Ask Nick: What about Wholesaling Condos?

Hey Nick,

I just wanted to get your opinion about the viability of wholesaling condos?

Thanks

Hi there,

Condos are interesting in this market - it depends on your end buyer's exit strategy. If the majority of buyers in your buyers list are looking to fix and flip, you will find that many of them will have challenges once they go to sell to the end retail buyer.

Most condo associations are not considered "FHA Approved", and therefore are not financeable, except through local lenders that have their own special programs.

The bigger, more established ones have a better chance of being financed by first-time home buyers (the majority of buyers out there now), but even then, there are certain rules that must be met (i.e. more than half of the units in the complex must be owner-occupied).

However, IF your investor-buyer is looking to fix & hold for rental income, it could be a good match, as they wouldn't have to have their retail buyer fight the tight credit markets. It would be a matter of, "do the numbers work?" and "Is it worth my time and investment?"

So...can you do it? Absolutely. Just always, ALWAYS, know your customer (your investor buyers), what they're looking for (their criteria, and exit strategies), and market to those deals. That's the quickest way for you to get a paycheck, and either assign or double close your way to the next level.

Can you still wholesale deals in this market?

You betcha.

There has NEVER been a better time than now, to negotiate and get a deal, as long as you do it RIGHT. Wholesaling is a word used in real estate, where the WHOLESALER finds a good deal, negotiates with the motivated seller, helps structure the win-win for them, and gets it locked up and under contract. Once the wholesaler has a good deal, he or she can then do a couple things:

1. ASSIGN the contract to purchase to another investor, who will be the one who ACTUALLY closes on the property. This one has the least amount of risk, as the end buyer pays you a set fee, and they buy all the rights to purchase that deal at the same terms you negotiated - you never take ownership of the property itself.

2. Do a SIMULTANEOUS CLOSE, where the wholesaler SELLS the property in the morning, and the same day, BUYS it with the funds received from the first transaction. Usually you'd use this strategy when you've made a KILLER deal, and want to make more than $3-5K for your fee. These deals can net you between $10K and $50K, depending on what your target properties are.

Is this risky? Depends... do you have a good attorney on your team, to help lead you through the pitfalls? And YES - sometimes, the end buyer does NOT come through. What happens then? This is another reason why it's so important to have a good relationship with an investor-friendly attorney in your area, that has experience in doing these transactions.

In this market, things have tightened up a bit, and have made it a tiny bit more difficult, but still - if you can adapt, you can still have a hugely successful wholesale business. I know of many wholesalers in the Boston area, who are making some SWEEEET deals right now. A few tips to be careful of, when doing simultaneous closings:

• Occasionally, you may need what's called transactional funding, to fund your BUY side of the transaction. While it's still possible to close without this (you need a good title company or attorney, who is willing to do it), there are many private lenders out there willing to lend you the money for the 24 hours, to get the deal closed, usually for only a couple points.

• TITLE ISSUES: Especially with foreclosures and properties that have gone through many transfers over the years, this is becoming a BIG issue. Does the motivated seller you're working with, have title insurance they purchased, when they bought the property? If not, remember that you CANNOT sell a property that does not have "clear & marketable title." Make sure, even if you're wholesaling to another investor, that your title company or investor friendly attorney runs a title search to see if there are any problems. And more importantly - ensure you have some outs in your contract, so that you don't lose any money if you find your property has costly title issues that need to be addressed!

**As a side note... I always tell my students to NEVER be penny wise and pound foolish when it comes to buying title insurance at a closing. ALWAYS get title insurance for yourself, whether you're wholesaling or buying your own home - it makes things so much easier when it comes time to sell, or even if you DO find a problem later on... they pay for any and all issues.

• SEASONING: If your end buyer is NOT a cash buyer, and is using financing from a bank, know that many lenders require the property to be SEASONED (held, in one name, for a certain amount of time), or else they will not lend on it, and you'll be out a buyer. This all depends on the lender, and their requirements.

Happy Investing!

Nick

HUD Announces Suspension of FHA 90 Day Anti-Flipping Rule

Recently, we investors have had some good news, as it relates to FHA financing (many of our buyers now are first-time home buyers, using FHA insured loans for their 3.5% down program, and less strict credit requirements). As of now, they require that any property they lend on, be held by the same buyer for at least 90 days prior to the closing. Now, they're suspending that. Check out below:

HUD just announced that, effective February 1, 2010, they are suspending the FHA 90 Day Anti-Flipping Rule.

With certain exceptions, such as HUD-owned and bank-owned properties, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. However, beginning Feb. 1, buyers may use FHA-insured financing to purchase properties resold through private developers and investors, providing access to a broader array of recently foreclosed properties.

Under the temporary waiver, all transactions must be arm's-length. In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the lender meets specific conditions.

For more information about these changes please visit the HUD website.

See? Who says the government isn't looking out for us investors? In truth, they are finally realizing that WE are the key to turning around the housing market. With so many foreclosures and properties that are deemed "unfinanceable", only investors will be able to make home ownership possible again. Couple that, with a more responsible economy (we all hope), and we can start the upswing again... but not before another huge WAVE of foreclosures comes out to the market.

Again, I say, what an incredible time to be a real estate investor!

And now, for a shameless plug for anyone in the Boston area

I'd love to see you at our Big WHOLESALING Event, in Billerica MA on Feb 6. The whole day will be focused on:

• Getting people out there,
• Making OFFERS,
• And getting their deals sold

Check out this link for the details: Wholesale Workshop

As always, Happy Investing!

Nick

Find and Analyze the Deals Next Monday in Nashua!

For those of you who missed Nick’s seminar on Dec 1st at BAREIA...

Don’t you worry!

He’ll be doing a recap at the Real Estate Investors of Nashua Group.

Just what will you learn?

• 3 ways to find motivated sellers
• Easy ways to train your birddogs
• How to work with asset managers and REO departments
• How to get accurate comps
• Using an income filter: "How much will that property ACTUALLY cash flow?"

You'll also get Nick's Rebab Cheat Sheet!

...and you might win some M&Ms...

Event Details:

6:30 pm

Monday January 11th

163 Amherst St, Nashua, NH 03064

(Second Floor)

For more information and directions, visit REINGUSA.com.

Bring lots of business cards... we hope to see you there!

Julia

How You Can Stay Motivated this Year

Ah, New Years.

Another year. In this case, the start of a new decade--2010!

My Resolutions

Every year, I sit down with my goals that I wrote out the year prior, and find out what I missed and the reasons why:

• Were these realistic goals?
• Did my business plan change, and I forgot to update my goals?
• Did I hold myself accountable enough?

Many people set very high goals, with no intention of ever executing on the plan, or even designing the plan, to meet them. These people are called the "talkers".

The question is, what will this new year--new decade--bring YOU?

If You're a New Investor:

This is from a great blog I sometimes read called ZenHabits. This question really helps address what new real estate investors should set out to accomplish:

"How do you stay motivated in business when you have never done something before & the results won’t show up until down the road? (via @darinpersinger)

Learn to love the process, and don’t let your happiness be so dependent on the outcome. Be passionate about the actual things you do, do them because you love it, and you’ll stick with it. The great things that result will be a natural by-product."

Essentially, if your only goal is to set out and make a lot of money, you MIGHT succeed - but you also might hate all the work it takes to get there. And trust me... when you hate what you do, NOTHING seems worth it, in the end.

If your end goal is to learn how to help

create win-win situations with homeowners and real estate agents, banks, and other investors, and to change people's lives while doing it (while learning from mistakes), you've just created a new lifestyle for yourself. And the best part is, while you're building your business and touching more lives, and learning in everything you're doing, you will be reaping better financial rewards than if you just set out to "make more money in 2010."

Dr. Robert Kiyosaki, in discussing the fundamentals of business practices, talks about how the very basic and cornerstone of all business is to have a meaningful and effective direction - known as your MISSION STATEMENT.

What is your mission statement?

Maybe that's a good place to start in 2010. After spending a while drafting this, then finally set your goals - financial, personal, & spiritual - and then create & execute the plan to get there.

But most importantly, enjoy the ride. Money will follow, if you continue growing & learning, and never staying in a comfort zone. Make this decade the one to turn it all around, especially if you're having challenges now with your life, finances, career, or relationship. BELIEVE you can do it.

You can bet I'll be raising a glass to all my colleagues, students, investors & friends I've made over the past 5 years... so, this one's for you!

Happy 2010 everyone!

~ Nick

Ask Nick: How does the rehab cost add up?

Hey Nick,

I'm immersing myself in real estate knowledge and thank God for the internet and you tube, there's a whole wealth of information out there that can be good for newbies like me.

Lately, I've been focusing my attention on rehabs. I figured that if one understood rehabs, one would understand real estate investing a whole lot better and even wholesaling.

My question is: How does the rehab cost add up?

When investors quote a rehab cost or estimate cost, say, $40,000, does this include materials plus the contractor's fee and labor, or is the labor priced differently?

As always, looking forward to your response…

Thanks and Happy Holidays!

Hi There,

You asked a very involved question... contractors will quote whatever work you tell them to. And if you're not clear, you'll never get accurate bids on anything.

Some will quote you labor only, some both materials & labor, some will underbid you only to give you what's called a "change order" later on, upping the real price, some do good work, others don't.

When I walk through a job, you have to be as detailed as you can, when drawing up your OWN scope of work. I go as detailed as labeling what SKU numbers from Home Depot or Lowes I want, with doors, chandeliers, counters, etc.

That way, when you provide YOUR scope to one or three contractors, you get ACCURATE bids.

Make sure they realize it includes both materials & labor. My coaching students walk through jobs and do this on a daily basis, as it does take practice.

Hope this helps!

~ Nick

Ask Nick - "When does a homeowner legally lose their foreclosed home?"

Hi Nick,

While wholesaling, I constantly encounter homes vacated by the Home Owners. I keep coming across notices from a company called American Field Services reading, "The property has been secured/winterized"… "Do not turn on utilities”...”heating tank has been drained"....

I understand the homeowner still has time before a foreclosure date is actually set, however, at what point does the homeowner legally loose the right to his/her house? Is it when he/she decides to walk out of the home and the lender sends in these American Field Services type of companies to secure the property?

OR Do homeowners lose their home when the legal process of foreclosure is ventually done?

These issues / questions have been weighing heavy on my mind...

Looking forward to hear your response,

Thanks!

Hi there,

Thanks for the question! The homeowner loses all rights to the property once the auction date has come, and the auction is completed. That's when it officially goes either to an investor, or more commonly, back to the bank (they are also present at the auction to protect their interests).

The name on the door you are seeing is the asset manager, the company hired by the bank to maintain it while it is on their books.

Hope this helps...

Nick