. There are a few that have a free service like RealtyStore.com’s Free 7-Day Unlimited Trial.

Finally is where the money comes in. The best suggestion is if you get to this stage and you haven’t done it already do some research on investing and your local real estate market so that you know what you’re doing. Good investors normally have an idea of the amount of money they will make and how they will make it even before starting an investment. Here the idea is to make sure that you can “flip” or quickly sell whatever foreclosure you plan to buy. There are many ways to accomplishing this goal which goes back to doing your research to know which way will work for you and your situation. Most successful investors use a Real Estate System that takes most of the guess work out of the process of what to buy, what to sell, and ensures that they make profitable deals. One of the biggest myths about real estate investing is that one needs a huge bank account to start with. Nowadays creative individuals are making thousands of dollars by using little to no money of their own and without having credit good enough to get a loan. Some famous finance authors like Robert G Allen (Multiple Streams of Income and Nothing Down) have begun offering programs for those looking to begin investing with little or no money.

Online stock trading site Zecco.com has recently announced the addition of social networking features for their customers. Zecco gained popularity a few years back by being the first and only site to offer no fee stock trades. That has since changed to the requirement of a $2500 minimum account balance to get 10 free trades per month. The fee charged per trade now is $4.50. In order to add value and community to their site, Zecco now offers a forum, blog spaces, and explorable member profiles.

Me personally, I am strictly an amateur trader who was lured into actually taking the plunge into stock trading by Zecco when it did have free stock trades no matter your account balance. The other factor that finally got me started was that the site didn’t and still doesn’t require a minimum deposit to open an account. I started with just $25 and invested in a few penny stocks (stocks valued under $5 a share). Unfortunately my busy schedule hinders tracking of my account combined with the fee for trading a stock makes me a horrible investor. Therefor I am subject to the rise and fall of the one stock that I now own a few shares in. I do however check once in a while to see how I am doing and for the most part my investment has stayed at a higher value than at which I purchased it.

Another footnote in my stock trading experience is Wall Street Survivor. This is an online fantasy football type league for stock traders. You get a fantasy amount of money to start investing with and for a period of time you compete with other members to see who has the highest valued portfolio at the games end. Again my schedule kept from fully taking advantage of this opportunity to learn more about stock trading. There are social features at this site as well with members from all levels of trading experience from beginning to expert are willing to share knowledge.

I have no experience with Zecco’s community features but if it is anything like Wall Street Survivor’s it would be beneficial for everyone to take advantage. From what I’ve experienced there are many aspects of stock trading and only a small percentage of traders know every one. Online trading has opened the door for a whole new wave of younger and eager investors who can stand to gain a lot from networking with those more experienced.

All in all now that Zecco has the new features I do plan to take advantage and “step my stock game up”. For those toying with the idea of online stock trading I would suggest making sure you have the time. You’ll need time to research trading in general, different trading companies, and most importantly what strategies you will use in your investing. You can actually leverage Zecco.com for your research because you can sign up for an account and begin networking before you ever fund your account. It would be a very good idea to read the blogs and forums first then begin communicating with other successful investors by letting them know your situation. There should be no shortage of members willing to give advice. As with everything you should always use caution when taking someone’s advice. A word of advice from me would be always consider the source and do your own due diligence before making any serious moves.

Before I start let me get the disclaimers out of the way. Every house, seller, lender, and bank situation will be different so when using the advice given here, use due diligence in finding out whether a deal you find is right for you.

In this real estate market full of foreclosures, falling home prices, and interest rates there are definitely deals out there to be made. The hard part is finding those deals and being able to make a move on them. If you want to get the most for your money in this market you must make sure that your deal is actually a deal. What I mean is that you are spending the least amount of your money possible and getting the best value. Lets say you find what you think is an amazingly low priced property. If the property is in an undesirable area with the inside gutted out, you could actually be headed toward spending double what you paid just to get the home back into selling condition if your investor. If that home is your next move you’d be stuck either paying 2 mortgages while that home is made livable or if you’ve already sold your old home you’ll find yourself in horrible surroundings until the new house is finished. All the while you’re spending money.

It is very possible to find great low priced high value opportunities with foreclosures and bank owned properties. If you aren’t already familiar with what these are then I’ll very briefly explain. When someone uses a loan to buy a house, until the loan is paid in full the bank or lender actually owns the home (in a sense) while the person who got the loan lives in the home and makes payments back to the lender or bank . Should that person stop making payments for a long enough time the bank/lender takes back the home (or forecloses on it). Its possible to make deals on these homes because the basic way a bank/lender makes money is loaning money and profiting from the interest paid. They have a limit on the amount of money they can loan which is further decreased by having to foreclose and resell a home. Each home represents a piece of the money they can lend. If they can,t lend money, they can’t stay in business. You can profit from it being in a banks’ best interest to not have homes on their books (taking the place of money they can lend).

The down side to this, at least in California, is that when you do find a great price on a bank owned property the home is sold to you as is with no guarantee. You can get a great price but may find yourself in the situation described in the beginning of this article. Often people who can’t avoid loosing their homes to the bank do some awful things to a house out of anger and spite. This goes double for disgruntled renters. To make things even harder not all lenders and banks are willing to take much off their asking price or play hard ball for quite some time before letting a property go for a low price. The reason for this is that banks want to look strong and won’t publicly admit that they have a vast supply of bank owned properties. Trust me you’d be hard pressed trying to find information on a bank or lenders website about this. If you are interested in these types of properties, contact your real estate agent or go to a bank in person and ask a branch manager.

When you are looking for a true deal and I mean true deal, pre-foreclosures is the best way to go. Pre-foreclosure? You mean it is possible to know when someone is not making their mortgage loan payments and will be foreclosed on? In all actuality, yes. You just have to know where to look and “keep your head on a swivel”. It isn’t a great thing to be behind on your mortgage and looking ahead to loosing your home so use tact and care when dealing in these situations. Why are these deals so great then? Because they can be advantageous to you and everybody involved. Also more often then not you can see the inside of the home before you buy. People that haven’t run out of time and still living in the home won’t be subject to damaging a property especially if there’s hope. This also brings me to my other point. Those running out of time and solutions are open to just about anything that can prevent them from home loss or financial ruin.

Normally a person facing foreclosure in this market will owe more than their house is worth. This means they are in a short sale situation and have accepted that keeping their home is not an option. They would rather sell and get away from their biggest debt which is their mortgage. This leaves the window wide open for you to make whatever kind of offer you want to make as long as their bank/lender that they owe money to will accept it and free them from their mortgage obligation.

If you do find a person who has their heart set on keeping the home for whatever reason you can help there too. Have them short sale their home to you for as low as the bank/lender will accept and let the seller stay in the home and pay you rent to cover the mortgage. In this situation you won’t be living in the new home but you would instead become an investor which opens up a new world of opportunities for you. Make sure that the amount of rent charged covers your mortgage payment plus a little extra for yourself. You are now making money every month and the seller has avoided foreclosure. Once you have built equity in that property you can use it to help buy your next home or your next investment.

Short sales are the most common and easiest way to come upon pre-foreclosures. They are rampant on the multiple listing service used by real estate agents. To get access contact your Realtor and let him/her know that you are interested in looking for short sale property and they will be more than happy to assist you. There are other uncommon ways to find pre-foreclosures but you’ll have to do a little more digging to find them like for sale by owners, homes with notices of default, and public records at the county recorder.

In the current times the real estate market is seeing a drastic rise in the number of short sale listings. What is a short sell you ask? A short sale is when market conditions are so that the value of your home is worth less than what you currently owe on your mortgage and you decide to sell anyway. That’s when you know you’re in a short sell situation. How and why would someone sell their home if they will end up minus cash?

The why is easy to explain. The majority of reasons center around a home owner not being able to afford their monthly mortgage payment. Due to whatever circumstances such as job loss, divorce, or an unforeseen financial emergency more and more homeowners are considering short selling their home. Another factor that has plays a major role is homeowners with adjustable rate mortgages (ARMs) not being able to afford their monthly payment when it adjusts to a higher interest rate. It makes matters much worse when the current market conditions are bad and home prices are falling. Most homeowners facing these situations could have opted to refinance or borrow money against their home based upon their home value rising. A short sale is also a better alternative to foreclosure in which your home is taken back by the bank or lender, you get left with nothing to show for it, and your credit score is left virtually trashed.

The how part gets a little tricky. Yes, it is possible for a home owner to sell their home for less than the amount that they owe to the bank or lender. Upon deciding that short selling your home is the best option for getting free of the associated financial burden, you… 1.Put your home up for a regular real estate sale. The best way is through a good licensed real estate agent who is familiar with handling short sales. This will be your best bet since down the road there will be much more work involved that only a good, short sale experienced, agent should handle. 2. Get an offer from someone interested in buying your home. If you have a Realtor this is when they go to work by advertising your home for sale and hopefully attracting an offer from a buyer. 3.Get the offer you accepted approved by the bank or lender holding your loan. This is where your real estate agent really comes in handy. Remember in order to successfully sell your home for a profit, you must first pay off any loans and/or fees tied to your home. What’s left over is what you keep. In short sales you are not able to pay back the full amount you owe, hence you are going to be short whatever you owe on your loan. Due to this fact, the lender or bank must approve you not paying back the full amount owed. This is what’s called forgiving your debt.

If you can successfully sell your home and negotiate forgiving your mortgage debt, you’ll end up owing nothing more to the bank or lender. Unlike a traditional sale you cannot receive a profit from the sale ( because technically you’d owe it to the lender anyway) but you’ll no longer have to pay the monthly payment and your credit score will only take a minimal hit.

There are some drawbacks to short selling, at least there were. The immediate worry of a short sale is having a place to live. Once the sale is complete you no longer own that home so you will have to find another place to live. A suggested strategy would be to plan out and explore all moving options at the start or even before short selling. Further down the road of a short sale comes the tax implications. This used to have a big affect on the decision to go through with a short sale. Until recently, the IRS considered the difference between the final sale price and the amount owed after a short selling your home a capital gain. In other words the IRS considered the difference as income and the IRS taxes income! Now of course this is clearly unfair since the difference isn’t income at all, its money that doesn’t exist. Luckily the government stepped in 2007 end short sale tax penalties.

For further explanation of the tax penalty changes consult a tax professional. Generally, if you’ve lived in a home for two out of the last five years it is considered your primary residence and is thus exempt from tax penalties that may arise from short selling. Its recommended that single home owners go ahead if a short sale is the only option. As far as owners of many properties in danger of foreclosure, a short sale may not be the best financial option. The tax penalties are enforced for any properties other than a primary residence as described before. In case you may be thinking that two out of five years leaves room for two primary residences, guess again. Only one property can be claimed as a primary residence. Multi-property owners may want to consider a deed in lieu of foreclosure which is essentially giving your home back to the bank or lender and walking away from the house. This does just about the same thing to your credit as foreclosure but it could save your wallet from taking a huge hit when those in this situation need all the cash they can get.

If you need help in deciding whether or not to short sell your home, there are a few factors to consider. First, are there any better alternatives like working things out with your lender? How far behind in payments are you and how long will it be before you can catch up? How many properties do you own? A licensed real estate agent can help assess the affects of short selling and whether or not it would be a good option for your situation.

I happen to be experienced in negotiating with lenders to accept short sales, after short sale relocation, as well as counseling clients in returning to home ownership faster. I can be reached at 1-877-628-3540.

Now before I begin, I’m not knocking all referrals because they’re  a great source of business. In fact personal referrals are great! I’ve gotten plenty of good contacts, help, or info from them. I’m more so referring to referrals given by professionals, people in the industry, to people or other professionals. I’m not knocking that entirely either. I’m just giving an objective word of caution for those new in the business that might walk into a colleague’s referral thinking its a slam dunk to close the deal.

I’m writing this based on my experience in dealing with colleague referrals. Some have gone great or even better than expected ending in a closed transaction. Others went down south before I even met the referee. When I first got into the business about two years ago all I kept hearing was 100% referral business was where it was at. I thought sure it made sense! If my business was sitting around my office or better yet my home just answering my phone, which would be ringing off the hook with people who were referred to me that would be the life! So I went about making friends with every loan officer, insurance agent, title, and escrow rep that I could. If I knew then what I know now I could have saved the deal before it was lost. But since I didn’t, I’ll pass on what I’ve learned to you the reader.

Referrals by professionals and colleagues can be the least guaranteed.  For a further explanation please read on…

 You may not be the best person to help the referee. The colleague or professional may just have you on the top of their head at the time. Depending on how long you’ve known the professional or colleague they may not fully understand what services you provide and give a referral to you based on not knowing you can’t provide the service a referee is looking for.

You may be inheriting someone’s problem client. If a particular client is hard to deal with, a colleague or professional might be looking to pass them off to an unsuspecting you while trying to keep a piece of the action just in case there’s still money to be made.

The client may not be expecting “you”. This happens all the time and not entirely due to the fault of the person giving the referral to you. People have a lot of hang ups when choosing who to do business with. This could be racial issues, cultural issues, way of doing business issues, wrong gender etc… If you’re not what a person expects to see or hear when you meet, it could kill your deal before it even starts.

The telephone effect. Remember the telephone game where one person starts by whispering a message to another and that person tries to remember it and whisper the exact same message to the next person and so on? By the time the last person gets the message and has to say it out loud everyone would laugh at how distorted the original message had gotten. Well this happens a lot when you get referrals from people “in the business”. They’re often too busy to really explain what you do and how you do it. Going back to the first reason, they may have your business or  area of expertise all mixed up when telling someone why to use your services.

Client is still shopping around. Normally if someone asks a professional for a referral they are either shopping the competition or unfamiliar with the filed and will quickly jump to someone with whom they feel safe. Beware of just being a stop on someones information gathering hunt. This could still be valuable. If you were to give them the right piece of information this could convince them to sign up with you.

The silver lining in the cloud here is to be prepared for any referrals you get. If you approach every business opportunity as not being a “slam dunk” but as a new challenge you’ll have the upper hand. Until the person with whom you met has signed, given you the check, or whatever is needed to start using your service you haven’t closed.  Even with referrals you’ll still need your objection handling scripts, skills, and professional presentation to convince them you are for real.

I recommend giving colleagues and professionals specific written instructions on how to refer clients to you as well as written suggestions as to who would make good candidates for your services. This can be done with special referral business cards or fliers. If you don’t already use the back of your business cards, save money by placing the instructions there. Referral gifts and contests may not only get better qualified referrals it should increase the amount of referrals.

Last but not least never forget to ask for referrals from your immediate friends and family. They have a loyalty and familiarity to you. They can personally vouch for your character as well.  I don’t know about you but anytime a family member or buddy of mine tells me about a good restaurant I eventually end up trying it out and liking it because we have similar tastes. On the the other hand, if our likes are different, they’ll warn against it. In referral business someone that knows you and the referee personally may be able to predict whether or not the two of you will be a good business match.

I prefer a good mix of new and referral business to keep things going. You’ll need to know how to get new business if your “referral well” goes through a dry spell.  Besides you can always turn new business into referral business. Like a gift that keeps on giving.

I always keep myself open to giving and receiving good quality referrals. If anyone professional or general public would like to exchange referrals or network I can be reached at (877) 628-3540 toll free.

I generally service anywhere between Los Angeles and Riverside, CA in buying and selling homes. I am currently offering a service for those interested in purchasing discount homes and fixer-uppers.