Debunking short sale misnomers

There are several misnomers regarding short sales, among them:  1.  Why would a bank ever do something like this?, 2.  This seems a little unethical., 3.  This is not a good deal for the bank.

Here is the short, sweet response to those misnomers:

If the market value of a home is less than what the borrower owes on their mortgage, a short sale is an ethical, legal, lender approved solution. The short sale of real estate is not at all questionable in today's declining real estate landscape.

For the bank, there are a number of good reasons why a short sale is often the best scenario. In reality, the short sale of a home can result in a win-win-win situation for all parties involved: First, The borrower wins by getting out of a financial predicament with a clean transaction and a salvaged credit score. The property is saved from foreclosure, thus helping the borrower to save their credit rating. Second, the lender wins by avoiding timely and costly foreclosure proceedings which could lead to an even greater loss for the bank if they were forced to own and dispose of the property.  Third, the buyer of the property wins by getting the property purchased at or below fair market value.

Short Sale coaching available

Josh Cantwell is currently offering a free case study in how to approach and complete short sales.  He currently has a free 30 minute video taking you through an entire file - the "Devonshire" case study.  They made over $80,000 on this one deal.

www.strategicrealestatecoach.com

Check it out and let me know what you guys think.  I am not completely sold on all these "gurus" out there, but this guy seems to be doing a lot of the same things that I'm doing.  He actually is using option contracts instead of standard purchase contracts, but that is not that big a deal.

Short Sales - Special addendum to protect the purchaser

Hello everyone - When pursuing a short sale, the buyer should always take care to protect themselves from potential liability.  As such, there are several clauses that I often use as part of the short sale addendum.  These clauses are set forth below:

Short Sale Addendum to Real Estate Contract

1. This Agreement is subject to Buyer being able to stop Seller's foreclosure.

2. This Agreement is Subject to Buyer's approval of a title search on the subject property within 5 days of successful negotiation with existing lienholders.

3. Buyer may request and if requested, shall receive a Warranty Deed from Seller prior to closing.

4. Seller shall transfer all interest in escrows & insurance to Buyer.

5. The liabilities for this property shall be limited to the property itself & shall not extend beyond that point.

6. All delinquent taxes, assessments, & HOA monies shall be the responsibility of the existing lienholders.

7. The terms and price of this contract are subject to change due to negotiation with existing lien holders by Buyer’s agent and must be satisfactory to Buyer. Preliminary status update shall be made to Seller within three weeks. Additional written approval from Seller is not required.

8. Buyer may assign this contract to any person or corporate entity prior to closing.

See if these may help you and/or your seller the next time you have a short sale situation.

Agenda for the June Meeting of the WKREIA - TONIGHT at Murray State University!

WesternKentucky Real Estate Investment Association PO Box 108, Murray, Kentucky 42071 Telephone Toll Free: 866.410.1475 Email: WKREIA@yahoo.com Meetings Held 3RD Thursday of Each Month, Murray State University, Curris Center, Barkley Lecture Room, 3rd Floor 7:30pm WKREIA - Chapter of National Real Estate Investment Association Professional Home Providers WKREIA MONTHLY AGENDA JUNE 2008 The Western Kentucky Real Estate Investment Association (WKREIA) welcomes everyone in attendance! We hope to make this association one of the finest learning alternatives to develop, support and promote regional real estate investment while serving the interests of the Real Estate Investment Community and Industry as a whole through Education, Motivation, Mentoring, Training, Leadership, Investment, and Networking Opportunities on all issues involving the regional real estate community, and promoting professionalism and standards of excellence in the industry. The only way we can make this association a success is to get everyone's involvement to the fullest extent possible. We sincerely hope you see the benefit of having, joining and participating in an organization like this and hope you get fully involved in any way you see possible. Thanks again for attending and getting involved! Agenda 7:30 – 9:00pm 1. Introduction to the WKREIA and opening remarks – Greg Taylor, President 2. Featured Speaker: Jim Baker, CCIM - Baker Commercial Group, Jeffersonville, IN – “S.T.R.A.T.E.G.I.E.S” 3. Open Discussion on Investment Strategies 4. Investor Social Networking Session – Break up into groups, rotate every 10 minutes. Handouts for the June 2008 Meeting 1. How to Write Killer Ad Copy That Attracts An Avalanche of Sellers 2. Creating Additional Income from Real Estate 3. 3 Divorce Strategies for Maximum Profits 4. Creative Real Estate Money Making Opportunities 5. 5 Tricks To Make It Big With Real Estate Investing JULY 2008 PROPOSED AGENDA Discussion on Wholesale Buying Many handouts on Wholesale Buying Speakers outlining Wholesale Strategies Investor Social Networking Session

What to do when a deal falls through?

Hi, everyone, I just wanted to pass along a little bit of advice that I received from a trusted advisor about how to handle things when a deal falls through.  Oftentimes, the deal will fall through due to no fault or maliciousness on the part of either party.  For instance, if the house fails inspection.  In this instance, when the Buyer is simply going to walk away, it would be a good idea to have both parties sign a mutual release of claims, so that the issue is never brought up in court at a later date. 

Below is the form which he forwarded to me to use for that purpose.  The below form is for educational and informational purposes only and should not be used in your state without first consulting an attorney.  In no way am I endorsing this form and I hereby disclaim any and all responsibility for drafting it or for your use of it.  Any person who uses this form shall agree to indemnify and hold me harmless for any issues that may arise due to their use of the form.

There, with all the disclaimers out of the way, here it is:

MUTUAL RELEASES

BE IT KNOWN, for good consideration, and in further consideration of the mutual releases herein entered into, that: ______________________________________________________________ (First Party) and ______________________________________________________________ (Second Party) do hereby completely, mutually and reciprocally release, discharge, acquit and forgive each other from all claims, contracts, actions, suits, demands, agreements, liabilities, and proceedings of every nature and description both at law and in equity that either party has or may have against the other, arising from the beginning of time to the date of these presence, including but not necessarily limited to a contract or transaction described as:

This release shall be binding upon and inure to the benefit of the parties, their successors, assigns and personal representatives.

Signed this ____________ day of ________________, 20___.

In the presence of:

_______________________________________

First Party

_______________________________________

Second Party

Benefits of Membership in the Western Kentucky Real Estate Investment Association

Mission Statement of the Western Kentucky REIA

“To provide our members with the Education, Training, Motivation and Networking Opportunities that will enhance the member's ability to successfully use Real Estate as a Wealth Building Tool.”

HOW CAN I BENEFIT FROM BEING A MEMBER OF THE WKREIA?

1. NETWORKING – Build relationships with other successful investors and find more investment opportunities.

2. EDUCATION – Stay sharp on the latest techniques in real estate investing

3. MOTIVATION – A positive mental frame of mind is essential for the investing business

4. PERSONAL/BUSINESS GROWTH – Get your name and your business out to people who are taking action

5. MENTORING – Find a mentor to help you get started in real estate investing

WHEN ARE THE MEETINGS?

Monthly from 7:30-9:00 p.m. on the 3rd Thursday of the month

ARE THERE MEMBERS IN MY AREA?

We currently have members from most of the counties in the Jackson Purchase. If you are the first member from your county, you will have a head start on the others in your town.

HOW MUCH DOES IT COST TO JOIN?

The first time you visit with the WKREIA is free. Please come and see what we’re all about before you join. After the first visit, the cost is $10.00 per meeting to attend, with annual memberships being prorated based on the $120.00 per year cost.

WHO DO I CALL TO JOIN?

Give me, Greg Taylor, a call at 270-761-4289 to join the WKREIA or give J.W. Davis, Executive Director, a call at 866-410-1475.

For Rent - 2 BR, 1 BA in Murray - $425/mo - Recent Updates!!!

Address: 316 South 10th Street

City: Murray State: KY Zip: 42071

Price: $425

Beds: 2

Baths: 1 

2 Bedroom, 1 Bath recently updated home. Home features several updates including new flooring and paint. Also includes washer and dryer. For Rent or Rent-to-own. Home Features all appliances, including Washer/Dryer

Call Bonnie Byerly with Cornerstone Realty & Rental at 270-761-7355 or 270-761-7368 for more information about renting this beautiful home.

Time Management - How do we do it all?

I'm preparing for a vacation at the end of this week and it's made me think about how we cram all of the things that we HAVE to get done into a day.  With all of the various priorities in our lives - faith, family, vocation, recreation, friendships, etc., the question arises - How do we manage our time to achieve our goals without going crazy?

I'm a big believer in getting done what you can today and not worrying about tomorrow's worries until tomorrow.  With all that we have on our plates, sometimes it is hard to focus on the important because the urgent can get in the way.  I am going to advocate a crazy idea here - Sometimes we need to STOP whatever we're doing for 5 or 10 minutes and relax so that we can refocus.  You can spend that time in prayer, silent meditation, or even just some deep breathing.  However you spend it, a 10-minute breather seems to help me get revitalized and focus my energy on what's important.

How do you guys relax and refocus on the important things in your lives?

Ethical dilemma regarding appraisals

I've recently run into a problem on a couple of different properties that many of you have probably encountered.  The situation is this:  There is a binding contract and the Buyer is in the process of getting everything done for his loan, i.e. title, appraisal, etc.

Well, the appraisal got done and completed and sent to the bank, but there arose a problem with the title that the Seller has not remedied (this 9 months later) and probably will never remedy.  The appraiser is asking for somebody to pay their fee, but the bank is saying it's not their responsibility and the Buyer is saying that the Seller should pay for it since the Seller can't provide clear title.  The Seller won't pay for it and it's almost like whoever blinks first (i.e. the bank or the Buyer) is going to end up eating the cost of the appraisal.  The Buyer has already eaten the cost of the title search because the Seller won't pay, but the total cost of the appraisal and title is only $600, so it's not worth going to court over.

The ethical dilemmas are twofold:  First, as the Buyer, what would you believe your responsibility would be?  Second, as the Seller, what would your responsibility be?

Analyzing Rental Property To Determine Cash Flow

ANALYZING RENTAL PROPERTY TO DETERMINE CASH FLOW

THE SCENARIO

Duplex for sale for $70,000.00. You put it under contract for $65,000.00, with financing as follows – 5% down, with $1,500 in closing costs, at 7.25% for 20 years. Total debt service for the year would be $5,856.72 in this scenario. Your total acquisition costs are $4,750 (5% down or $3,250 + $1,500 closing costs). The property is currently rented with good tenants for $400.00 per side for a total of $800 per month rent. How do you analyze the deal?

First, some rules of thumb. For rental property, the rule is to figure on a 5-10% vacancy rate per year. If you have less than a 5% vacancy rate, you are probably charging too little. 5% vacancy amounts to about 18 days per year where your property is vacant.

Second, on maintenance, a good rule of thumb is to figure around 10% of gross rents per month to go toward maintaining the property. From experience, this figure can be low if you have older properties but can also be high if you have new or like new properties. For our purposes, we’re going to assume a 7.5% vacancy rate as well as a 7.5% maintenance allowance because this duplex is in good condition.

We know what the property will bring in, so the next step is figuring out what expenses we will have for the year. We’ll assume that we will have property taxes at $876 per year (or $73/mo), insurance at $435/year (or $36.25/mo) and electric/utility expenses at $120/year (or $12/mo). Now, as you know, there are a lot of other expenses that you can figure in, and many of these do come into play, including management fees (if using a property manager), lawn care (if the tenants don’t take care of their own lawn), and annual pest control, etc.

With all of our income and expenses entered in, let’s take a look at how to calculate cash on cash return. We want to analyze our real estate investments in comparison to other alternative investments, and one of the best ways to do that is to look at the cash on cash return on our investments. Cash on cash return is basically your net cash flow from the first year’s operations divided by the total cash outlay that you had to make to purchase the property.

Here's the math on this one:

Gross Income -                $9,600

- Vacancy Allowance          $720

- Expenses (annual)         $2,151

TOTAL NET OPERATING INCOME - $6,729 

- DEBT SERVICE $5,856.72

TOTAL ANNUAL CASH FLOW - $872.28

Now, remember that our initial cash outlay was $4,750. So we divide $872.28 by $4,750, and find out our example property has cash on cash return of 18.36%. Not bad compared to a CD, right?

But cash on cash return is just the tip of the iceberg for rental property analysis. Once you take into account the tax benefits such as depreciation, as well as the long-term appreciation in value of the property, you can get a real picture of how good your real estate investment can be over time. A good financial analysis program can help you run the numbers and make great decisions about your rental property.

DISCLAIMER: Obviously, these investments rarely pan out exactly the way we’d expect. Sometimes you get a better deal than anticipated – the appreciation rate for the property or market rents may be higher than you guessed. And sometimes you get a worse deal – the roof starts to leak the month after you take title and you have to put a new roof on. That can kill your cash flow for a few years and is a good reason to keep several thousand dollars in reserve for your rental activities. I hope this analysis helped you as you search for rental property. Have a truly wonderful day and God Bless! Greg