Archive for August, 2011
Feds Request Private Sector Ideas on How to Convert Government REO Into Privately Owned Property
Posted by Peter Vekselman in Uncategorized Wednesday, 31 August 2011 04:35 No Comments
Earlier this month the Federal Housing Finance Agency issued a request for information from the real estate industry seeking new and fresh ideas on how government owned foreclosed houses can efficiently be converted back to private ownership. This could be a game changer for the industry if it works.
As we all know, the government has taken over Fannie Mae and Freddie Mac at a cost of $141 billion to date. The Federal Housing Finance agency is responsible for day-to-day oversight of Fannie and Freddie. By far, they now own the bulk of the foreclosed inventory. The July count of government owned REO stood at over 250,000 units. Of those, 92,000 are currently for sale.
The government’s stated objectives are:
- Reduce the government’s REO portfolio in a cost-effective manner.
- Reduce the government’s average loan loss on individual distressed property sales.
- Address property repair and rehabilitation needs.
- Respond to economic and real estate conditions in specific geographic areas.
- Assist in neighborhood and home price stabilization efforts.
- Suggest analytic approaches to determine the appropriate disposition strategy for individual properties, whether sale, rental, or, in certain instances, demolition.
Suggestions and ideas must be submitted by September 15 but no timeline has been established for the government to make final decisions or implement changes. However, I think it’s safe to say that a timeline will be established supporting the 2012 presidential election.
The agency put forward a few ideas it’s currently considering. One is a program allowing either current owners in foreclosure to lease back the house or renters living in REO to participate in a rent to own program. Clearly, these suggestions don’t support the investment business.
How to Insure Property Bought With a Wrap Around Mortgage
Posted by Peter Vekselman in Uncategorized Monday, 29 August 2011 03:11 No Comments
First, I want to clearly state that I am not providing insurance or legal advice. I am only providing information to help you make your own decisions.
Wrap around mortgages are a great way of financing real estate investments in today’s market. However, insuring a property purchased this way is often the biggest obstacle to making the deal happen.
The complication is a new policy naming the buyer as the insured must be provided to the lender to verify the insurance is paid current and in compliance with that clause of the existing mortgage. The risk involved is that the lender notices the change in ownership and executes the “due on sale” clause of the contract.
Some people attempt to skirt this issue by having the previous owner remain on the insurance policy with an agreement they will file a claim on behalf of the new owner if it ever becomes necessary. There are several problems with this approach. At best, it’s a gray area if an insurance company is even required to pay a claim for a property no longer owned by the insured. There’s not enough room to list all of the potential pitfalls here but another possibility is the previous owner can’t even be found when a claim needs to be filed. Or they simply refuse to file or worse yet, they file the claim and keep the money.
Clearly that is not an option you want to use. There are really only two reasonable options.
Your Short Sale Negotiating Strategy
Posted by Peter Vekselman in Uncategorized Wednesday, 24 August 2011 04:37 1 Comment
Since we all know short sales are here to stay for some time to come, what you need to do is revamp your negotiating strategy. The fact that the seller won’t see a dime in the transaction totally changes the dynamics of everyone’s negotiating strategy.
The buyer and seller aren’t negotiating price, terms, and conditions with each other. Both are negotiating with the lender to approve the short sale. Whether you’re the buyer or the seller makes no difference in the strategy change. The first thing you want to do is make sure the other side understands the change in the rules.
Once both sides are onboard with the fact that the true negotiation is putting together a package the lender will accept, the seller needs to disclose the top price they are willing to pay for the property. This is not the price that will first be submitted to the lender.
As long as comparables support it, the first offer to the lender should be 10% to 15% below the highest price the seller is willing to pay. In this upside down real estate market, that lower price actually works to the seller’s advantage.
Assuming the seller has a real estate agent, some people are going to mistakenly believe it’s a breach of fiduciary ethics for the selling agent to submit an offer to the lender for less than the highest possible price. The agent’s fiduciary duty is to the seller, not the lender. In this case, a low-ball offer leaves room to mitigate costs that the seller might otherwise be stuck with since there is no possibility they will come out of the deal with a profit.
Small Town Commercial Investments
Posted by Peter Vekselman in Uncategorized Wednesday, 17 August 2011 03:27 No Comments
If you are looking for stability more than big bang profits, investing in small town commercial properties will likely appeal to you. Not all small towns remain vibrant so, you’ll need to do your research and pick carefully.
Commercial real estate is a mixed bag these days. Big gateway cities like NYC, Washington D.C., and San Francisco have seen significant price increases for trophy properties. On the other hand, places like Detroit, Las Vegas, and Phoenix will continue struggling for years to come.
What falls in the middle is Middle America. Towns with populations under 50,000. Typically, the backbone of America saw a much smaller run up in commercial property values leading to the peak in 2007. As a result, the drop in values has been much less as well. While these areas are affected by the slow recession recovery, they are more stable than huge population centers.
Primarily, you want to find a vibrant small downtown area where locals and the surrounding rural population gathers to shop, dine, and be entertained. Often one of the best areas is near local government offices in towns that house the county seat. These are magnets for business owners doing business with local authorities. In rural settings, these are people that know how to live on a budget and always have some cash in their pockets. This combination of foot traffic and spendable income benefits local businesses.
Not every small town is a good candidate for commercial investing. Just like the big cities, some have been harder hit than others. Many have a single major employer. If that employer has gone out of business or had significant lay-offs, you can expect the local economy to contract. Now is not a time to invest in these types of small towns.
Is Cloud Computing Right for Your Real Estate Investing Business?
Posted by Peter Vekselman in Uncategorized Monday, 15 August 2011 04:09 No Comments
Unless you are living in a technology cave, you’ve been hearing more and more about cloud computing being the next evolution in computing. However, the technology cave may well be reality since a recent survey showed that only 37% of small business owners had heard of cloud computing.
Cost is the number one reason that businesses switch to cloud computing. Since cost is a big driver for small business owners, I think you need to know about cloud computing. If computing technology is not one of your strengths, it’s all the more reason you need a primer in cloud computing technology. Besides lower costs, it means you need to know very little about computers to still have a high tech office.
First, let’s define cloud technology. Cloud technology is more than simply hosting your business data on the internet. It means never having to be concerned about computer infrastructure, platforms, or software again. Your only computing needs are a low-tech computer with broadband internet access. No need for a high-end computer capable of running complex software because that all happens in the cloud.
The cloud provider is responsible for the entire platform. That means you have no responsibility to network computers in your office. No need to understand, manage, or buy operating systems, networks, or servers. You can deploy and configure your own software onto the provider’s equipment.
The cloud provider is responsible for the infrastructure. Your computing power and ability to link your own applications is based on the provider’s processing and computing capability. It’s fully scalable at the speed of light without you needing to purchase entire new systems, licenses, or doing anything at all.