All Forum Posts by: Steven M.

Thanks and all makes sense! Though the banking industry would do itself good if it acted like a real business and do away with all these silly conditions and just worry about getting whatever they c money back they can no matter how, no matter what the means and no matter to whom, and not concern itself with a lot of this periphial stuff as to who might live there post short-sale, etc etc. Take the money/offer and run, and move on. But that's not the world we / they live in and that's another subject for another day. Thanks guys!

Thanks so much Monica! Very helpful!

By the way, do own the city Breckenridge, too (I'm sure you get that all the time)? :)

Thanks Monica!!! I have yet to jump into the Short-sale market and was wondering what or if any land mines there might be and I guess I found this here and seems quite plausable that bank would prohibit this (though I suppose the owner's could move out for a while and move back in...but too much of hassel and not worth the risks). I appreciate your insight. Now back to our regularly scheduled programming!

@Will Bernard

I plan on spec building (assuming the market doesn't fall into the Pacific again) next Spring on land I own in Castaic that I bought years ago. I've had spec builders who had interest in buying it and specing out themselves for about ~$100 SF though it's low end quality (though I didn't care...it'd be their land/deal). I decided to do it myself next season assuming home prices go up then.

I have a rather creative investment strategy that I am seeking opinions/feedback on where you can both flip a short-sale and be the bank at a high APR without ever lifting a hammer. I wish for feedback from others to see if this is doable. Forgive the length of this.

CAVEATS: Certain laws in certain states may not allow Contract For Deed (I am in California) but read on anyway.

You locate a home that is a short-sale with the owners still living in the house who want to stay and continue owning the home (and we'll assume they are a borderline/modest credit risk) but can only stay at a lower monthly payment than they are presently paying.

Let's say you offer the owner's to stay in the house and you will "resell" the house back to them at the current market price, and you will now become their "bank" (terms are below). We'll say they bought the house for $400,000 and have a $375,000 mortgage at 5% APR ($2,100/monthly payment) but today the home is appraised at $200,000 (after repair value). They owe the bank $300,000 on the present mortgage. You make a short-sale offer to purchase the house from the bank. You offer and settle with the bank for $150,000 as an example. The bank knows nothing about the owner's staying or the "deal" you have pending with them. You will not be doing any repairs to the house.

-As the new bank with a $200,000 appraised home, the owner's come up with a $10,000 down payment. You write a mortgage to the current owner's for a short 5-7 year term for $190,000. at a high APR of 8.5%. Because they pose some credit risk and have no credit history with you, their rate is higher but get to keep iheir house at a lower monthly mortgage payment of $now 1400/month.

The owners have 5-7 years to clear up their credit history and get a conventional loan to buy you out on the balance remaining. If they do not, you can either take the house back or extend the loan term. You, the bank, also make the Note assignable and may sell it to a Note buyer at a discount, say, $180,000 (you keep/make $30,000 they make $20,000 =$200,000) if you want your cash back earlier than 5-7 years. An 8.5% APR is attractive to most investors plus a $20,000 profit to boot.

-KEY FACTOR: Because the owner's are a higher risk, and the cost to foreclose is expensive, you write the mortgage with a “Contract for Deed” clause(where the owner is not put on title until agreed to terms are fulfilled). So if they default on the Note you can readily evict them without expensive foreclosure procedures because they are not on title (and they are not renter’s either) and you can take the house back immediately. This is where your investment risk is lowered. If after a few years of good payment history, the owner’s can "earn" the right to be put on title if you so elect to do so per your loan terms. Thus your security, in lieu of a big down payment and knowing you are loaning to a higher credit credit risk, is to use a Contract for Deed, plus earning 8.5% on your money.

-I'd also might consider a $xxxx amount Repair/Security Deposit if they are ever evicted before the 5-7 year term. After this time, the deposit is refunded.. Of course, you’ll need to do a full credit check and employment background check of the owner’s.

-Be sure to have the house inspected and lien search BEFORE you close with the current bank like you would with any house you buy.

-Do this is in a good area that has a desirable value/ in demand/good schools in case you have to evict/resell or sell this to a Note buyer who seeks this.

-During the term the owner’s must pay all the taxes, insurance and maintenance on the house just like any other owner would do. Be sure they send you proof of payments as part of the term (or they can pay you with a separate check and you control these matters). Have an attorney write up the terms of course.

In summary. in this scenario above, you are essentially buying and flipping a house to its current owner's; you make a profit of $50,000 PLUS earn 8.5% per annum for 5-7 years on your money and are fully secured by remaining on title in case of default without having to foreclose. You can also sell (flip) this Note to another investor if you want your cash back earlier than 5-7 years. You never have to pick up a paint brush to rehab or unclog a toilet as a landlord as the tenants are long time owners. Any Note buyer may want to see some owner credit history so keep copies of all payments if you sell your Note.

Thoughts, please? Thanks in advance!

Steven

@Will Bernard

You're numbers Will are pretty close!! Though if you are the builder, you can do do this for under $100 SQ FT (I'm not builder, nor a hammer/nails guy). I own land in Castaic myself and have penciled out at around 1600 SQ ft house at $275k with land at $75k and permits.

Steven

@j scott

Originally posted by Steven Marks
I am a land developer and Land Use/Impact Analyst in CA. In this market, you can make some great deals on land purchases that are part of a spec build.
Steven -

You make some great suggestions. I've been thinking a lot about this in my area -- while it's currently not a very good time to build, the price of land is relatively cheap and it would be great to have some land "in my back pocket" for when spec building becomes viable again.

The problem is, I don't want to deplete my cash reserves holding a whole bunch of empty lots that I may not be able to build on for a couple years.

My thought has been to start approaching some land owners and offering to take a long-term (3-5 years) lease option, where I agree to cover costs (taxes, insurance, clean-up) on the land during that time, and then if/when I exercise my option, I either pay a fixed amount (pre-negotiated), a percentage of profits on the resulting investment, or a combination.

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I would never do a lease option (not sure why and what you are leasing if you aren't using the land for some income purpose). Offer a straight land option, for say 3 years at an agreed to price and you agree to purchase the land at the agreed to price on specific date. If you fail to exercise purchase, the agreement says you lose your option and deposit. You should have an AUTOMATIC "extension" clause fo anadditionalr one year in the event you don't exercise and you should offer to deposit more cash (pre-determined) to owner within 10 days before/after of expiration date as goodwill

I IMPLORE you to make sure you get your name on title OR and legally record the option agreement at the county recorder's office or file Notice of Pending Sale against the title. You should have lawyer draw it up according to GA real estate laws (don't assume a boilerplate land option agreement is good in all states and will hold up in all courts...what you don't know is what you don't know).

I also IMPLORE you to make sure the property taxes are paid by YOU, on time AND you keep a copy of the cancelled check payments as proof with the parcel number on each check (and send copy of check to owner). You need 100% control as if you own the land. Don't rely on the owner to take care of this. Also make sure the property is not encumbered by other leins, mortgages, taxes, private or public easements, judgements,/suits, etc. before you option the land. You should also ask for a legal survey, check County for flood zone, zoning, utility location and known geological/soils issues, protective trees (as we have in CA), etc. Also make sure your agreement states the owner cannot encumber the land during the term of your agreement.

Steven

I have had success in contacting owners in two ways. 1) writing very short AND ambigous note sent via US Priority Mail that compels someone to open it. 2) Locate where the property tax bill is sent by contacting the tax office / investigating the tax roll (best in person) if the property is a rental (non-owner occupied).

EX:

Via USPS Priority Mail
Dear Mr. Smith:

I am proposing to purchase a property adjacent/near your property you own at 100 Main St. I need to speak with you regarding your property.

Sincerely yours,

Mr.Mr. Buyer

-Letter and label should be typed...not handwritten.
-Do not use a company name on the return lable OR the letter (esp. one that looks like a R/E company).
-do not concern yourself about soft-fibbing about buying another property near by...it's just a an excuse/reason to write. You are simply stating "proposed" wink, wink (not fact and these things 'fall through"...ahem).It makes the reader wonder if perhaps if you might have an issue with their property...not necessarily buying it. Yu just want to get him to call you. You can tell him/her once you get him/her on the phone, you are/were proposing to buy a house down the street but before you do, do they want to sell theirs (wink, wink). You can also tell them the deal fell through after you wrote the letter. You just want them to call you...make up what you want after they do. You want to give the "implied appearence" something is at issue so they call you (not that you want to buy their house).

You gotta be clever.

I am a land developer and Land Use/Impact Analyst in CA. In this market, you can make some great deals on land purchases that are part of a spec build. There are desperate landowners out there with the knowledge of little prospect of a building boom/demand for a long time to come for land in most areas of the country, and thus you can really deal. For example, there are landowners if negotiated properly, who will option their land for a year or so for a small sum, while you build/spec on it (the Notice of Option/Pending Sale gets recorded at the County Recorders Office). When the house sells, the owner get paid for the balance owed. This is a "take it or leave it" market for land and not many landowners are getting calls from buyers these days.

I help put some land deals together for some home specs builders/inevestors recently. I made the case to the landowneers they have little chance of selling their land anytime soon (their lots were on the market fora few years) and they'd be wise to let the builder build on their land and get paid upon the sale of the land at a pre-neg price. I asked the loand owners essentially when was the last time they got a bona fide offer on their land and their answers were the same: none (in years)? The builder came up with small earnest option money (EX: $110,000 sales price, $5,000 down, .75 acrs.). If the house wasn't built and sold after a year, more cash was required or builder would lose his money). In a depressed land market flooded with land, you can do these kind of deals.

Ryan,

As a bit unseeming as it might be and capitalizing on a couple's personal misfortunes, you can search courthouse records for couples that have filed for separation or divorce (County Courthouse), as well as bankruptcy (US Fed. Courthouses).

I might suggest traget direct mailing to homeowners that are adjacent/near to blue-collar and service type of job/employment centers (factories, light manufacturing, etc) where jobs are being more apt to be lost.

I know someone with some success actually takes a booth/table at job fairs, and marketed his buisness that way to distressed homeowners in trouble. He also has a booth at a local weekly flea market/swap meet. Quite clever. He was able to track his success/response by having a seperate phone number just for these efforts (bought a Majic Jack phone line for $20) from his regular line.

I am really reluctant to buy at bank auctions because you got no idea what you are buying. I know people who have done this only to find that the pissed-off homeowners (at the bank) last horrah was to destroy the house including pouring cement down drains, stealing stives, cutting up the trusses/joists with a power saw, stealing the copper from the electrical, dumping horse crap in the house, etc. Like Forrest Gump could have said, "Home auctions are like a box of chocolates...you don't what you are going to get..." I am personally not that much of a risk taker.

Good luck!
Steven