Friday, May 22, 2009
Ron LeGrand FINALLY Gets Jim Galvanek's Autograph!
Today’s “guest post” comes from my good friend, Jim Galvanek. Jim is a real estate investor here in Washington, DC who has been extremely successful in rehabbing single-family homes and currently manages multiple rental properties. I snapped this photo of Jim giving advice to real estate guru, Ron LeGrand, down in Florida. Or maybe I have that backwards...?!
Jim’s lesson for us today is on financing – and he tells it like it is! I apologize in advance if this article leaves you begging for more information, but eal estate financing is quite an in-depth topic. If you're lucky, I might be able to persuade Jim to write a follow-up to this article. Leave a comment if you found this helpful...or send us your questions. Enjoy!
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Options to get cash or leverage your existing cash:
Basically, banks leverage their money by making money in the yield. For example they get their money from you in your savings paying you 1.5% and then lend it out at 4.5% to 24.5% and I have even seen higher. Credit card companies are evil when it comes to this. They take advantage of the uneducated many.
When asked what he would have done differently, Sir Richard Branson (Virgin Records, Virgin America Founder) answered, "I would have gone into more debt." Meaning he would have leveraged more money or borrowed. This would be called good debt.
Cash flow for me as a landlord is easy. I have 2 mortgages on my houses and whatever rent I collect extra I keep. Now to get here I had to leverage one house against another. But, more recently banks have been afraid to lend money to what they call risky investments. Now, I am paying 10-12% to friends and family if they invest with me on my house flips. I then take the money made and put it into rental properties that CASHFLOW.
Remember, you need to make your money on the purchase and not on the back end or relying on housing prices going up. This could be a 3 day seminar but basically after I collect rents, and pay principal/interest, taxes, and insurance, I cash flow about 1,200-1,500 (depending on expenses) a month. My plan is to get that 1,200 to 10,000 in the next 4 years. 10k or residual income will retire me. Also, by making sure the houses will cash flow, meaning the rent is more than my expenses I really don't care if the house loses value.
On another note, I also get to write off the depreciation and if I make less than 100k a year at my day job I can show a loss to the IRS. The tax laws are set up for the small business-- Get paid before you are taxed vs. an employee who is taxed before receiving their paycheck.
I also use my home equity accounts on my houses which is at 2.76 and 3.3 (interest only) which is an amazing lending price. The other game I play is with my credit cards to fund my projects. This I don't recommend to everyone because, well, like my tenants cannot handle a garbage disposal without breaking it, they will screw it up. For example my home depot card has no payment for 6-12 months with 0% interest. When I do a rehab, I am usually in and out of a deal within 6 months. I have had to roll my credit card on occasion but it's a lot easier than going to a bank that's going to charge me 8% and a point. Or hard money at 14% and 5 points.
Friday, May 1, 2009
BONUS - Mistake #8
ANSWERS: 1) A; 2) 15%; 3) C (but if you answered “A” then you share my sense of humor!)
**BONUS: Mistake Number Eight**
Homeowners Who Are “Upside Down” Don’t Understand All Of Their Options: All kidding aside, this one is pretty serious. If it pertains to you, I regret that you have found yourself in this situation. There are any number of reasons why a homeowner who needs to sell their house quickly could find themselves in a “no equity” or “negative equity” situation. Just having negative equity all by itself is not an immediate problem. Provided the homeowner can “hold on” to the house long enough for the market to rebound, they can usually count on enough appreciation over the years to build enough equity to eventually sell for a profit. However, for a homeowner who “has to sell” (for whatever reason)…having negative equity is a VERY big deal.
Why would someone “have to sell”? Unfortunately, this often results from an inability to keep paying the mortgage payments on time every month. There are many unforeseen or unfortunate circumstances that could cause homeowners to find themselves in this situation, including: Loss of Job/Income; Death in the Family; Separation/Divorce; Military Deployment; Other Overwhelming Expenses (e.g., Medical Bills, Legal Fees, Credit Cards); etc.
Regardless of the reason a homeowner cannot continue to make mortgage payments on time, the simple fact remains that the bank wants their money! They want the full amount, on time, every month, without fail.
If a homeowner “misses” a mortgage payment, does the bank call to remind them? Absolutely! And they’re usually pretty nice about it the first time it happens. They understand that sometimes people just forget to send in the check…or go to the website and pay online. No big deal, they’ll just charge you a late fee as long as you pay by the end of the month. Naturally, the bank wants you to pay on time each month.
But what if you don’t pay at all? And then you don’t pay the next month either? Now the bank starts to take a different tone with you. Banks are in business to lend money, so they really don’t want to have to go through the entire process of foreclosure proceedings (because it’s expensive for them – $40,000 on average!)…but they certainly will if they have to in order to recoup their asset. After several months of not paying the mortgage, the bank will essentially “re-possess” the house. This means they will evict the homeowner and turn around and sell the house…usually for a reduced price.
Foreclosure is an extremely serious topic and beyond the scope of this e-Book. If you are behind on your payments, I STRONGLY urge you to make every effort to get your loan current and/or work out a payment arrangement with the bank. Failing to do this, and failing to even communicate with the bank can have long-lasting and detrimental consequences on your credit and overall financial situation.
Having said all that…if homeowners find themselves in a “pre-foreclosure” situation, there MIGHT be a way for them to walk away from their house with a lessened impact on their credit and finances…and less overall stress as well. It’s called a “short sale.”
A short sale is when the bank agrees to accept less than what is owed on the mortgage. The name “short sale” is deceiving…because there is NOTHING short about the process. They should really call it a “long, complicated, low probability of success sale.” It’s a longshot. Sometimes it works, but most times it doesn’t. There are a handful of us though, who have had considerable success negotiating short sales with banks on behalf of homeowners. So yes, it’s another service that we provide, but explaining how it all works is also outside the scope of this e-Book. All I can say is that if you have found yourself “upside down” in your house, I know you have your hands full right now! If you give us a call we will be glad to review your options with you.
So after all that, are you still thinking about selling…?
If you found this book valuable, we would love to get your feedback on it. Just send us an email to: info@PointProperties.org or give us a call. If you are ready to sell, we can help you further assess your specific situation (for FREE) and help you determine the best strategy to maximize your NET CASH Equity.
**BONUS: Mistake Number Eight**
Homeowners Who Are “Upside Down” Don’t Understand All Of Their Options: All kidding aside, this one is pretty serious. If it pertains to you, I regret that you have found yourself in this situation. There are any number of reasons why a homeowner who needs to sell their house quickly could find themselves in a “no equity” or “negative equity” situation. Just having negative equity all by itself is not an immediate problem. Provided the homeowner can “hold on” to the house long enough for the market to rebound, they can usually count on enough appreciation over the years to build enough equity to eventually sell for a profit. However, for a homeowner who “has to sell” (for whatever reason)…having negative equity is a VERY big deal.
Why would someone “have to sell”? Unfortunately, this often results from an inability to keep paying the mortgage payments on time every month. There are many unforeseen or unfortunate circumstances that could cause homeowners to find themselves in this situation, including: Loss of Job/Income; Death in the Family; Separation/Divorce; Military Deployment; Other Overwhelming Expenses (e.g., Medical Bills, Legal Fees, Credit Cards); etc.
Regardless of the reason a homeowner cannot continue to make mortgage payments on time, the simple fact remains that the bank wants their money! They want the full amount, on time, every month, without fail.
If a homeowner “misses” a mortgage payment, does the bank call to remind them? Absolutely! And they’re usually pretty nice about it the first time it happens. They understand that sometimes people just forget to send in the check…or go to the website and pay online. No big deal, they’ll just charge you a late fee as long as you pay by the end of the month. Naturally, the bank wants you to pay on time each month.
But what if you don’t pay at all? And then you don’t pay the next month either? Now the bank starts to take a different tone with you. Banks are in business to lend money, so they really don’t want to have to go through the entire process of foreclosure proceedings (because it’s expensive for them – $40,000 on average!)…but they certainly will if they have to in order to recoup their asset. After several months of not paying the mortgage, the bank will essentially “re-possess” the house. This means they will evict the homeowner and turn around and sell the house…usually for a reduced price.
Foreclosure is an extremely serious topic and beyond the scope of this e-Book. If you are behind on your payments, I STRONGLY urge you to make every effort to get your loan current and/or work out a payment arrangement with the bank. Failing to do this, and failing to even communicate with the bank can have long-lasting and detrimental consequences on your credit and overall financial situation.
Having said all that…if homeowners find themselves in a “pre-foreclosure” situation, there MIGHT be a way for them to walk away from their house with a lessened impact on their credit and finances…and less overall stress as well. It’s called a “short sale.”
A short sale is when the bank agrees to accept less than what is owed on the mortgage. The name “short sale” is deceiving…because there is NOTHING short about the process. They should really call it a “long, complicated, low probability of success sale.” It’s a longshot. Sometimes it works, but most times it doesn’t. There are a handful of us though, who have had considerable success negotiating short sales with banks on behalf of homeowners. So yes, it’s another service that we provide, but explaining how it all works is also outside the scope of this e-Book. All I can say is that if you have found yourself “upside down” in your house, I know you have your hands full right now! If you give us a call we will be glad to review your options with you.
So after all that, are you still thinking about selling…?
If you found this book valuable, we would love to get your feedback on it. Just send us an email to: info@PointProperties.org or give us a call. If you are ready to sell, we can help you further assess your specific situation (for FREE) and help you determine the best strategy to maximize your NET CASH Equity.
BONUS SECTION - Quiz
**FREE SURPRISE BONUS SECTION**: I know, I know…this e-Book is only supposed to have “7 Mistakes” but I just couldn’t NOT tell you about this last one! This one does not particularly apply to “Most” homeowners, but it’s affecting enough people right now that I feel it is worth mentioning. But first, a short quiz to check your Real Estate Knowledge so far:
1) Your house’s value is ultimately determined by:
A) How much a qualified buyer offers to pay
B) The most recent appraisal
C) The price the neighbors sold for
1) Your house’s value is ultimately determined by:
A) How much a qualified buyer offers to pay
B) The most recent appraisal
C) The price the neighbors sold for
2) The NET profit from the sale of your house can be as much as ___% below the GROSS Listing Price.
3) What does it mean when someone says that a homeowner is “upside down” in their house?
A) Someone has “flipped” their house
B) They paid off the mortgage and own the house “free and clear”
C) They owe more on the mortgage than the current market value
D) None of the above
Mistake #7
Mistake Number Seven
Most Homeowners Have An Inflated View Of Their House’s Market Value: How much do you think your house is worth? Is that based on: a) what you paid for it; b) what you owe on the mortgage; c) how much you’ve put into improvements; d) how much the neighbors house just sold for; d) you had an appraisal recently? All of these factors tend to influence what homeowners “think” their house is worth, but the only number that matters is what a qualified buyer would offer to pay for your house, today. The best way to predict this, is to check recent, sale comps. By “recent”, I mean within the last 90 days. And by “comps” I mean you only look at houses within close geographic proximity to your house, that are of similar size, quality, and condition.
A word about appraisals…if you recently “refinanced” your mortgage, or took out money on a HELOC, the bank probably did an appraisal. You need to know that most “refi” appraisals typically performed over the last few years were inflated so that homeowners could take out the maximum equity. So don’t be surprised when you find the market value of your house is not the same as what the appraiser told you 6 months ago.
Homeowners often have an inflated view of their house’s market value from being too narrowly focused on what’s going on just in their immediate neighborhood. How much the neighbors down the street sold their house for is important, but it’s not the only factor. If another neighbor, (maybe not on your street, but still in the same “market”) recently “got behind” on their mortgage payments and had to sell below market value…guess what? That affects YOUR market value!
I know this can be a rude awakening, but with foreclosures being at an all-time high, homebuyers currently have a lot more houses to choose from. You need to realize that these houses are your competition and if you truly want to sell your house now in the current market condition, you will need to set your asking price accordingly.
Most Homeowners Have An Inflated View Of Their House’s Market Value: How much do you think your house is worth? Is that based on: a) what you paid for it; b) what you owe on the mortgage; c) how much you’ve put into improvements; d) how much the neighbors house just sold for; d) you had an appraisal recently? All of these factors tend to influence what homeowners “think” their house is worth, but the only number that matters is what a qualified buyer would offer to pay for your house, today. The best way to predict this, is to check recent, sale comps. By “recent”, I mean within the last 90 days. And by “comps” I mean you only look at houses within close geographic proximity to your house, that are of similar size, quality, and condition.
A word about appraisals…if you recently “refinanced” your mortgage, or took out money on a HELOC, the bank probably did an appraisal. You need to know that most “refi” appraisals typically performed over the last few years were inflated so that homeowners could take out the maximum equity. So don’t be surprised when you find the market value of your house is not the same as what the appraiser told you 6 months ago.
Homeowners often have an inflated view of their house’s market value from being too narrowly focused on what’s going on just in their immediate neighborhood. How much the neighbors down the street sold their house for is important, but it’s not the only factor. If another neighbor, (maybe not on your street, but still in the same “market”) recently “got behind” on their mortgage payments and had to sell below market value…guess what? That affects YOUR market value!
I know this can be a rude awakening, but with foreclosures being at an all-time high, homebuyers currently have a lot more houses to choose from. You need to realize that these houses are your competition and if you truly want to sell your house now in the current market condition, you will need to set your asking price accordingly.
Mistake #6
Mistake Number Six
Most Homeowners Underestimate Closing Costs: We already talked a bit about Closing Costs in “Mistake #5,” but who pays Closing Costs…and is this negotiable? First, there is no getting around Closing Costs…they need to be paid by someone. Second, of course they are negotiable. During my early house buying experience (my first 2 houses) I had to pay my own closing costs because I bought in a “seller’s market” and houses were selling at a premium. More recently (my last 2 houses) the seller paid for some of my Closing Costs. Right now, sellers need to be willing to pay ALL closing costs. Again, everything is negotiable…but don’t get hung up on whether or not you will help with closing costs. Remember, the only thing that matters when you walk away is…how much NET CASH Equity you receive! If you have to pay Closing Costs…pay the Closing Costs, just figure that into your fair asking price so you can sell as fast as possible.
Most Homeowners Underestimate Closing Costs: We already talked a bit about Closing Costs in “Mistake #5,” but who pays Closing Costs…and is this negotiable? First, there is no getting around Closing Costs…they need to be paid by someone. Second, of course they are negotiable. During my early house buying experience (my first 2 houses) I had to pay my own closing costs because I bought in a “seller’s market” and houses were selling at a premium. More recently (my last 2 houses) the seller paid for some of my Closing Costs. Right now, sellers need to be willing to pay ALL closing costs. Again, everything is negotiable…but don’t get hung up on whether or not you will help with closing costs. Remember, the only thing that matters when you walk away is…how much NET CASH Equity you receive! If you have to pay Closing Costs…pay the Closing Costs, just figure that into your fair asking price so you can sell as fast as possible.
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