I have really been struggling with a couple of things over the last few weeks. Probably the most pressing one is whether I allow the tools we use internally to be released to a wider audience. On one hand, I like to help other investors and all… but… on the other hand, I know these tools give my partners and I a competitive advantage.
A week ago, a couple of friends and I sat in on one of the many web presentations about Freedomsoft. For those who don’t know what I am talking about, Freedomsoft is an on-line system to help wholesale flippers do what they do. While we were on the webcast, the three of us were talking to each other in a private audio chat room. What became more and more obvious by the minute is I did not really realize how much of an advantage our tools afford us in the day to day business of investing in real estate.
See, tools, like ours or Freedomsoft do nothing more than formalize and automate to some level the normal process you use to invest.
There was one stark difference all three of us noted when comparing the Freedomsoft tools to ours. Since day one, we have sought tools to supplement and support a clear process. The Freedomsoft tools seem to be trying to totally replace any need to understand the underlying process. Which, in my opinion has several problems over the long haul but I am not trying to critique or review Freedomsoft. At the time of this writing the door has been closed to new Freedomsoft members. I am sure it will open again in the future, but Freedomsoft, per se, is not the issue here.
The issue is how you get a competitive advantage. Does Freedomsoft give a novice a competitive advantage over an experienced investor? No, and I don’t think anyone would delude themselves into believing it does. But, it did prove to me the real value behind tools and support structures used by people who understand the fundamentals and know how to use these tools and systems to apply those fundamentals.
The reality is just turning these tools loose to anyone in a willy-nilly manner isn’t going to be all that effective for them. No tool, no system, no process can ever completely replace human judgement. Freedomsoft attempts to remove much of the human factor but it can only do it on one side of the table. Our tools seek to supplement the human factor; make it more effective; make it more repeatable and trackable; make it more transparent throughout the organization and most importantly to engage and leverage the human judgment of the actual person using the tools.
One of my friends on the call said, “Yep, it is one helluva documentation problem if you decide to let someone sign up and self install them. Perhaps you could make them part of a larger training program, like that AP thing you used to do.”
Ugh, I know they are right, but I desperately don’t want them to be right.
Tags: Advice, Competition, Field Guide for Real Estate Investors, Investing, Investors, Mentoring
“The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.”
Cicero – 55 BC
Apparently, absolutely nothing!
Yesterday, I was on the phone with a private investor. They are one of several who were tentatively interested in a fund we were putting together for 2010. Then things changed and we decided to put the fund on hold. But, I stay in touch with those who showed interest, because we will put the fund together, eventually.
We were talking about several deals they were looking at and one of them looked really promising. They were sharing how the discussion had gone back and forth with the property buyer this private investor had contacted. Initially, the buyer wanted the investor to send a check for the full amount of the expected loan to them and “the lawyer types will work out the paper work.” Fortunately, the private investor said they would feel much better sending, even wiring, the money to the closing attorney would be drawing up all of the paper work. The buyer put the investor in contact with the “person handling the closing”. Then all sorts of warning bells went off.
The investor asked the typical time it took to get the documents recorded and originals to the investor. The “lawyer” said the recording would take a couple of days but, the original documents would be kept in their office for safe keeping but copies would be sent to the investor should they need to enforce their rights.
THAT is a problem.
See, without original documents, with original signatures, you can’t enforce your rights. Courts frown on “copies” unless they are certified. For example, a certified copy of the mortgage documents from the public records in the court house might be acceptable to the court if the originals were lost and reasonable effort had been expended to find them. The county clerk would certify the copies to be an accurate representation of what is recorded in the public record.
It is also very common for the scam artists to provide “copies” to multiple investors who all think they are making a first position loan. Without the originals, they often all find out they all loaned on the same house long after the scam artist has disappeared with their money.
I reminded this investor be very careful. Get copies of the documents to be signed at closing BEFORE closing and BEFORE transmitting the money. REQUIRE the return address for use by the county clerk after recording the note and mortgage is the INVESTORs address, not the attorney’s and certainly not the buyer. REQUIRE all funds be held in the escrow account until the documents have been recorded and the investor has the originals, with OBVIOUS original signatures of the borrowers and notary in hand.
I suggested they might also want to make sure the lawyer is in good standing and doesn’t have a history of “problems” in this area.
This morning, I got an email…
“Deal’s off. The lawyer is really a paralegal. They balked at sending me docs before closing and said the law required them to hold the originals. I am contacting the bar to file a complaint and get this shut down.
“Thank you for keeping me from making a $500,000 plus dollar mistake!”
“By the way, please get your fund going!”
Not a problem, happy to help.
Tags: Advice, Investing, Investors, Private Money
NOTE: This is a guest article written by Peter Davis. Peter buys properties and sells them to investors who then repair/rehab them and rent them out. My partners and I are repeat customers of Peter’s. The opinions expressed here are his and his alone. His opinions do not necessarily reflect the opinions of anyone affiliated with this blog.
Yesterday a new system for those of us who wholesale went fully operational and I am very excited about it. This system is going to make me more money than I could ever imagine and it will make my job easier and much more fun! It is advertised as a fully automated system for wholesalers. That’s right! It says you can go from finding motivated sellers, to offering the perfect price, to selling to an investor all without you having to do anything more than a few mouse clicks.
I am not kidding you, I am very excited about this system. But, I don’t intend to join.
I have been buying homes from distressed sellers at deep discounts for many years. I make a great living at doing this and both of my sons are following in my footsteps.
A few months ago I made a very fair offer on a house needing a lot of work. A day later I got a call from the seller saying they received another offer a little higher than mine from an investor who never looked at the house. I was curious and asked if I could come out and look at the offer to see if we could work something out. They agreed and off I went with my 22 year old son in tow.
I looked the offer over and politely explained to the seller I gave the best offer I could. I pointed out my offer was devoid of the contingencies in the other offer and pointed them to a very big one about the price subject to a later inspection. The seller said, “you’ve already inspected it and came up with a little lower price. Their inspection can’t do much to the price they offered me. I am going with the higher offer.
My son and I left and I started doing my homework. While I was doing this the seller who turned down my offer for the higher one, closed on the sale of their home. I finally found them and asked how things turned out. They said the buyer did an inspection and then adjusted the offer way down and did it in such a way they had no time to do anything other than accept their offer or walk away and send the lender the keys. “I took the offer but I hated doing it. I ended up having to scrape together $1500 to take to closing just to give them my house!”
I asked him if he would be willing to allow me to video tape a testimonial from him. He wondered why I wanted a testimonial from someone who did not sell to me. I pointed out I wanted him to talk about his regret in not selling to me. He agreed and now when I or my sons sit down with a seller to present the offer we talk about the possibility they might get a higher offer from an investor who never saw the inside of their home through an automated system. We then play a short video of the interview for them.
I have no indication the automated offers I am seeing in my area came from Freedom$oft, but it doesn’t matter. People buy from people and sell to people. I know I can adjust and do far better building a relationship built on trust face to face than any automated system.
But, who knows? If the Freedom$oft system is as good as claimed, a year from now I might be using it instead of doing what I am doing today.
But, I wouldn’t hold my breath waiting on that!
For the life of me I can’t imagine why anyone would own any airline stocks right now. No, they are not under valued. No, they are not over sold. There is a fundamental problem preventing airlines from performing well and their stock price reflects that.
No, things are not about to get better.
The flying public is quickly running out of patience with the incompetence and intrusiveness of the TSA. Unfortunately, the airlines will pay the price when the flying public says, “ENOUGH!” and stops flying.
Unless and until we wake up and stop this silly political correctness approach to finding and stopping the Islamic terrorists we will never have a process or system in place that protects the flying public while not eliminating the flying public.
Unless someone can show any instance where a white-haired grandmother tried to smuggle a bomb on board an aircraft, there is no reason to be fondling grandma in the “additional screening” line because of random selection. We don’t have unlimited resources and we cannot, EVER, screen 100%. That means, like it or not, we absolutely MUST profile. There are many profile approaches available and we should use them all. Yes, since Muslims have launched a world-wide war against “non-believers” we should be taking a much closer look at all muslims who are trying to board aircraft. Yes, if Christians start trying to blow up planes in the name of Jesus, we should do the same with them. Yes, if someone is acting nervously in the screening line, they should be checked more closely. Yes, paying cash for your one-way ticket should get you a free prostate exam. Yes, there are intrusive security steps that should be taken when appropriate. But, relying on the luck of the draw to pick the victims of additional screening is stupid, wasteful and very dangerous.
Yes, I know this is controversial. Yes, I know this is not politically correct. Yes, I know this will not happen because we are never going to roll back the political correctness path we are on.
Unfortunately for the airlines and their shareholders, we are letting political correctness destroy an industry.
Tags: Investing
Starting February 1, 2010 FHA is waiving the 90 day seasoning rule designed to discourage flipping.
Chalk this one up to the never ending list of unintended consequences. When the 90 day rule was adopted, it was a typical knee-jerk political reaction to stop speculators from “flipping” houses. No real thought was given before adopting the rule and the result was FHA properties were being foreclosed or sold short and no new FHA loan was being written when the property was purchased by the end buyer. This drove the prices investors were willing to pay for these properties down, which hurt no one but FHA. These properties cannot meet FHA requirements when foreclosed and sold at a loss. They are often completely uninhabitable.
Market forces did what market forces always do and now the FHA has decided to waive the 90 seasoning rule.
They did add a couple of new provisions. The first is the underwriter can require two completely independent appraisals. The idea being, the underwriter would of course use the lowest one during the underwriting process. Second, the property must be inspected by a certified property inspector to make sure all FHA requirements for habitability are met and a copy of the inspection must be given to the underwriter.
These are definitely steps in the right direction.
Tags: Buyers' Market, FHA, Investing, Investors, Untitled
The subscription rates at The Field Guide for Real Estate Investors is increasing to $350 per year from $199 per year starting January 28, 2010. Existing members who joined at the lower subscription rates and anyone joining before the increase will be allowed to renew at those lower rates for as long as they want.
A new monthly subscription option has been added at $35 per month. Learn more about the Field Guide here.
If you have been around in real estate investing circles for any amount of time you’ve no doubt heard the claims and horror stories about why you should be using entities to hold your real estate instead of holding title in your own name. If you are serious about your investing, you should have a coordinated, clear, logical and comprehensive strategy you use when holding title. You should devise that strategy with the help of your attorney and tax advisor. There is no generically right answer. It very much depends on your unique situation.
But, for many real estate investors out there they all just blindly jumped on the “get your entity to protect your assets” bandwagon. Many of these same investors who didn’t really understand why or if they needed an entity are receiving some pretty costly surprises in their mailboxes.
BTW, on a side note business tax returns are not protected with the same privacy laws your personal tax return is.
I know, you are thinking, “Huh? Where did that come from?” Just read on, it will all make sense in the end.
To create an entity like an LLC, LLP or corporation you have to file paperwork with the state. You have to keep the location of your registered agent in that state and the address of your primary office on file and up to date to keep the protections an entity might offer. This information is all public and easily searchable.
Because of the difficult times we are in more and more counties and communities across the country are starting to match tax returns from the IRS to entities with locations in their community. In other words, Fulton County, GA, for example, is matching tax returns with entities who tell the Georgia Secretary of State they have an office in Fulton County. This is spreading across the country in part thanks to a number of companies springing up who will do the data matching for a fee. So, a county in Georgia can contact one of these services and receive a list of companies the county might be able to tap for some funds.
These taxes are coming from places they never have before. In better times, the effort did not justify the revenue generated. But, now with the easier availability of non-personal tax return data from the IRS and these independent companies doing the data mining the local taxing authorities have an easy time of tapping these new revenue streams.
Pretty cool huh? You might have created your entity thinking it gave you greater privacy and a tax advantage only to find yourself faced with an unexpected bill from a county, city or community who has never taxed you before. In addition to that joy, you learn they are going after all those taxes you should have paid in previous years!
Look, entities have their place and they are a valid instrument in a well planned strategy.
But, if you created an entity just because a guru type said you should, be prepared to see more government entities seeking money from you than ever before.
Tags: Advice, Investing, Real Estate Investors, Taxes
This was accidentally posted here by mistake. You can read the article at…
http://timowensby.com/think-it-global-positioning-system-your-real-estate-investing
Tags: Consulting, Investing, Property Management
Many in the real estate industry are trumpeting an impending rebound in residential real estate. They are talking about how the extended tax credit programs for home buyers will push up the demand and save the real estate industry.
While there is no doubt these tax credits will help home buyers because they essentially cover much of the needed downpayment, they are not the panacea the pundits imagine, especially not for traditional real estate agents and brokers.
See, lenders are looking harder at mortgage applications than most people can remember. They aren’t just looking for credit worthiness either since the open secret in the industry is the credit scores are growing increasingly unreliable since they can be gamed. No, lenders are also looking at things like the actual ability of the borrower to make the monthly payments in addition to the perceived likelihood they will pay. Credit scores at best provide an indication of how likely the borrower is to make payments, assuming they have the financial ability to make those payments. To get the best interest rates the lenders are also looking for down payments in the 20% and up range. Many are not writing any loans at all without at least 10% down.
This means only those meeting the highest in credit standards and with sound financial footings are likely to receive mortgage commitments from lenders at favorable rates.
So, while these tax breaks can mean an increase in interest, converting that interest into actual closable transaction demand isn’t going to be a trivial process.
This is not good news for traditional agents and brokers since they rely on new loans to close traditional sales transactions. How else will they get paid at the closing?
This is good news for investors who buy at steep discounts and then sell to tenant-buyers since they can set their own policy in terms of income, debt and credit worthiness. Yes, the buyer can get the tax credits if your paperwork is in order. Your real estate attorney is your friend here.
It is also good news for landlords as long as they are careful and diligent in the screening process of their potential tenants.
Tags: Interest Rates, Investing, Real Estate Agents, Real Estate Investors
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