My New Blog

Q: 1- What are the risks?

A: The risk when investing in Short Sales is no different than investing in any other section of the Real Estate Industry. The better question is how does one limit the amount of risk they take on when buying investment real estate? Buy low, sell high however, stay competitive and if necessary, cut your loss early and move on.

Q: Can I end up in the same boat as the sellers and lose all of my assets - i.e. condo, pension plan, bank account etc?

A: Sure you can. If you don't manage your investments wisely and end up over extending yourself, then you will most likely end up in the same boat as the seller's find themselves in now.

Q: - How do I actually get qualified to become a short sale investor?

A: No real universally accepted certification exist for becoming a Short Sale Investor however, I would strongly advice you first find someone who is doing it successfully and have a real heart to heart conversation with them. In a perfect world, I would suggest you "shadow" a Short Sale Investor for a couple deals then determine if it is something you really want to do.

Q: - If I need to qualify for a loan, what type of loan would I be looking at and where would be the best place to get one to enable me to do short sales?

A: If at all possible, don't get a loan when it comes to purchasing Short Sales. Truth is, too many stipulations are involved when getting a loan for investment purposes. Cash is always best when buying Short Sales. If, ultimately you do want to invest in Short Sales with money from a loan, you need to find a loan that acts as much like cash as possible. In other words, a HELOC (Home Equity Line of Credit) or something similar, anything with the least amount of rules, regulations, guidelines and stipulations the better. Basically the easier we can make it for the bank to sell the property without worrying that something from your lender is going to pop up last minute can kill the deal, the better.

Q: 4 - Would a down payment be necessary to qualify for a loan, if so, approximately what percentage would be needed?

A: This questions is best answered by a lending professional, of which I am not however, the answer to this question is most likely going to revolve around your credit score. FYI: with the continuing credit crisis the country is facing, even with a great credit score, you may be asked to put up some type of down payment...with investment properties, it could be at least 10% or more.

Q: 5 - To qualify for a loan, would the dollar amount of the loan (like most loans are) be calculated in conjunction with my annual salary and debt to ratio?

A: Most likely

Q: 6 - Apart from fix up costs on the property; can you give me some sort of break down as to what other outgoing costs I might occur as a short sales investor?

A: You need to make sure you get a Net Sheet or Estimated HUD-1 from your Realtor when you are prepared to sell. This is a estimated itemized break down of each and every fee you will pay to get out from under the home when you have a buyer. This is a great way to see in writing exactly what you will likely walk away with. Keep in mind, the HUD-1 involves all the Real Estate cost, not the cost you will have to fix up the property...that will be up to you to keep track of.

Q: 7 - If I wanted to sell a short sale property after any needed fix ups have been completed, what are the best ways to sell the property (flip it)?

A: Flipping is what you are going to be doing, no question about it, unless, you plan on holding onto the property for rental purposes. By the way, you will want to be prepared to do just that and that is, rent the property. In areas where we see prices dropping monthly....you could find yourself with a debt on the property greater than what you could make from the sale so, the only real choice you have is to rent it out and try to cover the cost of your mortgage, if you get one. This is just another reason to buy a Short Sale in cash if you can.

Q: 8 - Once you get a home via a short sale and it is still occupied (with the view that the seller will leave very soon), what's to stop the seller from doing major damage to the home once everyone has signed on the dotted line - hence making it too late to go back and the seller knows it? What can be done to make sure damage does not happen in anyway?

A: DO NOT DO THIS TYPE OF TRANSACTION!!! DO NOT DO THIS TYPE OF TRANSACTION!! IF THE HOME DOESN'T COME TO YOU ALREADY VACATED.....MOVE ON! Avoid buying a short sale with a resident in the property......or at the very least, write in your purchase agreement that the property is to be vacant on or before closing.

First off, let me just say that a short sale is a lesser of two evils. It should be considered as the nuclear option and only available to those with legitimate hardship. Now, with that out of the way, let us talk about the truth behind what a short sale does to your credit.

If you are considering a short sale, then most likely you have fallen behind in your mortgage. This delinquent arrearages has already impacted your credit negatively. So that is the first thing you need to start considering. Any further delinquency on your part will continue to negatively impact your credit.

Now, one of the biggest differences between a short sale and foreclosure is how it's reported to the credit bureaus. If you foreclose you get "debt discharged due to foreclosure" stamped on your report. A recent conversation I had with a credit expert at Experion enlightened me to the fact that Bankruptcy is the worse thing anyone can do to his or her credit and the 2nd worse thing is foreclosure. She also explained that with a foreclosure it could take you up to 3 years to get a mortgage and drop you credit score about 200 pts or more, considering the previous damage you did by the mortgage arrearages. Where as with a short sale, this message isn't there. Instead you get a message that reads, "pre-foreclosure in redemption". This can result in about a 100 credit score drop or LESS! Not to mention, once the home is sold, it may appear as "discharged" on your credit. It's also important to know, that with a short sale, you can qualify for a loan in as little as 18-20 months later.

All in all, if you have a true financial hardship and the mortgage debt burden is too much for you to handle, then the short sale may be a viable and less credit damaging alternative to foreclosure or bankruptcy.

Other than bedrooms and baths, square footage is one of the most important considerations a home buyer contemplates when purchasing a home. Square footage, in many cases, lays the foundation to a sellers pricing strategy as well as gives the buyer a starting point when making an offer.

The importance to accurate square footage can't be underestimated, per the insurance industry, inaccurate square footage is one of the main reasons real estate agents are named in law suits. In fact, square footage problems have become such a huge concern for the real estate insurance industry, that some insurers have started marketing campaigns educating realtors on how to accurately calculate square footage.

In my experience the single biggest problem isn't that agents aren't measuring the homes it is that they are assuming the public record information is accurate and complete. For example, many agents are simply using previous MLS datasheets to populate the square footage information into their current MLS data sheets.  This practice assumes that the previous agens information is accurate and complete without verification.  Many people could argue that this practice is a lack of due diligence on the part of the current agent.  At the very least, it could be successfully argued that this practice is a lack of professional conduct.  As a realtor myself I couldn't imagine anything worse than developing a reputation or a brand in the marketplace that is seen as someone who is not a thorough or doesn't care.

The second most prevalent problem that I have experienced is that the original information provided from the builder himself is not accurate and complete or at the very least was entered into the public record inaccurately. A great example of the record being entered inaccurately is the difference between total square footage and total area.  Total area typically represents the foundation, it represents the whole footprint of the home including attached no living spaces. Total square footage is typically a representation of actual living area excluding attached no living spaces, like garages.  For many homes that do have attached garages or a attached not living spaces that are a part of the footprint or foundation of the home, these spaces have been included in the total square footage incorrectly. 

To determine just how prevalent this problem is in my area I took my own neighborhood and check to see if the total area and total square footage of the homes are the same.  In other words, I pulled the courthouse retrieval system tax record and looked at the total square footage number and looked at the total area number and if these two numbers were exactly the same and the home had an attached garage then I knew there was a problem.  Almost every home in my neighborhood has an attached garage and accordingly has an inaccurate total square footage. My home is in an older neighborhood and therefore I had assumed that maybe this problem was only with the older homes however, I did the same investigation work with a newer subdivision, with more than three times the number of homes in my subdivision, and found that the problem was prevalent.

From my years of experience and from what little investigation I did I can confidently say that I believe a large portion of homes in middle Tennessee who have attached garages and are built in subdivisions most likely have inaccurate square footage from anywhere at a minimum of 150 square feet for a one car garage to up to 450 square feet for a standard three car garage. 

Now for some homeowners this problem of square footage is compounded by the fact that the MLS data sheets have been fudged on the square footage numbers by agents, to make homes appear bigger. For example, a home that has a square footage of 1,459 is entered into the MLS data system as 1500.  In fact, this problem of agents adjusting square footage is so severe that I know in my neighborhood a home has been over calculated by more than 500 square feet.

In the above example the home has been measured three separate times by three separate people, once by myself, once by my buyer, and at least once by the residents of the home.  Not to mention, that upon the discovery of this square footage discrepancy it was made very clear to the home owner herself in front of her current residents that this home is approximately between 1250 and 1275 square feet. 

The courthouse retrieval system tax records showed the home to have an equal total area and equal total square footage of 1559.  This home has a two car attached garage of approximately 300 square feet; if you subtract the 300 approximate square feet for the garage from the total square footage / total area of 1559 you get a total square feet of 1259 which falls right into line with the three separate measurements by three separate people obtained earlier. 

Now to the kicker, this home has recently been listed at is currently active with a realtor however, the MLS data sheet shows a total square feet of 1700.  The problem here is that per the builder the total footprint of this home is only 1559 square feet, no additions to the footprint of the home had ever been made, so how is it possible that this home has morphed to 1700 square feet?  It's not possible! 

In fact what we have here is a complete and total lack of due diligence on behalf of the realtor and potentially a seller who can be accused of fraud. 

Granted, in the best of times when homes are selling at record pace square footage may not be as big of a concern however when the market softens and pennies become very important any inaccuracy in square footage can find a seller behind a defendant's desk.  The truth of the example given above is that homes in this neighborhood are selling between 92 and $100.00 a square foot.  So for a home to take a 500 square foot drop it could potentially equal upwards of a $50,000.00 loss in the sell of the home. For many homeowners whose equity is their only savings such a realization could be unbearable and cause the homeowner not to disclose.  Such a lack of disclosure puts everyone in the transaction at risk and underscores the point of this entire Blog and that is agents need to measure homes. At the very least buyers need to measure homes.

I wish you the best of luck on your next real estate transaction.  Don't forget, I'm here to help, for questions please feel free to contact me directly through this blog or on my cell 615 - 424 - 0961

According to a recent report by Managing REO Online Magazine dated July 9, 2008 Volume 3 Issue 8

Link: (http://www.managingreo.com)

“Housing starts in 2008 are expected to be 36% lower than 2007 levels, creating three straight years of decline.”

Contrary to what you may hear from bullish or optimistic real estate industry guru’s the state of our national economy, credit crisis, high housing inventories, fall of the sub-prime market, closing bank lending operations and finally a lack of an effective energy solution to soaring gas prices will continue to plague the minds of credit worthy buyer’s and keep them from purchasing a home.

In most markets we are seeing increased inventories due to continued foreclosure. In Tennessee alone at the start of 2^nd quarter 2008 we saw foreclosure housing inventories totaling approximately .66% and at the end of 2^nd quarter it was up to 1.53%, which is a dramatic jump. To put this in perspective, this jump equates to almost a third of the entire housing inventory across the state.

As you can imagine, with this much inventory on the market, housing prices are falling. Comparably, Tennessee hasn’t suffered nearly as bad as other states like, California, Florida, Nevada and Arizona however, try telling that to the homeowner here in Tennessee who is out of a job and has found work in another state. Not to mention, if he bought his home in the past 3-5 years, he may not have enough equity in the home to sell it for the amount owed due to falling home values. Short sales or even foreclosure becomes the only solution for many.

So, if you are ready to buy and are credit worthy, deals are out there to be made! Buyer’s can afford more home now than they have been able to in the past 5-7 years. If you plan on staying in the home for at least 5 years, most likely you will be able to weather out of this real estate storm and end up big winner when ready to sell. If you’re looking at purchasing a home now and may end up moving in the next 24-36 months, you might be off better to rent. In my opinion, it is going to take 2-3 more years before we see the light at the end of this tunnel.

If you thought the credit crunch and, sub-prime market failure was bad, wait till you check your square footage. You may be in for the most dramatic and equity dissolving shock of your life.

I have recently come to an appalling realization that the majority of homeowners may be misinformed or even mislead as to their homes square footage is calculated, advertised and confirmed.

Here recently, I have a buyer who happens to be a little OCD (Obsessive Compulsive Disorder) and, he measures each home we visit with rather admirable proficiency. The reason he became rather obsessed is because he placed an offer on a home that come to find out, wasn’t anywhere near as big as advertised. I thought, that maybe we had come across an anomaly however, his suspicious compulsive nature lead him to believe otherwise. Needless to say, that deal fell through and we moved on to our next offer, oddly enough, after measuring the home, we once again found a strange and rather large discrepancy in the square footage advertised vs. actual. We once again dropped the square footage bomb on the home owner and, even though they confirmed our result were accurate; we lost the deal and had to move on to our third home. Well, this time, even now, I am beginning to hear the echo of a strange reoccurring theme through my mind and yes, when we made our third offer on our third home, we found the inaccurate square footage anomaly was becoming more of a reoccurring theme. Now, were not talking a discrepancy of 20, 30, 40, 50 or 100 square feet, which by the way, can typically be negotiated up or down in the price accordingly however, were talking 300+ difference in square footage which if you are using the square footage to determine your offer price or list price, could mean the different of 20-30 thousand +. So, as you can see, this becomes a massive problem.

I started to investigate the issue a bit to determine just exactly what was going on here. I couldn’t believe that homeowner were artificially raising their square footage to demand a higher price, not only was that illegal but, fraudulent. I couldn’t imagine Realtor’s doing it, the liability is just way to high so, I asked myself, where do I find the square footage when I list a home…….on the tax record of course, it is the authority. After some research and several random tax records later, I discovered an awful and misleading truth. The tax record has 2 places where home calculations appear. It has a section called “Property Summary” and a section called “Property Characteristics”. Of these 2 sections both have a place for property measurements, Property Summary has a place called “Total Square Feet” and Property Characteristics has a place called “Size”. After speaking with some folks at the Property Assessors Office, these 2 numbers should not always be the same. Here in lies the problem, most of the time they are, even when they shouldn’t be. As a Realtor, when I add a listing into the MLS database, the MLS pulls the “Total Square Feet” and adds it to the MLS Advertisement and even discloses the source of the information as “Tax Record”. Pretty simple however, not so if the home has any attached non living space such as a garage. You see, if the Total Square Feet and Size match, then how would that be possible if you have a 3 car attached garage? It isn’t possible, the garage shouldn’t be listed as Total Square Feet.

So what does this problem effect…..

1. Listing Price; People can’t determine what to list at unless they know the actual total square footage
2. Offer Price; People can’t determine that to offer unless the know the actual total square footage
3. Appraisals: Appraiser can’t complete accurate appraiser unless they know the actual square footage
4. HELOC or Home Equity Loans of Credit: Your HELOC can be called in immediately or at the very least be substantially lowered if it’s determined your home isn’t worth what they originally thought. (based on your actual proven square footage)
5. Foreclosures: If you don’t have an actual square footage until the default process comes around, then the bank may come to realize they loaned out much more money on a home that isn’t worth it.

The truth it, wrong square footage hurts everyone in the real estate business and, I bet we have only touched the tip of this problem

It’s true, a lot of speculation is out there that the buyer’s market felt through out the country due to “The Credit Crunch” and record foreclosures may soon be over.

You may be wondering what is leading this turn around and the truth is, no one can really pin point any one particular market factor that is leading this predicted and, in some market’s already occurring, stabilization and upswing in home prices. Some believe it to be the excitement of a party change in the White House while others say that the market has corrected and now sensible and fundamental lending strategies are winning out. So, just how soon is “soon”, well that is still up for debate, some industry experts are saying that the country will start to see a turn around by 4^th quarter this year while others are saying 2^nd quarter of 2009. What I know for sure is, here in Nashville and the surrounding area, we can expect home prices to remain where they are for now if we don’t see a greater demand. Our markets are still flooded with anywhere between 4-9 months inventory, depending on which neighborhoods you’re looking at. An increase in demand or a sharp decrease in supply are the only things that are going to flip this market and raise home prices. Granted, with our current inventory, we look to be right on target for the predicted rebound and that puts us right in line with the nation wide expectation, sometime between the end of 08 and start of 09.

I want to offer a word of caution here. I have seen market reports that gas could sky rocket this year to an unheard of $6-$10 dollars a gallon. This petroleum market analysis is spurring our government to take steps, no matter how delinquent and un-impactful they maybe, to control the cost of gasoline. Make no mistake, our government isn’t responding to our gas crisis because of current market price of 4.05 a gallon, they are trying to ward off the potential voter from paying 6.00 (+) a gallon before the Presidential election. If gas rises to $5.00 a gallon before summer end…….home sales aren’t going anywhere!