All Forum Posts by: Ron Nawrocki

Yes - Lease-2-Own & Owner Financing are our primary sale terms. If someone wants to pay cash or use bank financing, the sale price is typically 10% higher to cover our tax bill. That confuses wholesalers who tell me I quoted the wrong price. They "assume" paying cash is always cheaper ... so I remind them what they get when the dissect the word assume ... ***/u/me !

My favorites: Depreciation (regardless of how much equity I have) & Installment Sales to spread out  taxes until paid off.

I don't have a direct e-mail, but I do have the direct phone# to B of A's CEO's office ... if you do really want to call let me know, I'd rather not publish it.

He and the other C level execs have a pretty extensive staff to handle problems. I spent quite a bit of time with them trying to buy a number of their properties under the TACT Program, or at least get them to agree to a pilot in the Phoenix area.

My only major beef with B of A is that they are the only bank to date to decide NOT to participate in the TACT Program as a way to clear up their $60 billion of toxic assets.

To their credit, I was able to discuss it with them, share the benefits and they had discussions with various execs before saying no. Fortunately, their rationale for not doing it was encouraging. They agreed it seemed like a sound way to solve their problem, but felt they are too big to implement new programs so quickly. So I canceled all our offers on their REO's & short sales. They encouraged me to continue to help the smaller banks for now and eventually they would revisit the topic.

In my view SFH is far better investment with current mortgage regulations. Condos & Townhomes are not eligible for most conventional financing unless 51% of units are owner occupied.

Even if you buy for cash, you eventually will want to sell ... and selling to an owner occupant could be difficult.

Cash flow is also hampered by the very high HOA fees. When HOA fees were 10-15% of mortgage PITI it was no problem ... today their 50-100%

Saying you're a RE Investor causes a number of people to react negatively. Based on a suggestion from the head of the AZ REIA ... I switched to saying I'm a "home provider". Now try to find someone who says a home (or housing) provider is bad! My elevator speech "I turn foreclosures to family homes" also gets positive reactions. I even wrote an article about "Those Damn Investors are at it Again!" ... might give you some more ideas.

REO has 2 definitions:
- for Banks: REO = Real Estate Owned, a Toxic Asset that stops them from borrowing & lending
- for Investors: REO = Real Estate Opportunity !

Our fund is betting a few $million this will be a great year for residential real estate ... especially if Geithner gets what he asks for - the Chinese revaluing the Yuan.

Lesson to Wash DC - be careful what you wish for!

It would help in the heading to tell us the State you're investing in. Most of us are restricted by which states we have lending licenses.

Mitch is correct ... they buy bonds from banks, other institutional investors, or the Treasury.

If they buy from banks it doesn't change anything since the bonds were assets just like cash ... and in the best case they'll buy more bonds.

If they buy from PIMCO, PIMCO might go and buy some new T-Bills or bonds and thus keep interest rates low. Although PIMCO just launched an equity fund ...

Either way the money helps fund the deficit or may help corporations borrow more, which is useful since banks can't lend (separate thread on that topic going).

The velocity of money has tanked since banks aren't lending. When they lend, each $100 lent leads to another $700 of more loans that can be made ... that increases velocity.

Until banks sell off their toxic assets (REO's & short sales) at reasonable prices (via the TACT Program) vs. trying to dump them to cash buyers at 35-40% discount, we won't see money velocity pick up ... and we'll see a continuing downward spiral in real estate prices.

Bryan,
For performing assets they use ~8:1 ratio. In the case of toxic assets I guess I'd say it's 2:3 ...
The toxic asset is not counted as an asset for borrowing ability, and also requires a reserve of 50%. So for $100,000 REO the bank has $100,000 problem + $50,000 held in reserves.
If they implement the TACT Program they can convert that frozen $150,000 into $800,000 in assets !
How's that for a ROI ! To top it off the buyer pays the closing costs & origination fees ... and at COE the bank stops carrying the costs for interest on the reserves, insurance, property taxes, HOA fees, maintenance, etc.

This is why we are trying to meet with each bank's CFO ... they understand this stuff.

Bryan,
The non-performing (Toxic) assets are any REO's or non-performing loans they have on their books. Today most non-preforming loans are mortgages - residential & commercial. When the bank goes to the Fed to borrow funds (or FDIC evaluates their condition) these toxic assets are treated as liabilities, and thus hurt their ability to borrow.

Ability to borrow = X% * (Performing Assets + Equity) - (Liabilities - Toxic Assets)

If they can't borrow, their only source for making loans is deposits, and for some strange reason I don't like to earn only 0.5% APR on my funds.

The TACT Program is not a Govt program, it actually evolved from the approach our fund & other private lenders use to handle their foreclosures. We don't put up the properties for sale & hope a buyer will get bank financing (Put up & Hope Strategy banks use), we bundle financing in to sell it faster & at a higher price. Our specialty is Lease-2-Own.

When the bank fails, someone has to buy the toxic assets along with the good stuff, or the FDIC closes it. The buyer gets some FDIC help and then dumps the properties on the market at a very low price, and banks are thus causing a downward spiral. With $1 trillion of toxic assets on their books, prices could drop another 50% if all 2,500 shaky banks failed.

P.S. I'm a former CFO so this topic is my top priority - to fix the banks!