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Terry Hammill
General Manager
He does it all. Keeps us legal. Handles Dan’s loans and sales. Oversees agents in Carlsbad, Mission Valley, and El Centro. And that’s just before breakfast! The man also holds a PhD in Molecular Biology. Whew! People like Terry are the secret behind The Atvantage Group.
760-607-9700 ext. 208
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Foreclosures, Fixers and Creative Financing
 Three Powerful Solutions for Buyers in a Hot Market
The real estate market is exploding. A 75% increase of property values in the last five years has rocketed the price of a single family home in San Diego County to $304,000 much to the discouragement of many first time home-buyers trying desperately to hold onto that dream and for move-up buyers to get a foothold at the next ownership level.
Many dreams have been dashed by this harsh reality. In real estate today, Sellers will sell for whatever they can get (which is a lot more every single day) and buyers will pay whatever they can afford… and then some. And so it goes with no end in sight.
That may be the case if you lack vision or are short sighted. On the surface, it may appear that real estate prices are the black hole of our household budget. But looking ever deeper into this abyss, interested and serious buyers might actually find that opportunities, while somewhat hard to find, do exist, allowing frustrated home buyers to break in to the market and actually find a bargain out there. Opening that door though will require that you push one of three real estate hot buttons: foreclosures, fixers, and financing. And push it hard! Each of these, or a combination of them, can open up those doors of opportunity to those who are willing and able to exert a little extra effort in the process of searching for and purchasing a home.
Everyone knows that the real bargains are found wholesale. Besides, who wants to pay retail? In real estate, wholesale opportunities can be found in many of the 500 homes per month in San Diego that enter the foreclosure process. The devastation and disappointment that brings one to the brink of losing their home is sadly what creates the ability for a potential buyer to roll back real estate prices for a wholesale opportunity. Many of these properties can be unearthed from public records or from exhaustive research and scouring classified ads and online listings. There are gems out there awaiting discovery, but like a diamond miner, buyers must work very hard to get at them.
While you can buy any one of hundreds of homes off the shelf from a real estate broker, the really good deals are found in the nooks and crannies. A real estate broker or professional investor may have the advantage with experience and knowledge, but the foreclosure process is a level playing field that actually gives "real people" an advantage. That is assuming you can navigate the minefield of the most complicated and emotionally charged real estate transaction…the foreclosure sale.
It helps to understand that there is a certain psychology embedded in this process. Many of these owners are not selling homes -- they are buying relief. Foreclosures involve distressed properties in need of maintenance and repair, or distressed ownership, in which the seller seeks relief from financial burden. Both of these scenarios invariably create opportunities for buyers in the form of below-market prices. Patience, timing and persistence are the three keys to playing this emotionally charged game. Making the best of a bad situation is all a foreclosure seller could hope for. The amount of relief the seller receives from the stress or financial burdens of ownership is measured by the discount the buyer gets once the sale has been negotiated. When most people think of foreclosure sale, the images of vultures looming on the courthouse steps come to mind. Surprisingly, each month, 500 homes enter foreclosure and only 50 are actually sold at the courthouse steps. Not only is the courthouse the final blow to the distressed homebuyer, it is also a difficult venue for thin-skinned, limited resource investors. Besides, the 450 homes that do not go to sale represent the pre-foreclosure market where there is still time and profit opportunities to structure a win-win solution with distressed sellers.
Fixers are another avenue for home buyers to explore simply because there is money to be made, or saved, in solving the maintenance and repair problems that the sellers have avoided for years. What was once a $50 minor maintenance or repair problem for the seller can turn into a thousand dollar discount for the buyer. Like foreclosures, though, it takes time and effort to find these properties, and an understanding of what is needed to move forward with the process.
Buyers considering fixers must realize that they still need cash for a down payment, money for repairs and maintenance, steady income for loan qualifying, and the skills necessary to make improvements or the money to pay other tradesmen to perform those duties for them. It comes down to buyers deciding what they can and can't do, what they have and don't have, and what they want and don't want. That may sound simple, but it's not as easy as one might think.
Above all, pursuing a fixer requires vision. Buyers simply must have the ability to see through the exterior of a property, regardless of its condition, and find the true potential and opportunities that can be created. Fixer buyers shouldn't focus on the devastation, the potential they see determines their ability to make or save money.
When it comes to the financing piece of the puzzle, buyers should not leave any stones unturned when searching for sources. Look at the property, existing loans on the property, the seller, investors, partners, tenants, real estate agents, other unsecured assets and, of course, traditional avenues such as banks and mortgage lenders.
Bank financing, the old standard, has some new twists these days, with no money down 107% financing, negatively amortized cash flow loans, and equity loans based on refinancing existing property. There's also seller financing options and existing financing, whereby property is purchased subject to existing loans and use private investors, institutional second mortgages or seller carry for the down payment. They can also use existing property as collateral by refinancing the property for the down payment or creating a note on the property to use as a down payment or collateral for seller financing.
Buyers can consider obtaining capital and loans through high interest private money mortgages, or by pledging stocks as collateral for the down payment and receive 100% bank financing. Real estate agents' commissions can be used to structure a loan from the agent or a share of the profit for down payment assistance. Foreclosure financing can come from discounting second trust deeds in foreclosure action or by creating a new second trust deed to reinstate the existing loan in foreclosure and then wrapping in the new purchase.
The foundation to locating attractive deals lies in good timing, persistence, working a large number of transactions to improve odds, and maintaining consistency and fairness with the seller. Buyers should show them respect and understanding for their position on price and terms, but at the same time, set guidelines and know when to hold, fold or walk away.
Strong pillars of support are essential to structuring a profitable and successful deal. When it comes to penetrating a tough real estate market like San Diego's, the buyer's strength comes from understanding the seller's motivation, establishing a trusted seller relationship, knowing the variables of the deal to create win-win situations, and knowing property values, potential and costs. That requires time, effort and plain hard work. But if you want to pump up your real estate profits, remember…no pain, no gain.
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