All Forum Posts by: Tim Silvers

Let's hear the opinions from those experienced:

Taking into account the spread potential, current legal climate, competiton, and risk, which of these 2 business models has and potentially will fare better than the other and why?

As I see it, there are basically 3 business flip models:

- Virtual Wholesaling/flipping contracts/contract assingment - no cash needed
- Short Sale/REOs - using a double escrow and transactional funding
- Bulk REOs - using hedge fund financing, hard, or private funds

Although the web is besieged with tons of sites to gurus pitching their programs for their various programs, courses, boot camps and the like, I believe there are also some very well-respected "real" investors doing actually these deals and profiting. Real estate investor sites like this one comes to mind.

And these are the real people I need to network with.

In each of these models, there is a common deniminator - the investor must buy as low as possible by recognizing a window of opportunity and taking a deeply-discounted, short-term position on a ultra-distressed situation - in order to re-sell at enough of a spread or profit to make sense, but still at a deep enough discount for the deal to make sense to the end buyer which is usually, but not always, another investor - and one that's willing to hold, do the rehab, get tenants, etc. The only real difference between the 3 programs is the method and type of product and how it's acquired. It seems like they key is to have a list of end buyers lined up as soon as you find the property(s) or better yet, before you find them.

The bottom line questions for those in the field doing these deals are:

1) What is your close ratio?

2) Are the deals as lucrative as the promoters so claim (i.e., average of $15K per deal)?

3) Can they work in all markets (i.e., how can you do wholesale flips when the majority of good deals in a market that is predominantly underwater - and thus would become short sales or REO flip transactions)?

4) Out of the ton of online flip gurus promoting their programs, who are the top 5 that are most honest, helpful and "real" you'd recommend, if any?

5) Out of the 3 of these programs, how would you rate each program on a scale of 1-10 in terms of:
- how lucrative/profitable
- ease of the process from start to finish
- finding buyers
- finding sellers
- working with realtors - yes/no - and why

On a side note, I'd like to find other investors who I could co-venture with or who would be open to a mentor relationship in my area which is Las Vegas.

Come to think of it, I think you're correct, Brian. Since she does all the negotiating with the lender directly and, all due respect, has a "retail" mentality, I don't think a flip deal could realistically get done. Her allegiance is first to the seller and then to the bank, not an ideal situation of what we need as investors.

Again, Marcus, many thanks! Terrific advice.

Is your no. listed somewhere on this site?

Marcus, thanks for the response. You know exactly what time it is!

We are ground zero here in Vegas for short sales, REOs, trustee sales, you name it. I and my associates need to find more "real people" out there to mentor/partner with to learn this business other than all the hype, gurus, etc. on the net that is a jungle of confusion inundating me daily!

I will take your offer into consideration!

Thanks again.

I'm talking about short sale flips using transactional funding. Wholesaling is similar, but involves no cash.

What I meant for the agent was to refer me her seller, let me do the negotiations with the bank, she provides the BPO, meanwhile, she gets her commmish on the listing, and while the lender is processing the short sale, she can find me a cash buyer and can pocket another commission.

The price the end buyer gets will likely be slightly below market when it's all said and done.

The truth is that I'm putting a couple deals through (as a birddogger) a firm I partnered up with that does all the negotiations, paperwork, funding, etc. I am still green and wanting to learn how it works myself.

I will have more confidence once these deals hopefully close.

I have an agent with whom I've had a long term (past) working relationship for several years. 99% of her business is (no surprise in this market) short sales as a seller's rep. I, of course, am wanting to find a way to profit from those deals by doing flips while giving her the ability to increase her commissions by listing and then reselling the properties.

After my brief pitch, she was quick to explain that she is a very hands-on 'relationship person' with her sellers from start to finish and does all the negotiating with the lenders directly. She had never heard of short sale flips, transactional funding, or end buyers. When I explained how it works she was quick to say the following:

- "I don't see how the banks would let you profit, for one, plus they aren't willing to take less than the BPO in my experience."

- "I would never list the seller's property for more than the market value and, in fact, I always start listings at below market to move it as quick as possible to get as many offers."

I told her many investors start a bit above at first to try and create enough of a spread for selling to an end buyer. If no bites, then the price is lowered every week or so until there's an offer. She couldn't understand why and said "that's completely backwards".

Speaking of which, since I'm new to flipping, and haven't yet closed a deal, what do you investors tell your agent to list at? I'm assuming a bit over market to weed out the possible bites that might give you a bigger spread you'd otherwise miss out on had you started with a below-market listing? In other words, do you recommend starting the listing above-market and then dropping it at certain intervals?

She then stated that she felt an above-market listing would be a disservice to her seller, namely because it puts the seller at an increased risk of foreclosure, taking longer to move and increasing the likelihood of going further into default.

She was adamant about wanting to maintain strict control of the short sale process even though I explained she could be making much more by leveraging her efforts and handing the short sale negotiations to me, thus freeing up her time to take on more listings.

She again explained she works very diligently to build a hands-on relationship with desparate sellers, so it's a shoe-in for her once she gains their trust.

She also felt that most agents interested in doing these deals would want a piece of my spread. I said that's not legal as far as I know. All an agent's entitled to is a commission on the front (seller) and back end (end buyer - if they find one). I would think it's violation and a direct conflict of interest for them to get a part of the profit from the deal. Can anyone clarify this?

I just need to come up with some intelligent responses to these concerns.

Suggestions?

Much of what I question in the following post truly belongs in the hands of competent counsel, but we all know that can be more confusing than it's worth half the time!

Why isn't the buy-and-hold investor held to the same standards of mandatory disclosure if he or she suddenly decides that after buying, the rebab costs turn out to eat up all the profit or the rent doesn't pencil as well as originally planned - and the investor decides to dump it after a few days - for a profit? Because he really didn't intend to resell it but did anyway, he's off the hook as far as disclosing? And how is it determined that the investor really didn't intend to resell and just told everyone that? It's still a flip, isn't it?

So then, am I correct to assume the difference in terms of what necessitates mandatory disclosure between the investor who negotiates/purchases the short sale from the lender with the intent of simultaneously reselling it (simo flipping) vs. the investor who negotiates/purchases the short sale from the lender that plans to resell it at a later time is that the investor who does a simo flip knowingly negotiates the buy solely contingent on having an end buyer secured well before the close that has agreed to purchase the property at a profit above the price the investor originally paid and therefore MUST disclose all details of the transaction to all parties involved?

According to the author of article I previously posted, disclosing the basic intent to resell isn't good enough. The investor need also disclose to the lender the details of the sale to the end buyer as well, or as Justin stated, by simply making available the end buyer's HUD-1 statement:

"You may again reasonably retort that you disclosed your intentions to profit in the Option Agreement presented to the Lender along with your initial offer. However, your intentions don’t count in this case. Your intentions are rather something volatile and intangible. The written (2nd) Purchase Agreement and your new buyer, on the other hand, are substances very much tangible and physically palpable. Thus, you must disclose above facts before closing. This will relieve you from any further responsibilities. The only thing which worries me is if the Lender would accept your offer after disclosure that there is a very real person who is willing to pay for the very same property thousands more, or rather kills the deal."

(whether the author has researched the disclosure laws and knows for a fact this is true or whether it's just common sense is unknown)

I could see defense lawyers continuing to have a real field day with this because so much is based literally on subjective interpretation and intent or lack thereof - both of which ALWAYS become the exclusive province of all white collar cases involving fraud. Why the #$%^ innocent and ethical investors continue to be left without 100% clarification of this PRIOR to entering in transactions makes for a veritable mine field when it comes to doing business wherein any action can be potentially criminalized when in fact it was never the intention to defraud or deceive anyone - unlike those that are unethical that clearly did wrong. That line seems to be getting more and more blurred until we are given specific guidelines.

I just received this link on my google alerts and wanted some feedback. They are quick to stomp on the flip promoters, yet it appears they are doing flips themselves. Check out their website. It looked real flakey to me, especially when they're promoting other things that have nothing to do with real estate.

http://truthinsales.blogspot.com/2009/10/is-flipping-short-sales-mortgage-fraud.html

" Is flipping short sales a mortgage fraud?
The Feds will enforce the laws prohibiting short sale flipping.
Defrauding The Banks Means Defrauding The Feds!

Watch Video Here

There was a lot of controversy in recent discussions whether flipping short sales were to be considered ethical, beneficial for sellers and lenders, or a predatory hunt for easy profits by unscrupulous investors. Thousands of “Gurus†and “Coachesâ€, having proudly proclaimed themselves as saviors (or vultures) of the struggling housing market, created their own internet schools, training programs, universities, institutes, etc. where they pushed their students to trick lenders and sellers to complete a short sale deal and put a lump sum in the pockets. The tuition is not cheap: from $297.00 and up to $5,000 only sign-up fee.
In addition, there is a certain monthly fee always applied: for using their Web resources, or updated materials, or Webinars, or phone consultations, or Seminars - you name it, in average of $197.00 a month. Combine all the above and you’ll get a personal coaching program starting from $5,000 and up to $50,000. There’s no guarantee, though, that you’ll achieve any significant results. Your chances to succeed are equal to ones of some street smarts who just are knocking the doors of defaulted homeowners and offering their services to save the latter from foreclosure. But a level of annoyance by such mentors can only be compared with the perpetual ocean tide where a student is locked in the metal barrel surfing the stormy surface. Endless emails, calls, webinars will never let you focus on the practical activities since you’ll be always involved in some new technique or strategy that, according to your mentors, are absolutely essential to learn. The funny thing is, that all these “Gurus†are playing the same tune using different instruments. They would sell to you somebody else’s program for thousands of dollars just to get their share of the sales proceeds. They may not even know the content of such program. Is there anything that may help you to accomplish your goals, they don’t care. They are not interested in your success. The more miserable you are- the more useless stuff you would buy to get out of your misery. They can invite the lawyers, CPAs and other paid professionals just to show you a new move and/or defense from the most recent regulations imposed by authorities in order to prevent fraud or unethical actions by investors. They will teach you, actually, how to commit a crime and get away with it.
If only. They are not that smart as they want you to think they are. If they were, they would have never revealed their techniques to you, but rather made tons of money quietly, without these pompous parades. But they prefer to stay in the shadow and expose you to the all storms and thunders while charging fat lump sums from your credit card accounts. Because they know that you’re violating the Federal Laws on your way to the top. If these Laws had not been enforced by now does not mean they would not be soon.
And they will be! Please keep in mind that there is statute of limitations in each individual State for any criminal offence committed in the past. Some violations even don’t have such statutes and may be prosecuted indefinitely. However, lucky you, fraud is not one of them. But still, it’s a federal offence and may be punished by up to 30 years of imprisonment plus thousands of dollars in fines and penalties.

As you probably know, FannieMae and FreddyMac are now subsidized by US Government, and by defrauding them you actually defrauding the US Government.
You may reasonably ask, “How, for my deal sake, I’m defrauding my beloved Uncle Sam?†The answer is as follows: your deal actually consists of 2 separated deals: from original seller to you, and then from you to a new buyer. Failure to disclose existence of a new buyer and the second Purchase Agreement before closing is considered as a fraud. Why? Because the very existence of this buyer and the second Contract are the material facts that may affect the Lender’s decision whether accept or reject your offer. You may again reasonably retort that you disclosed your intentions to profit in the Option Agreement presented to the Lender along with your initial offer. However, your intentions don’t count in this case. Your intentions are rather something volatile and intangible. The written (2nd) Purchase Agreement and your new buyer, on the other hand, are substances very much tangible and physically palpable. Thus, you must disclose above facts before closing. This will relieve you from any further responsibilities. The only thing which worries me is if the Lender would accept your offer after disclosure that there is a very real person who is willing to pay for the very same property thousands more, or rather kills the deal.
What do you think?

This is a riddle, isn’t it?

Please post your comments below.

You may also ask your “Mentor†of how to sneak your way around it. If your “Mentor†is still there by then. “By then†I mean January, 2010 when all already existent laws and regulations will be enforced. There will be enforcement agencies formed to persecute violators as per banks request. And what is the most convenient, it won’t cost the banks a dime compare to the civil law suits since this process will be implemented by the Feds for free as a part of the Mortgage Fraud Program."