Rather than talk about a “real estate” issue this week, per se… I want to address the topic of taking action and getting started - and being accountable.

I’m going to warn you that this might be a little hard, but I’m getting tired of all the “poor me” stuff going on out there. I agree… the economy is less than perfect… the housing market has its challenges… financial institutions are on the fritz…

But, you don’t have to sit there and take it lying down and it doesn’t have to signal the end of your world. So let’s talk about some of the issues we hear all the time and nip them in the bud…

1) “The Market’s In the Toilet. I Can’t Get Into Real Estate Right Now…”

Okay… I DO AGREE that there are some challenges in real estate and I know of more than a handful of SUCCESSFUL investors that are using foreclosure as an exit strategy. Heck, if you’re on a sinking ship holding a bag of lead weights, the smart choice is to toss the bag out and save the ship!

So… if you have properties and you’re in this boat, you’re not alone and you CAN repair your credit. But don’t let that stop you from moving forward.

This is THE TIME TO BUY property. This is THE TIME THAT MILLIONAIRES are made!

People are buying property and people are selling properties. You just have to know the numbers and go with them. The grass is always greener on the other side of the fence until you climb the fence! So… get off the fence and start making some money! (Just do your numbers more conservatively and look for the creative solutions for financing)

2) “The ‘Gurus’ Are Always ‘Selling’ Something”

I gotta be honest here… this one drives me mad!

Everyone is looking for the MAGIC pill, but success and financial security don’t come in a pill. It takes hard work, commitment and dedication.

I LOVE INFORMATION and I buy several things a week. Sometimes, I spend $47 for an ebook. Other times, I spend $4700 for seminar or event. Here’s the difference. I’m looking for ONE SINGLE tip that can make a difference.

For instance, I spent $1997.00 on a downloadable training program. I have only gotten through the first 1/2 of the first session and I’ve already implemented one of the strategies that has made me back the investment. Everything else is gravy and now I have permission to invest in another program!

When I started, I didn’t have 2 nickels to rub together, but I was creative and scrounged up the funds on borrowed money to attend a $4000 workshop. I learned a ton, but I got 2 things in particular that enabled me to make $40,000. But you see… I had to DO SOMETHING in order to make the money.

So… invest in your education and invest wisely… and realize that there’s always going to be something more ESPECIALLY with how fast things are changing with the industry and on the Internet.

3) “I Don’t Have the Time or Money. I Need Something That Will Do It All For Me…”

Folks… ANYONE that makes claims like this to you is lying. Don’t buy their stuff. There is NOTHING that you can do that make you wealthy if you don’t invest time or money.

There are systems and tools that automate a lot of things. There are virtual assistants that can give you back your time and you can essentially run a business on autopilot, but it’s going to cost you some money. So… be prepared to work.

There’s a great book by a guy names Larry Winget. The title is “It’s Called Work for A Reason” and he’s got another titled, “You’re Broke Because You Want to Be” (Or something like that).

This is the harshest pill of them all to swallow because it holds you accountable for your success or failure. There is no course that is going to give you every answer to every question when it comes to real estate. PERIOD. There is always a what if, but here’s what you do… You take action… When you take action, you’ll find out what you need the answers to and then you BUY the information when you need it.

For instance, let’s suppose you find a homeowner willing to sign over the deed, subject to. But, you don’t know what contract or form to use or what paperwork to file or whatnot. You THEN buy the information. This way, you don’t have a bookshelf full of unopened courses on the shelf.

What does this have to do with real estate you ask? It has to do with the fact that I want you to be successful, and to realize that ultimately it all comes down to taking action. I’m with you… I love information, but without action, you’re just a broke, smart person!

And wouldn’t you rather have buckets of cash?

So here’s what to do: Write Down 3 action items that YOU WILL DO this week!

These should be MONEY-GENERATING actions. I’m not talking research a market, set up my entity (though you should do this sooner than later), etc. I’m talking things that can directly put money in your pocket.

THIS is the only way to overcome these objections. You have to put the information you’ve already purchased to good use. If you have $50,000 in courses on your shelf and haven’t done a deal, I am hard pressed to believe that ALL of that information was faulty!

Here are some examples of action steps you can take and I’m even assuming little to no money out of pocket here:

• Talk to 50 sellers (Call Newspaper Ads) - this will help you learn to talk to people and ask the hard questions that take some time to master
  .
• Distribute 250 Fliers In Your Target Neighborhood - You can print these from your home computer and distribute themselves or have a teenager do it for you.
  .
• Write 3 Lowball Offers on REOs - Don’t worry about assignability, financing, etc. JUST DO IT!

Heather Seitz

About Heather Seitz…

Heather has an extensive background in sales and marketing and is the author of The Real Estate Rant newsletter and co-author of Guerrilla Marketing for Real Estate. While working in marketing with several startup companies, Heather began studying real estate and evaluating the investment opportunities. Very quickly, she realized the potential of investing in real estate and immediately started buying, fixing and fliping property, which was her main investment strategy for her first 5 years in the business. Since then, she’s also worked with lease options, straight rentals, seller held paper, etc.

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Are You Taking Action or Making Excuses?

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I have to say, I live in one of the toughest states in the country for investing. Our Maryland legislature is constantly passing new laws that have serious effects on the business of real estate investors.

And you know what? It doesn’t matter if you are a landlord or a flipper, new laws are being passed more and more frequently that will directly impact your business.

For example: I had a discussion with a student yesterday, who was discouraged by the recently passed Maryland foreclosure laws. Thanks to the dramatic statutes, his business model has suddenly become obsolete.

I could feel his pain!  He had a great thing going, and he felt like he was just put out of business by the stroke of a bureaucrats’ pen.

Look for the next open door…

Rather than allowing him to be discouraged, I challenged him to look at things differently.

“You know the ins and outs of this law. Do you see a void left by the changes in the law? Perhaps the law closed one door while opening another.”

As it turned out, he was well positioned to make a simple adjustment and go right through one of the doors that the new legislation had opened.

Before our talk, it seemed to him that all the doors were closed, and for a moment that was probably the case.  But with just a moment’s creativity, he was able to find the new opportunities embedded in his current challenge.

I share this with you, because I want you all to think this way:

There are always obstacles, and there are always opportunities…

I’ve been in the wonderful world of real estate over 10 years. If I had kept doing the same things I did when I started, I would have shut my doors after only two years in the business.

But, after many adjustments, here I am, still going strong, even in this new, buyers’ market.

When I look back, my strategies have changed numerous times over the years. A part of me feels like I’ve been unfocused. But the reality of the situation is that I’ve been adjusting.

If you’re going to survive, you too must learn how to adjust.  When the proverbial “cheese” moves, you must learn how to move with it rather than focusing on how wronged you feel that it’s not right where it used to be.

I’m always looking for the void that needs to be filled…

…and when I find it, I carve my niche right there.

Sometimes that void only lasts for a short period of time before the opportunity is gone, but that is how people make money.

It’s one of the best takeaways from Napoleon Hill’s book, Think And Grow Rich: Look for the seed of an equivalent or greater benefit in every difficulty.  Or, put simply, find the void and fill it.

Start by opening your eyes to begin looking for open doors of opportunity that open up in your market.  Then adjust your business to exploit the windows of opportunity from time to time.

Rather than being stopped by difficulty, take each challenge on, cash in on the trend, and start searching for the next void that you can fill. When you do, you’ll be celebrating many new successes.

Steve Cook

About Steve Cook…

Since 1998 Steve Cook has been actively flipping houses as a full time, Baltimore-area real estate investor and has taught thousands of his students how to follow successfully in his footsteps. Steve’s specialty is his “flipping homes 1-2 punch”, a proven system of real estate investing that powerfully combines wholesaling and rehabbing houses.

Also the founder of FlippingHomes.com and author of Wholesaling for Quick Cash and the Real Estate Investors Business Plan, Steve is dedicated to helping others succeed through understanding and applying proven, time-tested principals to flipping real estate.

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Finding and Filling YOUR Investing Niche

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We also discussed the comm myth that, for your potential private money lenders, “it’s all about the ROI (return on investment).

Offering too high of returns can hurt your response.

At my first bootcamp on money partners, Joe Arlt shared his experience with some money partners that associated higher returns of 12-15% interest to more risk.

I’ve had the same experience. Some people don’t understand why you are offering such high returns and sometimes we shouldn’t.

You’ve been taught that you need to offer higher returns in order to attract money partners but that’s not true.

The premise behind this belief is that you have to “compete” with the banks by  offering higher - much higher - returns to convince people to invest with you and your company.

Not only do some prospects associate a higher risk because of the return but it raises red flags that it could be a scam.

AARP and state organizations are always offering seminars and programs to teach seniors to be aware of investment advisors offering “high returns with less risk”.

“Isn’t ‘high returns’ supposed to be your money partner sales pitch?”

Then your sales pitch may need an overhaul.

Try a different approach to appeal to their emotional triggers. Offer moderate returns instead of being over the top. And seek out more sophisticated investors.

Find out more at my Private Money Bootcamp. I’ll give you my exact system for using “emotional triggers” to attract money partners. When you use them, ROI becomes secondary.

My best to you,

Matt Scott
PrivateMoneyEvent.com

About Matt Scott:
Matt Scott is the nation’s top-expert on raising funds for real estate ventures. OPM (Other People’s Money) is a key to his success in real estate and he’s discovered that in order to become successful partnering with others, you must have more than one size wrench in your toolbox. By expanding OPM well beyond what anyone else imagined, Matt has created an event based on his success using OPM.

Matt gave up his employee status in May 1994 and is a full-time real estate entrepreneur with a Bachelor Degree in Accounting. His experience in the CPA firm made him realize entrepreneurs and investors are the wealthy not only in assets but in lifestyle and freedom.

Need private money for your real estate deals?  Find out more about Matt’s next Private Money Event…

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Avoid This Huge Mistake With Private Money Lenders, Part 2

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Let’s face it.  Getting financing for your real estate deals is a good bit more challenging in 2008 than it was 2 or 3 years ago.

In the past investors had their pick of financing options.  From conventional bank financing at 110% LTV (loan to value) to owner financing and even private money.

But when you look at today’s marketplace for investment real estate financing the picture, you might be inclined to see a much bleaker picture.

Today it seems that conventional real estate investment financing has all but dried up (unless you have 20% down), hard money is increasingly more expensive (12-16% and higher in many cases), and the overall credit crunch is trickling it’s way down to real estate investors like you and me.

What If You Had More Cash To Invest?  What Could That Do For Your Business?

While conventional financing options are all but gone for investors and hard money is getting more expensive, many are finding that private money is actually getting more and more attractive…

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Consider…

• The economic slump,
• The downturn in the stock market,
• Consumer confidence is down,
• Real estate markets are steadily declining…

All of these factors sound terrible, but they’re actually excellent for investors who know how to leverage with these things to their advantage.  With the economy in a rough spot, the stock market continually taking hits, and interest rates (for CD’s, savings accounts, money markets, etc.) at meager rates… I’d urge you to consider that this is actually the perfect time to begin to recruit private money lenders for your real estate investing business.

Think about it…

People are losing money in the stock markets, are earning peanuts in their investments, and don’t feel confident enough in themselves to begin investing in real estate.

It’s almost the “perfect storm” for private money… however, most investors are still struggling to raise the cash needed to complete their real estate deals and grow their business in this buyers market.

What if you had a small list of private money lenders who were ready and willing to write you six figure checks at a moments notice?

Well… that’s the secret to many of the most savvy investors around the U.S…. and it’s a lot easier than you may think.

4 Essential Factors To Remember For Private Money…

1. You can be creative with private money

Many investors are confused between Private Money and Hard Money.  While they’re pretty darn close… they’re not the same.

Hard Money is traditionally similar to conventional financing in the sense that there is an application process, you are usually charged an interest rate and upfront fees (or points), the terms are dictated by the lender (meaning you essentially have no power), and they are very expensive (usually from 10-16%+).

However, Private Money is a bit different.  Private money lenders are usually individuals who have some extra money sitting around and want a better return.  It could be your local dentist, another real estate investor, a retiree who is tired of his 401k earning negative returns, etc.  Essentially, a private money lender can be anyone. Even better, the terms are highly negotiable and tend to favor you (the investor) more than hard money loans.

When you’re borrowing from a private money lender, you can basically set the terms… then tweak them to further fit BOTH of your goals.

2. Structure private money loans so they are easy to maintain and increase cash flow

A stumbling block many people get when trying to talk to potential private money lenders is that they are stuck in the mindset that a private money loan has to be like a conventional loan (i.e. – monthly payments, PI, etc.).

Well… that shouldn’t be the case.  Savvy real estate investors need to be creative not only in how they set up their real estate deals… but also in how they set up their private money loans.

While you as a real estate investor might think that people will always want monthly interest payments… that’s not usually the case.  For example many private lenders will agree to be repaid with a singlular payment when the property is sold (with a max number of months pre-built into the loan).

So, rather than making 12 separate interest payments if it takes 12 months to sell… why not make just one payment (principle + interest) when you sell?  Isn’t this so much easier from an admin standpoint?  And lenders love it often times because they get one big ol’ check in the mail rather than an array of smaller checks.  It’s just easier all around.

You should structure the loan so it works out well for both of you, and try to ensure there’s there is the least amount of maintenance and administration possible for everyone involved (you’ll thank me later).

3. Avoid “pooling” investors’ money together

Many new investors just don’t think of this “little detail” until they come face to face with it… and then panic because they don’t have any idea what to do.

Let’s say you need $200,000 for a property acquisition… but you don’t have a single lender on call who can bring the entire two hundred grand to the table.  So instead, why not combine the resources of a couple of your private money lenders… one for, say, $150,000 and another for the remaining $50,000.

Whoa, hand on there a second, partner.

In most cases it’s usually not a good idea to lump their funds into one single loan - and might even be illegal.

First of all, it may get confusing come time to make payments on the note (no biggie… but a bit of a pain).

Next, what if you default on the loan?  Who gets to foreclose?  Who actually owns the note?  That could be a sticky situation for the two lenders… and for you if that were to happen.

Thirdly - and I won’t go into detail here - but when “pooling” funds together, you can often get into a sticky mess with securities laws without even knowing it.  Ignorance is most definitely not bliss in this case.

It’s usually advisable to place one lender (the one with the largest sum) with one note in 1st position (they get lien on the property just like a bank would).  Then, place the smaller lender in 2nd position (they get a separate note and a separate lien on the property… but they are behind the 1st position)

4. Always have integrity and do what you say you will

This should go without saying, but the key to successfully recruiting and keeping private money lenders is to always do exactly what you say you will do, WHEN you say you will do it..

If you promise to pay 10% on a 16 month note with an option to pay it off early without penalty… well… you better live up to your word and do just that.

If you say the property will sell within 6 months and you promise your lender they’ll get their money back when the property sells (with interest)… you better do just that… and ensure that you sell as close to on-or-before that 6 month mark as possible.

Here’s a good rule of thumb: Treat your private money lenders as if they were your grandparents.

Just ask yourself: “Would I do this same exact thing with my grandparents?  Would I feel good about it?”   Many people are afraid to ask their family members to be private money lenders because they’re scared of their own ability to make wise investment decisions.  But often the same investor won’t bat an eye at having someone else’s grandma make that same loan to them.  More than just a tad unethical, don’t you think?

The bottom line is this: If you always do what you say you will do, not only will you be more profitable in business in general, but you’ll enjoy all the private money lenders you need, hungry for the opportunity to lend you money.  It sounds crazy… but it’s true.  These people WANT to lend their money out!  They’re investors!

But you only get to mess up once. The first time you fail to follow through and do exactly what you say… well, you’ll probably ruin your chances to recruit any private money lenders in the future altogether.

So, whether you’ve realized it before not… if you’re going to be successful in today’s real estate market… you NEED to have a private money lender on your side - and ideally several of them.

Private money gives you the ability to act fast, have flexible terms, access the cash you need for your deals, and last but not least… it lets you keep your own cash liquid.

If you don’t have any private money lenders, I urge you to go out and recruit some today.

And remember…of everything covered in this article, the most important is #4. As long as you’re honest and do what you promise throughout the entire process… getting and keeping private money lenders should be a walk in the park.

Trevor Mauch
The REI Brain

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If not, you must be a lot younger than me. Today’s popular detective shows are CSI, Law & Order and Bones and they all have something in common when solving crime.

Yes, this has to do with finding money partners. Stay with me…

The new shows strut the new technology in fighting crime that Columbo and Kojak could have never dreamed of. Yet the old guys could still solve the case because crime is crime. And it has the same elements today.

In order to develop a list of suspects, the detective will look for a couple of things - opportunity and motive, the common elements.   Whether they are fighting crime today or in 1978, the detectives will look for the motive to develop a list of most-likely suspects.

Motive isn’t the same for each perpetrator of a crime. Sometimes it’s revenge, money or hate. It’s different for each criminal and it’s different for each money partner.

Do you see where I’m going?

Let me show you…

Myth: It’s all about the ROI (Return on Investment)

One big mistake often made in seeking money partners is believing all prospective money partners have the same motive.

They don’t.

So why are you doing what you do?

Why are you only appealing to those investors that want a high ROI? If you’re simply offering 15% interest-only payments, you are missing out.

Here’s proof…

In my private funding bootcamp we recently reviewed a syndication case-study. Before we reached the end of the case-study, revealing the ROI, an attendee (Acer) spoke up and said,

“You mean the ROI is only 7%? That’s it?”

Yes, the ROI was only 7% - so what?

Acer, like most people, was surprised at the idea that a money partner could be satisfied by the mediocre return.

The group funding this commercial project was comprised of white collar professionals. And yes, they are very happy with the 7% ROI. Their motives are not the same as other money partners.

Money partners are people. They are all different.  They all don’t expect huge returns. Sometimes they just want to be a part of something. Other times, it’s enough for them to drive by and say, “I own part of that strip center.”

…That’s why there’s rocky-road ice cream and butter-pecan ice cream….
…That’s why there’s Bayliner and Grady White boats….
…That’s why there’s McDonald’s and Ruth’s Chris restaurants.

Remember, we all have different motives for what we do… even money partners.  Stop treating them the same and learn to trigger their emotional buttons to get them to invest with you.

When you do, you’ll find more rabid money partners willing to give you more money to invest.

Part 2 coming soon…

Matt Scott
PrivateMoneyEvent.com

About Matt Scott:
Matt Scott is the nation’s top-expert on raising funds for real estate ventures. OPM (Other People’s Money) is a key to his success in real estate and he’s discovered that in order to become successful partnering with others, you must have more than one size wrench in your toolbox. By expanding OPM well beyond what anyone else imagined, Matt has created an event based on his success using OPM.

Matt gave up his employee status in May 1994 and is a full-time real estate entrepreneur with a Bachelor Degree in Accounting. His experience in the CPA firm made him realize entrepreneurs and investors are the wealthy not only in assets but in lifestyle and freedom.

Need private money for your real estate deals?  Find out more about Matt’s next Private Money Event…

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Avoid This Huge Mistake With Private Money Lenders, Part 1

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Well (as of the time I’m writing this article) they just finished up the sudden death playoff after playing an 18 hole playoff and the result was that Tiger Woods won his 14 Major Golf Tournament of his career over the 158th ranked player in the world Rocco Mediate.

Tiger Woods is just coming off knee surgery and had not played a competitive round in 2 months…

Rocco Mediate is the happy go lucky player we can all relate to who nobody thought had a chance at the start of the week.

In fact, Rocco had to play in a sudden death playoff this past week just to qualify to play in the U.S Open.

But I notice that both of these players have something special in common:

They have both had to persevere against incredible odds…

And I think in business (that includes real estate investing) we can take a lot of lessons from these two incredible athletes…

First, if you get knocked down get right back up and go at it again.

My interpretation…Don’t ever give up!

Second, you are never too young or too old to have huge success.

My Interpretation…do not let any self limiting thoughts influence you into giving up or saying “I can’t do that”.

Is Your Dream Worth Your Perseverance?

You are reading this right now because you have a dream of becoming a successful real estate investor…

What level of success you have already reached I do not know. But, if you keep the attitude that you will NEVER give up until you reach your goals and you NEVER let the “I can’t do that” thoughts enter your head, you WILL be a success…

I am reading an incredible book by Michael Masterson right now called Ready, Fire, Aim and the chapter I just finished reading was all about implementation.

Film Making, Real Estate Investing and Implementation

One of the examples Masterson gives is becoming a filmmaker. He lays out two courses of action for how one might go about pursuing this endeavor…

Option #1: Go to school for a few years, get a nonpaying internship, work your way up and hope for a big break after 15-20 years…

OR…

Option #2: Just go out and make a movie. It may be terrible or it may be great, either way you have taken an action to get you much closer to your dream. And the next time you make a movie, it will most likely be better than the first.

Masterson then related it to his real estate business…

He decided he was going to invest in real estate, and started by finding someone to partner with who was going to do the due diligence while Masterson funded the business.

Masterson quickly picked out a few potential investments and then let his partner do the leg work. While the partner was doing the work, Masterson did everything he could to get an education in real estate investing…

But keep in mind that he had made up his mind that he was going to purchase at least one of the three properties his partner was researching…

Do you see how he was putting into action the Ready, Fire, Aim principle?

Imperfect Action Always Beats Perfect Inaction

This is what I want you to do with your real estate investment business.

1. Decide right now that you are going to become a successful real estate investor.
   .
2. Go out and pick a few potential properties and start researching and doing the due diligence.
   .
3. Get educated. Read all the books, listen to all the CD’s, watch all the DVD’s, attend every LIVE event and listen in and/or watch every teleseminar or webcast possible.

I hope that you have enjoyed my ramblings…

- Ross Treakle

—————————————————–

Ross Treakle lives in Knoxville, TN and is the founder of the RE Investing Link, a social networking website for real estate investors. Gain new knowledge in our forums, avoid mistakes by learning from other investors in our blogs, use our Free HUD Generator on your next deal, and position yourself to become a real estate investment millionaire at RE Investing Link.

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The word “short sale” has certainly been a buzz word in the distressed real estate market we are experiencing in 2008. However many Realtors and investors are still unclear on how to determine a real estate short sale offer that is acceptable to the lender.

The following steps are to be used as a basic guideline on determining what to offer the lender for a short sale acceptance.

Step 1: Determine Fair Market Value (FMV).

The FMV can be determined by evaluating sold, comparable properties in a similar or close proximity to the subject short sale property.

A realtor will have access to the MLS (Multiple Listing Service) and can create a CMA (Comparative Market Analysis) for the subject property. This analysis will identify sold comparable properties with same square footage, bedrooms, baths, garage and other similar characteristics as subject property.

Request the Realtors use a sold time frame within 6-12 months when pulling properties in the immediate or surrounding areas. Usually the short sale lender will not consider any sold comparables that are older than 12 months and that are further away than 2 miles from the location of the subject property.

Step 2: Evaluating sold comps systematically.

Contrary to popular and often misguided belief, you can use a formulaic system to work in your favor when determining what to offer on the short sale property. This system has been around for years, but for some reason you may have not heard of it mentioned dealing with real estate. Here is the system. You will use the law of averaging. The way this works is like this.

Let’s say you have eight sold comparables that are all similar in size, square feet, bedrooms etc. Here is how you apply the formula. You would take out the two highest comps and the two lowest ones and average the rest.

EXAMPLE:

You have a property you think is worth $145,000.

You have a Realtor pull a CMA and you find eight sold comparable properties that match the criteria above.

The MLS shows the following:

$159,000
$154,000
$153,000
$161,000
$148,000
$143,000
$146,000
$151,500

Using our formulaic approach you would take out the two highest sold comparables ($159,000 and $161,000). Then take out the two lowest sold comparables ($143,000 and $146,000). This would leave four other sold comparables.

$154,000
$153,000
$148,000
$151,500

———–

You would then take an average by simply adding up the sum of all the sold comparables and dividing them by the total number of properties left. In this case, that number would be four.

Total: $606,500 divided by 4 = $151,625

You can reasonably justify the house may sell for $151,625 instead of the $145,00 you originally estimated.

Step 3: Revealing the ARV (After Repair Value).

This terminology is slang often used with real estate investors. It is similar to the FMV with a few differences made up by the amount of repairs the investor estimates the property needs in order to sell quickly on the open market using FSBO (for sale by owner) techniques and not using the MLS.

It can be argued the ARV is more of a guess or suggested value derived by using sold comparables from houses that were NOT sold by a Realtor.

One way to explain the difference is a realtor will typically use a FMV and a real estate investor may elect to use an ARV. An appraiser can use both value methods, but generally sticks to the ones that come from off the MLS.In my opinion… the ARV is a less accurate and dependable value than what come off the MLS.

Step 4: Figuring out the BPO.

The BPO (Broker Price Opinion) is perhaps the single greatest value factor the lender will use to determine the acceptance of your short sale offer. Te BPO is KING!

BPO is a generalized opinion or value of a property the lender uses to determine what the short sale property is worth on paper. They are ordered by the lender and sent to a Third Party Company, such as BPO Direct, First America, LandSafe, etc. These companies have a list of realtors for each state. The BPO’s are ordered and conducted by Realtors.

The BPO can be an Interior or Exterior type.

If an Exterior type BPO is conducted, it means the realtor (BPO agent) did not go inside the property to evaluate its condition. This could be due to the homeowner vacating the house or not being cooperative with the BPO agent when requesting a time to come appraise the house.

Dealing with “Pretty House” type short sales (categories later defined), you will find the BPO will typically come in 10-20% lower than FMV or ARV. Based on this, you might consider offering 60% of the ARV or FMV value for your initial purchase offer. Of course, this depends on the amount of repairs needed for the property.

If you have what can be classified as a “Pretty House” short sale, which would show very little needed repairs, don’t expect to get a huge discount from the lender for it. If you cannot JUSTIFY a reason for the lender to accept either a small or large discount … don’t expect them to give one to you.

This also dispels the myth that all houses heading towards foreclosure are good short sale candidates. They are not.

Here are some classifications and examples to make it easier to determine how much of a loss the lender may agree to accept.

Short Sale Classifications:

1. PRETTY HOUSE
2. UGLY HOUSE
3. SCARY HOUSE

EXAMPLES:

Pretty House: (Generally in safe, desirable areas and houses selling fairly quickly)
ARV/FMV: $100,000
REPAIRS: $5-10,000 (5-10%)
BPO: $80-90,000 +/- 5%

Ugly House: (Generally a light rehab or fixer-upper, handyman special house in fair neighborhoods)
ARV/FMV: $100,000 (With Ugly Houses this number tends to be the “as is” value instead of ARV.)
REPAIRS: $11-20,000 (11-20%)
BPO: $80,000 +/- 5%

Scary House: (Generally in areas that are not desirable, massive repairs needed, lots of crime isn’t uncommon)
ARV/FMV: $100,000 (With Scary Houses this value tends to be the “as is” value instead of ARV.)
REPAIRS: $35,000 (21 - 35% +)
BPO: $65,000 +/- 5-10%

You can have a Scary House located in a great, fast selling neighborhood and combination of the others, but generally speaking Scary and Ugly Houses will not be located in excellent neighborhoods. Remember this is a guideline, not an exact science. The BPO agent will generally consider the “as is” value for both Ugly and Scary Houses.

Now let’s discuss the different loan types the lenders will consider a factor per short sale submission.

Step 5: Learning the loan types.

When you learn these, you can increase your closing rate for lender accepting your short sale by as much as 50%! Here’s why: if you know more about any property, it provides you better leveraging and ultimately negotiation strategies to target. Not all short sales are created equal.

Conventional loans.

These loans are found all over the place. They provide the most flexibility especially dealing with short sales. Using the $100,000 example, you might start out your offer submitting 60% x 100,000 (FMV) = $60,000… The $60,000 is actually 70% of the BPO Price. However it is very common to see the lender accepting around 80-85% of the BPO price, which would be around $68,000 - $72,250.

This model can fluctuate a little bit, but this is a common average. The BPO (value opinion also considered the PERCEIVED value of the property) to the lender is the MAIN FACTOR. Therefore in this example if you thought the BPO was going to come in around $65,000 … You would take 82% of THAT number, which would be $53,300. The lender may very well accept $53,300 based on their perception of the value of the property (their asset).

FHA loan.

I repeat: this is not a scientific grading scale. It is the model used by many short sale investors as a guideline. You can and will have other factors that make you stray from this. If you are dealing with an FHA type loan or any government backed loan, they are going to recoup a set amount if the foreclosure is completed.

For example with FHA loans, the insurer will basically guarantee the lender 82% of an FHA Certified Appraisal amount. Notice I did not say BPO. For these loans, you will need an FHA Certified Appraisal for the lender to consider in their evaluation process on the property. The BPO will not suffice on these types of loans. You can massage the numbers 1-2%, but 82% is listed in their guidelines.

There is a compiled list lst that I provide in my home study course. You can go online to find a similar list for free too.

• All FHA loans are insured by the federal government.
• As long as the lender follows FHA guidelines, they are guaranteed at least 82% of the “as is” appraised value.
• FHA-type loans will not use a BPO. Instead they will require an FHA Certified Appraisal. Use the same techniques on the FHA Appraisal that you would for a typical short sale deal.
• If the debtor is in bankruptcy, no short sale will be approved.
• If the property was used as a rental for more than 12 months, no short sale will be approved.
• If the homeowner does not occupy the property, no short sale will be approved. (There can be exceptions to this.)
• The cooperating lender is eligible to receive $1,000 from FHA for performing a short sale.
• Seller MUST fill out FHA specific forms for approval. This will include an Application to Participate and a
• Homeowners Counseling Certificate, all of which the lender will supply in their FHA Short Sale Packet.
• FHA loans must be at least 30 days past due for short sale consideration.
• The lender is required to give a copy of the appraisal to the homeowner.
• The homeowner can receive up to $1,000 directly from the HUD 1.
• FHA will not go after the homeowner for a deficiency once the short sale is accepted and closed.

VA (Veterans Affairs) loans.

These type of loans have a guarantee of 88% of the appraised value of the property.

• Designed for veterans.
• These loans are federally insured.
• VA guarantees the lender at least 88% of the “as is” appraised value.
• A VA appraisal is usually automatically ordered once the debtor becomes 60 days past due.
• The appraisal value can be appealed by the homeowner.
• The VA will work the homeowner and do everything possible for the homeowner to retain VA benefits.

Note: Absolutely NO BPOs allowed. All VA loans require certified appraisers to determine value.

Freddie Mac loans (FDMC).

• FDMC will not allow the buyer of a short sale property to be anyone but an individual. This means the buyer on the Purchase and Sale Agreement and HUD 1 cannot be a company, LLC, trustee, or anything of the sort. The purchaser must be an individual name.
• Freddie Mac will almost always require that the property be listed with a realtor, which means they are going to ask for a Listing Agreement. If the offer nets the lender less than 92%, Freddie Mac will require that the property is listed for at least 90 days before approval will be issued.
• The lender has the authority to approve short sales at a threshold of 92% or higher. Anything lower than 92% must be approved by Freddie Mac.
• Freddie Mac has a high customer service standard, which means that if the lender is not responsive to your offers, they are going to want to know about it. This creates another point of leverage to get your offer accepted.

Fannie Mae (FNMA).

• Fannie Mae has a high customer service standard. If the lender is not responsive to your offers, they may actually step in and take over the short sale negotiation process.
• The lender has the authority to approve short sales at a threshold of 90-92% or higher. Anything lower than 90% must be approved by Fannie Mae.
• Fannie Mae rarely requires that the property be listed with a real estate agent.
• Fannie Mae will allow the lender the authority to approve short sales at a threshold of 90% or higher, but will also allow a heavier discount if needed.

For Fannie Mae, Conventional, VA and FHA short sales:

The buyer can be any entity, company, person or trust (the bank may require written proof of the company or of the trust). Most of the loans that you come across regarding short sales are going to be conventional loans.

Step 6: Memorizing the minimum accepted NET offers (of the BPO or FHA appraisal).

• VA 88%
• FHA 82%
• Freddie Mac (FDMC) 92%
• Fannie Mae (FNMA) 90-92%
• Conventional Loans 80% (no set limit)

IMPORTANT: Understand that these are NET percentages to the bank. If you have your offers padded with things like realtor commissions, closing costs and additional fees, these are NOT to be included in this percentage.

EXAMPLE: The BPO on one of your deals comes in $100,000. Offers that may be accepted based on the above criteria would be:

• VA 88% = $88,000
• FHA 82% = $82,000
• Freddie Mac (FDMC) 92% = $92,000
• Fannie Mae (MNMA) 90-92% = $90-92,000

Something else to consider is this: all LOCAL banks, usually the smaller ones, will almost always NOT ALLOW more than a 10%-15% discount off the property depending on the amount of repairs needed to fix. Local banks tend to be more conservative in their approach to discount the property. This is partly due to the network of local affiliates the bank can call to get more than one opinion of repairs needed or value of the subject property.

Step 7: Dealing with second mortgages and junior lien holders.

If you are dealing with a second mortgage holder, you are basically going to negotiate with them the same way.

You will find that many 2ND Mortgage Holders will not require as much information to make a decision quickly on discounting their loan amount. They will generally order a BPO or have an appraisal on file. It could be older or current. Make sure and ask about it depending on the numbers you find out dealing with them.

Sometimes a lender will actually tell you a BPO price.

Now before you get all excited and think that is GREAT…think again! Typically, they will LIE to you about the price and actually inflate it. Yeah…I know… you never thought lenders lied, did you? Well…they do…and they do it a lot.

When you are dealing with the 1st mortgage holder, it is not uncommon to find out they will only allow $500 - $1000 towards paying off any 2nd Mortgages, Liens, Judgments etc. All lenders are a little different, but the norm is $1,000.

This is another reason why you will deal with more 2ND position lenders that are willing to take pennies on the dollar to satisfy their loans with the homeowner. In fact, you will often negotiate for 80-90% discounts or get approval for 10-20 cents on the dollar! It is can be beneficial if you get the 1st to accept a short sale and then present that information to the 2nd IN WRITING! If the 1st is willing to take a hit, where does that leave the 2nd? This can be a powerful negotiation technique.

Remember any junior lien-holder who is holding an over-leveraged or nearly over-leverage asset (the house) is in a HORRIBLE position. They realize this and if you can build a strong case why it would be in their better interest to discount their holding position rather than risk losing EVERYTHING at the foreclosure auction sale. It will not only generally help them, but it can make you, the investor, a HUGE PILE OF MONEY. Why? You just created equity out of thin air. That is the power of short sale negotiations.

In Closing…

This is probably the most concise definition of putting together an adequate short sale offer ever printed.

The power of this document once put into action can literally make the user of it extremely wealthy. Other real estate home study courses, books, audios etc for the most part leave out what this document dislcosed. It is the “meat” of preparing a satisfactory short sale offer.

There are no more secrets you need to know about doing short sales. I just revealed them all to you. If you take the steps for preparing a short sale offer exactly as shown above and apply them to your real estate short sale business; the sky is the limit for your continued success getting them approved.

Remember…be a servant.

Cory Boatright
Loss Mitigation Specialist
Short Sale Fundamentals
Shortsaleology
Cory Boatright’s Blog

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How To Determine a Short Sale Purchase Offer

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