FHA can now stop a lender if there are signs of fraud.

Few days ago the House Financial Service Committee has approved legislation so to enable FHA to continue in providing loans even after the financial reserves that the federal agency has to maintain by law have fallen below the minimum level (2%) due to the high number of defaults on loans insured by FHA.

In a nutshell: the FHA will charge more fees that will be distributed during the life of the loan, it will be able to punish lenders that are guilty of fraud, will maintain the current low down payment (3.5%). You can read a more detailed article here by Bryan Hellis.

This new legislation shows a definite effort on the part of the current government to give people a house they can own, with a very little down payment and with a distribution in time of the initial costs that won’t have to be paid all upfront. The good news is that the bread and butter residential housing market is going to stay, the bad news is that we still don’t know how effective the new legislation will be at preventing foreclosures.

Roberto Mazzoni

P.S. Remember that a new Meetup has started in Tampa Bay and will provide the only free available information on commercial foreclosures in the area. Join now!

Reforming the most important lending program is a post from: Real Estate Investing Benchmark

Figuring your price backwards, starting from the buying power of your future home owners.

But sometimes there is a real logic behind the offer, and it is most usually some very expensive house that it is now worth one third of it original selling price and can be bought directly from a bank that wants to get rid of it. Let’s say for example it was originally paid $ 1,000,000 and today might be worth $ 700,000 and it can be bought for $ 500,000 or less.

There is indeed a substantial equity position for the investor and this can be enough sometimes to make him buy the property, specially if it is located in a city very popular in her own country. I am from Italy for example and Italians love New York and Miami, so they do buy high price properties at times in New York and Miami if they feel they are getting a good deal and they like the neighborhood. But it is the kind of sale that is most easy performed by a Realtor.

This type of buyer wants to be informed about all the details, wants to see the house in person and needs lot of professional assistance for the purchase: tax consultants, attorneys, money exchange services and so on. A transaction like this can easily take 6 months to complete and will also involve some foreign broker that acts as a middleman. Therefore it is not the type of business that an investor can target.

When dealing with foreigners as investor you are focusing on making them money and making sure that they make it whatever goes wrong. If you miss the boat with one of them you will pretty soon lose the others because they will talk one to another. It can be an awfully small world when you deal with Europeans.

So you must be careful in choosing the right type of property and the equity position is meaningless if it cannot protect your investment funds. Aside from avoiding bad neighborhoods and poorly built houses, you need to make sure that the total money you put in the house will not exceed the sum of the average rent you can get for the place in ten months. So, even if you can’t sell the property fast for some reason, you can still rent it and deliver to your investor a cash flow that will keep her happy while you wait for the sale.

So you start backward: you figure out the average wage of the blue collars in your area and then you figure out how much they would be able to pay of rent and now you can calculate to the maximum investment value for that property.

Roberto Mazzoni

Are you figuring your price backwards yet? is a post from: Real Estate Investing Benchmark

Breaking the mold is a necessity in real estate investing.

This is way real estate investing cannot be performed inside a box: a system that always works in the same way and that will produce always the same results. For one thing, if the system is really workable it will attract a lot of competition that will copy it and will use it to its maximum potential, and huge profits bring about ruinous competition.

So you need to be able to play by the rules, so that people can still understand you, but with the ability to create your own rules. In commercial real estate this becomes even more important. When you are in the same playground as everybody else, competition will bring prices up, by the sole application of the law of supply and demand. And if the price goes high or if you are forced into buying a property at its current value or slightly below it, you have already lost.

The focus, like in residential, is finding distressed or defaulted properties (where the owner has stopped making loan payments) and bringing new value to them. You cannot settle for the same rate of return like any other investor does. If you do, and the market goes down, you will be in a tight spot along with anybody else. If you have a better position you will still make a profit while others will be sinking.

There is a story I want to borrow from the world on Internet Marketing, adapting it to commercial real estate investing. It talks about two investors that go on a safari and suddenly come face to face with an hungry lion that starts to draw circles around them. One of the investors sits down on rock, takes away his boots and puts on a pair of sneakers.

The first investor looks at him and says: “That’s silly, you will never be able to outrun a lion!” And the second investor replies: “I don’t need to outrun a lion, I just need to outrun you!”

So you need to focus on properties that have problems, high vacancy rates, plummeting lease values, a drastic diminishing value as compared to the loan that was issued on them. Remember that the location and the structure of the building is only partially important in this case. There was an instance for example of two identical apartment buildings, sitting just across the street from one another. They had been built the same year, with the same materials and with the same shape. Yet one of them was solvent and doing very well and the second was failing.

Management is the real key factor and a tired owner or an incompetent one will make the best candidate for a foreclosure and the potential of profit for an outside investor. Sometimes you need to deal with problems associated with the seller, which are usually easy to fix, or with problems associated with the property. The seller often just wants to get rid of the property and you can help him, by providing multiple solutions from which he can chose and that will all bring you and him benefits.

When you have problems related to the property, they are also usually easy to fix and boil down to a seller’s inability to understand them and deal with them.

So commercial real estate investing, more than residential investing, requires a very keen ability to understand the real situation of the seller and what he really wants and a superb ability in structuring a deal.

Roberto Mazzoni

Breaking the mold as a necessity is a post from: Real Estate Investing Benchmark

Top ten real estate sites.

Site #1: Creative Real Estate Online – creonline.com
It provides hundreds of real estate investment articles divided by topic and signed by some pretty well known investors and info-marketers. Some of the articles carry no date so it is a bit difficult to establish if the information is still current, but in many cases the concepts given are of general nature an applicable to any market. The site has also a store for digital products produced by the very authors featured in the articles. This was one of the two first sites I encountered when I started my real estate career and helped me get oriented and I believe it can do the same for other investors.

Site #2 & 3: REI Club the article section (position 2) and home page (position 3)
As of today you find 748 free real estate investment articles divided by topics and authors. Here you find again several of the most prolific info marketer in the real estate arena and you can read some brief article that introduces you eventually to a course each one of them is selling. The content is similar to CREOnline and here you find also a substantial collection of free e-books and a glossary, which is fairly extensive. Again there is no date in the articles so you will have to figure by yourself what is still current, but most of the information is general enough to be usable in any market as an introduction. This is again one of the two sites I looked up when I began my investing career. The site is very well ranked and covers two of the top positions.

Site #4: LifeStyleUnlimited
This site looks more like a blog and has a definitely more modern look as compared to the two previous ones. It is connected to social media and each article is dated and is complemented sometimes with audio. The articles stand on their own and there is no immediate attempt to sell you something at the end of each one of them. We could consider this one to be the most popular blog in the industry. They provide mentoring and training and have a video as well as an audio section, plus two podcast channels: one for audio and one for video. They are base din Texas and provide a free starting guide they have developed. Finally they offer a membership program (with a fairly high price tag).

Site #5: MSN Money Central Real Estate
The Microsoft flagship Internet portal has a solid section on real estate investing and it is definitely an area you want to check you if you are looking for some “independent” type of information. The articles are written by reporters or bloggers. So they might not be investors themselves, as different from the previous but they are giving advice to normal people about investing opportunities and dangers.

Site #6: The Creative Investor
This is a community site where you can contribute with comments, where you can pitch your properties and where you can read articles contributed by the members of the community. A necessary destination for anyone operating in real estate investing.

Site #7: The Wall Street Journal section on Real Estate
It doesn’t need presentation. Just note that it is at the seventh position.

Site #8: Investing Secrets
This is a blog published by a single author, Scott Roemermann, who is evidently expert both in real estate investing as in blogging and Internet Marketing. The site has several articles on different topics, but not too many. Scott leverages Twitter to have more than daily updates and for getting a higher ranking.

Site #9: The Bryan Ellis Real Estate Letter
This blog provides articles on some investing strategies and some guru reviews. And the real core of the operation is the newsletter as mentioned in the title of the site. Ellis is an expert in Search Engine Optimization and therefore knows how to bring people to his site.

Site #10: John Reed and his guru rating
This site is totally devoted to unmasking fake real estate gurus and their shameful results. No wonder it has a high traffic.

You can use this guide to help your real estate education but you can also use it to see how a market is evolving online, starting from traditional, content showcase sites, to blogs and review sites.

Roberto Mazzoni

P.S. Take some time to explore these sites, you will learn something even in you are not in real estate.

The top ten sites for real estate investing is a post from: Real Estate Investing Benchmark

Real estate doctors.

She spends few hours researching the properties based on very well detailed specifications of her clients and then she spends a few hours showing them to the buyer and, since it is a cash deal, she has no problem getting the seller to come to terms, and she earns her commission every single time.

No driving around tire kickers, no financing issues, no changing minds and most of all no delays. This is all real and happening in today’s market right here in Florida, where I leave, that is one of the most distressed real estate markets in the nation.

Would you like to be in her shoes? I bet you do! How can you get there? Well it’s time to thinks of of the box and get out of the typical “vertical niche” approach that Internet Marketing has tried to force on us (because it works to well for affiliate marketers) but that doesn’t really apply to real estate selling.

This lady, who has been in real estate for a long time, has developed an horizontal market niche approach. In her professional career she has also worked for some major pharmaceutical companies and has developed personal relationships with many medical doctors that were dealing with her for other types of businesses in which they were ALSO making money.

This has created very good personal and professional relationships and who do you think these medical doctors go when they need to sell or buy a house? They go to her of course. Therefore she has only a very definite set of clients, which all belong to the medical profession, and that entertain her services in real estate due to her license and knowledge in that field also.

It is a very simple and dynamic concept that will assure her a market forever. She has created her buyers’ list first and now THEY go to her asking to buy.

Could you develop something similar in your own market? I bet you can. You say you don’t have experience? What’s the matter? It is not important what you know, it is important who knows you. Once you have the relationship secured, you can get mentoring or training and get up to speed.

Roberto Mazzoni

P.S. If you have some aspect of real estate that you don’t quite understand and would like to get some help. Drop me a comment on the blog or on Twitter and I will get back to you.

Developing an “horizontal” market niche is a post from: Real Estate Investing Benchmark

There are at least six different ways for selling a house today.

Not all of them work equally well in all markets, but again real estate is a field that requires judgment and you will need to figure out by yourself what works for you.

The six strategies are as follow:

1.FHA loans are the king of the hill since they provide a very easy way for home buyers to get into their new home. The qualification process is somewhat stringent: they need to have at least 620 credit score and the house you are selling need to appraise correctly, otherwise they will not get the loan and you will have to reduce the price to what the appraiser has established to drop the deal. Yet there are is a big number of buyers in this category that are using this system.

2.Cash buyers: they are still pretty much around and looking for very good deals, therefore you need a house in good shape that is below current market value (let’s say 80% but this is just to give you an idea – there is no fixed number). Domestic cash buyers are estimated to be 40% of the buyers out there.

3.Lease option or rent-to-own buyers. These are people who can’t qualify for a loan yet, but could qualify later, once they have corrected their credit score. They usually get in the house by paying an option fee (often non refundable) and them by paying rent every month untile they can get a loan and cash you ouy.

4.Seller financing is still one of the preferred techniques in creative real estate transactions. You need a seller who owns the house free and clear and who doesn’t need all the money right now. It is the fastest way to get a buyer since you bypass all of the lending process, but will tie up you capital for a longer time.

5.Foreign cash buyers: they are not so common but yet are out there and can pay cash for close to full market value, if you provide them all the needed services for a long distance transaction and for the subsequent management of the property.

This shows that the real estate market is still alive and kicking even if the rules of the game have changed.

Roberto Mazzoni

P.S. If you find this article useful, share it with others on social media by using the buttons below.

Six ways to sell your house is a post from: Real Estate Investing Benchmark

Actually it is no surprise that these banks are in trouble considering the sharp reduction of lending activity, just dropped to the low levels of 1997, and considering the staggering amount of foreclosures still waiting to come out. What is actually amazing is that many banks still manage to survive despite everything, thanks to the support funds they are getting form the government and that would be intended in promoting lending and reducing foreclosures.

But now, despite the government props, banks are actually starting to fall off the chart again, some just disappear and other are acquired by other banks and merge with it. Many of the recent additions are banks traded at the stock exchange, so the crisis is getting also to the bigger institutions.

Roberto Mazzoni

The “secret” list of problem banks is a post from: Real Estate Investing Benchmark

According do Buffet’s analysis, the manufactured homes market is in very serious trouble because the economy is still slow and because of the number of new houses that started production in 2009 (housing starts) is the lowest in 50 years in the US. The overall figure being: 554,000 compared to the 2 million annual production that was going on a few years ago.

New house starts (new construction beginning) is at the lowest in 50 years.

It is a dramatically strong reduction that has serious impact on employment (it is actually pretty easy to find tradesman and construction people available for work today) but that is helping the recovery of the general real estate market.

Indeed, with so little new homes being constructed or manufactured, the inventory on the market has a chance of being unloaded faster. Actually January has been a very slow month after the rush of the buyers who wanted to take advantage of the tax credit that was supposed to end in December 2009, but Buffet sees the dramatic drop in new houses as a very good indicator for the overall real estate market and he estimates that within a year “the residential housing problem” should largely be behind us.

Looking at the figures, 650 thousand net housing units were added during 2009 and during there were not as many new households: about 650 thousand, therefore just enough to balance the houses that had been added but not enough to seriously reduce the inventory, which should instead start reducing for real in 2010. How fast? It depends on what the banks do with their foreclosure backlog and how people will take advantage of the tax credit and of the government support to new first time home buyers.

Roberto Mazzoni

Buffet on bubbles and housing is a post from: Real Estate Investing Benchmark

A luxury bath in a house for sale in Nevada.

The story begins with this 46 years old guy who, after living a care-free life as he describes it, ended up divorced, living with his mom and verging toward a financial catastrophe. He then decided to sell a rental house that he had been owning for 20 years and found a Realtor that, after running some comps, gave him a price he was very comfortable with. The Realtor also added that with such a price the house was going to attract a lot of interest.

Nothing happened so he started dropping the price at 10 grand increments one after the other and still there was very little or no action. He felt really he was going to be headed toward misery and sure didn’t want to rent the place again since he needed cash, but had just enough reserves in the bank to make three more mortgage payments.

So this gentleman knew he had to figure out a different strategy to attract enough interest and traffic to his house so that a sale could finally happen. The Realtor was helpless although competent and willing to gain the sale as well. Apparently also the Realtor was operating with a wrong strategy that the author summarizes as this: “The advice gotten was to not overprice the house beyond the market price, but build in a little bit of negotiation room… It’s a delicate process, just make sure you aren’t rejecting everything. At some point, you’ll have to concede something if you want to sell the home within 60 days.”

This very strategy, which is perfect for a sellers market, was not working for him in the current buyers market so he came up with a system that resembles an auction but it is done over a span of three weeks by soliciting offers with a starting price that is way below the asking price (and the actual current value of the house).

He was successful in selling his house in three weeks for a price that was pretty close to the original listing price, and then he was able to repeat the same process with other people and other houses to he has eventually written an eBook on the subject adding to it a slew of other eBooks on how to facilitate a sale. What’s remarkable is that the sale was facilitated by the curiosity brought about by his system not by the house itself, so I would suggest that you check it out. The package is available only through Clickbank (yes this is an affiliate link) but it worth the little cost.

And you will be surprised at the very different relationship that this seller established with his Realtor, almost swapping roles, but still leveraging the Realtor knowledge to gain an even better price and properly finalize deal.

Roberto Mazzoni

P.S. if you can afford you house to sit unsold for a while then you don’t have to click here.

Selling a home in 21 days is a post from: Real Estate Investing Benchmark

But, as it sometimes happens in other very poor cities or neighborhoods, Riviera Beach became the target for massive redevelopment so to create areas of very expensive real estate with the objective of eventually turning the whole market around. One of these developers was Cornerstone Group from Hollywood that created a whole gated community called Marsh Harbor with 402 units and various amenities like a fitness center, lighted tennis court, swimming pool and heated spa.

One of the townhomes in Marsh Harbor, apparently the bigger one, sold as a shortsale by Palm Beach Florida - Real Estate

They were selling these townhomes for as much as $ 310,000 in 2007, now these same townhomes are worth between $55,000 and $75,000, according to the County Property Appraiser and to the current listing prices of the many shortsales in the community, and they are very difficult to sell. So Cornerstone Development will auction off 64 of these townhomes on March 13. The first 20 of these townhomes will be sold “absolute” to the highest bidder regardless of price, at the highest discount possible, as a push to get rid of the remaining inventory. The remaining ones will be sold to the highest bidder, with prices subject to approval by the seller.

It is the exact same concept as used for major stores: where you have low cost products that are being offered at a loss so to get people through the store and getting them to purchase other more profitable merchandise. One would never expect to see the concept applied to real estate, but times are changing and any marketing tactic goes, apparently.

Roberto Mazzoni

Loss leaders now also in real estate is a post from: Real Estate Investing Benchmark