Done Any Volunteering?

I've done a fair amount of volunteer work in the past and today spent my Saturday afternoon working with the UTVCG (University of Toronto Volunteer Consulting Group).  Today was the first day in action this year, allowing me to meet with some great team members in an effort to come up with solutions for a non-profit group seeking help.  After that meeting, I spent some time with an engineering student, as part of another volunteer program to help mentor a student.

In a couple of weeks, I am going to repeat some work I did last year with a new group as a Seminar Leader, also a volunteer position.

I don't mention the above to toot my own horn, but instead I mention it to remind everyone that there is a strong need for volunteers in every community, town, city, state, province, and country.

Regardless of where you are, there is a need right in your own backyard.  The fulfillment one gets from helping is fantastic and extremely rewarding and  you'll meet some tremendous people in the process.  If you've never volunteered before, take time right now to think about a cause, a charity, a need in your community that you find interesting or close to your heart.  Go and talk to those folks and tell them that you want to help.  They will be very glad you called them and you will be very glad you did once you understand what I am writing about fulfillment.  The only way you'll know is if you do.

If you've never volunteered or haven't in some time, go ahead, take the steps right now and go volunteer your time!  The busiest people are the ones who can help the most because busy people get things done.

Thanks for reading, enjoy the balance of October and go help and/or mentor someone today.

Trust But Verify

Regardless of your political affiliation, Ronald Reagan nailed it with the three words, "Trust, but verify."

Throughout time, people will say this and say that.  They will also write this and write that in emails etc., and we as business people, must make judgments and decisions based on what other people are communicating.  

However, it is our duty and responsibility to ensure that when people do say or write something, that during our course of doing business we need to verify what was communicated.  If we fail to verify, then we have no one to blame but ourselves if the outcome does not follow from what was communicated.

So, let's remember that we need to, "TRUST, BUT VERIFY" all the time and don't let things lapse for one minute, or it may cost us.

This applies to business and personal relationships equally.  

"Trust, but verify"....So simple, yet so powerful.  Make it a standard in your day to day activities.

Until next time......

So You Want to Buy a Fannie Mae or Freddie Mac Property?

Buying a Fannie or Freddie property can be a great option.  It can also be a nightmare.  Just like any other purchase, you have to know your market and ensure you are not overpaying.  Just because it's a "government owned" property does not automatically mean it's a great value deal.  We like to focus in our blog on real life and not theory.  Theory is for students who want to study and learn about ideal situations.  Practice is for professionals who want to apply real life knowledge to what really works.  In real estate, theory is rarely valid.  Real life practice is always valid.  This blog is not for students but for professionals who are active in the business.

If you've identified a Fannie or Freddie property that makes sense, then bear some things in mind before buying one of these government owned properties:

1) You will almost certainly be subjected to a 90 day deed restriction.  You won't be likely told of this restriction up front as it tends to be "assumed" that you should know but it will be in the paperwork eventually.  The deed restriction works like this:  For 90 days you cannot transfer title to another Buyer unless your gain is no more than 20% of what you originally paid to Fannie or Freddie.  In other words, for example, if you buy a Fannie or Freddie property for $50,000, you can only sell it for up to $60,000 (a $10,000 profit...i.e. 20% of $50,000 = $10,000).  The actual clause looks like this:

"GRANTEE HEREIN SHALL BE PROHIBITED FROM CONVEYING CAPTIONED PROPERTY FOR A SALES PRICE OF GREATER THAN $_______ FOR A PERIOD OF _____ MONTH(S) FROM THE DATE OF THIS DEED.  GRANTEE SHALL ALSO BE PROHIBITED FROM ENCUMBERING SUBJECT PROPERTY WITH A SECURITY INTEREST IN THE PRINCIPAL AMOUNT OF GREATER THAN $ _________ FOR A PERIOD OF _____ MONTH(S) FROM THE DATE OF THIS DEED.  THESE RESTRICTIONS SHALL RUN WITH THE LAND AND ARE NOT PERSONAL TO GRANTEE.

THIS RESTRICTION SHALL TERMINATE IMMEDIATELY UPON CONVEYANCE AT ANY FORECLOSURE SALE RELATED TO A  MORTGAGE OR DEED OF TRUST."

Notice the clause states that it "RUNS WITH THE LAND"?  That means that it doesn't apply to you personally but applies to anyone attempting to purchase the property from you because it is property based.

2) Using the above example, if you buy a property from someone else who has already purchased it from Fannie or Freddie and has held it less than 90 days, and they've sold it to you for the maximum allowable amount by law as we've explained above, then you cannot sell it at all until that 90 day period has expired from the date of the original deed restriction.  Make no mistake...you are bound by the law and have no way around this.  How do you think I know this?....the hard way as happens sometimes to the best of us.  Learn here and don't get caught.  No matter what your Seller is telling you, always check with your Attorney to verify what they are telling you.  Get it in writing and make sure it's not just in writing but explicitly in writing.

3) Possible alternatives are to ask to have the deed restriction removed right in the Offer.  Put this in the Special Stipulations section of a typical broker Purchase & Sale Agreement.  What's the worst that can happen?...they say no.  Just write in, "Buyer requests any Deed Restrictions be removed."  With this simple statement, you are not demanding, but asking politely.  Best case is that they accept and then you have no deed restriction.  The odds are slim, but it's worth asking if you're in the deal.

4) If they still refuse to remove the deed restriction, offer to pay a little extra to have it removed if you don't want the restriction.

5) You may get lucky that the "checkbox" that defines whether a deed restriction will be applied is not checked off for your property.  I've heard of this happening from an asset manager not checking it off but have not experienced it.  You may luck out however as it is possible.

6) If you can't get around the deed restriction, it's best to focus on properties that you can rehab and profit from.  You can take the down time and use it constructively to rehab the property and then market it immediately.  There is nothing wrong with marketing the property that has the deed restriction.  You just can't transfer the deed to someone else until that 90 day period has expired.

For those that want the advice, the above can help you put together an entrance and exit strategy to purchase a Fannie or Freddie owned property if you've never purchased one before.  If you have, it's good to brush up on your options for the next one.  Again, I want to reiterate that the above is based on our experience only and that we are not attorneys and none of what's in this article should be construed as legal advice.  You should always check with your attorney before signing any legal documents to completely understand what you are signing.  

Until next time...have a very prosperous week.  

Keep Earnest Money in Check!

Now what exactly do I mean by that title, you're probably asking?  Well, it's pretty simple:  Earnest Money (EM) deposits should be held until such time that your deal closes or your Buyer forfeits their EM for some reason.  It's as simple as that.  I mean EM deposits that you personally receive for properties that you own or control and you receive the deposit from a prospective Buyer.  If you've written a non-refundable Earnest Money clause in your contract that still means that you must perform your end of the deal.

Now, while this is a straight forward professional concept, there are some people that treat Earnest Money as lottery winnings or use them for shopping sprees, payment to contractors for work on other properties or the like.  I've seen it happen and that's why whenever we have a deal, we always try and use our own Closing Attorney or people that we trust to close but regardless, we always use a third party escrow Closing Agent.  

We never give EM deposits directly to Sellers and you shouldn't either!  Always use a bona-fide third party Closing Agent who is registered with the State they're doing business in and holds a valid license to close.  Do your due diligence on your Closing Agent just like you do on your properties.

If you ever collect a direct EM, do NOT do anything with the EM deposit because you will run into problems eventually that may not be feasible to dig your way out of.  Title problems, probate problems, conveyance problems such as Fannie Mae deed restrictions etc., etc.  There are countless problems that may occur that can prevent closings or delay them.

A deal is almost like a car.  There are many moving parts and they all have to fit exactly right, or it won't work.  There are smooth deals, and there are deals from the pit of hell that will drive you nuts.  Regardless, if you're a real estate investor and you've done enough deals, you'll see them all.  Doing deals is not just a bowl of cherries like the gurus' make it seem.  This is real life, it's working in the trenches, and you're gonna get mud on your face once in a while and you're gonna deal with problems.  If you don't believe me, then you're new or you're just not doing enough deals.

In doing your deals, do not misappropriate Earnest Money.  This is not your money until it's "YOUR MONEY".  If the deal falls apart on your end, you will most likely have to refund the Earnest Money.  Make sure it's where it's supposed to be and do not treat it as yours until the deal closes or it's forfeited to you.  

You'll find that you cannot anticipate everything that may occur in a deal and you may have to give back that EM.  By not touching the EM deposits until closing actually occurs or unless the other party forfeits it by contract, potential EM problems can be pretty much eliminated.

Wishing you a great and prosperous week!  

Until next time....

Professionals Exist to Help Us - Use Them and Pay Them

We constantly need to make decisions about many things, every day during the course of business.  One major factor that influences decisions is cost, and although that isn't anything new to anyone, managing those costs relative to reward is an important point.  

When finding a potential deal, we must be very comfortable with the property and the upside as this is the reason we're considering the purchase, but when we're not quite sure, or need confirmation, or have a potential problem, hiring a professional estimator, appraiser, legal professional, engineer etc., is not really a cost, but is a necessary aspect of doing business.  Some people try to avoid these professional costs and end up paying substantially in the price of experience.  As many of us already know all too well, experience is sometimes a costly teacher.

My point is that if you're not sure about something, hire a professional to make things sure.  If you're presented with a property that you have reviewed comps and things don't seem right, why take a gamble in buying the property when for a couple hundred dollars, an appraiser can help you determine value.  You may be out two or three hundred dollars, but that could save you from getting into a bad deal and losing tens of thousands!

If you have a potential structural issue or you're dealing with load bearing walls etc., make sure you have a very experienced contractor or structural engineer to help you along the way.

If a probate related or other legal issue arise, don't play around and waste time and money.  Bite the bullet and pay an experienced attorney.  These folks can be expensive, but their knowledge is what they get paid for and they can save you substantial money and grief and get the job done right the first time.

I have an engineering degree, but this doesn't make me an expert in many things.  I am humble and I know my limitations, so when I have a problem that I don't have the answer for, I hire a professional who does know the answer.  If you don't have this same philosophy and try to cut corners in areas that you're not experienced in, sooner or later, it will bite you.  This can be substantially more costly to you than simply paying a professional to make sure you are steering your business in the right direction, rather than the painful and costly approach that happens when we don't consult with pros.

Don't worry about that money you're paying your hired professionals.  The correct view is that paying them is like an insurance policy for big mistakes.  These folks are there to help us, so when we need help, it's best to ask for it.

Until next time.....

Taking Emotion Out of the Deal

Throughout history, and indeed in today's markets, emotion drives the ebb and flow of the markets.  Whether we like it or not, this is a fact that has been much studied and has been discussed in countless books, newspapers, articles and speeches.

Depending on your preferred medium of investment, this emotional component can either help you or work against you.  Let me explain:

If one is Trading stocks, emotion is a massive factor in the movement of stocks.  As a stock investor, we can remove our emotional component as much as possible, however, we cannot completely eliminate it and we certainly can't control what the "crowd" does.  Determining the valuation of a stock at a particular moment in time is both an art and a science, so because it is typically difficult to determine future value, our emotions do come into play whether we like it or not.  There are a number of things we can do to limit or eliminate that and that is to have a system / game-plan and follow it without exception.  Even the brightest trading professionals are right only about two-thirds of the time, so losses are a part of the game regardless of how good we think we are.  There is no such thing as getting it right all the time.  These are the realities.

Now, moving onto real estate, when it comes to investing, we must limit or eliminate the emotional component also.  Because we know by doing our due diligence ahead of time, how much a property is worth (within a reasonable estimate) at the present time, we can ensure that by purchasing at substantially below that value that we are good, taking emotion completely out of the picture.  As in our stock example, we follow our game plan to to letter and ensure that based on the value today, that we are not paying more than that value.  In fact, as I mentioned before, our aim is to buy very much below today's fair market value and if we don't have that present, then we do not have a deal!  We then move onto the next potential deal.....

While we're on the topic of emotions, we came across a seller this morning who themselves presented a valuation in today's market for their own property that was based on an appraisal in current condition.  This appraisal reflected what we were going to offer him, so he knew what it was worth in the market.  However, he refused to accept market realities and wanted double the amount we offered. When he was asked what he felt the property was worth, he simply said that he knew it wasn't worth what he was asking, but that's "what he wanted" and that is that.  He proceeded to tell us how nice the property was, how nice the neighborhood was....We are not emotionally driven home purchasers.  We are numbers and facts only investors and you should be too.  If the numbers don't work, then regardless of how nice the property is and whatever other flora and fauna the seller and/or their agent is spewing, move onto the next potential deal and leave the non-deal behind.  Do not waste time on sellers that refuse to accept market realities.  They are betting that "it'll come back".  Let them gamble.  We don't do that.

Yes, this is an emotional seller who overpaid for his property at some point in the past, and now cannot live with a loss even though the economic reality is that his asset isn't worth what he wants for it.  So, it will sit and he will lose money maintaining insurance and paying property taxes and seeing his asset degrade further due to weathering / wear and tear with no other hope than potential appreciation down the road which most likely would not cover his mounting losses.

Do not become one of those statistics where you are only betting in market appreciation to salvage your investment.  Sometimes, looking at a short term game plan makes much more sense than waiting to see what the distant future holds.  As I've said before, nobody has a crystal ball, so why bet the farm on future appreciation when this is not a prudent approach to investment in real estate.  Certainly, many other options are available to us.

If we're talking stocks, we need to have a bias whether the stock will go down or go up.  This bias determines our  potential profit or loss.  In real estate, we lose money if the value goes below our purchase price, so price appreciation is only one of many exit strategies that we can use, and it is the most uncertain and volatile strategy available.  There is no need to rely on price appreciation when buying real estate assets, so focus on other exit strategies that are available to you with some we have discussed in previous articles of this blog.  This limits risk and increases potential profitability by buying well below current fair market value and knowing what your exit plan is before you sign the Purchase & Sale Agreement.

Remember, emotion has no place in real estate investing.  If you buy low enough, and use the right exit strategies, you will be just fine almost all of the time.

Until next time....

Ready to Place an Offer? : Do's & Don'ts

In the course of our daily business, we run into many people who are "want-to-be" investors.  There is absolutely everything right with wanting to be.  However, for those of you new investors, there are certain rules of conduct that those more seasoned already know but you may not know if you are new to the business.  It is critical if you intend to do deals consistently to present yourself in an honest light.  What exactly does this mean?

1) When presenting an offer, be real.  That means, do not under any circumstances, lead the seller on by telling them that you have the money to close when in fact you do not.  Do not waste people's time!  This means, get your financing approval and/or cash together beforehand and demonstrate to the seller that you have the money at the time of your offer through a real proof of funds.  This means send the offer with your proof of funds.  Don't send the offer without proof of funds because if you do, you will be perceived as an amateur and may be in a poor negotiating position immediately because of this perception, whether this is right or wrong.  There is no need to show proof of funds before this time, but at the time of offer, you should have everything in order to prove that you have the financial capability to close.  Wanting to close and having the capability to close are key, not just the want.

2) It doesn't matter if you low-ball but can justify your offer.  You want a great price?  Of course, who doesn't?  But don't just lowball without being able to explain why.  Lowball offers are completely ok if you  can justify them.  Lowball offers without justification are amateur moves when what you're trying to do is show yourself as a professional.

3) In this real estate market, cash is truly king.  Get all your cash together to buy the property you want and you'll be at the front of the line in acceptance.  Sellers want cash (your cash), and you want their property, so why not make it easier for yourself and forget about getting financing if you want to close quick on that great deal that just came across your desk.  This means, get a partner or partners to put up the cash if you don't have enough or even if you don't have any cash.  You need cash, but there is no rule or law to state that it must be YOUR cash.  Make deals with private investors whom could simply be friends and family, and get it all cleared before you make your offer.  Don't make an offer and think in your head that Uncle Ben has $20 million sitting in his checking account doing nothing and you've got the greatest deal in history waiting for his $20 million to be used.  Oh, but you just sent your offer in but haven't even spoken to Uncle Ben about what you're doing, right?...Don't do that!  I think you get my point that the money has to be resolved BEFORE THE OFFER.  Again, do not waste a seller's time.  You want to be seen as a performer, not a non-performer, and the quickest way to become a performer is to do what you say you're going to do in a timely manner and back it up.

4) If you find after an inspection that some minimal issue exists, don't go back to the seller and ask him to knock off $500 or $1,000 because you have a toilet or some light fixtures that need replacing.  If it's a major problem like serious electrical wiring faults, a defective septic system, cracked boiler, well then that's a different issue altogether, so perhaps in those types of cases, you can walk away from the deal altogether or ask for a credit at closing from the seller to pay for these repairs.  Unless you have an all cash deal happening, ask for a credit at closing for major repairs that came up after inspection, because the repair has to be paid for by someone, either you or the seller.  If you just ask for a reduction in purchase price, this won't help you if you are getting a lender to put up some of the money. The credit as closing works much better because you then have the cash to do the repairs right at the time of closing.

These are some simple points for investors who wish to build their reputation with sellers as performers and not as time wasting non-performers.  Be a performer starting today and get your deal house in order.  Real Estate is all about relationships and don't let anyone tell you otherwise.  Being real and honest with your deals will build your credibility, gain you many more great contacts and referral business and put more cash in your pocket.  If you wrong people, word spreads quickly so start right from today to build yourself up rather than tear yourself down.  Being a performer pays much better.

Until next time........