6/5/11: Ask The Guys – Answering Your Real Estate Questions About Tax, Legal, Foreign, IRA and more!

One of the best parts of learning in a classroom is hearing the questions asked by other students.  Sometimes they ask things you would never think of!  And even if the question isn’t directly applicable to your current situation, who knows what tomorrow may bring?

That’s why every few weeks we dedicate an episode to reaching into the email grab bag and pulling out several of the many great questions we receive from our listeners each week.

In the radio schoolhouse for today’s Q&A:

  • Your host and headmaster, Robert Helms
  • Co-host and teacher’s aide, Russell Gray
  • Special guest and attorney, Mauricio Rauld

Not only do we get questions on a variety of topics, but through the power of podcasting, we get questions from a variety of locations – many outside the U.S.!

The collection of questions for this episode have us discussing what to do when you can’t find a good deal in your target market, how to get started with little or no money down, what to do when a property is underwater and you want to move, and how to find a great agent in a foreign country.  Plus we talk about landlording in tenant friendly states, profiting from distress without kicking people out of their home, and ideas for creating quick cash when you have the short term use of OPM (other people’s money).  Enjoy!

To submit your question to The Real Estate Guys™, visit our Ask The Guys page.

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11/29/09: Coming Up Short – The Realities of Selling Your Property for Less than You Owe

With so many properties with mortgages that exceed the current value, many owners are feeling trapped.  When loan modification fails and you can’t afford to pay the mortgage, before you toss in the towel and allow the lender to foreclose, consider a short sale.  No, this isn’t a garage sale of your used underwear to raise money for the mortgage.  It’s the process of working with the lender to get them to release you from the loan when you bring in a new buyer who pays less than you owe.

In studio to brief you on short selling:

  • Your host, Robert Helms
  • Co-Host and Financial Strategist, Russell Gray
  • The “Godfather of Real Estate”, Bob Helms

The Guys kick off the show with a discussion of what a short sale is and why a property owner would bother.  Why not just throw the keys at the lender and walk?  And what about the lender?  Why would the lender accept a loan payoff for less than the full amount due?  This show builds upon a March 22, 2009 show (available to Backstage Pass Members in the Archives) which covered the opportunities for investors in buying short sales.

Moving on from the motivations of the various parties, the Guys delve into the actual process of a short sale.  Is this something you can or should do yourself, or does it make sense to get professionals involved?  If so, which professionals are needed and what questions should you be asking?  While short sales are nothing new, Bob pointed out that it’s been decades since they were a significant portion of the market.  Who do you need on your team and how important is experience when seeking professional help?

The Guys also touched on the concept of “deficiency” and the possible tax consequences of a short sale for both homeowners and investors.  The show concluded with a discussion of what to watch out for in today’s economic climate.  Whether you are someone in need of getting out of a property that’s underwater, or if you’re an investor looking to pick up a bargain by providing a borrower and his lender an alternative to foreclosure, this show will give you some food for thought!

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Don’t Be So Negative! Just Change Your Perspective

If you’re left brained (logical), we probably already lost you at the headline.  But this isn’t a blog on positive thinking (not that we have anything against that).  We’re talking about negative equity and how it gets measured.  More importantly, where are the opportunities?

Just before Thanksgiving, the Wall Street Journal ran a headline that “One in Four Homeowners are Underwater.”  This isn’t because California slid into the ocean, but is one of the lingering effects of the mortgage meltdown that began over three years ago.

The article says that 10.7 million households had negative equity (about 23% of all households) according to research firm First American Core Logic.  Nearly half of those, or 5.3 million households, owe at least 20% more than the current value.  And nearly 10% of those (520,000) had already received Notices of Default.  An even more telling statistic came up later in the article, when the Mortgage Bankers Association was cited as stating that 7.5 million households are 30 days or more late on their mortgage payments.

What we think is interesting is that 24 million households, which would be about 50% of all households, have NO mortgage.  Therefore, they have equity!  But just because they aren’t in imminent danger of losing their property doesn’t mean they didn’t suffer loss.  If your property went from a fair market value of $500,000 down to $250,000, then you lost $250,000 of net worth.   Last time we looked, that’s bad.  Especially if you were counting on using that equity, through a reverse mortgage or moving to a less expensive area, to help fund a chunk of your retirement.

Of greater interest is one line buried in the middle of the article which said that First American Core Logic had changed its methodology for calculating these numbers and “using the old methodology, the portion of underwater borrowers would have increased to 33.8%”.  Wow!  That’s 1 in 3.   Think about that.  Go outside and look up and down your street and count every third house.  Underwater!

Of course, it doesn’t really work that way.  There are certain areas that are more underwater than others.  We’ve been talking a lot about Dallas lately.  This is a market that didn’t lose value anywhere near as much as say, Phoenix or Las Vegas.  In fact, according to the Wall Street Journal, citing First American, homeowners in Nevada, Arizona, Florida and California are more likely to be underwater.  Funny, but weren’t those once the hottest appreciating markets?

So what does all this mean?

Well, our headline had double meaning.  Obviously, changing the methodology for generating the statistics resulted in a report of 23% of households underwater, instead of the nearly 34% under the old methodology.  If you’re watching trends, this might mislead you.   Lesson: Always be sure to dig a little deeper when relying upon statistics.

The bigger lesson is that one person’s problem is another person’s opportunity – and not necessarily in an opportunistic way.   In other words, someone doesn’t have to lose (worse than they would anyway) for you to win.

If you’re a regular listener of the show, maybe you’re already picking up on where this is going.  Obviously, we see a lot of opportunity in a landscape covered with problems.  Problems are every entrepreneurs dream!

With 7.5 million people behind on their mortgages and millions of those with negative equity, they can’t refinance or execute a traditional sale to get relief.   Millions have negative equity of over 20%, so they don’t qualify for the government sponsored loan modifications.  And according to this same Wall Street Journal article we’ve been discussing, Sanjiv Das, head of TARP recipient Citigroup’s mortgage unit, mortgage companies are reluctant to reduce mortgage principal over worries about “moral contagion, with people not paying their mortgage or re-defaulting because they believe the bank would reduce their principal.”

So banks won’t modify.   Homeowners can’t refinance or sell for enough to pay off the loan.  Problem, problem, problem!

But what would it look like if an astute investor were able to buy the home on a short sale, taking advantage of today’s fabulously low interest rates, and then rented the house to the former homeowner for a payment that the now tenant could afford?

You could even go one step further and provide a lease option to the former homeowner, with a price point designed to make you (the investor) a nice profit, even through the re-purchase price would look like a bargain to the former homeowner.  It’s still less than their original mortgage (which was paid short when you bought the property).  Do you think the former homeowner turned tenant would be willing to pay a little bit more than market rent to stay in their home knowing they have an option to get it back?  Do you think they would take better care of the property than the average tenant?  Do you think they are more likely to stay long term, thus reducing your exposure to vacancy and turnover expense?

Put yourself in the position of every party in such a transaction.  Are there positives for everyone?  Eveyone’s situation is improved.  Win-win-win.  We  like it!

This blog is already too long, so we’ll leave you a homework assignment.  Especially, it you’re sitting there thinking to yourself, “Great, but I can’t afford to do anything.”  Go listen to our show on reverse mortgages.  Then look for the stats in this blog.  Then go outside and count the houses.  Do the math.

We get giddy when we think of all the opportunity in today’s market.  But of course, it’s all a matter of perspective.

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9/27/09: The Real Estate Guys Answer Your Questions

Every day we get emails from our listeners.  Some like to tell us how awesome we are (oh, go on!), but most have questions.  We’re working on some new ways to be able to be more responsive.  So keep those emails coming!

For this week’s show, we decided to grab a few question out of the email in box and talk about them on the air.  Joining host Robert Helms in studio are his trusty sidekick, Russell Gray and “The Godfather of Real Estate” Bob Helms.

We kicked off the show  commenting on Ben Bernanke’s pronouncement that “technically speaking, the recession is over.”  Yippee! Right?!?

After having fun with that, we reached into the mail bag and pulled out a question about which U.S. markets are “best” for appreciation right now.  Our crystal ball wasn’t warmed up, so we chatted on this one awhile.  It’s a question that comes up all the time and though easy to ask, it’s hard to answer.  So we talked about the conditions we look for to cause appreciation, how today’s economic environment affect them, and some specific markets we’re watching.

Another question that is salient to the times was about the availability of financing in today’s market.  There are certain product segments and demographics that can’t find financing, while others have abundant financing available.  Obviously, when you know where the money is flowing and why, you can position yourself in its path and do well.  Having just been at the Rich Dad Real Estate Summit with Ken McElroy, Robert Kiyosaki and several veterans of investing and finance, we had some fresh insights to share.

The next question was also all too common in today’s economy.  “I have a property that is upside down with negative cash flow, what should I do?”  As Kenny Rogers sang, “You gotta know when to hold ’em, know when to fold ’em, know when to walk away, know when to run.”  Lots of people are struggling with the issue of “strategic defaults” and its ramifications.  (Side note:  The Real Estate Guys wrote a free 18 page report What You MUST Know Before Attempting a Loan Workout to help people in this situation understand their options.

The discussion of  what to do with an upside down negative cash flow property had us reflecting on the previous discussion of where’s the appreciation most likely.  It also lead directly into another topic:  The Price of Maintaining You Good Credit.  Good credit has never been more important, but if you have lots of negative equity and negative cash flow, how much is it really costing you to maintain it?  This is a very timely topic and we tossed around our thoughts on the subject.

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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed.