Thursday, February 28, 2008

3 Things You Need to Succeed in Real Estate

3 Things You Need to Succeed….

There are just a few musts to succeed in real estate …..

1. Most importantly, you must have the desire to succeed. Desire is the seed for any type of success!

2. You need to have a few hours a week to dedicate to this. It can be at night or on weekends, or during the middle of the day if you don't work 9 to 5. The flexibility is great. You can do it when it's convenient. But like anything worthwhile, if you do nothing, you'll get nothing.

3. You need to have confidence! You need to realize you will never be left alone as you learn how to do this. We will guide you along so you are very comfortable and knowledgeable. Confidence — that's how you can make a six-figure income working from home!

On the other hand, there are a lot of things you DON'T need to succeed …

5 Things You Don't Need to Succeed ...

1. You don't need a lot of money. You can start your own business with very little money upfront. And because there aren't any clocks to punch, you can keep your day job while you learn.

2. You don't need a college degree or a license or certification. But you do need to understand the specifics of this business — the kind of knowledge you'll gain from this program. We don't care about your education or training.

3. You don't need previous business experience. In fact, it'll probably be easier for you to master this program if you don't have a business background.

4. You don't need to be a salesman. This is not a job for only a few, lucky individuals. All you need is some time and desire to make more money. We'll teach you the rest.

5. You don't need "connections" in the real estate industry. Contrary to popular belief you don’t need connections to be successful, just specialized knowledge.

Tuesday, February 26, 2008

Real Estate Investor ALERT !

Hello All:

James Gage here with a real estate investing alert:

According to CNN Money released just a few minutes ago, January 2008 Foreclosures up 57% country wide !

As I have stated before, news such as this is unsettling for the vast majority of Americans, however as leveraged investors knowledgeable in short term real estate strategies and techniques, we can turn a negative into very profitable positive - if you possess the knowledge! Please stop by my web site and sign up for my Free newsletter with up to date tips and strategies

Be well.

Friday, February 22, 2008

Here a few things you should know before you buy a foreclosed home.

RIGHT NOW, IT'S anyone's guess when the housing downturn will finally hit bottom. But if you're looking to buy a home now - and plan to stay in it for a while - there are plenty of bargains to be had on a foreclosed property.

Banks are often willing to sell foreclosed homes for up to 20% below market value just to get these troubled properties off their books! With foreclosures at an all-time high in the past year, there's no shortage of these opportunities to pursue. However, prospective buyers should know that closing on that super-cheap distressed home is often a lot more complicated and risky than buying a home that doesn't have all of that financial baggage.

Finding Properties in Foreclosure

The biggest bargains can be found in areas where there's a large concentration of distressed properties. The banks with the most exposure to these areas are typically the most motivated to cut a deal since they don't want to get stuck with a glut of real estate. But before you snap up the cheapest home you can find, make sure to do some research. Find out if the property is located in a decent neighborhood with good schools and healthy employment rates. (Local real estate web sites are a great place to start your research.) If you buy in an area that's losing jobs and is riddled with crime, home values are likely to take a lot longer to recover.

Avoid Auctions

While there are a number of safe ways to buy a foreclosed property, bidding on one at a court auction isn't one of them. That's because you're buying a home sight unseen and without an inspection, and 99.9% of the time the 1st mortgage holder buys it back any way.

Some of these properties also owe back taxes, a headache that's transferred to the new owner. And finally, in most cases, you'll need to pay cash for the home.

If you really want a property and come up empty on your short sale offer you can wait until the bank has put it back onto the real estate market. These properties are called bank-owned or real estate-owned (REO). Before a bank hangs a "For Sale" sign, it pays off all the existing debts and taxes, and in many cases, repairs the home to bring it up to the standards of the neighborhood. Best of all, you should be able to buy a bank-owned property with a traditional mortgage.

Research Home Values

Just because a home is being sold by the bank, doesn't necessarily mean it's a bargain. Home prices have fallen dramatically from their peaks in 2006, a time when loose-lending practices allowed people of all credit ranks to easily obtain mortgages. Now, many homeowners going through the foreclosure process owe more on the mortgage than their property is actually worth; this is known as an “upside own property”.

If you fall in love with a home in pre-foreclosure that's overpriced, then you can see if the bank will allow a short sale. This is when the bank accepts less for the home than the amount owed on the mortgage. While not an ideal scenario, accepting a lower price is often in the bank's best interest. Banks typically spend $25,000 to $50,000 during the foreclosure process..

Line Up Financing First

While it's always a good idea to get pre-approved for a mortgage before you start shopping for a home, it's even more critical when you're shopping for foreclosed properties. Even if you have stellar credit, some lenders won't make a loan on a distressed property, others will require an approval letter rather then a pre-approval letter – especially if you are doing a short sale.

If your loan officer is willing to make a loan on a foreclosed property, find out what criteria the home needs to meet in order to qualify for a mortgage. You can expect the lender to allow cosmetic repairs, but be unforgiving of termites and other serious fixes. However, if you are going to live in the property yourself check out the HUD 203K program; if you will be the owner occupant, because repairs can be rolled into the loan and down payments are very low –

Get It Inspected

Even if a home is brand new you want to get it inspected. But inspections are especially important when you're dealing with homes in foreclosure. When people have trouble paying their bills, they typically put off the regular maintenance on their homes. Once a home is seized by a bank, it then sits vacant and falls even further into disrepair. In a worst-case scenario, a homeowner could be so angry he lost his home that he actively destroys a property before he moves out. Without an inspection, you won't be able to estimate the cost for repairs or be able to report the home's true condition to your lender.

Monday, February 18, 2008

Loss Mitigation and Foreclosures

by James Gage

Loss mitigation is the process of trying to stop a home foreclosure before it occurs.

The loss mitigation process can be led by a representative of the lien holder or a third party that is working for the home owner.

It is often better for a disinterested third party to handle the situation as they can work with a lending company without any emotional feelings.

Loss mitigation was introduced as a collaborative effort between the federal government and the mortgage industry many years ago; contrary to popular belief it wasn’t something started because of the sub-prime melt down! The program was established to help home owners that were facing the loss of their homes due to delinquent payments and hardships.

It is nearly impossible to complete a successful short sale without dealing with the loss mitigation department at the bank How you deal with loss mitigation department is critical to a successful transaction.

Some bank customer service reps may say that the bank does not have a loss mitigation department. Keep trying! They have the department you are looking for, just under another name. Ask if the bank has a work-out department, foreclosures department or short sale department.

There are several options when it comes to loss mitigation but the main focus must be to keep the home owner in their home if possible. A loss mitigation professional will first seek to set up a loan modification plan or a repayment plan ( aka forbearance) that is realistic for the home owner as well as agreeable to the lending institution. With the repayment plan, it is imperative that the plan be realistic when it comes to the home owners ability to repay the amount that is delinquent. Obviously there has been a prior financial situation so the solution must be beneficial to the homeowner.

Loss mitigation is about keeping the home owner in their home. If that does not seem like a possible out come, every attempt should be made to help the home owner get the most for their home; hopefully avoiding a foreclosure sale. This may include deed-in-lieu of foreclosure or a short payoff if a qualified purchaser can be found.

Once your deal is accepted, get it in writing immediately. Find your buyer or arrange financing and get the deal closed. You don't want anything to happen between the acceptance and the closing to make you lose your deal.

Take the time to know what your rights are in the foreclosure process; it is possible to use the loss mitigation process to get back on track with your mortgage. Lenders ultimately want to keep the home owner in their home and it is up to the home owner to show that they will be able to catch up or maintain the mortgage payment in the future.

Today's lenders have more foreclosures than ever. They don't want properties, and as a result are very willing to help, if the documents and numbers make sense.

Treat them with the respect they deserve and you might be surprised what might happen!

Thursday, February 14, 2008

Taxes and Lease Options

There are some interesting and lucrative advantages of using options as both an optionor and optionee of real estate. Generally speaking, option money is not taxable to the optionor until the option is exercised, expires or is abandoned. I.R.C. Section 1234 (subject to "dealer" rules, discussed below). If it expires or is abandoned, it is taxable to the seller as ordinary income at the time it expires or is abandoned.

A personal residence sold under lease/option may still qualify for capital gains exemption. Under the 1997 Tax Reform Act, gains from the sale of a personal residence seller are exempt so long as the gain is less than $250,000 ($500,000 for married couple). So long as the lease was incidental to the sale, court decisions have held that the property would still qualify as a personal residence and not a rental. See, Solaris v. Commissioner, 776 F.2d 1428 (9th Cir 1985).

The lease and option payments made by the tenant are not tax deductible if the property is used as a residence. If tenant purchases the property, his option payments (including monthly rent credits) become part of his tax basis in the property. The tenant's option payments may be deductible as a capital loss if the buyer is an investor. For example if you lease/option a home to live in, consider using your LLC to take the lease/option, then sublease to yourself individually. If you don't exercise the option from your corporation, have the corporation treat the option money it paid as a loss.

Take A Loss On Your Personal Residence

As you may know, you cannot take a loss on your personal residence if you sell it for less than your basis. You can, however, take a capital loss on an investment property.

Move out of your house and lease/option it to a tenant/buyer for a few years. Report it on your Federal income tax return as a rental on schedule "E." You may now be able to take a loss when the tenant exercises his option to purchase.

Make certain that you make this transaction it look legitimate; the IRS is keenly aware that people in down real estate markets try to "fudge" rental agreements to accomplish a loss on their personal residences.

Watch Out For "Dealer" Classification

If you are an active real estate investor, you should be aware of what the IRS calls "dealer status." If you also buy and sell real estate on a regular basis, you may be considered a "dealer" in real estate properties. A dealer is one who buys with the intent of reselling rather than for investment.

There is no magic formula for determining who is an investor and who is a dealer, but the IRS will balance a number of factors, such as the purpose for which the property was purchased, how long the property was held and how many deals the investor did in relation to other income. If you take option consideration on a "dealer" property, you cannot defer taxation of option consideration under Section 1234 of the Code.

IRS Reclassification

Occasionally, but rarely, the IRS will reclassify a lease/option as a disguised sale. This is more common with equipment leases where the lessee makes rental payments for a number of years then has the option to buy at the end of the term for a nominal amount, such as $1.

The IRS looks at the terms of the deal and the circumstances surrounding the deal to determine whether a sale was intended. For example, if the tenant is paying the taxes andinsurance, this looks more like a sale. If a substantial part of the payments on the lease are credited towards purchase, this also looks like a sale. If the option price declines each year rather than increases with the market. . . well, you get the idea - it if looks like a duck and it quacks like a duck, it’s a duck!

Most of the reported cases wherein the IRS reclassified a lease/option as a sale involved long-term leases. Thus, a lease/option of only a few years with your tenant is not likely to be re-characterized as a sale. That is why we give our tenant/buyers 1 year leases to avoid any problems down the road with the IRS.

Tuesday, February 12, 2008

Hope For Home Owners Facing Foreclosure?

Hello All:

Once again we see the government coming out with another smoke and mirror program to try to convince us, the general public, that they are trying to help the catastrophic number of home owners facing foreclosure.

The program is titled "Life Line" and will give an automatic 30 day stay to homeowners facing foreclosure as long as they are 90 days past due. They say this will give individuals time to negotiate to keep their homes - as long as they qualify! Here is the deception - "as long as they qualify"! I did a little investigating and this will do nothing for people who are upside down in their mortgages ( def: individuals who owe more to the bank/mortgage company then the property is worth). This program will work only for people that have more than 10% equity in their homes or willing to come to the closing table with a lump of cash to offset the difference in the spread.

So as you can see this is just another feeble attempt by the government to show that they are trying to something to stop the financial tsunami that is upon us.

We as investor continue to have an awesome opportunity to make a boat load of cash, if we have the proper knowledge and use the proper leveraged techniques and strategies ie: lease options and short sales.

Until next time, may all your deals be profitable.

James Gage

Saturday, February 9, 2008

Good News For Short Sale Investors

Hello All:

This just came to my attention, so I thought I would pass it on to you my fellow real estate investors and friends.

In late December, President Bush signed the 2007 Mortgage Foregiveness Debt Releif Act, which provides tax help for homeowners facing foreclosure or who sell their homes in a short sale.

Previously, if the value of your home declined and your bank or lender forgave a portion of your mortgage debt, the tax code treated the amount forgiven as income that could be taxed, according to the IRS.

In other words, if your lender forgave $20,000 in mortgage debt because your house was worth $20,000 less than your mortgage balance, the IRS treated this debt forgiveness the same as income that you earned from your job -- and required you to add $20,000 in phantom income to the amount of your annual income and pay tax on it at your marginal tax rate.

So as you can see this will be an added benefit you can explain to the homeowner, which in days gone buy became another devastating event to losing their home. It should be noted however, that if a bank or mortgage company decides not to 1099 Misc an individual, but rather decides to seek a "Short Fall Judgment / Summary Judgment" the above act will not be of use.

I hope this was of value.

James Gage

Sunday, February 3, 2008

REOs : Real Estate Owned Property

When a property is sold through a foreclosure auction, its owner usually owes more to the lender than the market value of the property itself. This is often a barrier to selling the property, and sometimes such foreclosure auctions do not draw any bidders.

Note: Its is my experience and opinion that auctions are a waste of time! The bank or mortgage company buys the property back 99.9% of the time; your time can be used more effectively in other venues.

As a result, not many foreclosure auctions end with the sale of the property, rather the title reverts back to the financial institution holding the lien. Properties in this category are referred to as REO (Real Estate Owned) properties.

After the bank takes possession of the property, the mortgage loan disappears and the financial institution deals with any items owed by the prior borrower, such as homeowner association fees. The financial institution also tries to get the IRS to remove any tax liens against the property. The current owners are usually evicted and often repairs are made to damage on the property in order to make it more attractive to potential buyers.

The best parts of buying a REO property are that buyers have significant leverage and may be able to turn the property around quickly, making money by speculating on above average returns. Banks are trying to get the maximum return when they sell an REO property directly. They want to sell them quickly for two main reasons: first, they don't want to tie up their money in capital reserves they are required to set aside for a foreclosed property, and second, the management of such properties is a headache they would rather not have.

However, banks are very sophisticated when it comes to managing REOs and foreclosures, often having a department dedicated to them. The selling process starts when a potential buyer makes an offer to the financial institution, which is gone over by its management. Often, the institution will make a counteroffer, and the buyer may respond with another offer. After they have agreed on the price, terms, and conditions, a contract for the sale can be made.

When preparing to make an offer, a potential buyer needs to look at what comparable properties in the area are worth, along with the cost of any needed repairs. Financial institutions usually sell such properties as-is, which makes the buyer's inspection even more important. If they discover damage that they did not anticipate, which the institution will not repair, they can then cancel the transaction.

Investors dedicate much to buying REO properties in terms of funds (often cash), work, time, and effort, thus the price needs to be far enough below market value to justify the risk. Foreclosures are properties that already have had problems that often include tax issues, a lack of maintenance, substantial repairs, and often needed improvements that cost a significant amount of money, and any investor looking to buy such a property needs to keep this in mind at all times.

Finally, I must state I was never a big fan of buying property in the REO stage, however our investing environment has changed! Since foreclosures have doubled over the last year and since most investors do not know how to do a short sale properly, REOs are now a viable investing option due to the over abundance of bank inventory.

Be well,

James Gage

Saturday, February 2, 2008

Getting Organized For The New Year - Part 2

In part 1, we discussed a system you could use to organize your office. In this article we will discuss what material is needed to implement that system.

You will need the following items for your office system. Calendar/Daily Planner; Accordion File (1-31); Manila Files with the Months of the Year (Or you can make them up yourself - a lot less expensive); Hanging Files; Manila Files; Boxes and Envelopes (9 x 12).

The calendar/daily planner will contain all appointments, meetings and deadlines for project.

The accordion file dated 1-31, along with the Manila Files with the Months of the Year will contain materials you have tickled. The tickler file is a very popular system in legal offices. Any materials you need to act on by a certain date are tickled, usually one week in advance. It is also used for standardized meetings. For example, if staff meetings are conducted on Friday, place a Manila folder entitled Staff meeting in the Friday slot, and place any agenda items or meeting items in the folder. Remember to tickle it for the day before the meeting, if you need to make up the agenda, or give agenda items to someone else. This system is also excellent for gathering information for client meetings. This system will also serve to give you a clean desk, as you can place To Do items for the next day in your tickle file. It is also used to put in notes to yourself to follow up on certain items.

The hanging and manila folders are for your files. Boxes are for your records and files to be stored in at the end of the year.

The 9 x 12 Envelopes are used to hold your receipts, canceled checks, expenses and income sheets. You should label one envelope Income and place your income sheet in the file and note when any checks come in. Label one other envelope as Expenses and put in it all receipts for purchases, canceled checks, and any other expenses you generate. At the end of the month tally up the monthly totals. I place the month on the envelope and separate my expenses into categories, such as supplies, telephone, utilities, copying, postage, etc., put the total cost next to the category and then a final total. At the end of each month's tally, paper clip or staple that month's receipts together, place them back in the envelope and file for the following month. Since most self employed individuals pay estimated taxes every 3 month period, the envelopes will have 3 months on them, for example, October, November, and December. Remember bundle each month's items separately. Seal the envelopes, file them, and then you are ready to calculate the amount to pay the IRS for the next estimated period.

In December of each year:

  1. Box up last years files.
  2. Make up new hanging files and manila folders for the New Year. If you are need of a label program, Avery Pro for the laser is excellent. It is easy to use, you can import files from popular word processing programs and it has its own database manager, which will allow you to re-run these same files for the next year.
  3. Enter all standard meetings in your calendar or planner for the coming year.
  4. Put all your income, expenses and other records you need for tax preparation in one box. Run your spreadsheet program or financial program to see what your income and expenses came to for the year. Do up a budget for the coming year, a projections sheet to determine how many clients you need to increase profits, and cut any extraneous expenses.

Following this system will enable you to spend more time on growing your business. Good luck