Where to Find Off-Market Properties

Many would-be wholesalers fail to get started simply because they do not know how to find deals that are not advertised on the NWMLS.

Wholesaling involves buying at a LOW price and selling to another investor or rehabber at a LOW price to complete the work necessary to bring a property to market. Anyone can buy a property on market, but rehabbers willingly pay wholesalers to find properties that are more difficult to find.

Anything listed on the multiple listing service is priced at retail, not wholesale. Even the major fixers will be bid up in the frenzied real estate market that exists in our area now. The best opportunities to pay wholesale prices for properties exist off-market.

Many wholesalers find property through a direct mail campaign to homeowners most likely to NEED to sell. It is much more likely to get a property under contract at a reasonable price with a seller who is MOTIVATED to sell, rather than with someone who is "in no hurry," "doesn't need to sell," or "who is not going to give their house away." If you hear these words out of the mouths of your seller, just move on. This is your clue that you are not dealing with a MOTIVATED seller.

Who is motivated to sell? Someone in distress perhaps - medical issues, divorce, death of a spouse or loved one, financial stress or facing foreclosure. It could be someone who has to relocate quickly for family issues or other life changes. Perhaps someone moving into a nursing home or assisted living. or a landlord tired of dealing with tenants, evictions, code enforcement, or city regulations.

Perhaps the property is distressed, and the homeowner does not have the resources to make the needed repairs. All of these situations create motivation.

In my case, I am looking for commercially-zoned property that can be developed within the city of Seattle. So I want wholesalers to bring me off-market properties that have commercial zoning. Savvy wholesalers take orders from buyers like me to find properties for us.

So how do wholesalers find these kinds of properties and sellers? It helps to know what type of seller or property the Buyer wants. It should be as specific as possible. Then find a source for getting property addresses, homeowner names and phone numbers, if possible. If not, get addresses and go knock on doors.

Where do you get these lists? Title companies are one good source, particularly if you plan to steer business to them when you do get some deals. Another good source is anyone who peddles data and information lists. ListSource is one of the most popular sources for real estate investors (www.listsource.com).

Internet ads may also be a good way to target leads, through Craigslist or social media. Many real estate investment trainers provide education on best ways to do this at minimal cost. A good google search may help you do this research on your own.

Unless you can figure out how to find properties off-market, you will not succeed as a wholesaler. Make this your priority in pursuing this approach to real estate investing.

Happy Investing!

Mortgage and Finance News

Millennials face a lot of competition on the path to homeownership

http://money.cnn.com/2017/04/03/real_estate/millennial-homebuying/index.html?iid=Lead

Hiring slows, but unemployment at an all-time low

http://mynorthwest.com/594722/us-employers-add-just-98k-jobs-as-rate-falls-to-4-5-pct/

25 best personal finance books to read this year

http://vintagevalueinvesting.com/the-25-best-personal-finance-books-to-read-this-year/

Happy Investing!

Today's blog courtesy of Teresa Hollenbeck and Nicole Harding, CW Title and Escrow

Flipping Rules from FHA

Are you familiar with the Federal Housing Administration rules on flipping houses? Here they are, straight from FHA:

02/08/2017

FHA Handbook 4000.1.II.A.1.b.

(3) Restrictions on Property Flipping

Property Flipping is indicative of a practice whereby recently acquired Property is resold for a considerable profit with an artificially inflated value.

(a) Definition

Property Flipping refers to the purchase and subsequent resale of a Property in a short period of time.

(b)Standard

(i) Time Restriction on Transfers of Title

The eligibility of a Property for a Mortgage insured by FHA is determined by the time that has elapsed between the date the seller has acquired title to the Property and the date of execution of the sales contract that will result in the FHA-insured Mortgage.

FHA defines the seller’s date of acquisition as the date the seller acquired legal ownership of that Property. FHA defines the resale date as the date of execution of the sales contract by all parties intending to finance the Property with an FHA-insured Mortgage.

(ii) Restriction on Resales Occurring 90 Days or Fewer After Acquisition

A Property that is being resold 90 Days or fewer following the seller’s date of acquisition is not eligible for an FHA-insured Mortgage.

(iii) Resales Occurring Between 91 Days and 180 Days After Acquisition

A Mortgagee must obtain a second appraisal by another Appraiser if:

·         the resale date of a Property is between 91 and 180 Days following the acquisition of the Property by the seller; and

·         the resale price is 100 percent or more over the price paid by the seller to acquire the Property.

If the second appraisal supports a value of the Property that is more than 5 percent lower than the value of the first appraisal, the lower value must be used as the Property Value in determining the Adjusted Value.

The cost of the second appraisal may not be charged to the Borrower.

(iv) Exceptions to Time Restrictions on Resale

Exceptions to time restrictions on resale are:

• ·         Properties acquired by an employer or relocation agency in connection with the relocation of an employee;
• ·         resales by HUD under its REO program;
• ·         sales by other U.S. government agencies of Single Family Properties pursuant to programs operated by these agencies;
• ·         sales of Properties by nonprofits approved to purchase HUD owned Single Family Properties at a discount with resale restrictions;
• ·         sales of Properties that are acquired by the seller by inheritance;
• ·         sales of Properties by state and federally-chartered financial institutions and Government-Sponsored Enterprises (GSE);
• ·         sales of Properties by local and state government agencies; and
• sales of Properties within PDMDA, (Presidentially Declared Major Disaster Area) only upon issuance of a notice of an exception from HUD

Happy Investing!

Real Estate Investment Strategies

Real estate markets are cyclical. 

No one knows when the next downward market will begin,

but when it does... you'll wish you were a "safety first lender" 

collecting predictable and secure cashflow

rather than a "property owner"

holding on to a property that is declining in value.

Are YOUpreparing to thrive during the upcoming downward market cycle?

You see... fortunes are made in "down" market cycles,

not "up" market cycles like we are currently in. 

We're excited for the upcoming buyer's market,

but the transition from a seller's market to a buyer's market

requires a lot of patience and can be very painful for those caught unprepared.

  
Here's one

solution for thriving during the upcoming market shifts:

(1) Sell real estate equities while it is still a seller's market.No one knows how much longer today's seller's market will continue,but there are plenty of warning signs indicating it may not last much longer.

(2) Convert your "at risk" equity based investments, 

into "safety first" investments as a private lender / mortgage investor.

(3) Collect a predictable stream of income from your mortgage investments

while waiting for the next buyer's real estate market.

(4) When the buyer's market cycle has arrived, sell your mortgage investments and use the cash to buy positively arbitraged investment real estate.

(5) There's a season for buying, a season for selling, 

and a season for just holding what you have. 

A huge part of being a safer investor is lowering your risk by 

sitting out of the equity market during the worrisome transitional times.

While no one know for sure what lies ahead in our economy,however it's our belief that the current rewards of direct real estate investment do not outweigh the risks. 

Don't get me wrong,

there are people who will make money buying real estate in today's economy.

I just think they are taking a bigger risk than they need to.

I love owning real estate and while there are

LOTS of benefits of real estate ownership there are also lots of risks.

When the investment risks outweigh the upside potential,

you need a different investment strategy.  This is exactly why now may be the time to change your focus from acquiring real estate investments to

acquiring mortgage investments.  

Here is the "risk versus reward" concept in simple terms:

If you could flip a coin and triple your money each time it came up heads and lose 50% of your money each time it came up tails, you'd be wise to make that bet as often as possible. If you could earn 10% profit each time the coin toss came up heads and lose 50% of your money each time it came up tails, you'd be foolish to ever make that bet. In both of these examples the risk is the same (lose 50%), but the rewards are drastically different (10% profit versus 300% profit).

In today's real estate and stock market, the risk of loss is not significantly more than it was a few years ago, however the potential for gain has dropped astronomically.This risk-reward analysis has pushed me out of acquiring direct ownership of real estate and into debt based investments.  For those who are relatively new to my newsletter, you'll know that I'm not a fan of the stock market.  While I still happily own a lot of investment real estate as a tax shelter and hedge against inflation, the majority of my personal investing has shifted to mortgage investments rather than real estate.  

A debt based investment like mortgage investing is a guarantee of a specific outcome.  You will either: (A) get the interest rate stated on the note or (B) you will get to foreclose on the real estate collateral for a fraction of what the market value of the property was as on the date you made the original investment.  

If your investment horizon is long enough you'll probably do great as a property owner even if you buy at the top of our current market cycle.  After all, while we are currently in a seller's market of real estate, we are in a buyer's market for long term debt. Real estate prices are at all time highs, while mortgage interest rates remain at all time lows. I would rather "over pay" for a property once and "under pay" for my interest rate every year for 30 years than vice versa. It's very possible that today's interest rates are a once in a generation phenomena, so if you are young enough it could very well make more sense to load up on as much positively arbitraged real estate as possible rather than investing in the security of mortgage investments.  However, a lower risk / potentially higher reward formula (especially for older investors who have less time to benefit from the asset of extremely low long term fixed interest rates) is to acquire positively arbitraged mortgage paper and wait for the reward side of real estate investing to increase.  

Don't you wish you could go back to the buyer's market of 2011-2013 and double down on direct ownership of real estate? If you've been investing long enough, don't you wish you would have sold everything in 2007 and just sat out of the market for a few years?  

You might consider stripping the 'at risk' equity out of your current rental properties (through sale or refinance) and then place that equity into a safety-first senior mortgage investment until the next buyer's market comes around.  Done correctly this will increase your cashflow and profitability while simultaneously reducing your macro investment risk.  It will also keep you in a relatively liquid position for when the next buying opportunity arrives.  Mortgage investments are much more liquid than real estate investments.  Any time I can increase yield while simultaneously lowering risk,I definitely want to pay attention to that opportunity. 

Here are links to a few blog articles that discuss these

risk reward concepts in more detail:

How to Predict Real Estate Prices

http://www.hasslefreecashflowinvesting.com/how-to-predict-real-estate-prices/

Borrowing To Invest Can Increase Cashflow and Lower Riskhttp://www.hasslefreecashflowinvesting.com/borrowing-to-invest-can-increase-cashflow-and-lower-risk/

Here are a few podcasts and webinars

that discuss the nuts and bolts of mortgage investing:  
http://www.hasslefreecashflowinvesting.com/media-2/ 
http://www.hasslefreecashflowinvesting.com/video/video-series-investor-financing/ 

If this email was helpful to you, please consider forwarding it to your friends. 

Best regards,

David Campbell

Real Estate Investing Strategist 

http://www.hasslefreecashflowinvesting.com/

Happy Investing!