3/30/10: Trulia Question Of The Day

 
Mary Nack answered:
Dealing with the agent whose primary business is listing REO’s, on the surface, would seem like the best agent for a buyer to work with. However, those agents tend to focus their business on LISTING the properties and working with lenders rather than working with the buyers interested in purchasing them. Often times, they simply don’t have TIME to return a phone call – from ANYONE (though I’m sure they talk to their lenders all day long) – not even a bona fide buyer.

This is not meant to find fault with them. Those agents are drowning in paperwork. That business is all about volume. They simply do not have the time to spend with buyers. Just so you know, I had put a call into an REO listing agent 2-3 days ago – and wrote him an email (his voice mail said that was a better way to contact him). He finally called me back last night at 10:15 to talk to me! Which, frankly, was impressive. The poor guy is clearly working 80 hour weeks.

If you like your agent, give them a chance. They may be learning along with you about REO’s. We ALL are! I know 5 years ago, I really didn’t have a CLUE about this side of the business – and I have been in real estate for 30 years!

Hang in there. There are LOTS of opportunities for you to jump into the foreclosure fray. Don’t get your heart set on just one property. Keep your options open. You’ll find the right property. Just be patient.

mary! – Fri Mar 19 2010, 16:49

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3/26/10: Today’s Trulia Question

Asked by A. Martinez – A  Home Seller In Chicago:

“I own multiple properties and two of them were cited with violations such as the need to replace the porch in both buildings and a possible deconversion. These repairs will be way too costly for me and may not be a able to afford the repairs and possible deconversion. What are my options?”

Mary Answered:
If you are upside down on your loans and have no equity in the properties, then you will have to pursue a short sale. It’s probably best just to dump them as quickly as possible rather than throw good money after bad.

A. Martinez replied:

Hi Mary, thanks for your response to my question regarding my two properties that were cited with building violations. I saw your response that indicated that it’s probably best to dump the buildings vs. throwing good money after bad money. I have been really considering this option as I am upside down on both of my mortgages but it’s a very difficult decision to make being that I have excellent credit and it would break me emotionally to see my credit go down the drain. I want to see if I can buy time from the city in order to make all the necessary repairs. When I bought these properties they were meant to be sold at the time I retire for income and I never thought I would be dealing with this issue now.Thanks so much for your guidance.
 
Mary Responded:

Hi Alicia,
You know, after I wrote that answer, I felt badly that perhaps I was too harsh. I confess to having a lot of exactly these types of hard conversations nowadays with sellers. So the first thing I want you to know is that you are by no means the only one who has gotten caught in this nightmare – not by a long shot!! 

I know you’ve worked hard to build an excellent credit score - and the fact that you are concerned about it tells me that you are a good person just trying to do the right thing. Selling your buildings “short” will unquestionably give you a ding that will take a few years to straighten out. However, a short sale is a much better solution – and much less of a hit on your credit – than a foreclosure or simply ”mailing the keys back” to the lender. (See my blog post “Should You Strategically Default On Your Mortgage“). And if it’s a matter of having money to retire on vs. a lower credit score… Well, to me, anyway, the choice is pretty clear: you need to be able to have money for retirement. You need to be able to keep a roof over your head and food on your table. And those things are much more important than your credit score. 

The next thing you need to know is that your lender will not even CONSIDER negotiating a short sale with you as long as your are current with your payments. You will need to be at least 3 months in arrears before they even consider you a problem.

As for the city, I am not such an expert on violations – but I’m pretty sure it would be a big mistake to ignore them. You probably need to go to court, talk to the judge and let him know your situation. As I said, by no means are you alone in this predicament and I’m sure the judge has heard this many, many times.  

“I Do Well When YOU Do Well!”
mary!

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Investing In Capital Gains Is Gambling

Wednesday
March 26, 2010

This morning, I was re-reading Roberty Kiyosaki’s (“Rich Dad, Poor Dad”) book Conspiracy Of The Rich. At one point in the book, he makes the statement that when you invest in capital gains, you are actually gambling – gambling that prices will go up. Because if prices go down, you loose your investment.

5 years ago that statement would have been difficult to grasp. However, in today’s environment, it is clear: real estate prices do NOT always go up!  And although he does not limit his statement just to real estate, it is probably the easiest example to point to in today’s economy.

In real estate terms, investing in capital gains is “flipping” – buying low, fixing a property up a bit and selling high. I know several investors that are doing very well these days “flipping” foreclosures – and it is a formula I have taught both in my case studies (click here now to see those) and in my live teleseminars. You can even find my “Investment Formula For Success” in my free report “High Yield Returns In Wholesale Real Estate” available by filling in the form to the right >>>>.

However, Robert Kiyosaki warns against “flipping”. And he is not wrong. The SAFEST way to invest is to invest in cash flow. Now, any investment carries with it a certain degree of risk. But then life itself carries with it a certain amount of risk! As Mark Twain said: the only certainties are death and taxes. However, when you invest in cash flow, you are less concerned about what values are doing. To invest successfully in cash flow, it is important to be able to buy at a price that is low enough that the property can generate cash flow. And the less money you borrow to purchase the asset, the more likely you will be able to see cash flow from it.

Until recently, it was virtually impossible to buy apartment buildings at a price at which they would cash flow – unless you paid cash for it. Apartment buildings were not bought for cash flow – rather they were bought for their potential to earn capital gains: i.e. to convert into and then ”flip” as condos. Nowadays, that no longer is the case. With the huge inventory of broken condo developments, it is once again possible to purchase apartment buildings at a price at which they will cash flow.

If this is a subject that interests you, I invite you to call me. I would love to spend a few minutes over a cup of coffee discussing the opportunities available to investors in today’s economy. As Rich Dad says, this is an environment where fortunes can be made or lost. My goal is to help you succeed!

“To Your Success!”
mary!
888-834-7085

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Disturbing Trends In Consumer Credit

Tuesday
March 16, 2010

According to a report released by FICO* at the end of February, recent credit behavior has shifted significantly from historical trends. Dr. Mark Greene, CEO of FICO, says:

“We’re identifying situations that to our knowledge have never been seen before. Economic instability is creating unknown risk in lender’s credit portfolios as well as counter-intuitive trends in consumer behavior.”

In 2005, credit card accounts were 3 times more likely to become 90 days delinquent than mortgages.  In 2008, credit card accounts were 1.6 times more likely to become delinquent than mortgages. 

For the first time in 2009, 0.3% of consumers with FICO scores between 760-789 (generally considered by lenders to be an excellent score worthy of their best loans) defaulted on their mortgages vs. 0.1% that defaulted on their credit cards! It is difficult to speculate what is causing the shift in people with high FICO scores to default on their mortgages rather than on their credit cards. However, the more value a home loses, the more likely an owner will consider what’s known as a “strategic default”. (See my article: “Should You Default On Your Mortgage?”) One possible reason may be that if a homeowner is faced with losing their home anyway, there is little reason to continue paying the mortgage. However, keeping their credit cards intact allows them to use the money to buy groceries or keep the lights turned on.  

In addition, FICO uncovered evidence that lenders tightened their criteria for new loans in 2008-2009 and began to “cherry pick” the kinds of borrowers they would extend credit to. In 2005, nearly 46% of consumers who opened a new mortgage had FICO scores below 700. In 2008, this dropped to just 25%. The credit card industry experienced a similar shift: in 2005, 51 % of consumers with a new credit card had FICO scores below 700. That dropped to just 38% in 2008.

To learn how you can prevent losing your home, go to my “Foreclosure Prevention” section now.

“To Your Success!”
mary!

 (*FICO is a trademark of the Fair Isaac Corporation which first developed a credit scoring system in 1958 to assist lenders in determining the creditworthiness of consumers. Lenders use a consumer’s FICO score to determine how much to loan and at what interest rate. )

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