You are working with a homeowner and the bank on a short sale for a defaulted mortgage.  Suddenly, the homeowner wants to know why you need all of their information.

When you’ve been in the mortgage note industry for a little while you’ll learn a few things that you weren’t expecting.  One of those things involves getting the homeowners you are working with to give you’re their information!

Getting information from the homeowner going into foreclosure can sometimes be worse than working with the bank.  Most homeowners just aren’t familiar with the steps involved in a mortgage sale, even though they themselves have a mortgage.   On the other hand, as the property investor you’ll be asking them for a lot of information, some of it quite personal in order to put together a packet for the bank and the hardship letter.  As a result the homeowner can become as stubborn as a mule when it comes to giving up information.

Here are some of the more common pitfalls of working with a homeowner with an information problem:

• They have no idea where they’ve placed all of their important documents
• They haven’t filed tax returns and so can’t give them to you for your own package to the bank.
• They just don’t understand why they need to give you all of the information if they are in default.

Try not to lose your patience with the homeowner.  They aren’t familiar with these processes, which is part of the reason you are there in the first place. 

The homeowner just needs to be made aware of the fact that the bank will make a major write off on this mortgage in the short sale or the mortgage note sale on the property.  That means you’ll need lots of information to back up your proposal and to convince the bank to take this deal. 

Explain to the homeowner, that the hardship letter that you put together for the bank is one way of providing the evidence you need to convince them to take a short sale.  It shows in dental that the homeowner hasn’t been earning enough income to be able to pay their mortgage.  Thus, you’ll need the homeowner’s tax returns as further evidence to back up the letter.  Be sure to explain this in detail to the homeowner so they really understand the reasons behind your need for lots of their personal information.

The banks really do care about the homeowners that are in genuine hardship.  So the hardship letters that you are putting together are very important.  The bank will be able to look at the letter and the evidence provided to confirm that your homeowners just couldn’t make payments because of medical bills, loss of job, loss of income or other reasons.  If it looks like the homeowners didn’t make their mortgage payments because they just didn’t feel like it, the bank will not agree to a short sale.

If you take the time to answer all of the homeowner’s questions and thoroughly explain your need for their personal information, you’ll find it’s much easier to work with the homeowner in default.

You can’t just approach the bank with your best offer and expect to close the deal.  You need to persuade them to accept the short sale first with a little negotiation.

You’ve found a great real estate investment to purchase, signed on with the homeowners and gotten all of your information in order.  All that’s needed is to approach the bank with a short sale offer and close the deal right?  Maybe not.

There is an art to negotiation in the real estate investment industry.  Negotiating a short sale isn’t simply approaching the bank with your packet of paperwork and your best offer to close the deal. 

You’ll need to endure at least two rounds of negotiation with the banks most of the time.  So, don’t approach them with your final offer right off.  It’s probably best if your first offer to the bank is a price that’s lower than what you are willing to pay.

Send a Cover Letter
Submit to the bank an offer cover letter filled will all of your points to justify the discounted offer you are making on the bank.  The banks you usually end up negotiating with get tons of offers for their properties.   This submitted cover letter helps you stand out and makes you look a little more professional as a real estate investor. 

The cover letter can outline your interest in the property, certain negative aspects you’ve noticed to the default property and your first offer on the property.  Don’t be afraid to make a low offer on the property when negotiating short sales.  You can always up your offers, but you can never lower them.  So, if you start out by giving them the most you are willing to pay for the foreclosure property you are interested in the bidding could quickly enter a price range you aren’t able to afford.

Make it Personal
Making more personal offers, such as using the cover letter submission, will get you into more negotiations with banks and help you close more deals.  You’ll waste a lot of time if you go out make a 100 low ball offers in a very impersonal manner.  It just won’t make real estate investment worth the time. 

Instead, go out and find ten default properties that you are interested in and make more personalized offers on them.  Put together a nice cover letter for each that outlines the points above and you’ll find that you enter more deal in less time.  Less time spent means you are making more money for your effort and you are more likely to make that real estate deal. 

There is more than one way to invest in the real estate market.  Now you can tap into a little known section of the industry using short sales to purchase properties with little or no equity and still make a profit!

You know that it’s possible to buy a house that has little or no equity in it for less than is owed on the mortgage!  Yes, it’s possible.  Let’s say that you, as a property investor come across this homeowner who is behind in their mortgage with the bank.  On the current real estate market the defaulted property is worth $100,000, but the homeowner is actually in debt for $115,000.  It is possible for you to get that homeowner’s house for just $70,000.

This seems impossible, but a little known practice called, “Short Sales” in defaulted note buying allows you to purchase property that is over financed and has little or no equity in it!   This is basically when you work with the bank to renegotiate the selling price of the house and the bank writes off the remainder of the mortgage. 

Getting Started with the Short Sale
When you work with this homeowner, you will become the homeowner’s advocate or intermediary with the bank.  So the first thing you’ll need to do is get an “Authorization to Release Information”, and fax it to the bank so that you can negotiate with the bank.  This basically means that the homeowner is giving the bank permission to speak with you concerning their mortgage.

When you contact the bank you’ll want to explain to the bank the reasons why they should be willing to let go of the house for less than it is valued and for less than is owed on the mortgage.  This involves putting together a little package with information that the bank may request from you and extra information that you include on the condition of the house.

For example; the house may need a new roof.  There could be all kinds of deferred maintenance and it needs all kinds of repairs.  You could even point out that the housing market is declining in the area or point out that there are loads of other houses on the same street that haven’t sold.  Basically, you present your case to the bank explaining the reasons that they should let the property go cheap.  Be sure to include digital photos of the damage to the property or the decline.

Using the Short Sales technique it is possible for you to work with the bank to reduce the selling price of that defaulted property.  You are able to purchase it from the homeowner for a reduced price and the homeowner can get out from under this mortgage without it being on their credit. 

All you need to do is approach the banks professionally, put together a good case for reducing the price (such as needed repairs to the property) and for good measure include some digital photos of damage or neglect on and around the property.

The homeowner can’t have a clean get away after a short sale on their defaulted property sale.  They’ll have to face the possibility of a judgment for the remainder of the mortgage or having to deal with the IRS!

When you are negotiating a short sale or note purchase through the bank on a defaulted property it’s easy to overlook the possibility of a mortgage judgment being filed against the homeowner after the sale.  It can be common practice for a bank to file a judgment against homeowners fro the remainder of a mortgage after a property has been sold for less than its mortgage.

A typical short sale involves negotiating with the bank to let you buy a property at a lower price than what is left owed on the mortgage to the homeowners.  This allows you to pick up a property cheap, the bank to unload a mortgage that the homeowners just can’t make payments on and the homeowners to get out from under a mortgage that’s downing downhill fast.

What Happens after the Short Sale?
Sometimes you’ll find that the homeowners don’t get away from this deal as Scott-free, as they were led to believe.  The bank may say okay, we’ll let you buy this mortgage or this property for say $60,000 when the homeowners still owe $100,000, but we’re also going to court later on to get a judgment against the homeowner. 

This judgment against the homeowner basically says that the now former homeowner still owes the bank $40,000, which was the amount of the write-off the bank took on the sale of that property to you.  That judgment will remain attached to the homeowner for 2 years and can really mess up their ability to get into a new home.  It can also attach to another house that the homeowner buys after selling you the property.  So the homeowner automatically gets a $40,000 debt tacked onto their other mortgage.

The bank can also decide not get a deficiency judgment against the homeowner for the write-off on that defaulted property.  While you are negotiating with the bank for that property you can also negotiate with them to not get that mortgage judgment against the homeowner.  When the bank doesn’t get a judgment, it is required to send out a 1099 form to the homeowner.  This 1099 form shows the $40,000 write-off by the bank as income for the homeowner for that year. 

What to Do about the 1099 Form?
As you can imagine, most homeowners will be terrified by this possibility.  Either they get a deficiency judgment against them for the remainder of the mortgage or the IRS views that $40,000 write-off as income.  Be sure to tell the homeowner, that when they get this 1099 Form they need to see their CPA or someone who is certified to do their taxes. 

The CPA will be able to tell them how to work with the IRS, so that this 1099 isn’t shown as income.  The homeowner may qualify for an ‘exclusion’ from the 1099 for selling their own home if they have lived in that home for the past 2 out of 5 years. 

In addition, there is a Form 982 that the homeowners may be able to fill out that shows they are ‘insolvent’ and have no funds from this sale. If they qualify through this form the IRS may not require them to pay taxes on that $40,000 write-off. 

Don’t blame the banks for this little predicament that can pop up and ruin the homeowner’s deal.  They are required by law to get a judgment against the homeowner or to send out a 1099 form to the homeowner.  Just make sure that you lee the homeowner know in advance that if they take the short sale or note purchase deal they will face one of these two possibilities.

Every market has its ups and downs. The same can be said of the real estate market. If you are a real estate investor you need to have a plan for those times when the tides are not turned in your favor.

The trend in recent months when it comes to real estate has had somewhat of a grim outlook for many investors. We have all witnessed a few ups and downs along the way with far more downs this time around than ups. While the current market may be a dream for most investors that are interested and comfortable with a buy and hold strategy other types of real estate investments are taking a backseat lately as savvy investors find them unfavorable in the current market.

There are signs you can look for that the tides are turning however. Of course you have to pay close attention and be prepared to act quickly once you determine that the time is ripe yet again. One strong recommendation is to study the downward trend and buy, much like when investing the stock market, at the first sign of a change in the trend. Now you don’t want to jump the gun and purchase on a hiccup but once you have a good idea that the tides are turning in the local market (the earlier the better in the trend of course) it is time to get back on the horse.

Other investors have decided not to wait for local trends to turn back in their favor and have decided to move on to other markets for their real estate investments. While the industry as a whole has taken a downward turn over the course of the last year it isn’t universal. There are pockets and markets here and there that are still alive and kicking. There are a few even that would be referred to as thriving. It is these markets that you would do well to discover, preferably before all the other real estate investors in the region or state discover the untapped potential of this particular market.

At the very least you need to understand the options that are available to you as a real estate investor in markets that are less than thriving. You do have options. One such option is the buy and hold option. The profits are lower up front but can be significant over time. More importantly a buy and hold strategy develops residual income unlike flips that offer only one shot at a great pay off. Another options is to wait out the market. Some investors have the time and money to do that. Others are less patient. Only you can decide which of these applies to you. Third, you can broaden your horizons and invest in uncharted waters. This is a risk to some degree but if you tap into the right market can bring in new money for many years to come. Finally, there is always the option of taking the risk and going all out even in a failing market. This is a long shot at best and almost certain to bring about a high price. However, if it pays off for you, the chances are good that it will pay off very well. I’m not that kind of gambler but if you are, then my hat is off to you. You will need to decide for yourself which of these options is best for you when confronted with a sluggish market.

As more and more homes are falling into foreclosure, there will be millions of people displaced from their homes and looking to purchase again down the road.  Lease option deals can be one of the best deals around for real estate investors. 

As the sub-prime lending mess is unfolding currently here in the United States, people are loosing their homes to foreclosure at record levels.  Where are all these people going to live?  The quick answer is that they will most likely become renters.  However, a couple years down the road when the market has adjusted and interest rates drop again, many will look to purchase another home to live in.  And, one of the best ways they can do it is through a lease option purchase. 

A lease option purchase is one where you as the property owner find a high-quality, long-term tenant who is interested in the right to purchase your home down the road in a couple years.  Maybe today the tenant is strapped for cash, has bad credit, etc… but in just a couple years they will be able to qualify for traditional financing.  In this case when they want to buy, lease option is a good option for them to consider. 

When you set up your lease option purchase contract it is essential that you believe that the tenant will be able to obtain the necessary financing in the time specified in the contract.  Morally, you should not lease option to someone who you do not think will ever actually purchase the home.  While you may make some money on the deal, you will only be hurting their lives and not helping them out at all. 

In a lease option purchase, you can stipulate that the tenant is responsible for any repairs and changes to the property during the time they live there, in exchange for a higher credit each month towards their down payment on your property.  This removes you from being the “landlord” and places you in a position where each month you simply have to cash their check as a mortgage holder would.  And, at the same time, you are giving someone a chance to own a home in the near future which they simply cannot purchase at the present time. 

If you are in a lease option deal and the tenant is unable to obtain financing at the end of the contract and moves out, you retain full ownership of your property and owe them nothing.  This places you with a choice of doing another lease option, putting the property for sale, or simply renting it out.  What you ultimately choose to do should be up to you and what the market shows you to do at the time. 

On occasion the best choice for all involved in a particular real estate investment is to go back to the drawing board and decide whether or not a property is still a worthy candidate for investment. Things change, partners pull out, and the circumstances of the sellers can all cause an investment with good profit potential go bad. Avoid this situation at all costs if it is within your power to do so.

Real estate investments come in all shapes and sizes. Unfortunately there is no golden formula or magic ball that allows us to look into the future and tell which ventures will and will not be successful. In fact, we can’t always tell from the beginning, which will not even land us in more debt than we started the venture in. For this reason, it is very important that you pay attention to your gut instincts a great deal when planning and executing real estate ventures. More importantly, it is vitally important that you pay attention to cold hard facts and figures. If you begin to have doubts and the numbers are beginning to look even slightly less than promising might be time to reassess the situation and walk away while you still can.

Even taking some loss in many situations, such as appraisal fees, earnest money, or costs that are related to inspections along the way is preferable to taking a major hit on an investment as large as a house. If, after a few hundred dollars invested in the property the original numbers aren’t adding up it is time to revisit your offer and see where and if it can be adjusted or pull out all together. A clean break with good will on all sides is always preferable but is not always possible.

If you find that there is little to no profit potential on a house before expenses are added into the mix and budgets are blown it is not a good sign for a profit potential later on. You enter into the business of real estate investing in search of profits not for the sake of charity. In other words, you must decide when the time to walk away may be and if you are willing to accept the potential consequences of doing so. Better yet, are you prepared to face the consequences of not walking away when you should?

Having a plan of action based on reliable facts, figures, appraisals, and estimations before making an offer is almost always the best way to avoid this particular type of situation. At the same time there are instances where the situation is something that is beyond your control. Real estate investments do after all involve other people in the process. When the situation changes and you find that the original positive cash flow situation is beginning to appear as though it is anything but you will need to put the profit potential ahead of everything and decide if it is in your best interest to pull out now.

Most of the time, once the tides have turned, it is best to pull out of the deal. If you wish to salvage the deal in some way, shape, form or fashion it is best to begin from scratch with an entirely new set of conditions and parameters rather than trying to muddle through and make changes to an existing contract that could prove confusing to all involved. Essentially though, the time to walk away is the earliest possible moment after the original deal is changed or amended to a less than favorable deal for you.

You will find that there are all kinds of real estate investing strategies and all manner of people in the business. If you are the sort who has a genuine interesting in helping others, then you will find that real estate opens many doors allowing you to do just that.

We here are all kinds of great sayings about the power of the positive and paying it forward. The truth of the matter is that far too few of us actually employ those same practices in our businesses. Real estate investing is one field in which we have a very real opportunity to perform good deeds while making a profit. Not many people are that fortunate in their lines of work. If you are considering the field of real estate investing for a business and you want the opportunity to help others, what better way to help them by than helping them along the path to home ownership?

As long as you go about the process responsibly you can help families overcome mistakes and rough patches in the past and still manage to find their way to home ownership. One way this is possible is through offering a fair lease option. Of course you shouldn’t stop there. You should also put them in touch with the resources they will need in order to make good on the lease options rather than leaving them to their own devices to be swallowed up by sharks or predatory lenders in the future. With the collapse of the sub-prime real estate market and record numbers of foreclosures there are more people needing second chances when it comes to the American dream of home ownership than ever before.

In order to be a responsible landlord when it comes to offering fair lease options to your tenants you need to not only offer to get them credit counseling help that will put them in a better position to actually get the financing they need to purchase the property when the lease term expires but also help them get the education they need in order to avoid those deadly adjustable interest rate mortgages, which for many are the very reasons they are in their current financial positions.

The ability to help others while making a profit is one of the best reasons there is to enter the world of real estate investing. In the current market, there are many opportunities that exist to help those who have lost homes as the result of the recent hardships experienced by sub-prime lenders. In other words, you aren’t limited to only one style of real estate investing if your ultimate goal is to help others while making money.

Among the available choices is simply renting out safe homes in decent neighborhoods at affordable rents. Allowing people to have a safe haven to call home is still a big deal, especially when you can sleep peacefully at night because you are offering them a reasonable rate on that rental. This is a great real estate investment for those who aren’t yet interested in offering a lease option at this time or are easing into the land-lording process of real estate investing. Just remember that the important thing in this situation is that you remain responsible in your practices, you avoid getting greedy, and you remember that you actually want to help others live the American dream through your real estate investing.

While it is easy to make excuses for why not to invest in real estate at one time or another, there really is no reason not to invest in any real estate market.  Think of the housing market like the stock market and buy low and sell high!

Are the current glut of houses for sale, and the lack of cheap bank financing, scaring away real estate investors?  Is now really a horrible time to try and get into the real estate market as an investor and make some money?  The answer to both of those questions is a resounding “no.”  While it is true that in some areas the real estate market is in a decline, and banks are being very stingy with their loans; now is actually one of the best times you can get into the real estate market and really make some serious money. 

Why Invest in a Down Real Estate Market?

One of the biggest questions we are asked these days is if it is smart to try and invest in a down real estate market.  In this new market, real estate is starting to become increasingly cheaper in many parts of the country.  Thanks to the sub-prime mortgage lending mess, and the downward fluctuation in the market, there are a ton of homes available today and plenty of people looking to wait it out as a tenant in a lease-option-to-purchase home until they can obtain traditional financing once again.

Think about it for a moment.  Where are all of the people who are being foreclosed on going to go live?  Many of them will become renters and others will opt to rent a lease-option with the hopes that in three to five years they will be able to purchase a home again.  This scenario is perfect for a new market real estate investor who is interested in buying some cheap properties through short sales, and then holding them as lease-options. 

Is The Real Estate Market Really That Bad Everywhere?

Interestingly enough, if you were only to listen to the California real estate market news you would probably think that the market is horrible and never going to recover.  However, in areas such as the Seattle real estate market, property is actually holding its value quite nicely.  This should tell you that while some markets require one type of investing; other markets offer you different options all together. 

To Invest Now or Not To Invest Now?

The simple answer is that the only limitation on your ability to make money by real estate investment is your own beliefs.  In truth, investing in real estate is the same as investing in the stock market; sometimes you buy high and hold, other times you buy low and sell high.  However, there is never any reason or excuse why not to invest in real estate – great market or down market.

In a volatile market such as real estate it is a good idea to diversify for your investments rather than allowing your entire real estate portfolio to consist of one sort of real estate investment. By spreading the wealth and your investment dollars you minimize financial risk while maximizing your investments.

Just as you would plan to have a diversified stock portfolio it is also in your best interest to have a somewhat diverse portfolio of investments when it comes to real estate. You do not want to have all your stocks in one company or even one industry if you are hoping to spread out your risk and maximize your earning potential. With that in mind, why on earth would you want to do that with real estate investing?

This is a huge question when it comes to real estate, which is one of the more versatile investment options a person can find in the world today. With so many options, each carrying their own sets of risks, why on earth would you put all your efforts into house flipping or wholesaling when you could have greater profits and lower risks by spreading your efforts around a bit. When it comes to flipping houses, the investment of time, money and labor is great. The payoff has potential but the risks are a little too high for many investors to make this a full time gig. At the same time, there is no reason why you can’t incorporate one or two flips each year into your portfolio.

You don’t want to rest your entire real estate investing portfolio on house flipping though because it is a one shot deal and the risks are really high. You can only make money on homes you flip one time unlike investing in rental properties, which provides a smaller monthly income. The more rentals you own, the greater your income and your income potential. Wholesaling is another quick money earner for many real estate investors. It doesn’t require the same amount of time, attention, and planning that flipping or even owning rental properties but can increase your network of contacts in the business and helps bring in a little bit of money every time you make a transaction.

Real estate investing is one field in which the more pies you have a hand in, the more pieces you get in the end. Who would want to limit themselves to one large piece of apple pie when there are excellent pecan pies, pumpkin pies, and key lime pies to be enjoyed for the small price of trying a little something different every once in a while.

You just might find that one of your ‘lesser’ pies brings bigger gold than you ever would have imagined—especially as many people expecting big returns from flips discovered when the sub prime market flat-lined recently. Having other transactions to fall back on was what saved many real estate investors from serious financial peril while costing others everything. Diversify your real estate investing portfolio so that you can avoid this risk in future real estate ups and downs.