some newbie questions

General Real Estate Investing
1

Hi all

:revolve

I’m pretty new to all this… trying to learn more about real estate investing. I’ve been living in Los Angeles and finished reading the Carleton Sheet’s investing course. I have a few questions, I’m sure these are very, very basic, but I don’t have a lot of experience at this point so just trying to figure things out. Any help would really be appreciated.

  1. In some of the examples from the course, the seller is willing to “hold paper” aka finance. What is the main reason they would do this in the first place, compared to just simply selling the house as a usual cash deal? It doesn’t seem to make sense to me that someone is a motivated seller because they have to move to another state for example and want to sell within 60 days and don’t want to property manager the house from a distance, but would be willing to do seller financing and essentially still be tied up in the house for 10 years. I am guessing people do this if they have a house that they can’t sell for cash, so they figure better to be able to get out of involvement with the house in 5-10 years than never.

Also, are these situations common at all in Los Angeles today where the average house in my neighborhood goes to escrow 1-2 weeks after getting a MLS listing?

  1. Assumability. The course places so much importance on assumability. It seems unless the deal is absolutetly perfect in every other area this is a requirement. If I have decent credit, does this really matter? Especially with today’s low interest rates, wouldn’t just doing a straight mortgage with a standard national lender with 0 points, 0 cost be favorable compared to taking over a (generally) higher interest rate loan? I could see assumability being very useful if let’s say I lock in a 5.75% 30 fixed rate now and then 10 years from now if rates are at 8%, then it would be a major advantage to be able to pass the lower interest rate along to a buyer if I was selling my main home 10 years later. But other than credit ratings and interest rate, does assumability help in any other way? Is it that after you buy a few houses, the banks will stop lending to you and you can only do it will either assumable mortgages or sell-financing where they don’t ask for income documentation? In other words banks don’t like you to get “over-leveraged” so you have to resort to this? I feel as if I’m really off the mark here…

Thanks in advance!

-Taric

2

Well I am going to try to help you. In Ohio our market would be better suited for what you are saying. I don’t like the sheets program at all, i feel it focuses too much on seller consessions. The only consession I want a seller to make is a lower price normally.

While his program may work for those who have poor credit and almost no money down, I would advise you go in a different direction if your capable. Especially with your market conditions, your appreciation should be rather high if houses continually sell in such short time.

For a bank to worry about amount of debt i doubt you will reach that point anytime soon. I took on 14 new loans for about 1 million dollars total over a 12 month term and had no problem getting them and only recently have been told to slow down, so I switched to a different broker. Interest rates are .5% higher and i’m on what is called non-conforming loans (no-doc) but i can roll forward all I want this way. Most individual banks will have a 5 loan cap (keepers that is if you sell them then no biggie they keep on going) from them each. As long as your #'s look good your fine. Even now normal banks will still buy my loans at prime rates if i season myself for 6months or so.

For you to get started start with HUD http://www.hud.org/g2/nca/ for northern and http://www.hud.org/g1/sca/ for southern. Check out your market area and if nothing satisfactory turns up look into county sheriff auctions. These have alot of ins and outs so read the details for each home and head downtown. In Ohio we have a website for our country auctions published by a newspaper (daily reporter) you will have one also since it is law to advertise the auction for 5 weeks consecutive weeks before the auction date. Also look into the same paper for Foreclosure noticies, these can be worked on to produce cheap properties by doing something called a short sale. There is a link on this site for that of which advertises for sale here http://www.texasrealestateclub.com/articles/dwansharon/artshortsale.html

Finally you have the ability to talk to realors in your area. If you can get an in with a decent few then maybe they might toss a few bank listings your way when they first come up.

But your first priority is to see what your potential is. Find a good loan officer (someone young and hungry for money) get with them and let them know your goals to buy a bunch of houses and they could (if they treat you right) get the loans for the houses you buy and if you sell a few they will get the buyers on the re-sale when possible. Just talk to them and find a few you like. Make sure with 1 of them you are prequalified for a mortgage and with what conditions. If you have money down and everything is good then go after it.

But if you don’t have money down i recommend your first property be an owner occupant. With HUD you will also received 1st dibbs on owner occupant properties before an investor would. There are minimal down payment programs for 1st time buyers and when you bid with hud have them pay your closing costs which would only leave you with 3% of your purchase price to come up with for a down payment. For the portion you can’t save up then borrow this money (through a CC or a loan or a family member) a month before the loan closes and put it in your checking account if neccessary(do not mention it to the bank as they don’t like it). When you buy the property fix it up and live in it. This will give you equity, have a primary bank give you a line of equity secured to your property for 100%ltv on the equity portion(easy to do, bankone for example is very easy going). Use this line of equity 20-100k worth to put down on your 1st investment purchase. You will then be able to roll your equity line debt into your houses you keep with a refi or 2nd, or sell them and move on using your ability to borrow money as a tool to buy houses.

I hope this helps you but it is late 2am and i may have missed a few things. I’m not real big on russ whitney or carlton sheets programs.

The key is to have people willing to work for you and do it with vigor. Hungry real estate agents, and hungry loan officers are great. A good title company will keep you safe from liens or title issues, and your loan officer will be getting everything else together to ensure a proper sale and a smooth transition. These people will also sometimes have connections with banks or other investors who will sometimes give you a heads up on things.

3

Here are some houses in LA for sale, i know nothing of the neighborhoods but i reccomend you check out the HUD sites.

LOS ANGELESAddress Zip Case Price Bd/Ba I/U
1030-32 84 Th Pl W 90044 197-012567 $207,000 4/3 UI
Bid Date: 05/14/03 Listing Date: 05/09/03 Deadline: 05/13/03 @11:59pm
Appraised value: $207,000 Appraisal Date: 04/22/03 Codes
Note: LBP

LOS ANGELESAddress Zip Case Price Bd/Ba I/U
8909 Central Ave S 90002 197-112881 $97,000 2/1 UI
Bid Date: 05/14/03 Listing Date: 05/09/03 Deadline: 05/13/03 @11:59pm
Appraised value: $97,000 Appraisal Date: 04/22/03 Codes
Note: REVIT-MU ZONED COMMERCIAL NO203K LBP

LOS ANGELESAddress Zip Case Price Bd/Ba I/U
219-21 103 Rd St W 90003 197-123118 $167,000 2/2 IE
Bid Date: 05/14/03 Listing Date: 05/09/03 Deadline: 05/13/03 @11:59pm
Insured Value:$169,832
Appraised value: $167,000 Appraisal Date: 04/25/03 Escrow Repairs:$2,832 Codes
Note: SUBSTANDARD BUILDING PATIO ENCROACHES ONTO ADJOINING LOT REVIT-MU LBP IC: SYSTEMS
Repairs: Replace misc plumbing/carpet/thermostat Reglaze windows Repair drywall

LOS ANGELESAddress Zip Case Price Bd/Ba I/U
11501 Watts Ave S 90061 197-142517 $140,000 3/2 IE
Bid Date: 05/14/03 Listing Date: 05/09/03 Deadline: 05/13/03 @11:59pm
Insured Value:$143,658
Appraised value: $140,000 Appraisal Date: 02/27/03 Escrow Repairs:$3,658 Codes
Note: REVIT IC: SYSTEMS
Repairs: Reglaze windows Replace carpet/water heater/furnace/misc plumbing Prime/Paint

LOS ANGELESAddress Zip Case Price Bd/Ba I/U
8907 Fir Ave 90002 197-197928 $154,000 3/2.5 IE
Bid Date: 05/14/03 Listing Date: 05/09/03 Deadline: 05/13/03 @11:59pm
Insured Value:$154,687
Appraised value: $154,000 Appraisal Date: 04/30/03 Escrow Repairs:$687 Codes
Note: IC: SYSTEMS
Repairs: Replace misc plumbing/smoke detectors/earthquake strap Repair drywall

LOS ANGELESAddress Zip Case Price Bd/Ba I/U
917 59th Dr W 90044 197-240663 $133,000 2/1 IE
Bid Date: 05/14/03 Listing Date: 05/09/03 Deadline: 05/13/03 @11:59pm
Insured Value:$135,200
Appraised value: $133,000 Appraisal Date: 04/30/03 Escrow Repairs:$2,200 Codes
Note: LBP IC: SYSTEMS
Repairs: Repair subfloor/drywall Replace handrails/flooring/smoke detectors

LOS ANGELESAddress Zip Case Price Bd/Ba I/U
1219 54 Th St E 90011 197-243325 $144,000 2/1 UI
Bid Date: 05/14/03 Listing Date: 05/09/03 Deadline: 05/13/03 @11:59pm
Appraised value: $144,000 Appraisal Date: 04/24/03 Codes
Note: REVIT LBP UNPERMITTED ADDITION

LOS ANGELESAddress Zip Case Price Bd/Ba I/U
1645 115 Th St E 90059 197-172844 $110,000 3/1 UI 5 days o/o priority period
Bid Date: 05/14/03 Listing Date: 04/18/03 Deadline: 05/13/03 @11:59pm
Appraised value: $110,000 Appraisal Date: 03/24/03 Codes
Note: REVIT F LBP

LOS ANGELESAddress Zip Case Price Bd/Ba I/U
833 84 Th St 1/2 W 90044 197-048428 $144,000 3/2.5 UI 5 days o/o priority period
Bid Date: 05/14/03 Listing Date: 04/11/03 Deadline: 05/13/03 @11:59pm
Appraised value: $144,000 Appraisal Date: 03/12/03 Codes
Note: LBP

LOS ANGELESAddress Zip Case Price Bd/Ba I/U
1916 120 Th St E 90059 197-159793 $145,000 3/2 IE 5 days o/o priority period
Bid Date: 05/14/03 Listing Date: 04/04/03 Deadline: 05/13/03 @11:59pm
Insured Value:$148,355
Appraised value: $145,000 Appraisal Date: 03/14/03 Escrow Repairs:$3,355 Codes
Note: REVIT LBP IC: SYSTEMS
Repairs: Reglaze windows Replace carpet Repair drywall Prime/Paint

LOS ANGELESAddress Zip Case Price Bd/Ba I/U
914 111 Th Dr E 90059 197-212901 $121,000 3/1 IE 5 days o/o priority period
Bid Date: 05/14/03 Listing Date: 03/28/03 Deadline: 05/13/03 @11:59pm
Insured Value:$124,971
Appraised value: $121,000 Appraisal Date: 02/26/03 Escrow Repairs:$3,971 Codes
Note: REVIT LBP IC: SYSTEMS POSSIBLE MOLD
Repairs: Replace misc plumbing/carpet/smoke detectors/earthquake strap Reglaze windows Repair drywall

LOS ANGELESAddress Zip Case Price Bd/Ba I/U
1105-07 99 Th St W 90044 197-191277 $192,000 6/3 IE 5 days o/o priority period
Bid Date: 05/14/03 Listing Date: 02/21/03 Deadline: 05/13/03 @11:59pm
Insured Value:$194,118
Appraised value: $192,000 Appraisal Date: 02/13/03 Escrow Repairs:$2,118 Codes
Note: REVIT-MU LBP IC: SYSTEMS ROOF
Repairs: Replace misc plumbing/handrails/earthquake strap/smoke detector Reglaze windows Repair drywall

LOS ANGELESAddress Zip Case Price Bd/Ba I/U
1114 107 Th St E 90002 197-084232 $154,000 4/2 UI 5 days o/o priority period
Bid Date: 05/14/03 Listing Date: 02/07/03 Deadline: 05/13/03 @11:59pm
Appraised value: $154,000 Appraisal Date: 01/03/03 Codes
Note: REVIT-MU LBP POSSIBLE MOLD

LOS ANGELESAddress Zip Case Price Bd/Ba I/U
4708 San Pedro St 1/2 90011 197-152757 $165,000 4/2 IE 5 days o/o priority period
Bid Date: 05/14/03 Listing Date: 01/24/03 Deadline: 05/13/03 @11:59pm
Insured Value:$165,330
Appraised value: $165,000 Appraisal Date: 06/12/02 Escrow Repairs:$330 Codes
Note: REVIT-MU LBP IC: SYSTEMS
Repairs: Reglaze windows Replace earthquake strap

LOS ANGELESAddress Zip Case Price Bd/Ba I/U
1131 62 Nd St E 1/2 90001 197-077317 $148,000 2/2 UI 5 days o/o priority period
Bid Date: 05/14/03 Listing Date: 11/22/02 Deadline: 05/13/03 @11:59pm
Appraised value: $148,000 Appraisal Date: 10/01/02 Codes
Note: REVIT-MU LBP

LOS ANGELESAddress Zip Case Price Bd/Ba I/U
124 74 Th St E 90003 197-091866 $235,000 6/6 UI 5 days o/o priority period
Bid Date: 05/14/03 Listing Date: 11/22/02 Deadline: 05/13/03 @11:59pm
Appraised value: $235,000 Appraisal Date: 10/16/02 Codes
Note: SUBSTANDARD BUILDING REVIT-MU LBP

LOS ANGELESAddress Zip Case Price Bd/Ba I/U
2136 112 Th St E 90059 197-016045 $103,950 3/1 UI 5 days o/o priority period
Bid Date: 05/14/03 Listing Date: 10/04/02 Deadline: 05/13/03 @11:59pm
Appraised value: $115,500 Appraisal Date: 02/26/02 Codes
Note: REVIT LBP PRICE REDUCTION

LOS ANGELESAddress Zip Case Price Bd/Ba I/U
2009 113 Th St E 90059 197-151687 $109,800 3/2 UI 5 days o/o priority period
Bid Date: 05/14/03 Listing Date: 10/04/02 Deadline: 05/13/03 @11:59pm
Appraised value: $122,000 Appraisal Date: 06/26/02 Codes
Note: REVIT LBP PRICE REDUCTION

4

Thanks a lot, that helps a lot! It sounds like the next step is for me to really start meeting more people in the business and find a few I can work with. I haven’t talked with lenders/banks yet. I have a real-estate agent but not sure how helpful she will be since she does a little bit of real estate investment on the side herself and she flips houses when she has the time and sees and opportunity. Though if I am lucky maybe I can work something out with her where if she doesn’t have the time to do a deal but passes it to be, I’ll split it 50/50 or something. I did find an investor in my area who is pretty new too, but just finished his 2nd pre-forclosure and said he’s willing to meet to exchange information and help me out a bit.

I did look at some of the HUD houses from the link you sent me-- thanks a lot. In fact I just drove by one that is 5 minutes away from me. That particular one looked like the HUD price was no more than 5K less than expected market value, but I am guessing it is possible to bid lower than the HUD’s appraised value. Though some of the other listings appeared to have significant discounts, especially the ones that required a lot of renovation.

Thanks again for the help!

-Taric