We are seeing the supply of homes being squeezed. But it depends on what Price point you’re looking at. Homes below $250,000 have a 3-4 month supply…but, homes above 500K have a 10-12 month supply. What this means is that the lower priced homes, if in good condition…are receiving multiple offers. Paying 112% of asking price is not uncommon. Yes, this is our market today….it is Shifting.

Here’s the thing. No one will ever know for sure if we’re at the Bottom of the market, if it’s a good time to buy, to jump in…until it’s too late. By the time you decide it’s the right time…the market will have turned and prices will start to rise…so take heed from someone who I think most of us respect, Warren Buffett. He’s got some practical ideas about Real Estate and Investment.

(These Quotes and Interpretations are courtesy Larry Goins, author of Filthy Riches, and The AZREIA Advantage September Newsletter.)

1. “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”
Translation: Today’s market fluctuations are your friend because they’ve scared off your competition…other investors. They’re also your friend because the fluctuations have caused there to be a flood of motivated sellers. And as any savvy investor knows, buying from motivated sellers is the only way to make it in this business.

Current Situation in Phoenix:

The supply of homes below 250k is changing. We are seeing a tightening of supply in the listings. The foreclosures, the trustee sales, and the REO properties are all tightening. From a Sellers perspective, it may be a good time to sell if you have some equity in your home and need to move. Values, from a Buyers perspective are still good…but, the tightening of supply is making the Good Homes, in Good Condition a “hot” commodity. You’re either going to be “in” the market or you’re out. Sitting on the fence and waiting is NOT an option.

2. “Only when the tide goes out do you discover who’s been swimming naked.”
Translation: Keep plenty of tools (investing techniques) in your tool belt so that you can adapt to a changing market. What worked best in 2006 doesn’t work best in today’s market. Today, we’re seeing first hand that those with only on investing strategy are taking a beating.

3. “Our favorite holding period is forever.”
Translation: To build true long-term wealth, you must buy and hold properties.

4. “Risk comes from not knowing what you’re doing.”
Translation: Those who don’t know how to properly analyze, enter and exit real estate transactions think today’s market is risky. Those who fully understand the intricacies of creative real estate investing continue to participate and profit.

5. “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.
Translation: Now’s the time to buy . In real estate and in life, it’s almost always best to act opposite to the herd.

6. “Wide diversification is only required when investors to not understand what they are doing.”
Translation: Naive people are putting their money into stocks, bonds, and savings accounts right now. Smart people continue to invest in real estate, and they’re picking up more bargains than ever.

7. “Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.”
Translation: If you’re concerned that you cannot sell for full value, then buy lower – at about 60% of value – and sell lower – at about 90% of value.

8. “We will reject interesting opportunities rather than over-leverage our balance sheet.”
Translation: Sometimes the best real estate deals are the ones you don’t make.

9. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Translation: If you’re going to hold a property long term, it’s far better to buy a wonderful house at a fair price than a dump at a bargain.

10. “A public-opinion poll is no substitute for thought.”
Translation: Most Americans think that now is a risky time to get into real estate investing. Do they know more than you? Most likely not. Only a handful of Americans know the specific techniques for profiting in today’s market. And that’s because they read articles like this, they buy REI courses, they attend their local REI meetings, etc. Most Americans get their “investing tips” from the daily paper. There couldn’t be a worse source. Do you think journalists know how to wholesale houses, do short sales, negotiate an REO sale, etc.? I think not.
11. “The most important quality for an investor is temperament, not intellect…You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”
Translation: Don’t worry what the masses are doing. Follow the advice of successful real estate investors, and use their techniques to profit in today’s market.

12. “You ought to be able to explain why you’re taking the job you’re taking, why you’re making the investment you’re making, or whatever it may be. And if it can’t stand applying pencil to paper, you’d better think it through some more. And if you can’t write an intelligent answer to those questions, don’t do it.”
Translation: Every deal must work on paper before it will ever work in real life.

13. “I really like my life. I’ve arranged my life so that I can do what I want.”
Translation: Remember, that’s what real estate investing is all about arranging your life so that you can do what you want to do when you want to do it.

Closing Thoughts:

Do you want more information about the Phoenix-Metro Market? Do you want to be “in” the Market? We have over 60 years of business experience between us, and 15 years of Real Estate. We live and breathe the Real Estate Market and have a team of professionals ready, willing and able to help you make the “Best” Real Estate choices to fit your long-term wealth building goals.

Contact us at: www.thepurplecowteam.com, email us at: thepurplecowteam@cox.net or call us at: 602-684-9300

1.  Aggressive Pricing.  By the time a property makes it to REO (Real Estate Owned)….the bank/lender is “motivated” to get the property off its balance sheet.  Banks are in the business to loan money…other people’s money, and make money… not hold Real Estate and become a landlord.  But, be aware that they also want to recoup their investment if at all possible.  So generally speaking, they will take into account the market, real estate is local so they’ll want to know what comparable houses are selling for, but also what they need out of the transaction to make themselves whole.  This means you, the buyer, will get very aggressive pricing, usually much lower than a traditional sale, and even a short sale!

2.  Time for Due Diligence, i.e.:  Inspections, Appraisal, HOA research, Buyer Advisory Research, etc.  This is even more important than ever, because REO properties traditionally are placed on the market without any “history” or what they call a Seller’s Property Disclosure Statement.  During the period for inspections, make sure you also have the property appraised, and an energy audit conducted which will save you money and frustration in the long run. If you don’t like what you see after inspections, you can cancel the transaction…but, mind the time frames for all this to take place.

3.   Property Can Be Financed. Unlike a Trustee Sale, the REO property is generally placed in the local Multiple Listing Service.  The Listing REALTOR has generally taken a few pictures, and has completed the necessary documentation about the property that the MLS requires.  The owner of record, the bank, is willing to look at offers that require the Buyer to use financing, however, they are not in the business of negotiation, so make your first offer as close to what you think the bank will take, as possible…this includes financing terms.

4.  AS IS isn’t always so bad.  Some REO properties have already been gutted, rehab’d a bit with new carpet, paint, flooring, appliances, lighting, etc.  So, look around, you might be surprised how “nice” some properties really are.  Just remember, you’ll be asked to sign an AS IS addendum. So, check to make sure everything is in working order that you care about.  Read the AS IS addendum carefully.  Ask Questions, and understand the AS IS language.

5.  Roll Rehab Costs into Note.  If you do decide to rehab….some loans will allow buyer’s to roll the rehab costs into the note….especially if it is through a GREEN contractor registered with Resnet.  This saves you CASH up front….and allows you to pay for the refurbishing project over time.  Pay me now or pay me later….you choose.

6.  CASH is always King.  REO properties are bank owned.  Remember, the banks want a quick, viable sale.  They are anxious to CLOSE….so, coming to the table with cash …is very appetizing to them.  Writing the offer is important, so even though it will be a Cash sale, you may want to consider shortening the inspection time, putting more Earnest Money down, and closing in 30 days or sooner, if possible.  Remember, you are probably competing with another potential buyer of two…especially if the property is in pretty good shape and a great bargain.

7.  Time is on your Side.  The quicker you can close… the better.  Instead of waiting on a Short Sale which may or may not close, you can be assured that an REO property will close if you and the lender can agree on the terms.

8.  Buy & Hold Market.  Rents are going up!  The trend for the next few months or so, will be to buy, fix, and hold property.  Not a bad thing to do, since, rents are continuing to creep up because of families needing a place to live with their dogs, cats, children, etc.  They’re leaving a home with lots of room, and amenities, and they want to rent the same type of home….maybe even in the same neighborhood.  That’s why investing in single family residential homes is very popular for investors and is truly helping the displaced family keep the same lifestyle they just gave up to the bank.

9.  Buy, Fix, & Flip….with caution.  You make your money going in….not going out!  So, buy Low…as low as you can.  The REO market is a good place to start, but always use an experienced agent to help you decided which REO properties are better than others if you want to Fix and Flip.  Why?  Because when flipping properties it’s all about making the numbers work.  By starting with the end in mind….you can work backwards.  Your agent should be able to help you assess all the costs associated with buying to Fix and Flip.  They also will be able to educate you on the properties that will sell faster than others, and the types of repairs that must be done to attract the buyers.

10.  Clear Title.  By the time the Bank has taken the property back, you will know that you can buy the property, and take ownership.  The Bank/Lender will also indicate any transfer fees due at time of close.  But, word to the wise, always check with the property management company, and HOA to understand the monthly fees, assessments pending, and or legal issues the HOA may be encountering.  This is called “eyes wide open”.  Don’t be afraid to check and double check the property status up to the time of close.

On the Flip Side….What you MUST KNOW about BUYING REO PROPERTIES

1.  AS IS condition….so, if you find items that need repair on your inspections, you’ll be the one paying for it.

2.  Negotiation is Limited.  Don’t go into an REO  thinking you can low ball the asking price.  The price has already been discounted.  Usually, the Bank will instruct the listing agent to continue to lower the price every set period of days, on schedule.  So, do pay attention to days on market.  The longer the time on the market, the more discounted the price, generally speaking.  However, these may also be the homes in more need of repair, or something else is preventing buyers from placing offers on it.

3.  Competition is fierce…be ready to sharpen your pencil.  Listing agents want to get the best deal for their seller.  If a property has multiple offers on it, the listing agent will generally ask the buyer’s agent for final and best offer from their clients.  This is your time to put you best and final offer forward.

4.  It’s complicated.  Be prepared to sign more pieces of paper that are required by the bank.

5.  Start with the end in mind.  What’s your exit strategy?  Consider the property’s location, days on market, saturation, absorption rate for the area.  Look around the community.  What do you see?  Are there For Sale signs on every street?  If so, pull the listings.  Look at the competition. The property may look like a good deal until you start peeling the onion.

About the Authors:  Jane & Al Andersen are REALTORS with Russ Lyon Sotheby’s International Realty in Phoenix, AZ.  They started Marketing themselves as The Purple Cow Team in 2010, after reading Seth Godin’s famous book, “Purple Cow”.  They specialize in helping Foreign Buyers, Canadians, and Investors purchase property in the Phoenix Metro Area.  They founded The Purple Cow Synergy Team, made up of 20 real estate related companies including Property Management, Remodeling, Tax, and Financial, to support their buyers and sellers.  Margaret Ritchie joined the team in November of 2010.  Her husband, Terry Ritchie wrote the popular book, “The Canadian Snowbird in America”, that facilitates buying property in Arizona. They can be reached at www.thepurplecowteam.com or email them at:  thepurplecowteam@cox.net.

Article by Andy Heller with special comments from Jane Andersen

The Hybrid auto, we see them all over the roads today.  Growing in popularity, Hybrid vehicles are beginning to offer an enticing option to dependence on foreign oil supplies.  Similarly, the Buy Low, Rent Smart, Sell High-Lease/Purchase model offers investors a Hybrid of the “buy and flip” and “buy and hold” investment model.

Most residential investment models resemble and can be grouped into one of two general categories.  Each has a major flaw that concerns many investors who consider or invest in each model.

The “buy and flip” model by definition is for the investor who seeks to purchase property at a discount, oftentimes improve the property, then sell the property quickly for immediate gain.  This model is ideal for investors who have no interest in landlording as the “buy and flip” investor does not intend to seek a tenant for the property in advance of sale.

The main issues with this model is that if a buyer does not come by quickly, then the investor is faced with discounting the property and/or better yet…..why not list the property to begin with….using The Purple Cow Team of REALTORS.  Due to this possibility, most “buy and flip” investors need a discount of 25% or more even after adjusting for the necessary repairs and improvement.  With such high investor discounts, the pool of properties available with such significant discounts are still there…you just may have to look harder.  Again, your Purple Cow REALTOR is a great source for scouting out these kinds of deals for you.  Just remember, the higher the discount the investor needs to make his or her model work, generally the fewer properties available at such a steep discount.  Can it be done in this “distressed” marketplace?  Yes, just make sure you are buying at the lowest level…and pricing it just under Fair Market Value.  This is why you need The SYNERGY team to support you. We have the relationships and have done the work necessary to make your first “flip” a success.

The “buy and hold” model by definition is for the investor who seeks to hold property for the long term.  Many “buy and hold” investors envision funding their retirement years by selling the properties once the notes have been paid off, sometimes thirty years after purchase.  A key benefit for these investors is that the need to acquire these properties at a significant investor discount is minimized, as the investors are seeking their primary return many years into the future.  Thus, the supply of homes that meet their long term investment model is often plentiful.

There are two main issues with the “buy and hold” model.  First, there are no opportunities for “cash windfalls” from the real estate during the “hold period”.  Without the cash windfalls, funds to expand the portfolio generally must come from the investor’s day job, other investments, and sometimes partly from positive cash flow.  Because of such “slow growth” characteristics, it’s rare to find a pure “buy and hold” landlord with much more than five or six properties.

Second, many “buy and hold” landlords burn so much time, effort, money and energy taking care of repairs, maintenance, and high vacancies common with pure rental property (some investors delegate this to a management company, and while this may save the investor time, it cuts into the profits as the management company must be paid for their work).  The time, effort, money, and energy spent dealing with landlording issues often serves to minimize the investor’s ability to grow his or her portfolio to any reasonable size.  Worse, troublesome landlording experiences often sour new investors on real estate.

If “buy and hold” is your business plan, then let The Purple Cow Team help you with this process.  We have access to property management companies that understand the investor model and can help you with the negotiations.

A properly implemented “buy and lease/purchase” model takes the best of the “buy an flip” and “buy and hold” models.  It also minimizes each model’s most glaring flaws.

First, most investors who use the lease/purchase model are able to “flip” some of their properties and sell others to their lease/purchase tenants.  This allows the investor to generate the “cash windfalls” necessary for portfolio expansion, without the pressure of having to sell that is specific to the “buy and flip” model.  Additionally, the investor should be able to make purchases work with as little as 10% investor discount (much less than the typical “buy and flip ” model), because the pressure and risk associated with having to sell fast is no longer present.

Second, on the landlording side, most lease/purchase agreements transfer the repairs and maintenance responsibility to the tenant, as the tenant is not a typical renter but rather a “future homeowner”.  The typical lease/purchase agreement can also be signed for significantly longer terms.  Both these factors save the landlord much of the time, headache, and costs associated with upkeep and turnover common with most rentals.  A final bonus is even when the tenant does not exercise the purchase and vacates either voluntarily or involuntarily, the properties generally  are in much better condition than had the tenant been a typical renter.

What do we mean by “fair” lease/purchase as noted in the title?

Sadly, many investors have given lease/purchase a bad reputation by offering restrictive terms designed to minimize the lease/purchasers probability of exercising the purchase option, while “supposedly” maximizing the investor’s return.  (That’s why you need to work with a REALTOR).   We have found a correlation between offering attractive and reasonable option terms, and the profits available to the investor, our “win/win” philosophy.  People are not stupid, and if the terms are not attractive, demand for the investor’s lease/purchases will be minimized.  By making the terms especially attractive, there should be higher demand for the lease/purchase, and the investor can be more selective among the available candidates.  Carrying this supposition further, higher quality tenants placed in the property mean less money and time spent landlording.  That time and money can then be better spent expanding the investor’s portfolio to truly significant levels.

Does this “buy and flip” and “buy and hold” hybrid model work in practice?

Indeed one must allow for variation as no model is implemented exactly the same by any two investors, and markets across North America can be incredibly different.  However, implemented correctly and in the right market, an investor can manage a large portfolio of properties with minimal management time with the Fair Lease/Purchase Hybrid.  We think Phoenix is just the market for this lease/purchase hybrid.  Think about it, families have just lost their homes to foreclosure, bankruptcy, or short sale.  They are eager to stay in the same areas, with the same amenities, schools, etc. that they have come to know and love.  They would love to be able to move into a home with a lease/purchase contract. Taking pride in homeownership is a basic human instinct.  Giving the tenant the opportunity to aspire to home ownership again will win them over.  You’ll be helping them, and they’ll be helping you!  A Win -Win.  Writing the contract with a “win-win” mindset is the key.  That’s why we advocate using The Purple Cow Team to handle the contract writing instead of going it alone.

If Hybrids are the automotive future of our country, perhaps the Fair Lease/Purchase Hybrid will be the perfect model for investors concerned with the flaws of either the “buy and flip” or “buy and hold” investment models.

Let us know how we can help you with any  of these models.  Our Synergy Team is ready to support your Real Estate Goals.  Just give Al Andersen a call at 602-684-9300 or go to www.thepurplecowteam.com to contact a team member.

Question #1:  What is a Short Sale?

A short sale is one where title has transferred; where the sales price was insufficient to pay the total of all liens and costs of sale; and where the seller did not bring sufficient liquid assets to the closing to cure all deficiencies.

Question #2:  What is a “Potential Short Sale?”

A potential Short sale is one where the listing agent reasonably believes the purchase price may not be enough to cover payment of all liens and costs of sale and the seller is unwilling or unable to bring sufficient liquid assets to the closing.

Question #3:  What is a Short Sale “Process?”

How to understand the process:  a mortgage short sale is an arrangement between the homeowners and the mortgage lender(s).  A short sale occurs when the mortgage lender or investor accepts less money than owed and considers the debt “paid in full,” thereby permitting the sale to occur.  The difference between the amount owed and what the mortgage lender collects on the short sale in known and the deficiency.  Mortgage lenders in other states have tried to obtain judgments for the mortgage short sale deficiency and others have forgiven it.

(However, you will always want to find out whether the loan(s) you have are “recourse” or Non-recourse”.)

In a recourse loan, the borrower retains personal liability for any deficiency after a sale or foreclosure.  The lender has “recourse” to the personal assets of the borrower to make up any deficiency.  In a non-recourse loan the lender is limited to whatever funds are available from its security interest in the property itself, and cannot force the borrower to repay any deficiency.

Each state has its own rules and in some states a loan can be either recourse or non-recourse depending on factors such as whether it was a purchase money loan or a refinance.  These  are legal questions and should be addressed with your attorney.   Fortunately, Arizona is an anti-deficiency state which will help to preserve your financial health after the short sale process.  However, always consult an attorney/accountant for longer-term effects before completing a mortgage short sale.

Although we are experienced at short sales, we are not qualified to give legal or tax help associated with the process.  The IRS formerly considered debt forgiveness as income.  However, legislation (October, 2007) has reversed that rule.  Additionally, ARS 33-729 and ARS 33-814 protect a homeowner from a mortgage lender deficiency if:

• the property is less than 2.5 acres,
• it is a 1-2 unit dwelling (dwelling means lived in property),
• “purchase money” was used in the mortgage process,
• the property is sold at the trustee’s sale.

Additionally, the IRS will not collect the “forgiveness ” tax if ANY condition applies during the year the forgiveness occurred (The Mortgage Forgiveness Debt Relief Act and Debt Cancellation 2007):

• it was the  homeowner’s primary residence for two of the last five years and “purchase money” was used,
• the homeowner can prove insolvency (more debt than assets) ,
• the homeowner completed bankruptcy (and debt was discharged).

Question # 4:  What does “purchase money” mean and do I have it?

If you decide to pursue a real estate short sale, be aware of the “non-purchase money” 2nd mortgage.  A non-purchase money mortgage is one used for more than the purchase of the house.  For example, a HELOC (home equity line of credit) is a non-purchase money second mortgage.  A HELOC may have been used to consolidate debt, take a vacation, or buy a new boat/car.  In other words, the loan was for more than the house.  In contrast, a purchase money second mortgage was taken out at the time of purchase process and used exclusively to buy the house.

Lenders holding the note for a HELOC are less likely to let the homeowner walk from the short sale process without repaying a portion of the loan.  They know the homeowner will still enjoy the benefits of their debt consolidation, vacation, or new boat/care long after they sell their home on a short sale.  Therefore, they feel the homeowner should take more financial responsibility,  How?  By signing a promissory note for up to one half of the second mortgage.  Many times there promissory notes will be “zero” interest loans for up to 15 years to help the  homeowner complete the short sale process.

Here’s the real problem: if short sale homework is done up front to determine the intentions of the non-purchase money second mortgage lender and homeowner, we could find a short sale buyer only to learn the second mortgage requires a large promissory note.  If the homeowner refuses to sign it,  the second mortgage holder will not sign off on the short sale process and the house will go into foreclosure.

Question #5:  Why do Mortgage Lenders accept short sales?

• The mortgage is in arrears
• Property condition is poor
• To help a homeowner with hardships defaulting on a mortgage
• The area or neighborhood has depreciated
• The mortgage lender’s shareholders are concerned with excessive defaulting mortgages; By accepting the mortgage short sale process, the mortgage lender can help themselves by avoiding a lengthy, costly foreclosure process.  A foreclosure results in the mortgage lender owning the property ( known as real estate owned or REO)  REO’s are a liability, not an asset;  too many liabilities will cause the lender to be in violation of FDIC regulations and other penalties may apply that can affect his business adversely.

Please note: The word “mortgage” is used in this article , but “deed of trusts” are used in Arizona.  Foreclosed upon properties  are sold at a Trustee’s Sale.  Property that is not sold at a Trustee’s Sale will be considered a Bank Owned Property (liability) and be sold through the Lender as an REO property.  Real Estate Agents specializing in REO properties will list the REO properties for the lender and sell them “as is”.  REO agents must meet very specific qualifications and be approved by the lender/investors.  Sometimes this may involve working with a lenders asset manager if numerous properties are being serviced by that lender.

Note that the lender is NOT a principal in the transaction.  The agent represents the seller, not the lender, in a short sale, the offer is negotiated with the seller.  Just as in a traditional sale.  The offer is then submitted to the lender, not for an “acceptance” but for approval of the terms and net proceeds.

The elements of a successful short sale are generally these:

• The property is worth less than is owed
• The seller has some hardship that makes it impossible or extremely impractical for the seller to keep the property.
• The seller is cooperative and willing to work with a real estate broker and attorney to package the short sale.
• The lender is contacted and expresses willingness to entertain a short sale.
• The property is listed, with appropriate caveats and protections for the seller, properly priced, and effectively marketed.
• The lender is presented with an offer, accepted by the seller, along with a completed short sale package and narrative explaining why the short sale is necessary and desirable.
• The lender approves the offer and escrow closes as usual.  No proceeds go the seller.

Keep in mind there are tax consequences associated with various options.  Some of which have changed under the Mortgage Forgiveness Debt Relief Act of 2007, as amended by P.L. 110-243 (10/3/08).  Up to $2million of qualifying mortgage debt forgiven on the taxpayer’s principal residence from January 1 through December 31, 2012 will not be treated as income for the taxpayer, subject to various restrictions.  The limit is $1million for a married person filing a separate return.   Mortgage debt reduced (forgiven) through restructuring , such as a workout or a short sale, as well as mortgage debt forgiven in connection with a foreclosure, all qualify for the tax exclusion.  The Act applies only to principal residences, not vacation homes or investment property.  Also,  the exclusion applies only to “acquisition indebtedness”, which is generally defined as debt used to originally build, purchase, or improve a property.  Although short sales tend to minimize the difference between what is owed and the proceeds turned over to the lender, thereby minimizing the taxable income potentially accruing to the seller, the possibility remains.  Sellers should be advised to consult with tax or legal counsel regarding the impact of the new law and other tax rules on their circumstances.

Question #6:  What is a typical Workflow for a Short Sale Transaction?

Assuming that after full reflection and consultation with appropriate legal, credit, and tax professionals, and consultations with the lender, the homeowner decides that short sale makes the best sense.  What are the factors that will lead to a successful short sale?

1.  The property is worth less than is owed.

This is established by doing a careful CMA (comparative market analysis) or BPO (Brokers Price Opinion), taking into account the market may be declining.   We pay special attention to similar properties that did not sell.  The lender will need to see clearly that there is no chance that the property will sell for enough to cover all liens and closing costs.  Short sales are considered by buyers to be distressed properties, and will typically command somewhat less than a non-distressed price.  Remember that the lender may be thousands of miles away and not at all familiar with your market.  Incorporating local newspaper articles about the local market and MLS statistics will strengthen the analysis.

2.  The seller has some hardship that makes it impossible or extremely impractical for the seller to keep the property.

What are hardships as defined by most lenders?  Most lenders focus on and require “Changed financial circumstances”.  Loss of job or significant income loss, , unusual medical costs, death of an owner, natural disaster, even extended military service for reservists, can be hardships.  There should be a nexus between the hardship and the need to sell.  A job loss leading to a problem paying the mortgage is obvious,  but an illness might require a family to move closer to specialized medical help, so even without an unbearable financial hardship, the homeowner simply cannot stay.  Additionally, a job relocation, divorce or split of domestic partners, adjustment in mortgage payment or unforeseen increase in living expenses, or anything else life can throw at a person, may qualify you for a HARDSHIP.  Note:   lenders do not consider a decline in value alone to be a hardship.

3.  The seller is cooperative and willing to work with a Real Estate Broker and Attorney to package the Short Sale.

Is the seller cooperative and willing to sell?  The seller will need to help write a narrative of the hardship involved with the attorney’s guidance.   The seller will be asked by the creditor to reveal all details of  the seller’s financial situation.  If there is a formal short sale application , the seller will have to complete it.  This can be embarrassing, and some sellers simply won’t do it.  We prepare them and make sure they are willing to do what is required by first asking them to complete our Short Sale Financial Questionnaire.  From the information we gather on the questionnaire we can then prepare them for the attorney meeting.  The purpose of the initial attorney meeting is to provide the seller with their “options”.  Perhaps a Short Sale is not in their best interest.  The attorney will review their goals, financial situation, and be able to advise them of their options.

Some of their options might include:

• Keeping the Property or Renting the property if they must move.
• Sell the Property and Bring Cash to Close Escrow.
• Attempt a Workout with the Lender.
• Offer the Lender a “Deed in Lieu of Foreclosure”.
• Allow the Property to go to Foreclosure.

If they decide to proceed with a Lender “Short Sale”,  they will continue to follow the short sale workflow process.

Please note: Many troubled loans today are “subprime loans” and/or “stated income loans”.  Any representations of the seller’s financial status that were made on the initial loan application will be scrutinized in the short sale application process.  Sellers may expose themselves to charges of loan fraud if the short sale application information they provide is inconsistent with the material provided on the initial loan application.

In other words, if the seller represented on the original loan application that his income was $10,000/month, but on the short sale application represents that his income recently dropped from a high of $5,000/month to $3,000/month, this will raise the question of loan fraud.  If the seller is concerned or has questions, it is advisable for the seller to consult with an attorney before completing a short sale application.

4.  The lender is contacted and expresses willingness to entertain a short sale.

This is where the attorney and or their representative (paralegal) will take over, provided you have “retained” an attorney to negotiate your short sale.  They will be the ones to contact the lender’s “loss mitigation” department.  They will be the ones to ask for the person who will be responsible for processing the short sale application.  They will try to speak to the same person each time they call.  You will need to sign an authorization letter, verifying that you have given permission for them to speak with your lender on the your behalf.  They will communicate to the lender your situation and the short sale solution.  The lender will ask for a list of required documents.  Each lender is different.  However, generally, they will want to see an income and assets sheet, and a CMA from your Real Estate Agent to verify your evaluation.  If there is more than one loan subject to a shortfall,  they will need to contact multiple lenders and go through the same process.  Some lenders are proactive and will immediately send the short sale requirements to you.  Others will be non-committal.   Unless the lender indicates that they will categorically refuse a short sale under any circumstance, you can proceed with the next steps.

5.  The property is listed with appropriate caveats and protections for the seller, properly priced, and effectively marketed.

a.  Seller Protections: When we list the property it is important for us to have a record of the discussion we’ve had with the seller regarding the short sale.  The listing agreement should state that the seller’s acceptance of any offer will be subject to the lender’s approval of the offer without requiring  that the seller bring cash to close escrow, and an agreement by the listing broker to accept the commission as approved by the lender.   Offers to purchase the property would need the same caveat regarding lender approval.  This protects the seller against agreeing unconditionally to sell the home, only to have the lender disapprove the short sale.  In such a case, the seller could be sued for specific performance or damages by a frustrated buyer.  The seller should also explicitly acknowledge that the seller will receive no proceeds, that there are significant tax, credit, and legal ramifications to a short sale, and that the seller has been strongly urged to consult with an attorney and a tax advisor before signing the listing.  (Our Short Sale Listing Addendum and the Short Sale Advisory serves the above purpose.)

b.  Pricing: It makes no sense in a short sale setting to start with an unreasonably high price.  Some sellers will ask that you price the property at a “break-even” price for them initially.  We know that a price that attracts no offers will hurt you. In our best judgment,  if the foreclosure clock is already running, you may run out of time if you try to “play” with the price.  Price the home at  a realistic market price for today.     Adjust the price quickly if you see no activity or if you have no offers. We use the 30 day rule…if no buyer activity or interest, take it down between 5 and 10%.    To make the short sale work, you will need to get an offer to the lender quickly.

c.  Lender Approval Listings: Multiple Listing Services must give participants the ability to disclose to other participants any potential for a short sale.  Short sales are defined as a transaction where title transfers; where the sale price is insufficient to pay the total of all liens and costs of sale; and where the seller does not bring sufficient liquid assets to the closing to cure all deficiencies.  Multiple Listing Services may, as a matter of local discretion, require participants to disclose potential short sales when participants know a transaction is a potential short sale.  In this case, when disclosed, participants may, at their discretion, advise other participants whether and how any reduction in the gross commission established in the listing agreement, required by the lender as a condition of approving the sale, will be apportioned between listing and cooperating participants.

d.  Marketing: Both for the seller’s sake and to generate lender confidence, your short sale listings should be aggressively marketed.  Whatever  we do for an ordinary listing, we do for a short  sale listing.  We use MLS, Tag Manager, Professional Photography, Virtual Tours, Websites, and advertising fliers as appropriate.  We may want to accelerate the marketing if there is a foreclosure deadline looming.  The lender will need to understand that  we have done everything possible to sell the property at the highest price.  The lender is not our client. We represent you, the seller, but everybody should understand that the lender is the true decision-maker.  In the Short Sale Packet, the attorney you are working with will want to include the marketing/pricing  history so the lender can see where we started, and what we did to attract the best price possible.

6.  The lender is presented with an offer, accepted by the seller, along with completed short sale package, hardship letter, and narrative explaining why the short sale is necessary and desirable.

a.  The Offer

The ideal offer should be from a prequalified or preapproved buyer, with no unusual contingencies, such as the sale of the buyer’s existing residence.  If should be flexible in terms of closing.  The ideal offer might provide “The close of escrow to occur 30 days after buyer’s receipt of acceptance of the short sale by the lender”.  Keep in mind that the seller must agree to the approval letter in writing and a copy of this letter should be sent immediately to the buyer’s real estate agent for the time clock to start on their inspection period (as agreed upon in the purchase contract).

The ideal buyer is willing to be patient.  Of course, not all offers will be ideal.  If you receive a very low offer, you may wish to attempt to negotiate it between the seller and the buyer as in an ordinary sale setting.  Certainly you should counter terms that affect you in a negative way, such as early possession without compensation or inclusion of any personal property.  An experienced Realtor will guide you through the offer process and advise you of the counteroffer process and verbiage.

Remember that it is the seller who “accepts” the offer.  Once the offer is fully negotiated between buyer and seller, it should be signed by both, “subject to” the approval by the lender as discussed above.  Recognize that lenders will want to see “as-is” offers without credits for repair or closing costs paid to buyers.  Policies regarding short sale counter offers vary, but your Realtor will advise you.  Just as in a traditional sale, all offers your Realtor receives must be presented to you throughout the course of your agency agreement.  In a short sale it is more important to get the lender a bona fide offer than it is to negotiate the perfect sale price. The very fact that an offer is presented to the lender for approval may persuade the lender to put the foreclosure process on hold, at least temporarily.

Again, the Short Sale Addendum should be used in any counteroffer you make.  It is designed to protect the seller against liability to the buyer in the event the lender disapproves the short sale.

b.  The Completed Hardship Letter, Short Sale Package, and Narrative.

Every lender is different, and each short sale package can be different as well.  Your Attorney  may choose to submit most of the package to the lender when the listing is obtained , and then pass along the offer, or your attorney may wait until an offer is accepted and then submit the complete package.  Your attorney will know what each lender prefers and they will move forward accordingly.  The following are the most common elements.  Some will be required, and some are advisable because they help attorneys/brokers explain to the lender why the short sale is a good alternative to foreclosure:

1.  A hardship letter written by the seller describing the seller’s circumstances. The seller should be as persuasive as possible in describing why they are in no position to continue with his or her financial obligations to the lender.  This letter can make or break the short sale. The reasons given by the seller should be compelling and the seller should be both honest and frank in their disclosures to the lender.  Include corroborating material.  If the seller was fired, include the termination letter.  If the seller has medical bills, summarize them.  If the seller is ill or disabled, the seller should explain how that has made it impossible for the seller to keep the property.  If there are tax problems the seller should describe  and document them.  If the property was damaged and not covered by insurance, as in several recent natural disasters, the seller should document the damage and denial of the claim.

2.   A copy of the purchase contract and all supporting documents signed by both the buyer and seller.

3.  Written proof of the buyer’s ability to purchase the property, i.e., a completed loan application, pre-approval by a lender or evidence of cash on hand ( a current bank statement).

4.  A copy of the certified escrow instructions.

5.  A preliminary title report.

6.  An estimated net/closing statement (HUD-1)  certified by an escrow officer who is acceptable to the lender.  It is very important that this estimate be as complete and accurate as possible. Many lenders will reference the closing statement in their acceptance or rejection.  You may receive an approval letter that states “lender will accept net proceeds of no less than $273,565, no later than November 30, 2010″.  If the estimate of net proceeds is wrong for any reason, you, with the advice and help of your Attorney/Broker,  may have to attempt to renegotiate with the lender.

7.  A completed and signed IRS Form 4506, “Request for Copy of Tax Form”.

8.  A completed and signed personal financial worksheet.  This will include assets such as other real estate , stocks, bonds, 401K’s, etc.

9.  Tax Returns for the previous two years.

10.  Employment paycheck stubs for the past two months.

11.   Profit and Loss statement (if the seller is self-employed).

12.  Bank statements for the past two to three months.

13.  A completed Short Sale Application if the lender provides one.  Many don’t.

14.  Your CMA/BPO with supporting sales data. You want to show that the offer you are presenting is the best market price offer the lender is likely to receive.

15.  A short narrative, written by your Attorney (with your Realtor’s help) about the market and market trends in the immediate area of the property being sold.  Highlight such data as average time on the market, number of short sale and REO listings in the MLS and price trends.   Your attorney will want to support their conclusions with material such as recent economic data and newspaper articles.  The decision maker may well be in another state and will not necessarily understand why the property is suddenly worth less than the loan.  (They may have been living under a rock for the past 2 years????)

16.  Also include the marketing history, showing, and feedback. Here again, your attorney will work with your Realtor  and supply your lender with this information, showing that your Realtor has made a real effort to get the highest price.  They must understand that your Realtor  has done a better job than they would have and that you and your Attorney have presented them with a quick and attractive solution to a deteriorating situation.

17.  A formal request by the seller that the short sale be approved as submitted.

Important Note: If there are multiple loans, your attorney will repeat this process for each lender.  It can be especially difficult to obtain a short sale approval from a second trust deed holder or other junior lien holder that is “wiped out” in a short sale.  Your attorney will probably need to request that the first trust deed or mortgage holder offer at least a symbolic sum to the second trust deed holder to secure an approval.  Anecdotally, second trust deed holders have recently been accepting partial payments as low as $5,000 on trust deeds of $100,000 or more.

18.   Following Up. Once your attorney has submitted the short sale package, they will stay in touch with the lender every day, if possible.  They will need to acknowledge that the  package was complete, try to talk to the same person in Loss Mitigation Department each time and document conversations.  This is not a happy decision for the lender.  It will get shoved to the bottom of the to-do list over and over again.  Lenders are infamous for “losing” short sale paperwork.  Your attorney will be asked by your Realtor to keep both, you, the seller, and themselves up to date…in writing, at least once a week. This communication is critical for the Buyer’s agent as well, and your Realtor will be communicating with them, at least once a week, too.  If there is a drop-dead Close

of Escrow  date, your Realtor will be sure to make your attorney aware of this.

c.  Subsequent Offers

All offers must be submitted to the seller, even if they are not then submitted to the lenders.

Only an offer that has be accepted and signed by both buyer and seller , should be submitted to the lender. There are different opinions and practices concerning whether to submit all offers received to the lender, or whether to limit the submission to the first offer the seller accepts.  Some lenders will require in writing that all offers be submitted,  as a condition of reviewing the short sale package.  As Realtors , we prefer to work with your attorney and write language into the purchase contract which lets the Buyer know that their accepted offer will be the only one submitted to the lender on the condition that the listing be taken to AWC- I/ Accepting Back-up offers. We also ask for escrow to be opened and  earnest money  deposited  in trust upon offer acceptance.  Then, and only then, do we notify the seller’s attorney to send the completed short sale package to the lender for approval.  This protects our seller from having the buyer walk away if they become inpatient or put numerous offers in for several homes at one time.  The buyer can always retract their offer, since it is conditional on lender approval, however, by asking for the earnest money at the time of seller acceptance, we are more likely to get a committed buyer that is willing to wait for their home.

5.  The Lender Response and the Close of Escrow

a.  The lender can do one of several things. However, if the lender refuses the offer, try to determine the net proceeds the lender would accept.  Go back to the buyer and see if he or she will increase the offer to provide those proceeds. This process can be similar  to any counteroffer situation, but it takes more time.  If the buyer refuses, obtain a cancellation and go to your back-up buyers (if any) in order.  If there are no back-up offers, ask the lender to give you some time to place the property in the MLS as an “approved short sale” at the price and terms the lender will accept. If you then obtain a buyer who agrees to that price and those terms, you can proceed to close normally.  Note that you may need a new approval from the lender even if the price and terms are exactly the same.  Check with the lender.

b.  If the lender approves the offer it will typically be in the  form of a demand to escrow (and to you, the seller) to the effect that the lender will accept no less than  X dollars in proceeds no later than  X date. There will simply be a dollar amount that will need to be available at the close of escrow. Signatures will be required showing that you, the seller have read and approve of the lenders letter.  Before signing the approval letter, always have your attorney look at the letter and read the language of the letter.  They are conditioned to know what language to look for that is in your “best” interest. After they have advised you of the letters intent, it will either need to be signed by you, the seller, or declined.   If you approve the letter and sign it, it will then need to be forwarded to the buyer’s agent for their acknowledgment.  Once the buyer’s agent receives the signed approval letter from the seller’s agent, the buyer’s inspection period will begin. Note:  once escrow has the approval letter, you can proceed to close in the ordinary way.

6.   Additional Thoughts

a.  Be aware that the Loss Mitigation and Foreclosure Departments are often different entities, and are staffed by different individuals. The Foreclosure Department might not be aware of what the Loss Mitigation Department has agreed to.  In some cases, this has led to the property being foreclosed even after the Loss Mitigation Department has agreed to a short sale. Ask your attorney to speak with the foreclosure department directly if the foreclosure date is close to your estimated closing date.

Question # 7:  Why should homeowners do a Mortgage Short Sale?

A short sale will be reported as “loan paid NOT as agreed” on a credit report. The number of 30, 60, 90 day late mortgage payments before the loan payoff does not help and can be more damaging than the short sale process.

The foreclosure process will affect the homeowner’s credit report for between 7-10 years.  A deed in lieu of Foreclosure (owner signs the house over to mortgage lender to avoid the foreclosure process) has less of an effect on their credit than a foreclosure.  However, the mortgage short sale has the least affect on their credit.

To summarize:

1.  Foreclosure process (biggest effect on credit.)

2.  Deed in lieu (less than foreclosure.)

3.  Short Sale process (most help preserving credit.)

Many homeowners who participated in a short sale process were able to purchase another home within 2-4 years, depending on other credit issues.  Additional benefits of a short sale to the owner include:

• helping get the short sale home sold and mortgage paid off.
• mortgage lender accepting a discounted payoff from the short sale.
• no out-of-pocket cost for the short sale process to the owner (mortgage holder will help pay all short sale  costs).
• no worry about house and  mortgage after the short sale.

Question #8:  What items will the Mortgage Lender Pay?

The lender(s) will usually pay for the following costs associated with the mortgage short sale process:

• Escrow fee (homeowner’s half)
• Owner’s title policy
• Recording fees
• Short sale re-conveyance fee
• Overnight mailing fee for the payoff
• Real estate property taxes and prorations
• Real estate commissions
• HOA dues and fees

If the HOA has placed a lien on the property, some mortgage lenders may allow $1,000 to be paid towards this lien to complete the short sale.  Your attorney  will negotiate with the HOA to reduce their fee’s and accept this money as payment in full .  Your attorney will help remind the HOA they will receive nothing if this home goes to the foreclosure process and is sold at the trustee’s sale.  The short sale process will help them.

Your Mortgage Lender will NOT pay for the following short sale costs :

• Buyer closing and mortgage costs
• Home warranty (although the Buyer’s agent should encourage the new buyer to consider a home warranty based on the age of the home and the age of the appliances, A/C, pool equipment, etc.)
• Buyer’s appraisal
• Buyer’s inspection
• Any repairs to the short sale home

Question # 9:  What a some Common short Sale Process Mistakes?

3 Common Mortgage Short Sale Process Mistakes:

1.  Sending in a low-ball short sale offer that we know the mortgage lender will not accept.

2.  Unfamiliarity with the short sale process.  Mortgage lenders  are busy and don’t have time to explain the short sale process.  We show them how we know the process by using attorney’s.

3.  Not determining the intentions of a second mortgage lender, if one exits.  Second mortgage lenders have the right to disapprove the short sale so we work quickly to learn their requirements.

More questions?  Call THE PURPLE COW TEAM at 602-684-9300.  We’ll review your situation and consult with you FREE!  Or go to www.ThePurpleCowTeam.com and watch our 9 minute video on Short Sales.

Most of the news media we hear and see right now is negative.  Especially negative about the housing and construction statistics, but, you’ve heard the old adage…someone’s misery is someone else’s fortune.  Well, this is true for Real Estate Investment.  We believe we have between 18 and 24 months to truly make our Fortunes and our Client’s a Fortune by applying sound Real Estate Investment Principles.  We don’t expect our Client’s to know everything there is to know about Investing in Real Estate…that’s why they have us.  But, understanding that the principles exist, and if we pay special attention to them, we have a much better chance of success, than not is a critical first step.

Investing is Real Estate is our passion, it’s what gets us out of our bed in the morning.  Yes, we’re one of those, who just like driving around and looking at properties, assessing their costs for refurbishing, inspecting the location, uncovering specific facts about an area, looking into the numbers, searching MLS, and finding the Great Deals.  We even put a team together for our Investor Clients….The Purple Cow Synergy Team, that embodies everything a Buyer/Investor could possibly need or want to Acquire, Refurbish, Rent, or Sell a property…all at the touch of a Phone Call.  (However, we do admit that we like to meet each Investor in person, if possible….since Residential Real Estate is still a people business.)

So what are the “Must Know” 8 Rules?  Dolf de Roos, Speaker, Writer, Investor, and Educator,  in his famous book, Real Estate Riches, published by John Wiley & Sons, Inc. copyright 2005, calls them “The Eight Golden Rules of Property”. Dolf wrote the Rules, we wrote the explanations.

Rule # 1:  You make your money when you buy.  This should not be new to any Investor out there, and yet, we still have people telling us what they have to have for their property to cover their loan.  A wise Investor friend once told me to always be looking at the Exit before you Enter.  Part of this practice involves the price you pay on the front end.  We’ll call this price the Maximum Allowable Offer, or MAO.  MAO  = After Repair Value (what you can sell it for) x 65% – Repairs.  Always do your Comps…4 Sold Comps that are the same style home, in close proximity, with the same number of bedrooms, and + or – 150 sq. ft. so you’ll know what the house is worth… if you were to sell it.  Since your multiplying your ARV by 65%…the difference, or 35% remainder, breaks down into Profit.  Shoot for a 20% profit. The other 15% will be needed to cover carrying costs, closing costs to buy/sell, and 4 and 1/2 months of holding costs.  Here’s an example:  Say a home’s ARV is $200,000.  Multiply this figure by 65% and you have $130,000.  Now plan for $25,000 in repair costs and include OOPS.  The difference after subtracting repair costs is $105,000.  That’s your Maximum Allowable Offer (MAO).  If you stick with this formula, do your numbers, you’ll always make your money going in.  And yes, there are sellers out there that will accept your offers.  According to Dolf de Roos….you will need to practice the 100:10:3:1 Rule.  It says:  look at 100 properties, put offers on 10, try to acquire financing for 3, you may end up buying 1.

Rule # 2.  Always buy from a Motivated Seller.  Nowadays, we have more foreclosures, pre-foreclosures, trustee sale properties, wholesale properties, and just plain distressed homes and homeowners than we know what to do with.  Using a REALTOR® to help you locate the properties will be the smartest move you could possibly make.  A REALTOR® has access to MLS, and, as in our case, The Purple Cow Team has over 20 Real Estate Related companies to support you with your property purchase.

Rule #3.  Fall in love with the deal, not the property.  You will always be able to tell an Investor from a Home Buyer.  The # 1 difference is in their vocabulary.  An investor looks at the numbers, the property location, what rents are paying, cash flow or passive income, and the Internal Rate of Return on the property.  If you’re buying for yourself, your vacation home, your family retreat…these numbers might not mean much to you….but, always keep in mind the first Rule of Real Estate: location, location, location regardless if you’re buying for pleasure or investment.

Rule #4.  Never be the first to a name a figure – that person always loses.  Well, I used to teach a negotiation course, and it was usually the case, that the person who opened his/her mouth first, usually got the short-end of the deal.  However, in Negotiation, creating a win-win for both parties was always preferred, especially if you knew you would need to negotiate with that person in the future….burning bridges was never advocated…but, acquiring your MUST have’s was always the Goal and should be your Goal when acquiring property.  Know your Must have’s going in, what you’re willing to give up, and your exit strategy.  If you understand your BATNA (Best Alternative to a Negotiated Agreement) you’ll never accept something that does not meet your bottom-line….and yes, let the other party name their figure first!

Rule #5. Be Countercyclical.  Go against the grain.  Remember the story…”It’s a Wonderful Life”…Potter wasn’t selling…he was buying.  You have to do just that:  to buy when everyone else is selling, and to bide your time when everyone else is buying.  The Real Estate Market may seem depressed, over supplied with homes, credit hard to get, economy not doing as well as we’d like, etc.  But, this is when Fortunes are Made….buying now…and holding is your BEST strategy.

Rule #6.  Always try to buy with Zero or little down.  OPM or other people’s money is still the way to go if you’re a true Investor.  There are many reasons for this strategy, and if you were buying a home for you to live in or a family retreat, the strategy might be different.  But Investment property, is all about the numbers.  So, for now, trust me….and I can show you why when you call The Purple Cow Team.

Rule #7.  Seldom Sell.  This is a buy and hold market for now.  Investment in Real Estate is the # 1 way to acquire wealth…so why sell it if you don’t have to?  Finding tenants in today’s market could never be easier.  Have you looked at the returns on Real Estate over the past 30 years and compared that to the Stock Market?  We have.  Real Estate has and will always outperform the Stock Market…it just happens to be a longer term investment.  But, where else could you put down close to nothing…and own something that is worth 10 times more than you paid for it?  That’s Real Estate.  Try buying a stock for less than what it’s worth…won’t happen.  But in Real Estate, you can and should apply leverage.

Rule #8.  The Deal of the Decade Comes along Once a Week.  I love this one.  It applies to how you look at life.  Are you positive, do you believe that there are many good deals out there…not just one?  Sure it takes a degree of courage, a keen sense of adventure, the willingness to make a mistake, but fail fast and move on.  It even takes a degree of patience, a good attitude, and the knowledge to not go it alone.  Choose a support team.  Develop Trust in their abilities, and let them help you do what you do best, Invest!

Investor/Buyer Summary:  These are only 8 Rules that if you apply them and try very hard to follow them, the chances of your Success as an Investor will likely come about.  But, they won’t take the place for one “must have” that isn’t a Rule….it’s an attitude about Investing.  Investing in Real Estate isn’t passive…although the profits can be, it’s active!  You’ve got to get in there and gain knowledge, understand and apply it!  Your biggest enemy will be Fear….Fear of the unknown, Fear of not getting, Fear of losing, Fear of Failing.  But if you know this going in, you’ll equip yourself with the BEST SUPPORTING CAST made possible through the efforts of The Purple Cow Team and their Team of Professionals to take that Fear and turn it into Trust.  Investing is exciting, it’s pragmatic and creative all at the same time.  It can make your crazy at times….but, it’s always an Adventure.  Put your Trust in The Purple Cow Team and get ready for a terrific ride.

About The Purple Cow Team:  For more information on The Purple Cow SYNERGY TEAM and their Canadian Snowbird Seminars go to:  www.thepurplecowteam.com or call Al Andersen at 602-684-9300.

10 Home Types “NOT” to Buy…….

• Small Homes – 1200 sq. ft. or smaller.  Reasoning:  Most buyers buy for “added” space.  Anything less than 1200 sq. ft. and you start to feel “cramped”.  Never buy a home with less than 3 bedrooms.  85% of the Buying population want 3 bedroom or more.  Cater to the majority, not the minority.  One of the bedrooms undoubtedly will be turned into a “home” office…considering that 21% of our Nation is unemployed.
• Small “Master” Bedroom - must be 12′X12′ or bigger.  Never buy a home that has a “weird” shaped Master Bedroom. (You’ve seen the bowling alley bedrooms, right?)  It is still true today, that the woman decides to buy or not buy.  If she can’t fit the king size bed, with 2 dressers, chair, and TV in the room, comfortably….she’s not going to buy the house…period. No matter what you put in the kitchen.
• Busy Street – Rule of thumb:  If you can’t back out of your own driveway in 60 seconds, it’s too busy.  Also, never buy one of the first “3″ homes in a subdivision.  These were usually the model homes…and not the best pieces of land.  Most buyers want to live “in” the subdivision, not on the end points.
• Bad Location/ War Zone – check with the local police station detective.  Sit down with them and ask them questions about the area you’re considering for purchase, they’ll tell you the truth.
• Functionally Obsolete – Bad Floor plan, low ceilings, tiny bathroom or just one bathroom, etc.  These are the things that cannot be easily changed about the home…without some “major” renovations.  Now days, buyers want the great room concept, they want more than one bathroom (2 bathrooms is standard), and they want “big” rooms…not tiny rooms with tiny hallways.
• No garage – this is a deadly sin.  Buyers love their cars, and they don’t want them to get dirty!  A garage is a must, and a carport won’t do.  Preferably a 2 car garage…but it must be enclosed!  A true fact from the seminar:  A home without a garage takes 7-8 months longer to sell.  Investors…that’s carrying time to you….and that’s money out of your pocket.
• Bad Lot – stay away from the pie shape.  A square or rectangular lot is the best shape.  Also look at the terrain of the lot…any low spots, washes, or does it back up to something undesirable???  What is the buyer going to see from their windows?
• No commercial or mixed use
• Junkie Neighbors – look out the front and back.  Look around you.  What do you see?  What do you hear?  Railroad tracks are never a good sign.
• My Addition to the list:  Galley Kitchen – the kind where you can only get one person in at a time…unless you’re a really skinny family.  These kitchens won’t “wow” your potential buyer, no matter how updated they are.  People tend to “gather ” in the kitchen…so, they need to be large enough for 3 people to stand around comfortably and talk with each other.

Want to work with The PURPLE COW TEAM? Let us know how we may help with your next “buying” purchase. We serve the Greater Phoenix Metro area and specialize in Investment Properties.   Please go to www.ThePurpleCowTeam.com or call us at 602-684-9300.

Have you ever wondered what happens to properties that never make it to the MLS?  Banks are letting properties go for well below market value at Trustee Sales.  Trustee Sales must first follow the process of Foreclosure:  Borrower misses payment(s), Lender attempts to contact borrower, Lender sends notice of default officially starting the foreclosure process. If borrower does not reinstate loan within required amount of time, notice of sale is recorded and published.  Foreclosure sale (auction, trustee’s sale, sheriff’s sale) is conducted as published.  If unsold to another party, ownership of property is involuntarily transferred to lender.  The property is now real estate owned (REO).

The option that we feel has been overlooked far too long, because of its complexities, is the Trustee’s Sale.  Why wait for a property to be returned to a lender if it doesn’t sell at a Trustee’s Sale and become an REO property?  We all know how difficult it is to “win” on an REO property.  For one, you are usually competing with other offers for the same property…at least in the first 10 days of the listing, and the Real Estate Agent that is listing the property, usually has 100 plus properties to manage and take care of…the odds of them calling you back and playing nice are not good.  So, your 1st offer on an REO property better be your best.  By that I mean, if you are going to place an offer, think about your offer from the Lender’s perspective.  They will be the one to decide if they want to take your offer or someone else’s.  Here are some tips I’ve learned as a Realty Executive Agent that may come in handy if you really MUST make an offer on an REO property.

First: First…think like the Seller.  They want to see a competitive offer…they’ve already taken a hit on the price, it didn’t sell at Auction, they are losing money on the property every day it’s sitting vacant, they are anxious to get the property off  their books.

Price: As a Buyer of an REO property, consider Days on market, demand, appraisal, your motivation, seller motivation, concessions and so on.  Why should a bank consider a low ball offer on a property that has been on the market less than 30 days?  Offer a competitive price on these properties…these are the properties that may receive multiple offers, so make your offer the best you can.  Banks are not used to negotiating.  They are looking for the Best “net” price and are not worried about concessions, etc.

Earnest Money: Go above the typical 1% of purchase price on REO properties.  Again, think like the seller, they want to know you’re serious.  I will suggest 3.5%  of purchase price regardless if you are paying Cash, financing with FHA loan or a conventional loan.  I may even suggest a bit more if it’s a conventional loan.  This tells the seller I’m serious, and oh, by the way, I understand that this money will set in escrow and be used towards the purchase price of the home if my offer to buy is accepted.  It also tells them that you have some liquidity….they don’t need to ask for a Verification of Funds.

Financing:  First use the lending program that the seller suggests or requires, if possible.  They’ve usually got a reason why they are requesting this program and it will make their lives easier and your chances better of getting the nod on the property.  Sellers love cash…but, don’t discount just because you’re paying cash.  The seller still wants to NET a certain amount.  If you are using financing to purchase the home, as your agent, I will always want to talk with the lender, verify your approval, and make sure they are dealing honestly with me and not speculating.  Having a great relationship with a buyer’s lender is crucial to getting the sale done in 30 days or less.  The seller does not want to see extensions, and if they see a close of escrow date beyond 30 days, they will hesitate to accept your offer and may wait for a better one.

Inspections: In Arizona, our contract defaults to a 10 day inspection period.  It is rare that you see anything different.  So, you need to be different, if you want an advantage on a REO property.  Remember, you’re looking at this property through the sellers eyes.  They understand that you have 10 days to back out of your offer, and if you shorten the inspection period to say 3, 5, or 7 days…they may look at your offer with more favor.  Knowing that for every day it sits on the market the property is costing the seller in “holding costs”.  Every day that the home is held in their inventory costs them money.  So, every day you shorten your inspection period is one less day they have to worry about putting that listing back on the market.  Sellers will know you are a serious buyer and if you do cancel, the sooner the better so that the seller loses less marketing time.  (I’ll talk about how Inspections apply to Short Sales, later.)  Don’t worry about the Inspector, if you have a great relationship with a few inspectors they will be happy to accommodate your short runway.  Just give them a heads up when you think you’re getting close to a property you want to write a contract on…then they can plan ahead too.

Selling the Listing Agent: This may seem counterintuitive…but, I recommend that you let the listing agent know through your REALTOR how much you want  the property.  This will take salesmanship by your REALTOR, so make sure you choose a REALTOR that you believe in, has experience, and has your best interest at heart.  Your REALTOR will need to make sure you understand “as-is” language.  And your REALTOR will need to convince the Seller’s agent that they are in control.  They will also need to recommend you to the Seller, so they don’t want to be disappointed.  You must perform!

Multiple deals with the Same Agent: It’s all about relationships.  Make sure you and your REALTOR work with the same REO agents over and over again.  Look at the REO agent portfolios, look at the properties they have listed.  They are difficult to contact, at first, but keep bringing potential buyers to them, and they’ll soften up.   People like to build history with people they trust, have fun working with, and know they will performance .  The more your agent deals with the same REO agents, the easier it will be to do business with them.  Establishing trust and respect doesn’t happen with just one deal…but, bringing parties together time after time, will be rewarded.  People like to do business with people they know can get the deal done with ease.  They don’t want to sit and hold hands, they’ve got properties to sell.  If you can help them, they’ll love you for it.

Close it: No one wants a sale to cancel.  We know it happens, all too often, for various reasons.   But, when you’ve gone out of your way to convince the listing agent that this sale will close, and then it doesn’t …it’s like getting egg on your face, it’s not pretty.  So, do your homework before placing an offer on the property.  Look at the property closely, does it need repair?   Understand what “as-is” means, even if you will be paying for an inspector.  If you are financing the property….do your part and make sure you are in constant contact with your lender.  Any changes in people, loan programs, or terms can delay your property by a least a week.  Drive the area, during the day & night, check out the community, shopping, etc.  What I want you to do is to really understand the property as much as possible.  Always check the websites that are given in the Buyer Advisory….they will provide you with some great information as it relates to the property.

Concessions: These are the things that you may ask the seller to do for you.  But, be aware that a Seller is still interested in how these concessions may affect his bottom line.  Don’t ask them to pay for anything that is usually a Buyer’s responsibility.   For instance, if you offer the asking price, but want the seller to pay 3k towards closing costs, plus pay for a home warranty, appraisal, termite and repairs,….plus pay their own title and escrow fees, you have now really offered about 7k less than asking price.  So, make sure you ask your agent how concessions work.

Home Warranties: My advice.  Don’t ask for a Home Warranty on an REO property.  Remember the Seller is looking for the highest NET amount.  Sometimes, if you’re competing with another offer that has just come in, the decision may be based on the $400 Home Warranty that was asked for.  If you truly want the house, don’t let $400 get in your way of home ownership.  This may also be a nice housewarming gift from a relative if you truly want a home warranty.  As always, I will defer to your Agent’s advice, as every home is different.

Underwriting/loan approval: You MUST have this.  Many lenders/banks now require in writing, proof of the Desktop Underwriting or Automated Approval from the buyer’s lender.  It is not a guarantee to the seller that the buyer will close, but it is an additional step that the buyer has taken, which speaks volumes to the seller.  It is better than an LSR or letter and it assures that your lender has at least taken a REAL application.  Have your lender provide this upfront and send it over with your offer.  This will be a big plus in your favor when competing with other offers.

Highest and Best: This request is made by the seller’s agent when more than one reasonable offer has come in on a property.  They will ask each buyer to submit their highest and best offer.  So get ready.  You and your REALTOR will need to sharpen your pencils and think like the seller.  What is it that you could give that they may want?  This is the art of Negotiation. The goal is common….the seller wants to sell the buyer wants to buy…what is it that you can give that the seller wants?  Making the offer more desirable for the seller and at the same time offering something that is not that critical for you to have is the goal now.  One more thing, abide by the time frames and requested procedure for submitting your best offer.

Now that we’ve reviewed the REO process, let’s get back to Trustee’s Sale for Investors.  We realize this process of purchasing property is not for everyone, really, it’s not for everyone.  You have to be willing to buy property without having an intensive inspection on the property performed, which can be unnerving for most people.  Only the Investor population out there that understands the risks and the rewards out there, and are willing to take a calculated risk on a property that is priced right, has had a title search, and lien pull and still want to proceed with the bid process should consider this option.

We’ve assembled a highly talented and competent group of companies to help the Investor with just that.  But, first, before we get into the fix & flip, or fix & hold part, we need to understand the process of the Trustee Sale.  We work with a company that uses the latest and greatest technology, along with real estate experience, to manage the bid process for you.  The process goes something like this:

Register/log on: We can register you or you can register yourself.  The system will capture your information and notate that you are a client of The Purple Cow Team.  The system will not allow you to register without a REALTOR.  (I’ll explain why this is important later).  For every property you wish to bid on,  a certified check in the amount of $10,000 is required prior to the Trustee Sale.   This amount allows the property bidder to secure the property for you if you have the winning bid.  It also pays their fee and the REALTOR’S commission.

Daily Lists: You will be able to pull daily lists of properties, by category & county,  that are going to various Trustee Sale Auctions in Arizona.  Each day this list will change depending upon the sale date, and what has been released to the Trustee for Sale. (A Trustee’s Sale is taking place in multiple locations every day.  These Trustee “Bid” companies provide staff to be at these sales for their clients.)

Reading the Information: The lists are broken down into many different components to give you a full picture of the property, the proposed equity %, and the opening bid.  Keep in mind the opening bid is usually the amount “owed” on the property that the lender would love to recover…it’s the loan payoff amount.

Why do you need a REALTOR?: This is probably one of the most important steps in the whole process.  These properties may not be good buys if the comparable market analysis that your REALTOR performs does not justify the opening bid.  Your REALTOR will be involved in their own analysis of the property, it’s location, the comps, the title search report, the pictures, the history of the property, any back taxes owed and so on.  With their help and expertise, you should be able to decide which property(s) you want to bid on.  It’s always advised to do your own research too.

Clear Title: The properties that you choose will all be put through a title search to ensure clear title and that the property can be purchased and title insurance can be purchased.  The title company looks for any clouds on title that might affect the investors ability to flip the property.  They confirm the loan position of the foreclosure to avoid bidding on anything not in 1st position.  The importance of this step cannot be overlooked.  Your ability to understand the properties physical condition  as well as the financial condition is paramount to your success as an Investor.

Drive Reports: Prior to the Trustee Sale of the property you choose to bid on, a drive report with pictures will be produced.  Where possible the driver will go on the property to take pictures around the home, showing it’s outside condition.  There may be times, when they will be able to enter the home to take pictures of the rooms, etc.   But, keep in mind, these are only pictures of the physical condition as seen by the naked eye….this is not an inspection of the property in the traditional sense.  You may not be aware of the condition of the plumbing, electricity, furnace, hot water heater, and so on.  These are all things that most of the time cannot be tested prior to the trustee sale.  So with this understanding, your entering into the process with eyes wide open, Buyer Beware mentality.

Bidding Service: The company we recommend for the Trustee Sale process has the highest degree of integrity and is working on your behalf, not theirs.  They will already have an understanding of your how high you are willing to bid on any one property.  They are experienced negotiators and know the process very well.  This can be very confusing and frustrating to anyone who is not familiar with a Trustee Sale.  By having someone you trust present your bids for you allows you to relax and let the process work.

Property Payoff: The full amount  for the property purchased at the Trustee Sale is due by 5:00 p.m. the next day.  Special arrangements for out-of-town clients or clients out of the country can be made.  These arrangements must be planned for and agreed upon prior to the Trustee Sale.

Deed Recording: Escrow and Title will manage the recording of the deed and any special paperwork required to ensure ownership has been transferred and recorded with the county.

Property FIXing: Now you’ve purchased the property, but does it need a slight facelift?  In most cases, if an Investor is planning to fix & flip or fix & hold, the property will need some work to bring it back to its full brilliance.  We have the team of companies that can help with this process.  Whether you want to “go green” , put in new energy saving appliances, or just put a fresh coat of paint on the place, we have the team that has the experience and can guide you through the process.  Over “remodeling” a property that is going to be flipped or held for extra income can be death for any Investor.  Our team will provide you with an audit of the property and their suggestions, based on value and cost, so that you make the right decisions on how best to refurbish and update the property you just purchased.

REALTOR Listing Services: In this market, time is money.  Fixing the property as quickly as possible if it’s going to be flipped is critical, but just as critical is pricing it correctly for sale.  This is where the REALTOR comes into play again.  The REALTOR understands marketing.  They understand buyer behavior and what potential buyers for your property want.  They also understand that buyers today use technology to search, and buy.  So choosing the right REALTOR that can maximize your profits and speed up the process of the sale is important and not to be overlooked.  It’s one thing to have a great property…it’s another to make sure everyone knows it….That why you hire the BEST, Us!

Okay….now let’s compare the pro’s and con’s of TRUSTEE SALE  vs. REO.

TRUSTEE SALE

Pro

• Can pick up some great deals
• Don’t have to hassle with the lenders
• Can buy homes w/o leaving my own home
• Buying under appraisal
• Getting the Cream of the Crop/ Daily
• Process is in place and easy to manage
• Team of Teams to help accomplish your Goals

Con

• Always be sure to pull the comps prior to bid
• Will have to have $ ready after bid is accepted
• You are buying based on pic’s, no inspection
• Check with your REALTOR for market value
• The cream may not be the best deal, BEWARE
• Don’t overlook details just because of a process
• Make sure the team understands your goals

REO PROPERTIES

Pro

• • They  should be priced to sell based on market
  • Lender wants to unload quickly
  • REALTOR can really help with the negotiation
  • Paperwork should be straightforward
  • REO properties are in MLS
  • REO properties use listing agents
  • REO properties are easy to inspect, etc.

Con

• • Always check this out, appraisal may be needed
  • Always inspect what you expect
  • Some REALTORS are not savvy negotiators
  • Make sure you’re following Seller’s requests
  • Make sure you check MLS status everyday
  • Not all Listing agents are experienced, BEWARE
  • Keep your eyes wide open, conditions vary

Any questions?: I hope you have lots of questions.  I hope you’ve had a chance to think through this information and jot down your own thoughts and questions for us.  If we can be of service to you with your INVESTOR goals, or Vacation Home, Second Home Goals, please call or email us at ThePurpleCow Team@cox.net or 602-684-9300.

We’ve provided a Live Link to our SYNERGY TEAM of companies for your use.  Please check them out.

About The Purple Cow Team: Jane & Al Andersen have been REALTORS since 2004/2005.  Al’s background prior to becoming a REALTOR was in High Tech Sales.  He held a variety of Executive Sales positions with companies like IBM, EMC, and Oracle.  Jane is an accomplished Human Resource Professional and Facilitator. They own and operate Compass Consulting Team.   She’s an accomplished writer, has been published,  and received her Broker’s license for Real Estate in March, 2010.  They both are Realty Executives Agents and reside in Chandler, AZ.

1.  Always hire an experienced Real Estate Agent…preferably The Purple Cow Team with Realty Executives…US! We can guide you through the process of buying real estate in Arizona.  If you choose to purchase a Vacation Home for the winter months and rent it out in the summer, we can connect you with a property management service to assist you with that…they are part of The Purple Cow Synergy Team.  We can also recommend lenders, inspectors, title companies, attorneys, accountants, insurance agents, and contractors to help you maintain your home in Arizona.  Whatever your needs may be, let us know and we will do our best to help you with your property investment in “remarkable” Arizona.  We’re The Purple Cow Synergy Team…a team of teams devoted to making your Investment in Arizona Real Estate a SUCCESS!

Please Click on this link to learn more about Arizona, and Phoenix! http://phoenix.about.com/

Please Click on this link to learn more about The Purple Cow Synergy Team services! http://www.thepurplecowteam.com/1248655.html

2.  Buying property in Arizona if you are Canadian can be interesting. Always check with your CPA/Attorney to discuss your situation before you leap.  Cash buyers of course will have different issues/needs than buyers that will be needing a loan.  We do have “hard money” lenders available for properties that you may want to Fix & Flip.  However, we will always recommend you have the following  readily available when obtaining financing to buy property in Arizona:

• Copies of passport and visa.
• Last two pay stubs.
• Last two bank statements.
• Last two years of tax returns.  If self employed, a letter from an accountant stating how many years you’ve been in business, and business tax returns.
• Verification of two years employment history.
• International credit report – lender will order.
• Set up American bank account for transfer of money.
• Generally, the lender will require 20% to 35% down payment.

Some things to consider :

• Most of the mortgages that you will get in the US as a Canadian will carry a premium, because as a foreigner you will be perceived to be an increased risk.  This is because you probably do not have a US Social Security number nor any income or assets in the US.  For instance, in the US you need a credit score.  You can get your Canadian credit rating but if you default on a US loan, it will not affect your Canadian credit score.
• There is another alternative and that is to finance the home in Canada on your Canadian credit and pay cash for the US property.  Before you discard this idea, think about the benefits:  You’re using your strong Canadian dollar to purchase property in the US…which currently is suffering from a weak dollar.
• Always consult your accountant first to choose the “best” financing option for you.

Please Click on the link below to learn more about Canadian Residents making the Transition and going down South. (Transition Financial Advisors Group, Inc.)  We highly recommend the book by Terri Richie – “The Canadian Snowbird in America”. http://www.transitionfinancial.com/

3.  Transferring Funds at Close of Escrow.

Financial Services can be set up ahead of time to make the process that much smoother.

Please Click on the link below to learn more about ” Custom House”, a wholly owned subsidiary of Western Union.  http://business.westernunion.com/currency-converter/

“Custom House” provides  an easy, safe, and fast way to convert and deliver funds to the US via an international wire transfer. You may want to consider this option which will give you the peace of mind of knowing that, once your purchase and paperwork are complete, your funds are ready to transfer immediately – quickly, and at your convenience.   ”Custom House” is known today as an innovator in financial services.  The Western Union Company has become an industry leader in global money transfer with over 400,000 Agent locations in 200 countries and territories.  They are a Fortune 500 company with a market capitalization of more than $12.5 billion USD – a size that rivals most major Canadian financial institutions.  Western Union has an A3/A -credit rating, $1.6 billion of cash, and greater than $1.1 billion operating cash flow.

4.  What are the costs associated with buying property in Arizona? Most of the costs involved in purchasing a property will be in fees that you pay to the lender, which is primarily through a neutral third party, a title company. If you are paying CASH then, you will not experience any loan fees.  In Arizona, the title company handles the transaction, so there isn’t the cost of an attorney for this part of the transaction.  You will also most likely pay for a home inspection, termite inspection, an appraisal, the escrow (title) fee, title insurance, recording fee, property taxes and homeowner’s insurance.   If the property resides in an HOA, a homeowner’s transfer fee may apply which sometimes is paid by the seller, however, always check with the Homeowner’s Association to find out what the fees/dues are and if any transfer fee applies.   (Keep in mind that if you are purchasing property through a Trustee’s Sale the process is very different.  Inspection periods, etc. are not the norm and therefore the risks associated with the Trustee Sale are heightened.  We, however, do have a company that is part of The Purple Cow Synergy Team that can manage the purchase of property via a Trustee’s Sale for you.)

To help offset the initial cost of the infrastructure of a resort like community, some neighborhoods have a Special Assessment or Community Facilities District Tax (CFD).  These are additional fees that you may not pay on another property in another neighborhood.  Always check with your REALTOR , so you don’t have any surprises at the last minute.

A good rule of thumb, is to figure your closing costs will be 3% of the purchase of the home.  This cost will be much less if you are paying CASH for a property, then figure around 1% of the home’s purchase price.

Arizona does not have a real estate transfer tax.  The Seller pays the commission for the Real Estate Agent, both sides: Listing Agent and Buyer’s Agent.   So, why not use a Buyer’s Agent?  We’ve listed some really “great” reasons why you should use an experienced real estate agent, “US”, when purchasing property in Arizona:

• In today’s turbulent real estate market, buying without representation is like going to court without an attorney.
• A Buyer’s Agent exclusively represents Your Interest.
• A Buyer’s Agent can handle and advise on all price and contract negotiations.  A strong Buyer’s Agent will always be able to pull an analysis of homes that have sold in the area, those that are pending a sale, and those that are active in MLS.  Knowing the history of the community, and what the sales trend is, will only help you, the Buyer, make an educated offer.
• A Buyer’s Agent will give an unbiased, realistic view of the property.  They have no emotional attachment.  They will provide you with all  possible options and opportunities.
• Time.  An experienced Buyer’s Agent has many transactions under their belt.  Use their knowledge and experience.  They’ve also handled many negotiations, know  many of the agents and brokerages, and can be your best arrow in your quiver.  You’re time is valuable, tap into their expertise.

Property taxes are comparatively low in Arizona.  Each city and county will vary slightly, but taxes are usually around .8 – 1.5% of the purchase price.  Please verify this with your agent.   A new Canadian homeowner will pay the same property tax rate in Arizona as their American neighbors next door.

Always consult your accountant or lawyer for specific tax and legal questions when purchasing or selling property in the U.S.  The Foreign Investment in Real Property Tax Act (FIRPTA)  imposes U.S. tax on income and gains from real estate owned by “non-resident aliens”. Please check with your Attorney/CPA to understand your exposure to any withholding tax on income from the property or sale of the property.  For instance, Snowbirds who rent out their real estate located in the US , should beware: a withholding tax may apply.    Please consult with your CPA/Attorney on your exposure to tax and the possibility of filing a U.S, income tax return and taking advantage of the net rental income election.  The amount subject to tax at the marginal rate may be substantially lower than the amount subject to withholding.

One last point,  before you BUY anything in Arizona, make sure you do your research…and start with hiring a professional REALTOR that knows the area, and understands the nuisances that come with working with Canadian Buyers.  Going through a competent REALTOR that specializes in second homes and vacation neighborhoods will not cost you anymore, on the contrary, they will become an asset and much needed resource.  Many exceptional deals are available in the Phoenix market right now, deals that we may never see again in our lifetime.  Buying property to fix and hold, for family vacations, or for rental purposes is a great strategy if tied into your overall wealth building strategy.  The Purple Cow Team is at your service and ready to get “you” MOOVING in the right direction.

Jane and Al Andersen are experienced REALTORS with Realty Executives out of Chandler, AZ.  They are experienced Relocation Agents, and are currently working both the BUY and SELL side of real estate.  They started The Purple Cow SYNERGY TEAM to support Foreign and US  Investors purchase property with ease and confidence.  Their team of teams is a one stop shop, and Investor’s Dream.  Whether you are looking for a VACATION home, a 2nd HOME, an INVESTMENT property that you’ll RENT, or you want to start the FIX & FLIP process by buying homes on TRUSTEE’S Sales, the SYNERGY TEAM has you covered. You can reach The PURPLE COW TEAM at www.ThePurpleCowTeam.com or call Al Andersen @ 602-684-9300 and ask about SYNERGY.    Email:  ThePurpleCowTeam@cox.net.

Housing unit sales for all regions across the US fell in the last twelve months with the Northeast showing the greatest decline of 22.4 % followed by the Midwest which saw unit sales fall 22.2% from September 2009.  The WEST…where Phoenix is located, had the smallest decline with a decline of 11.5%.  When will this decline turn positive again, we’re not sure, it all depends on many other factors.

On the positive side, average prices of homes sold in September 2010 increased 5.4% compared to August of 2009.  Every region of the US showed increases in the average price with the Midwest showing the greatest improvement with an 11.8% increase in the average price of homes sold.  The WEST, although showing a decline in sales for September, did show a 4.5% improvement in Average Price per home.

So what does all this mean to you?  As a REALTOR and an Investor, I’m feeling GREAT about the Phoenix (Maricopa County) market, and other areas of the country.  I know a lot of people believe the prices for single family homes have not hit “bottom” ….and so many potential Buyers are on the fence.  My response to that philosophy:  “you won’t know when prices have hit bottom until they are already on their way up…and then it might be too late to respond. ” Some experts say they follow the numbers per quarter:  3 straight quarters of price increases…and that will tell them that they’ve seen the bottom.  Great, wait  3 quarters and then act??? If you agree with that philosophy, okay, but, I’m thinking the opportunity to buy “LOW”….negotiate the lowest price possible, will have already passed you by and you’ll be buying property on the “wave” up.

A wise Buyer/ Investor will always make their Money going in….or, on the BUY SIDE. Don’t be fooled to believe you can recover from a mistake you’ve made going in, or on the Buy Side, with a great price on the Sell Side.  It’s so much harder to compensate for a bad decision you’ve made on the buy side.  Markets change, lives change.  Banking on appreciation that may not be what you want when you want it, can be devastating to anybody’s portfolio.    We’ve all been burned to some extent on Real Estate through the years…but, it is still the BEST and SAFEST Investment in the long run, and I think if you do a few things, very well, be SMART about Buying, you’ll never regret your decision to invest in Real Estate.  I’ve found a few “key” forces at the heart of all real estate investing from Gary Keller’s book, “The Millionaire Real Estate Investor“:  Criteria, Terms, and Network.

Criteria describes what you buy. Your Criteria are the things you ultimately list on your APB (all properties bulletin) when you’re hunting for the next opportunity.  Most important, where is it located?  Your Criteria are the aspects of the property that are immutable facts, the things that can’t be negotiated away.  They are a foundational piece of your investment strategy.

If Criteria define an opportunity, Terms define how you turn it into a deal.  Once a property meets your Criteria, Terms determine its value to you both now and for the future.  Terms are the negotiable aspects of a purchase, and they include everything from the offer price, down payment, and interest rate to conveyances, occupancy, and closing costs.  A skillful negotiation of Terms can lead to a better equity position, improved cash flow, and sometimes both.

Last of the dynamic trio is Network.  Your Network is who helps you in your investing.  The idea of the individual entrepreneurial investor beating the streets for deals is what comes to mind for most people.  But, SMART Investors/Buyers have relationships with people who sent them opportunities, mentored them, helped them buy and maintain their properties, and in many cases provided services that enable them to do more while spending less time and effort.  They leveraged their support.  Network will come first in your investing career, as you’ll rely on those people to help get your investment career launched safely, reliably, and profitably.

Even with all this said,  I know there are some of you that are still on the fence and finding it hard to take action.  Fear of the unknown, Fear of looking foolish, Fear of losing or not winning, Fear of whatever, has stopped you in your tracks. I know, I’ve been there.  What I recommend is the following:  To reduce Fear and replace it with Confidence you must get Educated. Information alone is not your Power.  But information that is retrieved, processed, applied, and acted upon is your Power. So, get educated, glean all you can about Real Estate Investing/Buying.

Once you’re motivated to take action, don’t wait.  Time really is MONEY.  You’re time is valuable, and some of you may be saying that you don’t have the time to do what you need to do.  Okay.  But, do you have the time to find someone who does?   We’re here to help.  Give us a call and let us be your Network Support.  Just go to HYPERLINK “http://thepurplecowteam.com/”www.ThePurpleCowTeam.com and click on the Investor page…it will take you to our Purple Cow Synergy Team.

I believe the Universe likes Speed… Knowledgeable “action”.   Phoenix is on SALE….you might as well check it out and see for yourself what kind of “bargains” you can find…or you can just sit there and do nothing.  You CHOOSE.  But, Choose, Wisely!  It’s your family, your future, your Wealth that’s at risk.

I’ll be talking about different strategies of Investing which include Fix & Flip, Fix & Hold, and thoughts on each in my next post.  Subscribe now so you don’t miss it.

• Many people are facing downsizing, lay-offs, or companies that may not survive resulting in a job loss.
• Many people focus on building equity in their home, not reducing it, at least for the short term.
• Lenders typically tighten credit terms making it more difficult for homeowners to get financing for home improvements.

However, if you must or just want to “improve your home”  What are the BEST Home Improvement Projects to Receive a Positive ROI in a Down Market?

• Remodeled or replaced kitchens. Updated kitchens historically add more than any other single room home improvement.  In a down economy, there are few guarantees of  any improvements increasing Fair Market Value (FMV), when all other conditions are driving values down.  But, you should at least enjoy some protection of further decline in value by installing a new, remodeled kitchen.  Try to use the best materials and appliances you can afford.  A bargain basement remodel offers fewer chances of a positive ROI in a bad real estate market.  Average ROI is between 78 % and 83%.
• Remodeled or additional bathroom(s). Next to a full kitchen remodel, upgrading or adding a bathroom usually offers a good ROI for homeowners.  Increasing equity – or merely protecting equity – is a major challenge in a down market.  Increasing the size and improving the aesthetics of one or more bathrooms should continue to be a good investment, even in a dire home market.   Average ROI is between 78% and 80%.
• Invest in a  ”Purple Cow” RESNET Certified Home Energy Audit. The RESNET professional that is on our Purple Cow Synergy Team is trained to pinpoint the areas of your home where energy is being wasted and used inefficiently.  More importantly, the report will prioritize cost -effective improvement opportunities that will pay financial dividends every time your utility bill arrives.  Did you KNOW  that investing in some of the reports recommended energy improvements will:

1.  Save you Money on Your Energy Bills

2.  Increase your Comfort

3.  Increase Your Home’s Resale Value .  For every $1 decrease in annual energy costs, the market value of a home increases by $20, according to a study published in Appraisal Journal.  If you decrease your energy costs by $300 per year, the value of your home increase by $6,000.

4.  Improve Your Home’s Marketability

5.  Uncover Hidden Problems

6.  Help the Environment

7.  Take Advantage of Government Incentives

8.  Invest in a Sure Money-Maker.  Fortunately, your ROI is around 16% per year, after taking into account the money you spent on the improvements.  As energy prices rise, so will your ROI.  It will likely be your most successful investment, without any risk.

• Adding rooms.  Except for those “below grade” (in basements), adding one or more rooms increases your livable square footage which typically returns a positive ROI.  Simply adding square footage without making it as attractive as possible may minimize the effect on your FMV…hire a professional!

Don’t forget, as most home values fall in a down market, making home improvements focused in building equity may return large profits for you in the future as the market recovers.

What are the Top Growth Markets for Real Estate?

Location, Location, Location.  You have likely heard that bit of real estate advice repeatedly and with good reason!  Location is widely recognized to have a tremendous impact on the value of any real estate investment so how can you determine a good location?

One of the most simple and often overlooked real estate investing strategies is to seek out high growth areas and avoid those areas with declining populations.  Not sure which locations are growing?  Don’t worry?  We are here to help!

According to the most recent date published by the US Census, the top projected growth markets for the USA between now and  2030 are as follows:

#1.  Arizona

#2.  California

#3.  Florida

#4.  Nevada

#5.  Texas

Notice that it’s GROWTH , not total population but rather the percentage of population INCREASE.

While selecting a growing or contracting market is one piece of the puzzle when it comes to making an informed real estate investment decision, it’s not the only one.  House Prices, location and return are each important aspects when making any decision.  Always work with a professional who understands the local market.

What do I Need to Know Before Investing In Residential Real Estate?

Residential real estate is an attractive investment that has historically created opportunities for wealth creation, tax advantages and a variety of other benefits to owners;  but how can you differentiate between an investment versus speculation?

Here are three quick steps for any potential investor to use when evaluating a real estate investment:

1.  Understand the numbers:  Are you looking at Future Performance or Past Performance when analyzing your investment? Investors typically use industry or market “norms” or averages for comparisons whereas speculators tend to use “possibilities” or “potential”.  Norms and averages are derived from past performance whereas potential or possible is derived from future.  One has been demonstrated and proven, the other is untested and at best, a good hypothesis or guess.  The Purple Cow Team will have all this information available so be sure to request it.

2.  Good investing is a lot like medicine:  The basic tenant is “First do no harm”. Investors focus on creating profit while minimizing risk.  Speculators focus on maximizing profit but at the expense of safety or security.  It’s important to understand the local market and use the services of trained professionals such as appraisers, REALTORS, and inspectors…That’s why we’ve put The Purple Cow Synergy Team together….to support and advise Investors/Buyers in their efforts to create wealth and promote future piece of mind.

3.  Know your exit strategy:  Investors anticipate time and profit level at which they will sell in order to gain the greatest return on investment (ROI). Speculators tend to not have an exit strategy or a profit level at which they are satisfied.

Want more information?  Just call or email us your question or a time for us to talk….We’ll send you more information on Real Estate Investing and “how” to work with The PURPLE COW Synergy Team.

What do I need to know “about” Real Estate Investing?

Here are the RULES:

1.  Know the area inside and out.  Know which states, and then which counties and cities in each state, are slated for growth.  (Arizona has be rated #1 for Growth).  This includes population, employment, tax basis and amenities, like hospitals and schools.  If you aren’t familiar with the specific areas, be sure to work closely with a professional like The Purple Cow Team, who have a vast knowledge of the Greater Phoenix Market….did you know Al Andersen is a Phoenician…born and raised in Phoenix!  Both Jane and Al went to Arizona State University and are Active Alumnae….they even have a dog named SPARKY!

2.  Find properties that generate consistent above-average profits.   This is easier said than done, so it’s imperative to have the advice and expertise of a solid professional at your disposal.  Use a residential real estate appraisal service every step of the way.  Remember, you make money when you buy not sell.  This means you must buy “right” in order to make money.   How do you know if you are buying right?  One way is to compare the cost to another investment to see if it will garner more profit.  Another is to compare the cost to what it will bring in each month (cash flow, for example).  This is not an area to “guess” at.  Instead, use the advice of a local professional who can assist  you in determining prior sales, fair market rental rates and other important information.

3.  Buy your real estate investments at a substantial discount. Typically speaking, you should seek to purchase properties at a minimum of 20% below market value in order to assure instant equity and the ability to break even should you be required or desire to sell for any reason.  For a breakdown of all the numbers and examples, consult with a professional real estate agent…The Purple Cow Team!!!

We have Trustee Sale Buyers, REO Specialists, and Wholesaler expertise on our Synergy Team. We’d love to share their knowledge with you.  Call Al Andersen or go to our Web site and click on the INVESTOR Button.