All Forum Posts by: Tony Tomasek

Even though you are new to this I assume you have looked at actual sold comps for the last 90 days and not just at what properties are listing for. If not, please do so before putting in an offer.

Jon is right the margin is a bit skimpy for a wholesale here, In this market it is not uncommon for deals to be found at 30% to 50% depending on the neighborhood and sales demand. Your investors will expect at least a 20% discount off of current market value in this market.

Banks are usually pretty good at determining the current value of their listings, but its not unheard of for one or two to slip through the cracks. I am also currently in a "final and best" offer situation on a fourplex that was the other situation that Jon explained. (listed low to generate multiple offers) Check into it and maybe make an offer that is at least 30% below market value and see what answer you get.

Sharon,

I read your post and it rang a bell with me. It was about one year ago that I was entering the Indianapolis market and was not thrilled about the prospect of investing from out of area (about 3 hour drive away). Since then, life has taken several twists and turns and I now spend much time out in Nevada. One thing that I can tell you is that I now own 3 properties there, and am actively searching for more. My current returns approach and sometimes exceed a 20% rate on my OVERALL investment. Please be careful and do your due diligence on all deals (see the forums on beginning real estate investing for details). I have seen numerous people that have been taken advantage of. I have seen questionable comps, fraudulent leases that are above market, unrealistic appraisals and bad property managers ruin people's investments. It is entirely possible to invest well remotely, but you have to be very careful when building your team. Please feel to contact me if you need anything, even if its just advice.

Tony

My concern is not that I will be unable to run my business. My concern is when government moves to regulate new areas of real estate we lose some of our rights as owners. Rights are not just wholesale taken away effectively, they have to be chipped at and undermined. The first step is the first step.

I have sold properties on private mortgage before and was planning on doing so again but not as a main business strategy. I know of several retirees that are real estate heavy, and would like to sell developable lots on contract or PM. This income is what they will live off of. My concern is that if you have say 5 lots and want to sell all five and then never do this again, should you have to go through all the regulation etc.?

I will admit that I have not read the law itself yet as it has little bearing on my business currently. -I DO hate having an exit strategy that is available as a fall back taken away, if this does that then I am not for it in any way and will be vocal about it to the right people.

I do not like some of the things that some people do with owner financing. In fact I find it reprehensible and unethical at best, but let's not have our rights as property owners taken away piece by piece as a result. I see where the governtment is moving to control so many things and it worries me greatly for my future and that of my daugters generation.

I just came across this in an newsletter I get. It centers around a law that has already passed the US Congress and is about to be voted on by the senate--- HR1728. It will most likely KILL the owner financing option as an exit strategy. Please contact your Senator to tell them to vote NO to the bill referenced below!!!!

Peter Conti wrote as follows:

I don't know if you've heard about HR 1728, but it's a heinous infringement on private property rights that is likely to shut down the creative selling market. IT HAS ALREADY PASSED THE HOUSE AND IS UNDER CONSIDERATION BY THE SENATE NOW. I have attached an article about it that you should blast to your students ASAP, we need massive action on this immediately to stop it.
 
 
 
 
House Bill 1787-Why it's Death to Your Business and What to Do About it.
 
            The U.S. Senate is considering a bill that would severely limit the way you do business as a creative investor and, more importantly, is an inexcusable infringement of the property rights of all Americans.
 
            HR 1728, which you can view in its entirety here: http://www.govtrack.us/congress/bill.xpd?bill=h111-1728 deals with a plethora of mortgage-related issues, mostly around limited terms and fees on residential loans. But the heinous piece of the legislation is in section 101(3)(e), which defines the affected principals as:
'(E) does not include, with respect to a residential mortgage loan, a person, estate, or trust that provides mortgage financing for the sale of 1 property in any 36-month period, provided that such loan-
(i) is fully amortizing;
(ii) is with respect to a sale for which the seller determines in good faith and documents that the buyer has a reasonable ability to repay the loan;
(iii) has a fixed rate or an adjustable rate that is adjustable after 5 or more years, subject to reasonable annual and lifetime limitations on interest rate increases; and
            (iv) meets any other criteria the Federal banking agencies may prescribe; and
 
            Yeah, I know, confusing. But here's what it says: you are NOT subject to the law as long as you DON'T sell more than 1 property with owner financing every 3 years! Or, to put it another way, you ARE subject to the limitations of the law if you DO sell more than one property every 3 years via a land contract, owner-held mortgage or wrap-around mortgage-and who knows if they'll define lease/options as owner financing, too?
 
            So what does it mean to be "subject to the law"? Well, at the very least, it means that you will have to comply with a long, confusing, and penalty-filled piece of national legislation. Here are the types of transactions that you would be restricted from doing more than once every 36 months:
 
o       Selling YOUR OWN HOME using a land contract or owner-held mortgage so that you can get a quicker sale, higher sale price, or better rate of interest than is available in other investments
 
o       Carrying back owner-held second mortgages on investment properties that you sell
 
o       Doing any kind of installment sale on residential properties including homes, condos, mobile homes, and even raw land that is zoned residential
 
Yes, there will undoubtedly by ways to "get around it"-some have suggested that getting a mortgage broker's license and then learning and following the vast new set of regulations would circumvent the "problem". But bottom line is, this law has to be stopped and it has to be stopped NOW. Here's why:
 
1.                          Congress is trying to regulate the wrong thing. The deals we make are not "loans"-they don't involve the transfer of money, or points or closing costs or adjustable rates or any of the other things that caused the mortgage crisis to begin with. They are INSTALLMENT SALES. We don't give money to the "borrower" and wait for it to be paid back: we give a property to the borrower and wait for it to be paid off. Regulating this will have no effect on the foreclosure crisis
 
2.                          It is a completely unacceptable infringement on private property rights. When I own a piece of property and find a ready, willing, and able purchaser, I should be able to control the sale of that property within the existing laws of my state, which already regulate the interest rate that I am able to charge and some of the terms of the sale. The government does not have the right to tell us that we need special licensing to sell our own properties; nor do they have the right to further regulate the terms under which we can sell or burden small investors with a new set of rules that we can't comply with.
 
Not only will this new law, if passed as written, effectively choke off owner financing as an exit strategy for you, it will also take away housing choice for your buyers. The millions of Americans who've been through foreclosure in the last 3 years can't buy a house in any way OTHER THAN to negotiate owner financing with a seller-and HR 1728 would greatly reduce the number of properties available in this way. Millions of potential home owners who would otherwise be able to re-start the process of paying off a home, and get the tax advantages of ownership, will be reduced to renting until they are able to qualify for bank financing.
 



What to Do Right Now
 

            This bill has already passed the house and is waiting for Senate approval. Please contact your senator via email and snail mail to let him know that this law MUST NOT PASS in its current form. You can get your senator's contact information here: http://www.senate.gov/general/contact_information/senators_cfm.cfm
 
            As always in cases like this, you have an automatic handicap to overcome-the fact that you are a real estate investor and are therefore viewed as part of the problem. So when you write, don't emphasize the nature of your business, just that you and your buyers would be greatly aversely affected by the new law.
 
We need THOUSANDS of these communications to go out in the next few days to have a CHANCE of stopping this in its tracks. So whether you're a new or experienced investor, PLEASE take the time right now to write your elected representative!

-OK folks, let's cool it just a bit here. It seems that what we have here is someone looking for information on cashflowing markets. Perhaps instead of jumping to conclusions we could lend a helping hand. I do understand that most of us have a preconcieved notion of how this business works best but let's be open minded here. I look at this question as one from an experienced investor that enjoys tackling new markets. Not as someone to heckle. -I used to invest in only my back yard, but my eyes were opened to new more profitable markets and now I own property in 3 states: Illinois, Indiana, and Michigan. It IS more complicated, but not too hard if you are effective at team building. I have a philosophy that I follow that allows me to expand quickly in new markets. Fact is that all areas are not equal and I will always go towards the more profitable market.

That being said:

I currently like Indianapolis, IN for cashflow in the Midwest. I have done very well there personally. This area offers affordable SFRs and decent rents as well as being relatively landlord friendly as a state. It is a good place to purchase homes outright currently as the cashflow can be outstanding. In the 20 to 25 percent capitalization range.

Example:
50K-60K house (total investment)
3 bed, 2.5 bath
Rent- 1000 a month
Expenses- 370 a month (vacancy,maintenence,mgmt,ins,included)

Please feel free to contact me at any time to discuss the area in detail

Speaking as a Marketing major and as a fellow investor - can attest that you will have better luck with a phone number. The reason is that many people will try to memorize a URL and get it wrong. Most people will write the phone number down.

Tony

John,
What lenders would consider this? It would keep me from selling one of my best properties for a long term hold if I could get financing to 70% of current value after 6 months. To date I havent found a lender doing this

Tony

Just saw 2 theories on what it will take for a complete correction. I cant say that either was a big favorite of mine. One was to open up the borders and let in any immigrant that has enough money or credit to buy a home. Theory says that 2 years of this would bring about a total correction.

Second theory was to give vacant properties to those in govt programs like Section 8 to fix up and if they do give them the deed. I almost choked at this one.

Fact is, houses need to be affordable. No one making 40K a year needs a 400K house. Unless median income jumps, or the value of a dollar rises we will be at lower levels than the height. The value of the dollar is currently poised to be decimated by "created money". So no major move back to post bubble prices.

Personally, give me 3 more years of this and I will be exactly where I want to be.

Looks a bit shaky to me a first glance. You have to look at fix and flips a bit different now than 3 years ago. First of all if your deal's avg. listing price in neighborhood is 279K then your margin is slim... Here's how I see it:

Contract price: 185K
Repairs 30K
Total 215K

In order to sell a property quickly in this market you may have to list a rehabbed property at 10% to 15% below avg list price. So you may have to list at 250K to 237K. This will get atttention of realtors and buyers for a quick sale, stand out from the other 100 listings... Now in a buyers market, most people will make an offer, not pay full price. When you factor hard money costs of 3 to 6 points up front, and 14% to 18% interest your margins are slim. Consider the 12K rolled into the loan and 18% interest and an offer that may be 5% to 10% lower than list.

Using hard money for retail flips is a rough business these days. Be very conservative on ARV.

I am considering selling a property to a private individual with owner financing. My father and I have held mortgages on properties before, but never thought about selling the mortgage to someone. How should I best structure the mortgage to get maximum value for the note?

I am looking at selling a property that has comparables at 65,000 for 55,000 and taking a 50,000 dollar mortgage. What rates/terms are the most valuable to note buyers?