Creative Real Estate in TODAYS market, and HUGE PROFITS!

Hey folks,

Last time, we talked about the current over-all state of the real estate market nationwide. Naturally, each region has its own market, and every one of them is different. However, for the majority of areas, it is clearly a buyer market.

Being a buyers/investors ourselves, this is a good thing.

I wanted to touch on some of the methods I am using now, in my business to make profit and show you that now is the time to employ creative real estate to the maximum.

First, we should define “Creative Real Estate”. For the purpose of this post, we’ll define it as “problem solving”, which essentially, all creative methods are. The main point, or problem that creative real estate addresses, is very simple really………it provides debt relief.

Let’s take a look at some strategies and methods that are working in TODAYS market.

Rather than say, “I’m buying using methods x,y, and z, sometimes combinations of them”, I’ll give you a sample deal……..one I finished up just this morning. I know I learn better by seeing things in action, or reading about them.

First, the background:

Seller calls from some of my marketing materials. This time, a business card the seller found on the counter at the local convenience store.

The seller, when he calls, let’s me know immediately, his level of motivation.
The call went something like this;

ring, ring, ring……….

Me: “Hello, how can I help you?”

Caller: “I found this card that says you buy houses and I want to sell mine right now!”

Me: Okay, well, you’ve called the right place. My name is Jim, what is yours?

Caller: Bob TwoBed

Me: Nice to meet you Bob. Can you tell me where your house is located?

Caller: Sure, its at 1234 Gats drive west, yourtown, fl. Its in good shape, I keep it clean, I just can’t afford it anymore and want to get out before they foreclose. I’m not looking for profit, just for someone to buy it out from under me.

Me: Well Bob, we can close quickly, if the property meets our buying criteria. Can you describe the house to me?

Okay, from this point, Bob describes a 2 bedroom, 1 bath house, smaller, in a rental community I know well. I own three rentals there myself already………therefore I am interested if we can get the numbers to work.

That becomes to next step. Checking the numbers. I determine that the mortgage the seller mentioned is indeed in place, but will still need to get a form signed by the seller, authorizing me to call the lender to verify interest rate, loan balance, arrears, terms, escrow accounts, etc.

The seller also tells me he is behind on payments, and cannot remember if its two of three months. Bottom line, it’s almost the first of the month, so either way, it will be one more behind in a couple days. Definitely need to call the lender to get some numbers.

One thing the seller failed to mention on the phone, that I did find, was the fact that the real estate taxes on the property had not been paid in 3 years.

Here in Florida, real estate taxes come due in November, and the tax payor has until March of the next year to pay them, with additional fees of course, before they are considered in default. After not being paid, a tax certificate is sold, which later can become a tax deed, thru county tax deed sales. This process takes, you guessed it, THREE YEARS……..So, because the seller’s house was three years behind, this meant that he had to pay at least the three year old tax bill, plus fees, in order to avoid losing his home to a county tax deed sale, by tomorrow, the 31st of March. (the sale really would not take place for at least a month, so there is a little time to play, but not much.)

Not a whole lot of options here. The taxes had to be paid one way or the other…….the question was, would I pay them, or not?

By the way, I don’t mind sending money to the county for taxes, I just prefer it not be my own. More on that in a bit………

So, after collecting info about the subject property, and armed with my experience in the same subdivision, I went to meet the seller.

He was right, the place was clean, not nice, just clean. A very neutral, rentable unit……..if the numbers make sense.

I left the meeting with a form authorizing me to speak with the lender, and a contract, contingent on verification of all information, and successful negotiations with the lender, to bring the loan current. Pretty much a purchase agreement, written up like an option really.

While meeting with the seller and going over his mortgage documents, late notices and tax bills, I discovered that the lender was a local portfolio lender I’d worked with before.

The loan balance made the deal, “okay”, as in, workable cashflow wise, IF we brought the loan current and paid the taxes.

Basically, just taking the deal as is, paying out my cash for taxes and back payments, would have required the deal to support itself for the first 18 months or so. After that, the cashflow would be profit.

The thing is, I am not patient, and with the abundance of deals out there now, taking on something that will pay later, just makes no sense.

So off to the local portfolio lender who holds this note I went.

I walked into the lenders office, spoke with the manager, we exchanged pleasantries, and then went to his office to talk about this potential deal.

I immediately told the lender what I had, and what I wanted to make happen. Of course I did ask him before getting too far into negotiations, “if we cannot work this out, do you REALLY want this place back?”

He said, “No, we did a drive by last week, and we don’t need any more small houses in our REO list, let’s get this taken care of”.

I brought the tax issue to the lenders attention, and was honestly kind of blown away they were unaware of it. I also determined that the loan was 4 months behind (including the payment due here in a couple days), and that the interest rate was a whopping 12.5%!!!
Holy COW!!!!!!!!!!!!!!! what on earth.

After talking with the lender, he agreed, if I showed up with a deed in my hand, from the seller, that the loan could be re-worked and the lender would pay the taxes.

Here is what we came out with………….

The lender paid all 3 years of back taxes, today.

ALL backpayments, forgiven, the loan is in good standing……very cool, first payment on new workout loan, is not until May 1st. (that gives me a month to fill it).

We reduced the principal amount of the loan by a small amount (not asa much as I wanted, but the over-all worout/negotiation makes sense).

Anyway, we reduced the amount owed by $8,000!

However, don’t forget the taxes………this amount was added to the principal AFTER the reduction…….which means we really only reduced the loan by about $5,000. Still pretty good.
And yes, it gets better……we also had that monster 12.5% rate reduced…….not as low as I wanted, but, it now stands at 8%.

So, essentially what happened here was this……..

I took title to the property from the seller (who moved this last weekend so the place is vacant)…..subject to the existing loan, and back taxes.

We then had the lender pretty much write a new loan, leaving it in the seller’s name, he signed some paperwork with the lender approving and agreeing to the workout.

I now have a nice little 2 bed, 1 bath house, that will rent for about $650/month, costing me a mere $278 per month in payments……..which now have the taxes escrowed in them. The lender insisted on this, and I’m cool with it.

I did manage to keep the insurance out there, because I have my own agent, and get deals with him…….easier and cheaper to just pay for the entire policy for a year. (especially since it’s only $600/year to insure the place)

So, I now have another rental in that subdivision, that makes 4 for that area. The marketing for tenants begings tomorrow, as soon as its cleaned up a bit. Grass will be mowed, signs placed out, directionals, and flyers.

I expect to fill this fast, as we have filled the others in this area rather quick. It’s a cheap, clean rental, in a non-crime area, with a fenced yard and nice neighbors.

Heck, we might even sell it, should a buyer come around.

By the way, for those watching the numbers, the total get in the door price for this one, was $28,978………..none of which came from my pocket……..it’s value, approximately $55k if sold retail to an owner occupied, or $45k to a landlord.

Folks, lenders are in pain now, just like MANY seller’s are. So, if you have a seller call, where they are behind and making up the arrears, or keeping the payments at the same amount monthly make the deal not work-able………..RE-WORK IT!

Remember, the only time the answer is ALWAYS NO……..is when you fail to ask.
I did not even propose most of the workout here, a frightened lender with a HEAVY REO list, panicked, saw a way out that worked for us both, and we got it done.

this post is long enough……..I’ll cover some other recent deals, with other methods used here in a future post.

Stay tuned!

Happy investing!
Keep the Rubber side down,
Jim
The Biker Who Buys Houses

P.S. If you missed the email announcement, I now have a couple of openings in my mentorship program. They won’t last long. I plan to take 5 more investors to the NEXT LEVEL in 2009! Are YOU Ready?
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