August 12, 2011

Mortgage Underwriters: Evil or Just Plain Stupid?

I’ve never met a mortgage underwriter.  Nor do I know someone who knows a mortgage underwriter.  Maybe it’s because they live below ground, or in Siberia.

Mortgage writers rarely appear in public.  Some conspiracy theorists believe they live among themselves in the desert like the sand people from Star Wars.

If a mortgage underwriter is at a party and someone asks what they do for a living, the mortgage underwriter will likely respond, “I’m a blood sucking vampire.”  After all, blood sucking vampires are far more lovable than mortgage underwriters.

Don’t get me wrong.  It’s not that mortgage underwriters are bad.  It’s just that they’re evil.  Or stupid.

So why do I feel this way?  Here’s an example, which falls into both the EVIL and STUPID category:

I sell a completely remodeled home to a conventional buyer for $200,000.  The appraisal comes back at $192,000.  The day after the appraisal was completed a home just like mine, three streets south, closes for $228,500.  The appraiser is gracious enough to revise his report to include the sale.  However, the mortgage underwriter refuses to allow the change and insists on using the lower value of $192,000.  The deal blows up and a very nice family loses out on their dream home.

I put the house back on the market and the next day I get another offer for $200,000.  This time the appraisal comes back at $200,000 because it includes the $228,500 comp.  The deal closes.  Today.  8/12/11.

So you see, the mortgage underwriter is evil.  He uses a completely subjective process to crush the home buyer’s soul (okay, that’s a little melodramatic).  But you have to admit, it’s sad.

And the mortgage underwriter is stupid.  Why on earth is the original appraisal carved in stone?  Most appraisers agree that their appraisals are intended to support value, not set value.  So why not be reasonable Mr. Mortgage Underwriter and allow the revision?

Okay, maybe mortgage underwriters aren’t really evil, or stupid.  Maybe it’s the system.

So if you happen to be a mortgage underwriter consider this a shout out.  Rise up!  Put down your pens, unplug your keyboards and throw away your actuary tables.  Walk away from the Dark Side.  Join me in the fight against evilness and stupidness (is that a word)?

Change the system.  Let peace and common sense prevail.  And may the force be with you.

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August 5, 2011

Phoenix: The Wild West of Real Estate

“I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.”  – Cousin Eddie, Vegas Vacation

Last week I wrote about how crazy things have become down at the Maricopa County courthouse steps.  Nothing has changed in the past 7 days.  Check out my bids from today:

Address               Market Value    Winning Bid   My Bid       CTV

2115 Sheri                   170,000                   135,800                  116,400        80%

6617 68th                    130,000                   112,000                    89,700        86%

2224 Olive                   300,000                  258,100                   223,600       86%

623 Hazel                     148,000                   128,600                   103,600       87%

11357 Dartmouth     125,000                   112,500                      86,600       90%

12864 Colter               285,000                   256,100                    215,200      90%

8369 San Juan            230,000                  191,000                   164,300        83%

2604 105th                  120,000                    89,100                      76,800        74%

As you can see, I got my butt kicked again.  It’s becoming increasingly difficult to find bargains at the foreclosure auction because each buyer has a different exit strategy.  Some fix and flip, others buy and hold.

And let’s not forget the out of state second home buyers.  Canadians and Midwesterners have been flocking here since 2009.  And why not?  You don’t have to shovel sunshine.  These people have cash and are content paying retail price.  They know retail price IS the bottom of the market price.  Why bother bargaining for a better deal than that?

These days to find a deal at 75 cents on the dollar, or less, I’ve got to really beat the bushes.  That means direct mail, door knocking and offers, offers, offers on listed short sales.  It’s either that or find a real job.  Yuck.

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July 29, 2011

Craziness at the Maricopa County Courthouse Steps

“I have been up against tough competition all my life.  I wouldn’t know how to get along without it.”

-         Walt Disney

They say a little competition is a healthy thing.  That’s true unless you’re a fix and flip investor competing against buy and holders and retail buyers at Maricopa County trustee’s sales.  My spread (the difference between the purchase price of the house and the retail value) must be much greater than for a long-term investor or end user.

Lately I’m getting creamed on a daily basis at the Maricopa County courthouse steps.  Last Friday, I bid on four houses.  Here were the results:

  •       884 E. Sagittarius, market value $220,000, winning bid $180,000
  •       3682 E. Juanita, market Value $175,000, winning bid $140,000
  •       1817 W. Redfield, market value $260,000, winning Bid $204,000
  •       4379 E. Briles, market value $250,000, winning bid $205,000

That’s an average cost to value of 80.5%.  All four combined I was outbid by more than $60,000.  Those numbers don’t work for me. There’s little chance the buyers of these homes will make any money if their intent is to fix and flip.  I can only conclude their exit strategies were different than mine.

So why are us fix and flippers getting outbid so often?  I have three theories:

  1. The degree of difficulty in purchasing a home on the MLS (i.e. short sale or REO) is so great that many buy and hold investors and retail buyers are now showing up at trustee’s sales.
  2. The degree of difficulty in buying a house at the courthouse steps has been reduced because of all the online information and bidding services available here in Phoenix.
  3. A buy and hold investor and/or retail buyer can buy a house at the auction and start rehab/move-in the next day (if the house is vacant).

So what do guys like me do to make a buck?  To quote the late baseball great Willie Keeler, “hit em’ where they ain’t.”

If the masses are down at the courthouse steps like a rock concert mosh pit that means I need to be going after the short sales and REO properties.  Earlier this month I bought one of each.  After some light rehab both went on the market last Thursday and by Monday were in escrow.  The best news of all is that the profits will be greater than the last five houses I bought at trustees’ sales.

Does this mean I’ve given up on trustees’ sales?  No way.  I’ll keep on bidding.  These things are cyclical.  But like a professional fisherman us fix and flippers need to have many lines in the water.  It’s the only way to compete.

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July 19, 2011

Read and React: The $45 Billion Bank Heist

Imagine this scenario for a moment…

You own a business.  Not just any ordinary business – a huge business.  Your company generates billions in revenue every year.  There’s just one problem.  You make this money illegally.

You and your minions hide important information from shareholders and investors.  You lie to your customers.  The accountants on your payroll cook the books.  Lower level managers in your company hire independent contractors and then pressure them to artificially inflate product values.

But nobody cares because you and everyone else are making lots of money.

Then the crash comes.  Money and jobs are lost at an alarming rate.  The entire country plunges head first into a recession.

So what happens to you?  Do you go out of business?  Maybe jail?  Or what about a fine?  Nope.  You get $45 billion dollars from the federal government to stay in business.  The logic behind this bailout is you are too big to fail.

That’s why I wasn’t too upset when it was reported in the USA Today this morning that Bank of America lost a lot of money last quarter.  The loss came mostly from the $8.5 billion it had to pay in settlements to investors for loans gone bad.

Bank of America, and other banks like Wells Fargo and Citibank ran their businesses illegally, and subsequently into the ground, then reaped billions in government loans to keep their doors open.  That’s what I call living the American Dream.

Joe Kennedy, the patriarch of the Kennedy political dynasty did the same thing in the early 1900s.  He made millions bootlegging during prohibition.  When alcohol was legalized he turned to insider trading on the stock market to grow his empire.

Was Joe Kennedy punished for this illegal activity?  No way.  Franklin D. Roosevelt made him the head of the SEC.  After the nomination FDR was overheard saying “it takes a crook to know a crook.”  God Bless America.

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July 5, 2011

The Foreclosure White Knight

On the surface the deed seems very noble.  You reach out to a homeowner in distress, either by knocking on their door, a direct mail piece or phone call.  Their situation is dire.  Job loss.  Divorce.  Medical bills.  Or maybe this homeowner’s only hardship is being underwater on the mortgage.

So here you come to the rescue – a foreclosure white knight.  You can solve their problem.  Behind on the payments you ask?  No problem.  I’ll buy the house and lease it back to you with an option to buy.

What’s that?  You don’t want to stay in the house?  Okay.   We’ll do a short sale.  You don’t need to do a short sale?  You actually have equity?  Great!  I’ll buy the house and give you some cash.

A contract is written.  The homeowner signs on the line that is dotted.  Everyone lives happily ever after right?  What could go wrong?

Maybe that lease-option buyback you did with the homeowner in foreclosure goes well for a while.  Then after 6-8 months the tenant (formerly the homeowner) stops making the lease payment.  What do you do?  The answer is to evict.  But do you think this tenant will go without a fight?  No way.  Why?  Because the tenant believes the house is still his.

And what about that short sale you did with the homeowner that didn’t want to stay?  You made an offer to the bank but couldn’t close the deal.  The bank forecloses.  Now the homeowner is really mad – at you.

Let’s say you did close the short sale and flipped it for big bucks.  The former homeowner finds out and sues you for unconscionable profit.

This could also happen in a non-short sale foreclosure deal.  The homeowner has equity but is behind on payments.  You cut a deal to buy the house way below market.  Since the homeowner is in distress he agrees to the sale.  But when the smoke settles and he realizes how much money you made he gets really mad – at you.

I’m not making this stuff up.  Each of these scenarios has happened to me or someone I know.  It’s why I don’t deal directly with homeowners in foreclosure anymore.  We buy our houses either at the courthouse steps or directly from banks AFTER the original homeowner has moved on.

Here in Arizona our lawmakers are fine with real estate investors helping homeowners in foreclosure.  They just don’t want us to make any money in the process.

 

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June 28, 2011

What a Good Partner Can Do for You

“The man who finds a wife finds a treasure, and he receives favor from the Lord.”

-      Proverbs 18:22

September 20th, 2009.  That’s the day I knew my brother, Curtis, had met his wife Rose.  But before that date will make any sense you need to know a little bit more about him.

Curtis is what some would call a motor head.  He loves cars and trucks.  Speed.  Big engines.  And horsepower.  He’s been into this kind of stuff since we were kids. As a little boy I remember him parked in front of the TV watching monster truck racing, tractor pulls and demolition derbies.

Stock car racing eventually became his favorite sport – so much so that three years ago this month I helped him move to Charlotte, North Carolina.  That is where most NASCAR (National Association for Stock Car Auto Racing) teams have their headquarters.  And if you want to chase your dream to work in NASCAR like my brother then you need to live in Charlotte, North Carolina (that’s Curtis and me at Joe Gibbs Racing Headquarters in Huntersville, NC).

Curtis didn’t find a job in NASCAR right away.  During the day he worked in a grocery store deli.  At night he volunteered at a local dirt track speedway.

Finally, a small team in a lower circuit called.  They had a marketing position available.

Of course, my brother took the job.  But he quickly found out that working for a racing team wasn’t as fun as it looked on TV.  He traveled four days out of the week.  And when the racing season ended in November he was told he wouldn’t get another paycheck until the next began – the following February.

So Curtis moved back to Arizona.  Fortunately, he was able to parlay his NASCAR experience into a marketing job at a rehabilitation hospital.  And that is where he met his future wife.  They were set up by some mutual friends in August, 2009.

So how did I know, just one month after they began dating, that Curtis had met his wife?

My brother never missed a race on TV.  Imagine my surprise when I called him on September 20th, 2009 to ask if he had seen it.  “No”, he said.  No?  Well did you record it?  Do you plan to watch it later?  “No”, my brother said again.  “I forgot to record the race too, I was with Rose.”

I hung up with my brother and called my Mom.  I told her that when Curtis and Rose get married some day, and if I’m asked to be the best man, in my speech I will tell everyone that September 20th, 2009 was the day I knew.

I know that my wife, daughters, Mom and Dad all agree that Curtis has found a treasure in his new wife, Rose.  What a wonderful spouse and partner.  She brings out the best in my brother.  Since they met he’s been promoted to marketing director at the hospital.  But what’s made me most proud is that Curtis has become a nurturing father to Rose’s son.

That’s what a good partner can do for you, whether it’s in business or life.

Cheers to Curtis and Rose Boardman, married June 18th, 2011.

 

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June 14, 2011

React and React: He’s Got One Leg, What’s Your Excuse?

A one-legged wrestler.  Sounds like a sick joke right?  Don’t tell Anthony Robles that.  He may put you in a head lock.  Born without a right leg, the Arizona State University senior won the national championship on March 19th in the 125 lb. weight class.

I was flipping through my wife’s People magazine when I came across the article about him.  The title was Wrestler Anthony Robles:  Against All Odds.  It was buried in the back next to the celebrity weight loss tips.  Brad Pitt and Angelina Jolie were on the cover.  I was grateful to find the story but mildly annoyed that it wasn’t more prominently placed.

Regardless, Anthony’s story is inspirational.  The right leg is a body part most would consider a necessity in the sport of wresting.  Yet the absence of one didn’t discourage Anthony from accomplishing his goal.

So what’s your excuse?  What’s stopping you from accomplishing your goal?  Is it money?  Time?  A lack of knowledge?

A 125 lb. wrestler with TWO legs couldn’t keep Anthony Robles down.  I doubt your excuses would either.

 

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June 10, 2011

The Four-Day Fix and Flip: CLOSED

From the website Answers.com:

Question:

Why is it so hard to hit a home run?

Answer:

The ball is small and fast, less than 3 inches in diameter and moving at around 80mph or more in most cases. You have to have a good eye just to be able to make contact. If you can make contact, then you have to be able to have enough power in your swing to send the ball flying at least 320 ft at the foul line or as much as 400 ft at center field to make it over the wall. This means that you have to swing hard on the ball in order to get enough force to send it out of the park. You also have to hit the ball at the sweet spot of the bat.

You’ve heard the saying there is no such thing as a stupid question?  Well I’m sorry but that is a stupid question.  What I find fascinating is that someone actually wasted time answering it.  Even more surprising is that it took four sentences and 119 words to explain.  I would have just said “because the ball moves really fast.”

It’s hard to hit a home run in real estate investing too.  I categorize our profits in baseball terms, kind of like this:

  • 7-10K – single
  • 11-18K – double
  • 19-25K – triple
  • 25K or more – home run

On April 22nd I posted The Four Day Fix and Flip.  I explained how we purchased a house at the auction here in Phoenix, Arizona, remodeled it and listed it all within four days.  We got a full price offer the day after it went on the market and the buyer didn’t ask for any concessions or closing costs.

It closed on June 2nd and we net $31,000 in profit.  That’s right, a home run.  It’s our 2nd home run in 46 deals.  In order for this happen everything must go right  – from the rehab to the appraisal to the loan approval to the buyer showing up on time to sign the closing documents.

Back in the glory days of 2004-2006 we hit home runs more often.  Today is a different economy.  But that doesn’t keep us from swinging for the fences.

It’s like Babe Ruth once said, “Every strike brings me closer to the next home run.”

 

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June 7, 2011

Read and React: Cromford Report’s Market Summary for the Beginning of June

The average months supply (active listings divided by monthly sales rate) for the period Jan 1, 2001 to June 1, 2011 is 5.9 months. Right now we have a 3.2 month supply. Yet we read everywhere that there is a “glut of foreclosed home on the market”. What we are reading may have been true in November last year. It is not true now. In fact available supply is really even tighter than this. If we only count active listings that don’t have a contract the months supply number drops to just 2.4 months. Anyone who thinks this is a “glut” is not living in the real world. They should just ask anyone who is actually trying to buy a home right now. Competition is intense, and not just for bank-owned homes and trustee sales. It is also heating up for short sales and normal listings. If you are trying to buy a home that is at all desirable and is priced at market or below, expect multiple bids. If you are a seller, then you only need to price realistically and your home will sell quickly.

-       Mike Orr, June 3rd, 2011

If you are a real estate investor in Arizona you need to subscribe to the Cromford Report.

If you are a Realtor in Arizona you get this information for free.  And if you are a Realtor and don’t follow the Cromford Report on the Arizona Regional Multiple Listing Service (ARMLS) then you should have your head examined.

That’s because the facts you get from Mike Orr – twice a month in his market summary – are extraordinarily valuable to your business.

Say you’d like to start fix and flipping houses here in Phoenix.  You’re scared to get started because the local news keeps reporting the market is poised for a double dip.

Well what do they know?  Chances are they’re getting their numbers from some analyst in California or New York.  And the analyst’s data is usually 3 months old by the time it’s reported.  I read a newspaper article last week in the Arizona Republic that quoted foreclosure numbers from a report in January.  Are you kidding me?

Mike Orr of the Cromford Report and his colleague Tom Ruff of the Information Market are right here in Phoenix.  They have their ears to the ground and process the numbers in real time.

Don’t be fooled by the press.  They’re great at revealing those who reveal themselves (can you say Anthony Weiner?)  But, they’re lousy at math.

 

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June 3, 2011

The Flipping Phoenix Houses Workshop

Stop wasting your time and money flying all over the country attending real estate investment boot camps.  That’s what real estate attorney Bill Kozub told me – after I had spent more than $5,000 traveling to Denver, Colorado and Atlanta, Georgia.

In Denver, I dropped $1,200 on two CD sets – a program on lease/options and another on foreclosures.  The following year I would fly to Atlanta for a workshop called How to Get Lenders Fighting to Give You Money.  That set me back $2,700.  Believe it or not, when I got home I couldn’t find any lenders fighting to give me money.  They did have to fight off laughter when I asked for it though.

Attorney Bill Kozub said find a local real estate investor in Phoenix that is willing to help you learn the business.  So that’s what I did.  And to this day – after 10 years of real estate investing experience and over 200 deals under my belt – it’s the best advice I’ve ever received.

Manny Romero and I operate a real estate investment business here in Phoenix called Rising Sun Capital Group, LLC.  We’ve been asked a lot lately about doing a fix and flip workshop but have been reluctant to put one together.  Here’s why:

  • We don’t want to be labeled real estate investment gurus.
  • We don’t want to take time away from our core investment business.
  • We don’t want to charge money for information we were able to learn on our own – for free.

Manny and I put our heads together and decided to do something different.  Since real estate is a local business – and we learned everything we know from local real estate investors – we would create a workshop for those folks interested in learning how to fix and flip right here in the Phoenix metro real estate market ONLY.

Best of all, we’d keep the price low – $495 for two days of instruction.  And attendees can bring a spouse, partner, client, whoever they want – for FREE.

We won’t hold anything back or ask you to buy anything else when we’re finished.  You’re going to learn about our acquisition, rehab, sales and capital strategies.

Our first workshop will be June 24th-25th.  You can read more about it at flippingphoenixhouses.com.  We hope to see you there.

 

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