Real Estate Investing 101

Should I Buy A Foreclosure or a Short Sale?

Many investors are asking the big question... should l be looking at buying foreclosures or short sales.

The answer is not cut and dry. However, in many cases short sales may be the right choice for three reasons. First, they are priced similarly to foreclosures. Second, at this time there are more short sales to choose from than foreclosures. Third, they are often better condition since the home owner usually lives in the home and can augment your inspection with full property disclosures.

The third factor is important since most investors are not general contractors and have to pay retail or near retail for fixing up a property. The lack of disclosures and AS IS condition of a foreclosure can lead to some ugly post close of escrow problems. This simple factor can make a big difference to your bottom line. 

The BIG downside to short sales is time. It still takes a long time to close escrow on a short sale. The other caution is the seller's lender may come up with some surprise fees at the end like back HOA dues.

We all know investing in real estate is a gamble. That's part of the fun for many hard core investors... throw the dice and see what come up.  Short sales are simply one of the games you can choose to play.

We have a lot more information about short sales on our dedicated short sale web site... www.Short-Sale-Phoenix.com. 

Best to you,

Gene Urban & Ron Urban
The Urban Team at Realty Executives Phoenix
602-234-5777

Estimating Repairs on Foreclosure Properties

The following article on estimating repairs on bank owned or foreclosure properties came our way from the good people at Advantage Inspection Service. These are the guys we use for our personal property inspections.

Since many of our readers are buying homes in “AS IS” condition, we thought this info would be valuable and important. Enjoy.
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In 2009, 36.8% of all closed residential sales in the Greater Phoenix Area were lender-owned properties!
We all know that bank owned and foreclosure property sales are clipping along at a furious pace right now. Many consumers are caught up in the perception that they will undoubtedly save mountains of money if they buy a distressed property. Experienced brokers and agents know that this is not always the case. Repair costs can grow rapidly and turn a “great deal” into a time consuming frustration. Estimating repair needs and costs is crucial.

Your first step is a professional home inspection for several reasons. It is likely that the homeowner did not properly maintain the property as finances became strained. In some cases, an angered homeowner may cause both obvious and hidden damage to the property. It is not uncommon to see missing/damaged fixtures, appliances and components at a foreclosure property.

Start estimating. You can take the simple or detailed approach with estimating repair costs. A great first step is to go to www.fixfliprent.com/repairs where they have a free easy to use repair cost estimator. If you want a finely tuned estimate you can look at the Craftsman Book series of software. Trial versions can be found at www.craftsman-book.com/downloads which gives you the ability to estimate construction costs like a pro.

One final note. It is often a challenge to get the utilities turned on before the inspection. Persistence is needed in dealing with the various parties as you arrange for the inspection. Don’t give up and by all means have the home inspected. Who knows how many thousands of dollars it could take to repair an undiscovered defect.

For more information, feel free to give us a call or send an email.

David Swartz
Advantage Inspection Service
602-864-8331
www.azinspec.com

Why Won't My Lender Work With Me on a Loan Modification or Short Sale?

BREAKING NEWS: The Urban Team has launched a site dedicated to short sales. We have the latest news and information for those needing to know more about short sales in the Phoenix area. Just go to www.short-sale-phoenix.com. 

Yesterday, attorney and mortgage mediation specialist Doug Farnam spoke with us about loan modifications and short sales. Doug is with the Mortgage and Mediation Group at Thomson Conant PLC and works in the trenches on loan mods and short sale negotiations. The theme of his talk was "Why won't the lender work with me on my short sale or loan modification?"

We felt his talk was of great interest to both investor and regular home buyers trying to purchase short sale properties as well as homeowners trying to negotiate a loan modification or short sale.

We learned a great deal during Mr. Farnam's talk, especially about the role of a little known or understood player called the mortgage or loan servicing company. Although I was familiar with the term "mortgage servicing company", I was not aware of their involvement with loan modifications or short sales.

Let's look at what a mortgage servicing company does. According to the people at the financial dictionary, a mortgage/loan servicing company does the following:

The collection of monthly payments and penalties, record keeping, payment of insurance and taxes, and possible settlement of default , involved with a mortgage loan.

Some lenders service the loans they sell themselves, however, a large number contract with an outside vendor to perform this function. This is especially true of loans sold in the secondary market.

According to Farnam, some servicing companies have little incentive to help homeowners with short sales or loan modifications. It often depends on whether the loan servicing company provides debt collection as part of their service.

The contract between lenders/investors and servicing companies generally covers fees for processing payments, paying insurance & property taxes and some or all of the foreclosure process. Thus, they may not be contracted to perform the work required for loan modifications or short sales.

This is not true of all servicing companies. Some, like Litton Loan Servicing, do offer debt collection, short sale and loan modification services. However, the logistics, infrastructure, staffing, IT and understanding of the rapidly changing regulations can make the job daunting at best.

I had a nice chat with the people at ILS, Investor Loan Services, this morning. They specialize in servicing real estate loans backed by investors rather than banks. They discussed the many hurdles their industry has faced while trying to deal with the ever rising number of loans in default. One of the problems was simply software. Each bank or investor has their own set of rules on how to handle a loan in default. This requires industry specific software developers to customize modules that drop into the accounting software a servicing company uses. In addition, the Federal Government, Fannie Mae and other involved parties constantly change the regulations creating even more havoc. 

The bottom line, as I am coming to understand things, is banks and their loan servicing companies would love to help homeowners in trouble; They simply lack the resources and even control to do so.

Politicians publicly promise help, yet do not understand the complexities of providing solutions. There are several dozen variables that can impact the success or failure of a loan modification or short sale. Just because Bank of X sold a homeowner the loan doesn't mean they still own the loan and each investor who does chooses how they want to handle loan modification or short sales.  I believe it will continue to be a slow case by case process with more standards of practice coming into play over time.  

Hope this information helps demystify a very confusing problem in our industry.

Gene Urban and Ron Urban
The Urban Team at Realty Executives
602-234-5777

Foreclosures Definitely On The Rise In Greater Phoenix

Investors and other buyers will have a bevy of bank owned homes to choose from this summer and fall in the greater Phoenix area. Pre-foreclosure letters are being sent in droves and trustee sales are on the rise.

Brad Minor from First American Title sends us weekly foreclosure updates and the numbers are rising. The chart below shows the number of pre-foreclosure letters sent to home owners during the past 90 days as well as the actual trustee sales figures. Pre-foreclosure letters are sent to homeowners who are 60-90 days behind in payments and trustee sales represent the homes taken back by the lender.(Not every home in a trustee sale is bought by the lender... just most of them.)

As you can see, over 21000 pre-foreclosure letters were sent out in the past 90 days and there is little to suggest this trend is lessening. We are seeing an average of about 800 trustee sales per week as well and this number is generally climbing.

The data offer both good news and bad for many. Sadly, 800 people per week are losing their homes and the outfall from this can be quite devastating to a family. In addition, the new bank-owned inventory is likely to depress home values a bit more... the old supply and demand thing. On the flip side, this trend offers investors and others many new buying prospects. 

I hope the increase in bank owned inventory will curtail some of the voracious buying practices currently taking place in the sub $200,000 market. Perhaps we will see less multiple offers and escalation clauses. However, best practice suggests you will want to be quick to take action, as well as taking the time to do good due-diligence.

We will continue to watch the market and give advisories as needed.

Best to you,

Ron Urban & Gene Urban
The Urban Team at Realty Executives
602-234-5777

How To Get Your Offer on Bank Owned Homes Accepted

Investors are finding it more and more difficult to find and receive accepted purchase offers on bank owned homes. The inventory has diminished a bit and the competition is pretty fierce.

However, from an investment standpoint, good news is on the way in many parts of the country. We monitor the Greater Phoenix market and have seen a rise in both notices of foreclosure and trustee sales. We anticipate a wave of new inventory will come on market beginning in July, spreading into fall.

This said, the question is how to win the battle for accepted offers? We interviewed several top bank-owned home listing agents in the Phoenix area to solicit their opinion on this subject. The results of our inquiry have been summarized in an article on our sister blog site, Urban LIfe. To read this article on "Tips to Win When Bidding on Bank Owned Homes", simply click on the highlighted text.

If you would like to search for homes in the Greater Phoenix market, we've provided an excellent search tool on this site. You can search for bank owned homes as well as private market properties and the system is map based. All data is current and provided by an IDX feed from our local MLS system, ARMLS.  Have fun.

Best to you,

Gene Urban & Ron Urban
The Urban Team at Realty Executives
602-234-5777

Phoenix 85006 May Be Good Area For Real Estate Investors

We just complete a post on our sister site, Urban Life, that may be of interest to real estate investors. The article is an analysis of Phoenix zip code 85006 and below is a quick excerpt.

Investor owners may continue to do well in this area as prices suggest the potential for positive cash flow and some increase in values during the coming years. Since nearly 60% of the residents rent, a number many think will rise with the increase in area foreclosures, a good rental base is in place. Much of the area may be to distressed to attract the increasing ASU downtown population, yet some pockets may be viable. Investors should be aware of potential for rent rates to be on the decline due to competition and low-income demographics.

To read the entire article, simple go to Urban Life.

If you would like to see what is currently on the market in 85006, please use the Phoenix real estate search tool provided below. All ARMLS active listings, including bank-owned properties, are available and the data is updated several times per day.

Best to you,

Gene Urban & Ron Urban
The Urban Team at Realty Executives
602-234-5777
Your source for sound investing information

Fannie Mae HomePath… Great for Real Estate Investors

We discussed Fannie Mae’s HomePath program on our downtown Phoenix blog, Urban Life, a few months ago. Now we’d like to talk about it for the real estate investor.

Basically, Fannie Mae is looking at ways to reduce their REO home inventory and the HomePath financing program is one way. HomePath lets both traditional buyers and real estate investors buy selected Fannie Mae REO properties for little money down and low transaction fees.

Here are some of the specifics:

• Low down payment and flexible mortgage terms (fixed-rate, adjustable-rate, or interest-only)
• You may qualify even if your credit is less than perfect
• Available to both owner occupiers and investors
• Down payment (at least 10% for investors) can be funded by your own savings; a gift; a grant; or a loan from a nonprofit organization, state or local government, or even an employer.
• No mortgage insurance*
• No appraisal fee

I bet we have your attention now. Ten percent down, as you know, is hard to get these days and when you add in no appraisal and not mortgage insurance you have significantly reduced your closing costs.

Fannie Mae is able to offer no appraisal because they get one before they put the home on the market. Most  banks and asset companies simply get 2-3 BPO’s, but not Fannie. They get an appraisal and a BPO to determine listing prices.

The program does have a couple requirements. You have to use an approved HomePath lender and there are only about 15 or so. We like Desert Heritage Mortgage for the Phoenix market or you can go to the HomePath web site to find other options.

The other condition of the HomePath program is that only certain Fannie Mea REO properties are in the program. I checked the inventory for Phoenix while writing this post and there were 1054 properties available. Scottsdale had about 80 and Glendale had 253. As you can see, there are a lot of possibilities.

If you toss us an email, the link is in the top-right of the site, we’ll be happy to run a search for you and find some good candidates or you can do it yourself by going to our real estate web site, click on the search for homes tab and use the HomePath search tool. 

If cash is a bit tight, or you simply like to get into your investment homes with little down, the Fannie Mae Homepath program may be the ticket.

As always, we are here to answer questions anytime… well maybe not at 2:00 am.

Best to you,

Ron Urban & Gene Urban
The Urban Team at Realty Executives
602-234-5777

We’re brothers, you’ll feel like family.