After watching the devastation on TV this week, as hard as it is to watch, we know that after the cleanup, life will go on. This applies to Japan and Charlie Sheen.
The death toll could have been much higher in Japan, had they not been prepared for the tsunami by building very high walls around their vulnerable coastal areas. How did they know to do this? Because history repeats itself.
Real estate has a history, too, and greed seems to fuel its most memorable moments. Back in 2004 to 2006, too many first-time investors (speculators) took their advice and guidance from late-night TV hucksters with promises of riches and “no money down” schemes and today they have nothing to show for it.
We have, once again, entered a very exciting phase of real estate. If you don’t realize it by now, we’re at the bottom of the market and investors from all over the world are flocking to Las Vegas as their #1 destination for bargains.
The opportunities are endless and my job each week is to show you real deals, rather than promises of extreme wealth. When I interview my potential clients, I ask what they want to achieve with real estate. I’m hearing more and more questions about the huge profits to be made from Trustee Sales and flipping properties, so let’s explore these options today.
In a nutshell, when the bank forecloses on a property, they attempt to sell it at the Trustee’s Sale which is held every weekday in downtown Las Vegas. This is your opportunity to buy wholesale, cutting out the middleman. The problem is, in most cases, you want the middleman. He’s taking the most risk, which is what you want to minimize or eliminate.
There are no “outs” or guarantees at the Trustee’s Sale. Can the property have HOA or tax liens against it that you have to pay off? Yes. Do you get to inspect the property after you bought it? No, you buy it, you own it – there’s no due diligence period. So whatever condition the property is in, it’s your money that will bring it up to par with what a tenant or buyer’s expectations are. It’s not only money you have to consider, it’s time. The longer you take to rehab, the higher your holding costs (property insurance, HOA fees, taxes). This will cut into your profit margin and in many cases, put you into the negative. Now you own a money pit, congratulations.
If you really want to buy at the Trustee’s Sale, we can help you. We have a process where we will find the property you want within your price range. We can minimize your risk outlined above, but we can’t eliminate it. If you’re interested in buying this way, just let us know.
Let’s say you successfully buy and rehab a property from the Trustee’s Sale. Now you want to sell it (flip it.) If your prospective buyer is getting a mortgage, welcome to part two of your challenge. Lenders have rules and limits as to how much you can profit from your purchase during the first 90 days after purchasing (at most major banks). FHA loans, which account for the majority of mortgages today, have a 20% profit cap. Once an appraisal is done and it’s less than you’re willing to take, you may be stuck holding onto your property for six months before getting another appraisal. There are ways around this, but you need to know what you’re doing and which lenders can help you.
The professional investors who are buying at the Trustee’s Sale do their homework. They have a very good idea what’s owed against the property and know that the title company will insure it. They also know they’re buying a first mortgage rather than a second or third (which is a very big beginner’s mistake.) They take all the risk and sell you a finished property, many already with paying tenants. The Karten Group goes one step further and analyzes these properties to make sure they have positive cash flow for you (not all of them do.)
These are the properties we bring you each week in an effort to minimize your risk and maximize your return. Our newest offerings include approved short sales and bank-owned properties which have much higher returns but require some rehab on your part.
Next week, I’m going to show you how to use the money you already have to start investing in real estate. Currently only 2% of Americans are using this to their advantage and it’s a very exciting strategy.