Ilyce Glink–the award-winning, nationally-syndicated real estate columnist–recently put together a Q&A REO properties for Inman News that I thought would be good to share here:

Question: I have put an offer on a single-family residence at $2,000 over the asking price. The property is a short sale and the bank has already received seven offers on it. The deadline to accept or deny my offer was 5 p.m. last Wednesday. Instead of accepting or rejecting my offer, the bank contacted the agent saying they are waiting until Monday to make a decision. What are my options and what are they trying to do?

Answer (from Ilyce): Here’s what’s happening: The bank is trying to make a decision in a timely manner and your attempt to force the issue isn’t working. (Nice try, but no dice.) So, you have a choice. You can formally withdraw your offer or you can let it sit and see what happens.

Each lender has a process by which it has to evaluate each of the offers that has come in for an REO property to see which one is the best — best isn’t always the highest offer, by the way. It could mean they’re looking for the strongest buyer or one who is able to use the bank’s financing (which is another way for them to recoup their investment.)

I’d have your agent stay in touch with the lender to smooth things along and make sure the lender has all the information he or she needs to make a decision. It’s possible the lender will come back to you (and everyone else) on Monday to ask for another round of bidding. Or, the lender might simply come back and say, yes or no.

Unless you formally withdraw your offer, at that time you can decide whether to agree to purchase the property if you’re given the opportunity.

By the way, I hope you’re using a real estate attorney. Foreclosures and short sales are tough purchases and I’d hate to see you get caught because you didn’t have anyone representing your legal interest in the deal. Unless your broker is also a real estate attorney (and even if he is, he can’t be both to you in the same transaction in some states), you should hire a real estate attorney.

Then, later in the piece, Ilyce fields this question:

Q: My son and his wife are interested in purchasing a foreclosure property as their primary residence. They’re looking for a townhouse because they can’t afford to pay the full cost for a single-family home. Can you tell us what percentage of the foreclosed loan the former owner’s private mortgage insurance covers? When will that be paid and to whom is it paid? Can my son and his wife expect a significant reduction in the sale price of a foreclosed home if the private mortgage insurance kicked in?

A: Private mortgage insurance (PMI) covers the portion of the mortgage that exceeds 80 percent of the purchase price of the home.

For example, if a home buyer gets a mortgage for 90 percent of the purchase price of a home (or for 90 percent of the appraised value of the home if the owner is refinancing) and the purchase price or value is $100,000, PMI would cover the top 10 percent of the loan.

PMI will protect the lender in case the lender forecloses on the home and then sells the home for less than $90,000 but more than $80,000. If the home were to sell for less than $80,000, the lender would have the PMI protection coverage on $10,000, the difference between $80,000 and $90,000, but would take a loss on the sale if the sales price is less than $80,000.

In another example, if the first mortgage is for 100 percent of the purchase price of the property, PMI would cover the lender against a loss over the top 20 percent of the mortgage.

You have to keep in mind that most loans that exceed 80 percent of the purchase price of a home have PMI, but in many cases they do not. If a homeowner obtains a first mortgage for $80,000 on a home purchase valued at $100,000 but gets a second loan for $10,000, this purchase or refinance would not involve PMI coverage.

How does this play out in practice? Right now, all of the companies that sell private mortgage insurance are reporting enormous losses from 2007, due to short sales and foreclosures. Most of these publicly traded companies are reporting their first losses ever.

When someone sells a home for less than the mortgage amount, PMI kicks in and reimburses the lender for the portion of the mortgage that was covered by the loan. So if the mortgage lender agrees to accept a short sale for $10,000 less than the mortgage amount and the loan had PMI, the PMI company would write a check for $10,000 (or a portion of that amount) to the lender, making the lender whole.

But I’ve been unable to find a way to figure out exactly how much the lender is reimbursed by the private mortgage insurer. The good news is that information isn’t relevant when making an offer for an REO property. (REO is industry jargon that stands for “real estate owned,” which means the lender has foreclosed on the property and is the current owner.)

The discount you’re going to get from a lender on a piece of REO property depends on a combination of how much the local real estate market has tanked, how desperate the lender is to unload the property, and how much other homes are selling for in the neighborhood.

You may get a substantial discount, but it won’t have anything to do with how much the lender has been paid by the company who underwrote the private mortgage insurance policy.

Your attorney and real estate agent should be able to help you further. For information on how to identify and purchase foreclosures, check out real estate agent Ralph Roberts’ book “Foreclosure Investing For Dummies.” Roberts, who tells me he has personally purchased more than 2,000 foreclosures, does a nice job of explaining how to identify an appropriate foreclosure, negotiate for it, find the financing for it, and close on it.

Thanks, Ilyce, for the recommendation of my book. If anyone reading this post would like to pose additional questions about REOs, feel free to leave a comment below, or see Foreclosure Investing For Dummies for more information.

Not everyone is cut out to invest in foreclosures. Some people would rather watch TV, invest in stocks and bonds, spend time with family members, or hang out with their friends. Others have a low risk tolerance and can’t convince themselves to borrow money.

Do you have what it takes to successfully buy, fix, and sell foreclosure properties for a profit? The following list describes the bare essentials:

• Sticktoitism. That’s a word I use to describe a combination of the determination and hard work required to overcome adversity. When you’re flipping houses, you have plenty of adversity.
• Time: If you can scrape together enough spare time to go house hunting, supervise repairs and renovations, and consult with a real estate agent, you have all the time you need. Many of the most successful investors are weekend warriors, devoting their evenings and weekends to the pursuit of profitable flipping.
• Money: You don’t need to be rich to buy and sell foreclosure properties, but you do need to be able to get a loan. You can finance your investments in several ways–by using your own cash and the equity in your home, borrowing from friends and family members, or getting a loan from a private lender. Talk to a mortgage broker in your area.
• Guts and gusto: Guts and gusto combine to create the perfect personality for a real estate investor. You need guts to purchase a house with tens to hundreds of thousands of someone else’s dollars in the belief that you can sell it for substantially more in a few weeks or months. A certain amount of gusto is also required to generate the energy and perseverance required to turn trash into treasure.
• Family: When a spouse and children are involved, everyone has to sacrifice family time and other indulgences to contribute their fair share to the venture. Families who work well together can make an investment property a family project that draws them closer together. If family members are already a little testy, however, the stress and sacrifice can drive them apart.
• Tools: You don’t need a truckload of power tools to flip houses, unless you plan on doing most of the repairs and renovations yourself. A pen, a pad of paper, a calculator, reliable transportation, and a cell phone are the only tools you really need.

Tip: Don’t get hung up on what you don’t have, just be honest about it. Do what you’re good at and hire out the rest… or get a friend to help.

For additional tips and tricks about investing in real estate, check out my other site, GetFlipping.com, where you can sign up for a free 31-day email course on flipping houses the right way.

For some Real Estate investors, the recent downturn in the housing market looks like opportunity. Some of the most aggressive investors go after foreclosures; homes that people have lost after they have fallen behind on mortgage payments or taxes. In light of the fact that John Wiley & Sons just released our founder’s latest book, “Foreclosure Investing For Dummies,” Ralph recently sat down with The Washington Post’s Mary Ellen Slayter to talk one-on-one about the pros and cons of investing in foreclosures and how investors can minimize risks while maximizing returns.

An edited transcript of the conversation follows.

Tips From a Foreclosure Investor

Sunday, July 1, 2007; Page F06

Q. Who is a good candidate for investing in foreclosures?

A. It’s right for someone with a secure job, solid cash flow and lots of cash on hand — someone who wants to make some money on the side. If you’re married, your spouse needs to be on board, too. I like for people to use their own money. But if you don’t have enough cash but you’re willing to do the work, find a partner. My first “bank” was my grandmother. I didn’t pay her interest, but every time I made a deal, I took her out to lunch. If you really want to do it, you can always find sources of investment capital.

And who’s not a good candidate?

Anyone who thinks this is easy money. It’s a myth, perpetuated by all these late-night TV gurus, that you can get rich quick doing this. If you’re in financial trouble, this is not going to bail you out.

Why would someone want to look into this now?

There’s never been quite so many opportunities for individual investors to buy foreclosures. There are just so many of them. Before, the market was chiefly controlled by good old boy networks, through the banks’ brokers.

How does it work in declining markets, which are the ones that are most likely to have lots of foreclosures?

You account for this in the price you pay for the property. You make your profit when you buy, after all; you realize it when you sell. There’s a formula in the book that helps you adjust for a soft or flat market. My wife once pointed out to me that no matter what the economy looks like, people are still going to buy and sell houses. They’re still going to get married and start families. Even if 10 percent of workers are laid off, the other 90 percent are still working. They will still need housing.

Describe the perfect property for the foreclosure investor.

It should be in a good neighborhood. And you should be able to see clearly what you need to do to fix it up and sell it.

What kind of work is usually involved?

All kinds of things, inside and out. Look at the doors, windows, roof, concrete — everything. Properties that are in foreclosure aren’t always in great condition. After all, the owners couldn’t afford the mortgage payments. They probably couldn’t pay for maintenance either. It’s important to have a thorough, professional home inspection before buying. But if that’s not possible, then you should at least inspect the outside of the property yourself — all four sides.

You’ll also need staging (making the property look pretty) to move the property if the market is slow. Once you start working, multitask to fix things up as quickly as possible. Timing is everything. Every day you keep a house off the market, you’re losing money.

What types of properties should investors avoid?

Don’t buy if there are a lot of distressed properties on a block.

Don’t invest in foreclosures long distance. You need to be able to see what you’re buying. And don’t touch pre-construction projects.

Also, avoid any deal in which somebody promises you cash back at closing. This is never legal. Stay away from that.

What are some other things that potential investors should keep in mind?

Always have a Plan B. Not every house on the market sells right away. You may need to rent the place out for a year or two after you fix it up. This isn’t necessarily a bad thing. It can lower the tax rate on your capital gains .

And be prepared to lose money sometimes. Even I don’t hit home runs every time.

What about guilt? Do you ever feel bad that by profiting from foreclosures, you’re making money off other people’s hardship? How should people handle those feelings?

Of course you can feel guilty. So don’t take advantage of people. You’ve got to try to make it a win-win. Sometimes the best thing to do is help the person keep their house. I’ve run into situations like this, including one in which the woman who co-owned the house just got behind after one bad event. She didn’t want to ask for help from her family. But instead of buying the house after foreclosure, we made some phone calls that helped her keep it. You’ll get more opportunities that way than being a vulture. And you’ll sleep better at night.

For more information about Ralph’s latest book, “Foreclosure Investing For Dummies,” please read this blog entry on his other site, AboutRalph.com.

To order “Foreclosure Investing For Dummies,” go to Amazon.com.

Finally, if you or someone you know is interested in investing in foreclosed properties, please contact the office. Our staff is ready, willing and able to advise you in the best strategy for your situation.

Robert “Bob” Bruss–a California Real Estate attorney/broker and the former director of the National Association of Real Estate Editors, but best known as a respected and widely syndicated writer and consumer advocate for all things Real Estate–just reviewed our founder–Ralph Roberts–latest book, Flipping Houses For Dummies. From Bruss’ weekend column:

Realty Broker Reveals How to Profit From Flippers
By Robert Bruss
Sunday, December 17, 2006

In good markets or bad, real estate broker Ralph R. Roberts reveals in “Flipping Houses for Dummies” how he acquires run-down houses, fixes them up, and then either “flips” (sells) them for a profit or holds for long-term investment. Roberts, a highly respected real estate author, trainer and broker, shares his techniques along with advice on how to minimize the tax bite on profits.

Every serious real estate investor who wants to earn large profits needs to understand the methods Roberts uses because he has perfected flipping houses almost to a science. He thoroughly understands and explains all the critical aspects, including locating the properties to determining if they are suitable, negotiating a successful purchase, supervising the fix-up work, and making a profitable resale.

As a longtime real estate broker, Roberts knows all aspects of the home brokerage business and he doesn?¢‚Ǩ‚Ñ¢t hesitate to share his insider secrets. For example, he says, “Nothing on the MLS (multiple listing service) is the gospel truth. Sellers and real estate agents alike often estimate room sizes or make mistakes when entering details. Approach all prospects with a discerning eye.”

Even if you are not interested in “quick flip” real estate profits, this is a great book to study because the author shares so much of his real estate knowledge which he gained, starting at age 19, over more than 30 years in the real estate business.

Maybe Roberts is getting a little “salty” in his old age, but he exposes secrets most Realtors would never share with their clients. Examples include how to obtain a “listing history” of a property, how to determine what the seller paid, how long the property has been on the market even with more than one listing, and if the property is difficult to “unload.”

This is a “fun read” book in the usual dummies style, which includes features such as tips, warnings and even several sanity checks. Along the way, Roberts shares many personal examples to illustrate the topics, making the book extremely valuable so the readers don?¢‚Ǩ‚Ñ¢t make the same mistakes he made.

Throughout the book there is heavy emphasis on what to look for in a potential flipper house, how to locate them, how to acquire them, and how to finance them. Roberts provides valuable insights about the importance of borrowing funds. “As a real estate investor, good debt gives you leverage,” he advises, meaning you control the property with little of your own cash.

Along the way, there are several excellent checklists such as the “profit projector” and the “home inspection checklist” so no important aspect is overlooked when evaluating a possible flipper candidate.

Especially valuable is the chapter on “The Art of Haggling: Negotiating a Price and Terms.” Having sold thousands of homes at his real estate brokerage, Roberts is a “pro” when it comes to negotiation and putting sales together. His negotiation strategies are priceless. I especially enjoyed the part about “digging up pertinent information about the seller.” If you are a serious real estate investor, this chapter is a “must read.”

Foreclosures receive extra attention because they offer special flipper profit opportunities. Acquiring these properties can be tricky, but Roberts simplifies the process as much as possible without getting bogged down in details. Of course, it helps that he has a full-time associate who specializes in acquiring these distress properties.

This book is designed for realty investors who want to profit from buying below market, making cosmetic improvements to add value, and then quickly reselling. But real estate agents and home buyers should also study it because of the valuable insights offered by a longtime, very successful real estate broker. On my scale of one to 10, this superb book rates an off-the-chart 12.

Since Ralph works right here in our Warren office, you can talk with him anytime about investing in real estate. For more information, please click here or call our office at (586) 751-0000.

With foreclosures on the rise, particularly in economically distressed areas, real estate investors can scoop up properties at a bargain. You can dip in at any stage of the foreclosure or bankruptcy stage:

• Pre-Foreclosure: Approach the homeowners with a proposal prior to the foreclosure sale.
• Foreclosure Sale: You can bid at the foreclosure sale against other investors.
• Post-Foreclosure: Buy the property from the lender’s REO (Real Estate Owned) department after the foreclosure sale.
• Bankruptcy: After the foreclosure sale, the owners still retain control of the property through the redemption period (typically 3 to 12 months in most states). The owners can file for bankruptcy to buy themselves additional time. As a real estate investor, you may be able to step in at this stage to acquire the property.

If you don’t know what you’re doing in the foreclosure arena, don’t step into the ring. Losing money in foreclosures is a lot easier than making money. Do your homework before you lay down your cash.

Probing for Probate Properties

Death often leaves behind property that ends up in probate. You can find out about probate properties in any of the following ways…

For more information on how to forage for foreclosures and bankruptcies, click here.

Did you know that you can become the envy of your friends and neighbors by creating a tax-free business out of buying and selling fixer-upper houses? It’s true, and Ralph Roberts Realty can show you how!

According to real estate expert Robert Bruss, by buying houses, fixing them up, and occupying them for at least 24 months before selling, you can earn upwards to $250,000 in tax-free profits (or $500k for a married couple where both spouses meet the occupancy test and file a joint tax return) for your hard work and efforts. Bruss says this process can be repeated over and over again, without limit, but not more frequently than once every 24 months. The same technique, he says, can be used on vacation and second homes that become your principal residence in order to meet the 24-month ownership and occupancy test.

For more information, start with the article located at this link, and then contact our office for more information.