The Real Estate Sage at The Real Estate Investment Institute - REII

Over and over again the TV commercials ask: "Do you have a structured settlement? Do you have a an annuity? Do you have a land contract? Do you have a contract for deed? Do you have an incoming private note?" We'll give you the cash you need!

Ya, right! No one will give you anything! You have a valuable asset, they will pay you a small fraction of it's value if you'll simply assign the full value to them.

Do you know you can normally do far better Hypothecating the note, annuity, structured settlement, et. al. yourself!

To hypothecate is to pledge an asset as security. It's the same as mortgaging real property.

Have you ever wondered where these companies get the money to keep buying these contracts? They get it by hypothecating the valuable asset you sold them! They get it by taking your cash flow to the bank!

Not only will they get an imitate profit from the loan proceeds, but they'll get huge profits when the notes is paid and the monthly cash is returned to them!

You could do this your self, NO CREDIT NEEDED! That's right your credit isn't relevant. You do have to have the right to pledge the asset, but you had to have that with the TV companies, too. The value of the asset is based on the credit of people/company paying the note or annuity, not your's.

Opportunity abounds. If you have an asset, if you deal in real estate, or any other service or product, if you recognize what you're looking at.

To many mistakenly believe the current crisis has caused a fall in demand. They're wrong. We have more people than ever before, the people still need homes, people don't know they can buy. There is always more than one way!

The knowledgeable real estate pro' can put people in the homes they need. Hypothecation is just another tool, one your client or you yourself can use.

Now go make a better life.

Bill

William J Archambault Jr

The Real Estate Investment Institute

It is said that there is no greater love than the love of those that would give their life for another. There is no one who wants to die young and violently, yet our country has never lacked for volunteers to risk their lives to protect ours.

Despite all the attempts to replace logic with hate, and common sense with emotion, they still stand between us and alien enemies.

God bless them all!

Semper Fidelis!

Bill

Short sales, so many agents have discovered short sales, as if they were just invented. Many others are reluctant to get involved. More still assume they are some sort of entitlement, a right.

They're wrong! Short Sales are a tool, an old Tool! Only the name is new to ease the mind of the guilty. We use to talk about "settling with the bank!" As a banker, I recommended accepting such sentiments, to our Board of Directors, they did. Latter in 1973 I did my first "short sale" within 6 months of starting in sales.

There have always been those among us that don't know their craft or refuse to learn, so confusion abounds! I don't intend to teach short sale here. I hope by reprinting an article of mine to remind you of what can be done, by knowledgeable and motivate agents.

" Creating Equity From Nothing," as originally published in September of 2006.

I write about and teach real estate investing in distressed properties, opportunity properties, yet I keep hearing about people who knew someone in trouble that didn't act to help. All to often they did nothing because they didn't believe the property had any equity to save. Worst of all are the would be "Bird Dogs" who say I thought I had an opportunity for you but the owners had no equity! I want to scream!

Maybe it's the TV infomercial gurus showing all those big checks, implying that people are anxious to give you huge equities just for asking. They didn't recognize the opportunity! They think opportunity is money lying in the street.

They think that opportunity is finding underpriced houses! If that were the case, your local realtor could make you rich, they can't! (More about your realtor in my books, "One House At A Time / Finding And Buying Single Family Rentals" in a chapter called "Why Your realtor Can't Make You Rich" and in "A Baker Dozen / A Real Estate Anthology" in an article called "For The Same Reason A Plumber Pipes Leak.") If you're looking for houses get a good realtor. Houses themselves are not opportunities! People are opportunities, troubled people!

The difference between real bird dogs and hunters is the dog sees a Cock in the field and the hunter sees "Pheasant Under Glass!" Yes, poorly trained, dogs will try to eat the bird, but it's not the same meal the hunter and his family enjoy Sunday afternoon. It's exactly the same with "Bird Dogs" and Investors. Too many would be "Bird Dogs" and would be Investors, only see the Cock. A skinny Cock may not look like much of a meal but when the right cook does their thing it's wonderful. It's the same with opportunity real estate!

Maybe I'm being too hard on people because the second hardest thing in investment/opportunity real estate, is recognizing opportunity! Most people will see a shinny bird where some of us see Sunday dinner. Let me put it simply. The hunter's dog's job is to point out the Cocks not look for dinner. The Investor's "Bird Dog's" job is to point out troubled real estate owners, not to judge the value of the deal!

In "One House..." I write about one deal where the people had no equity, and only about 40 days left before they would lose the property to their first lender. The people holding the second on this property were ideal candidates for a short sale, so we settled with them for about 60% of their principal investment and none of their accrued interest. The first lender not only waived most of their NOD charges, but allowed the buyer to assume the loan. We did this by using a "Net Offer" option, adding the buyer to title and refinancing the second. The results: $10,000.00 cash to the sellers, $10,000.00 cash out plus a $2,000.00 television to the buyer, and real equity. That's about $30,000.00 in real equity that didn't exist 30 days earlier. The story is in the book, what isn't in the book is the effect of time. When we created the equity we did nothing to the value of the property, today about five years later that a $140,000.00 house purchased for about $135,000.00 is now worth more than $350,000.00!

A short term "Flip" for the same client (also in "One House...") had a Father and Daughter owning a home in foreclosure, with the Daughter in bankruptcy. Having tried for more than two years to sell the house through a series of realtors with no luck they had abandoned the house and were waiting for the lender to take it. When my client's "Bird Dog" told her about it the seller's had no equity and had given up any hope. The lender had an FHA loan so there was no potential for a "short sale" but we did negociate away a lot of NOD fees, we paid the Daughter's attorney to petition the court and got rid of all the other liens, now we had equity. Then we refused to list the property, but we did co-operate (paid the selling realtor half a commission), the results my client and I made money (her check is in the book), the seller's attorney got paid $2,000.00 ($1,000.00 on his existing bill and $1,000.00 on work for us) and the sellers got $5,000.00 cash, each! We created equity with a few phone calls. Not a big deal, but we created $30,000.00 from nothing in about 45 days. The only thing we did to the house was to turn the power on and clean it.

You might believe these deals took some secret knowledge to do. I saw a new TV guru this week end offering to sell you the "SECRET" well here it is. Find someone with a problem and make sure they are better off for having met you! Lenders only agree to short sales when it's beneficial to them. Sellers only accept offers they see are for their good. The courts and even the IRS will deal when it's in their best interest. Remember it's rare that only one person has a problem, the people doing the foreclosure also have a problem.

Sometimes all it takes is a sympathetic ear and some empathy. Yes some people will just hand you their equity. The same client and I did a deal in Pahrump, NV when one of her tenants told her she was going to walk away from her home just to get rid of it, she even offered to pay someone to take it. We paid her. My client made $25,000.00 in profit in 60 days. We painted the master bedroom in that property only because we told the buyer we were going, to before she saw it. (We sold this house four years ago for $96,000.00, the buyer had it appraised to refinance this month, 2-06, it is now valued at $226,000.00.)

So far we've seen "Short Sales," "negotiations," and "a Sympathetic Ear" and "Time" used to create equity.

My last deal with this client was a more typical "Flip" it took six months and a lot of up front cash but the client made a $65,000.00 profit, not bad.

Recognizing opportunity is the subject of my latest book "Flipping For Fun And Profit"

Bill

William J Archambault Jr

The Real Estate Investment Institute

©REII 2006 / 2008

A new friend writes:  "How many people walked away from the homes in which they only had $500, $2,500, or $5,000 as down payment? But that's all they lost. And how many people lost their $40K, $60K and $100K?"

My reply deserves it's own post.

It's not the amount of the dollars that are invested that is important or the percentage of Loan to Value, LTV, Leverage. The concept is the same regardless! They, the home buyer, solicited and accepted a loan, they agreed to make 360 payments over the next thirty years. They anticipated both appreciation and amortization to accrue to them! They had no intention of sharing any of the benefits of ownership with anyone least of all the bank.

Some deadbeat, who has lost his house encounters a TV "news" man, does he say, "I quite my job, I stopped making the payments, I lost my house?" No he says the bank cheated me! There is nothing new here, Hitter did it, Herod did it, Stalin did it, and on and on...

We have allowed it to become Politically Correct to blame someone else for our problems. It has become almost a badge of honor to claim you've been wronged by a bank.

Just because your mortgage exceeds the value of your property is no reason to walk away! There isn't even a real problem unless you try to sell. The payments don't change because the property loss value. The house doesn't suddenly get smaller. Your lifestyle doesn't change. The urge to walk away comes from out side sources telling you how bad you are being abused! But, where is the abuse, nothing regarding your relationship with the bank has changed, except for your willingness to honor your obligations!

The strange thing is that you'll end up paying more to rent a lesser home, in which you'll have no equity either, and no chance at appreciation or security. Even if you don't believe we'll ever see appreciation again amortization alone will pay off the property!

What about security? Your payment will never go up beyond what you agreed to if you're an owner, even one with no or negative equity. As a tenant your payment, your very right to stay in the property has to be renegotiate normally every year. What if you really do have economic troubles? Tenants, depending on where you live can be evicted in as little as five (5) days after your payment was due. Home owners normally have five months to a year or more before facing final foreclosure.

Maintaining your obligations is common sense in addition to maintaing your personal honor.

Bill

William J Archambault Jr

The Real Estate investment Institute

I read a recent well intentioned blog advising that you should not select a lender or loan based on the rate! That's great advice! Rate in itself is only one side of a coin! The other side of the coin is cost! Origination and discount cost!

Loan costs come in two forms the origination fees that are determined by the Loan Originator based on market and the anticipated work involve. Origination cost have nothing to do with the rate you receive.

The other cost are loan discount cost, which is a misnomer in that the discount can be a charge or a credit, depending on the rate you select. At higher rates mortgage brokers are paid by lender reducing what you the consumer would other wise have to pay as cash out of your pocket at closing. When a mortgage broker receives such payments (really credits to your benefit) they are called YSP* (Yield Spread Premium), when a banker charges the same rate it's called anticipated profits and is not disclosed.

*Brokers disclose YSP under line 1302 on the Good Faith Estimate and HUD-1 (closing statements) on a line labeled: "Compensation To Broker (Not Paid Out Of Loan Proceeds)" Bankers gross income is not required to be disclosed. This useless information, only causes confusion.

Our well intentioned blogger went on to advice the reader to use "APR," Annual Percentage Rate, to compare loans and lenders! There are only three excuses for such bad advice: One, "APR" was intended to be used to compare loans. Two, our government mandates all lenders to issue a "Good Faith Estimate" and "Truth in Lending" forms, including "APR" either at the time of application or with in three days there of. Three, there are those sinister loan sources that wish to legally deceive! Some suggest a fourth reason: pure stupidity! I don't believe stupid is an acceptable excuse for anything and I group the stupid with the sinister.

The "Truth in Lending" law the so called "Regulation Z" was a truly inspired bit of legislation, but Congress let HUD write the regulations. HUD issued one flawed set of regulation for all lenders and all types of loans. What worked well when the most common loan was a three year car loan never worked for a mortgage loan! Today with our much more expensive cars and relatively long term loans on them it no longer works for car loans either.

"APR" is a lie! A Government Fiat, that causes more harm than good.

Numerically I could prove that "APR" is in fact correct, but that just proves the old adage that "figures don't lie, but liar's figure!"

I have never meet anyone who's experienced any thing even close to the "APR" rate! You won't meet anyone either! In order to experience the promised "APR" rate a mortgage would have to be fully amortized with no late payments, and no pre-payment!

Today the normal mortgage is paid off in three to five years, not fifteen to thirty years. To make matters worse "APR" by it's flawed nature drastically favorers higher cost, lower interest rate loans. Borrowers who paid off early normally find out those to be very expensive loans.

Then there is the "Mortgage Insurance" distortion. "Mortgage Insurance" referred to as either MI or PMI, all are properly "MI," is part of the "APR" calculation. It distorts the "APR" because the insurance premium is included for about ten years for conventional loans (non-government loans) and for the life of FHA loans.

Including ten to thirty years MI when most loans are paid off in three to five years distorts any comparison! It's a distortion how is the consumer to know which is the better loan? This distortion is worst with FHA loans where they show at least 240 more MI payments than the conventional loans which themselves show at least sixty more MI payments than the consumer is likely to make. (I'm not advocating FHA loans, but in today's market they have to be considered.) How can you compare loans if one included 240 or more extra charges you're not likely to experience?

So far we've been referring to fixed rate loans, HUD mandates the least likely of three possible scenarios for adjustable rate mortgages, ARMs. The most likely and worst happening is that ARM index will go up. The best possible change if you have an ARM is that index goes down, is even this is more likely than the mandated calculation assuming index stays the same!

I have a solution! To compare loans fairly. To determine the best loan for the consumer! To apply common sense to loan selection! To beat the system and learn the truth.

1. Take the "Good Faiths" to become compared and locate the "Total Closing Cost" near the bottom right.

2. Add the payment (Principal and Interest, PI) to the monthly MI payment (all located bottom right on the "Good Faith")

3. Multiply the monthly payment (PI+MI) by the number of months you're likely to have that loan (36 to 60).

4. Add the total from # 3 to the closing cost from # 1.

5. Repeat this for all loans to be compared. This is the cost of the loan, over the likely life of the loan! The cost you're most likely to experience!

"APR" works only if you are going to live your Grandparents life! Only if you are going to keep the loan forever!

Bill

William J Archambault Jr

The Real Estate Investment Institute

It is said that life imitates art and that art imitates life.

It is certainly true in our current real estate crisis.

We are experiencing real tragedy, ironic tragedy,

We have comedy, in the form of advising potential home buyers to put at least 20% to protect themselves from the dreaded upside down experience. This role is being presented by fools, comedians, and serious players alike. You can catch these mini-plays on TV from 5 to 9 AM every morning, from noon to 1 PM, at mid-day, from 5 to 6:30 PM every evening, and from 11 to 11:35 every night.

The irony is that there is nothing tragic about being upside down. The tragedy is the loss of value, the loss of equity! It's not funny to be upside down, but it's not tragic either. Thousands of people volunteer to go upside down every day.

The comedy is that there is no protection in putting more down! No protection for you and your's! It's truly funny that the only one protected by large equities (excluding total equity) is the lender, the bank. Yes, the vary bank that so many mistakenly blame for the problem!

Even funnier!

Had the buyer retained his liquidity, he may have held on until the problem passed!

Funnier still!

Bill

William J Archambault Jr

The Real estate Investment Institute

 (My thanks to Angelfire for the mask.)

The sun is just rising when the little old octogenarian lady climbs the ladder to the huge John Deer parked in her shed! Balanced precariously, she hooks her right arm in the grip and scowls wickedly as she fishes in her pocket for keys to the cab.

Keys she mumbles. Keys for a tractor, disgusting! Keys on a farm, unthinkable just twenty years ago. Her late husband never had keys to anything but his car and pickup. Even their house didn't have a lock until ten years ago. She cursed again, apologized to the Lord and fished out the door key.

As she prepared to start the big machine, she remembers this is not her father's tractor. Then again her father preferred a team of mules. She grabs the lamented check list:

Right parking brake: on

Left parking brake: on

Pre-heaters: on

Check voltage: bank one

Check voltage: bank two

Set throttle to start

Transfer case to two wheel drive

Transmission to: Neural

Check exhaust stack: clear overhead, no birds nest

Check equipment: get up look behind tractor

Check hydraulics

Shutoff sound system (she'd added this, the 40 year old kid who does the plowing always leaves it turned up so loud.)

Engine cut off lever: in (At least that was like her fathers first diesel.)

Fuel pump: on

Key: on

Check fuel pressure

Press starter

Check engine oil pressure

Check hydraulics

Get up check to the rear again

Open left door check forward

Open right door check forward

Raise plow

Adjust seat and petals

Check brakes

Release parking brakes

Engage clutch

Transmission to third

Get to work

Feeling more like an airline pilot than an aged farm wife she eases the quarter million dollars worth of equipment to the fuel tank a 100 yards away.

She sets the hose to automatically fill the tank, gets a ladder and checks the oil in the big machine. 100 gallons latter she uses the ladder and a rubber hammer to tap on the fuel tank, just over a hundred gallons left. Enough for today.

Carefully she backs the 28 foot wide, 45 foot long tractor and it's attached 16 bottom plow, away from the fuel tank. Working her way out to the wheat field. Corn, her advisers tell her will be at least $13.00 a bushel by harvest time! It was $2 to $3 a bushel, less than two years ago. She can't waste a field on wheat.

Waiting for the hired man she calls her fuel jobber (the man that delivers her gas and diesel) The guys wife answers, they exchange pleasantries. She orders a 1,000 gallons if they can deliver after 1 PM or 900 before. The lady ask will you be their? Why? "Because at $4.35 per gallon we need cash or a check, I'm so sorry she says. Were getting two $250,000 loads of fuel a week and they're making us pay cash! We're a small business we don't have that kind of money." She orders the fuel.

She tells her man to plow, the wheat under. She'll bring him lunch at noon and refuel the tractor.

Walking back towards the house she calls her son in law, would he go to the stock auction for her? She wants a dozen beef caves, she'll put them in the woods pasture, they'll be a little tough, but no one will have the corn fed beef we love. At $13 a bushel, no cow or chicken is going to eat that corn. That's not yellow on the cob it gold!

She wonders what she just did to the cost of flour. As she walks down the lane she remembers all those years feeding the Nation, but the soybeans to the right and corn to the left will all go to bio-fuels.

We all know the cost of fuel of fuel has gone up 33% in the last year, but do you know food cost in general has gone up 40%! Do you know the third world can't afford corn or beans for their people.

Our evil "Green" Congressmen have promoted another crack-pot idea without regard to the consequences!

Now, these same demigods want to buy up the REO's for low income rentals. Assuming their usual competence, we can say good by to life as we knew it!

Bill

William J Archambault Jr

Today we all remember those hart warming things from our youth, those thoughts and memoirs we share with the first woman in our lives. Everyone has them, even Joan Crawford's kids, I sure.

Many novels have been written trying to explain our Mothers! You're going to read a lot of loving tripe today, more importantly it's going to make you/us/all of us feel good! I've got one of those Mothers! I had two Grand Mothers that fit the category and I'm married to a wonderful woman who's all those things to our kids!

I'm going to leave warm and fuzzy to others this year. Something happened near the end of last year that no Mother should have to face, but mine did!

We lost my brother Jack, last year. Jack who is. Sorry was 10 months younger than me, collapsed alone in his apartment. Jack had become a virtual hermit over the last two decades, was rushed to the hospital. Our parents, busy packing up for their annual migration to their winter home, rushed to his side.

Jack at first seemed to be alright. Then something happen, I was on the phone with him when he went incoherent. When Jack woke up the next morning with Mother holding his hand, tubes stuck in to him everywhere and unable to talk. Mother held on! Days latter Mother still holding his hand. Jack got the word he'd never be able to disconnect the machines. Mother held on! Coherent, but unable to speak he'd never speak again. Mother held on!

Jack was given two choices, Jack understood. Mother held on! In the middle of the night Mother a sleep in a chair next to him Jack made his decision, he pulled out the tubes he could reach. Mother held on!

Jack lasted another three weeks. Mother held on!

Jack never found his sole mate, Jack wasn't the most loveable person, but he didn't lack for love. Mother held on!

No one should have to face what Mother did, but Mother held on! Mothers always hold on!

Thank God for Mother! Thank God for Mothers! Your's and Mine!

Now go call your Mother!

Bill

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Strange question, in this foram. Isn't it? But, that's what happens when you don't know what you're doing and promiscuously fool around anyway!

"Don't lecture us! It's our right! We're entitle It's our right! We're entitled! We're entitled! We're entitled! It's our right!"

You're right! It's your right!

Don't blame us in the know! Don't blame us if lives are changed. Don't blame us if families are hurt! Don't blame us if opportunities are lost!

Just because you'd have us believe, you innocently/inadvertently got yourself in trouble, doesn't mean someone else should support you!

Just because you took out an expensive second and now can't afford it, doesn't mean the lender with a perfectly good and secured first should now give you money to settle with all those that came after!

If you want or need the lenders help, you'd better seduced them too! With few exceptions people and institutions do things because they see something good in it for them. Seduction is the art of convincing the other party that it will be good for them too. Sales is the same thing with out the "too!"

If your approach to a lender is adversarial, or one of entitlement you may remain a virgin! You either need to seduce the lender or sell the idea that it is in their best interest. You're really not entitled to their money! If they can recover all or most of it with out you they don't need you.

You need to realize that some can't be seduced or sold! Sometimes there is just nothing in it for the lender. Sometimes you just can't catch their eye. Sometimes there are outside forces that control their decisions.

All to many who get involved in short sales are going to be like the professional lady who some weeks after the orgy finds out she has been raped, when the check bounces! Sellers facing foreclosure often find themselves a willing participant in a gang raped!

Harsh words? Naw! Wait until you here from the attorneys! Those words will be harsh.

Bill

William J Archambault Jr

The Real Estate Investment Institute

PS: Don't forget that to make a short sale all liens must be paid! When a lender forecloses they only need be concerned about any superior liens!

*According to my Correl Word Perfect 12 dictionary.

There are those that say our language is evolving. I say our language is devolving! Our once proud language has languished into a malaise of linguistic simplicity.

We have besmirched some great words to the point that they are no longer usable. I went to high school with a young lady named Gay Lou B..., when she introduced herself people said "nice to meet you" today they say "that's more than we needed to know!" My friends in high school were indeed "queer" except for me they were the best of the best, the top of the class in grades and leadership, yes we were strange, odd, and different! I stood out for my spelling problems. Today it takes a paragraph to explain who we were, without being derogatory.

I read a post by a respected friend and the comments with it regarding "sales, selling, salesmanship!" Personally, I'd be proud to have a real estate or mortgage office with any or all of these great salesmen, but I'm disturbed by how they reacted.

I'm proud to be a salesman and I'm proud to know these people, but still if you contemplate it this is an eclectic and queer reaction to the profession they all share and excel at!

Bill

William J Archambault Jr

The Real Estate Investment Institute