Solving Real Estate Problems Part I: Down Payment

solving problems

The number one reason to hire a realtor is to solve a problem.  As I share the story I’m about to tell you keep that in the back of your mind as I share my client’s recent experience with a competitor realtor:   It’s year end 2018 and my clients were at a Christmas Holiday party.  My clients were enjoying the festivities when they met a competitor neighborhood realtor.  They shared with this realtor that they were still renters living in a duplex and were actively looking at single family homes for sale.  The competitor realtor asked them about their plans to buy real estate in 2019 so they replied that they were ” . . . actively looking for a seller that will accept a smaller down payment or that will accept the down payment assistance we qualify for.”  The competitor realtor was a bit surprised and said “well if you don’t have the down payment it will be hard to buy a house in this market.  Inventories are very tight.  You might want to just wait till you can save enough for the down payment and continue working on your credit.”  At first glance that sounds like great advice – right?  I would challenge that and tell you hands down – WRONG!  Whose problem did this realtor solve?  In fact, when my client asked my opinion of this advice I responded “well, do you feel the realtor solved your problem?”  They obviously said no, to which I then reminded them that like many services professionals, it’s not about the badge one wears but the person behind the badge.  I continued, “your going to meet realtors who have never found creative solutions to solving real estate problems.  They are so intently focussed on how they closed their last deals that they simply cannot think beyond that because of their fear that they won’t get paid.  And THAT, is really the problem that they are focussed on solving.  Not yours.”  On a bigger scale let’s take the situation with the Los Angeles (Anaheim) Angels.  The Angels don’t own Angel Stadium, the city of Anaheim does.  But that hasn’t been a problem for the Angels who, as a professional baseball organization are essentially renters.  Through all the options on leases and lease contracts that the Angels management must negotiate, agree upon and ultimately enter into, the Angels still find a way of showing up on game day to a packed crowd.  A lot of creative juggling, but they make it work.  On a smaller scale, my clients have done the planning that it takes to buy a home.  They know exactly what down payment they want to make and the down payment assistance they are going to use when they find a home they are excited about.  But they aren’t just focussed on the house, they want the deal that they want.  Not just price, but terms!  The competitor realtor’s advice lacked the focus to solve a problem and instead would have sent my away clients off confused and frustrated.  The real estate market is going to do whatever it’s going to do.  It’s not a controllable factor by any one person.  Therefore strategizing how a home will be bought or sold and if the timing is right is what buyers and sellers depend on when they work with a realtor.  Planning is essential in order to getting what the buyer (or seller) wants.  There are times traditional methods will work just fine and times when creative methods work fine.  Either way doesn’t really matter, so long as I’m solving my clients problem and they are getting what they want IS what matters.

If you know someone with a real estate problem or questions feel free to email Paul at his email address at buyorrentmyhomes@hotmail.com.

Paul Krause is a full time real estate professional with Keller Williams in Los Angeles California, DRE #01835890 and CSLB #1029575.

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Sidelined!!!

Sidelined

You came really close to buying that house.  It had everything . . . except . . . RIGHT?!  Has this happened to you?  Everything about that home tour was going great until the agent said “oh don’t forget there’s no AC in this home,” and instantly you were turned off and heading straight for the door!  Although central air and air conditioning has become hugely popular amongst home buyers in almost region of the county, you found yourself looking at a home that was missing that one “thing” which killed your deal. Leaving you sidelined again.   This months infographic was excellent because as some seasoned homebuyers know, December can be one of the best months of the year to strike a deal.  There are a variety of reasons the “December Effect” exists.  The bottom line is that motivations to close a deal before year end the December 31st has caused more home buyers to find a deal in the slow, dark days of winter more than any month of the year.  Buying or selling, December is NOT the month to get sidelined!  As the graphic shows in Box 1, over 60% of home buyers put less than 6% down to close!  That reason alone can get any homebuyer off the couch and into this weekends next Open House.  Box 3 gives another example of judging a home just by it’s price alone.  Because of the “December Effect,” I always recommend homebuyers look at prospective homes regardless of listing price.  I know of a seller in Los Angeles that listed a home for more than $2 million as a For Sale by Owner that was offered cash of $900k and a very quick closing.  Instead of the seller being insulted or turning away they started negotiating the deal into the low $1 million range with the buyer.  Although the deal didn’t go through for other reasons, the point is most buyers would never think that such a low offer would even be considered.  And maybe that is true much of the time.  But this buyer learned by writing and submitting an offer the sellers motivation was substantial enough to negotiate the deal rather than turn away.  Don’t get sidelined this December!  The best home buying opportunity of your life could be one Open House away!

 

Avoiding Surprises!

 

It is so easy to fall in love with the “money shot” that it can cause a home buyer to forget how to evaluate a home purchase.  In real estate it is always emphasized that “location, location, location” is what counts.  And there is truth to that.  Which is why I wanted to share this home in my blog.  At first glance the home looks like an impressive compound.  It’s got that elegant “money” look to it.  So thanks to Google Space and Street View technology I was immediately shocked to find the front gate banged up and entrance featuring an old office chair prominently on display.  In addition the seller excluded photo angles that reveal a barren desert dirt front yard, which if I were to buy this property would end up becoming a dust bowl on a windy day – not uncommon for California!  The street view picture across the street is the neighbor across the street –  a home that is quite a bit different in dimension, style and size.  Which would lead me to ask “who would buy this property?”  Honestly there always a buyer for any home at the right price, but it is clear the featured sale property is well overbuilt for this neighborhood and is quite possibly the biggest and nicest in the neighborhood.  So how would that work out if you were currently the owner trying to sell this house?  Would you know someone who is willing to buy this home?  It’s possible.  If you want to avoid surprises one of the questions home buyers need to ask themselves is, if their situation changed would they want to be the one having to sell this house.  Again, there always a buyer for a home at the right price, but being that seller is easier said than done.  In high density city areas we can usually find plentiful comparable sales.  But in my experience the further your travel from urban sprawl the less information will I find for a given neighborhood.   That doesn’t bode well for buyers that need a loan to purchase a home if the bank has to stretch over many miles and calendar months of home sales to determine a fair market value.  A lack of sales data sure will make the sale of a property more difficult to compel buyers.  In this case, this seller might do just fine selling this beautiful home and find themselves having no difficulty finding a qualified buyer.  The point is as a buyer, you have to picture yourself as the potential seller first to ensure there are no surprises as a buyer.  Asking lots of questions about real estate trends in a neighborhood is something a competent and qualified realtor is happy to do.  In my case I even shake hands with the neighbors face to face by door knocking a few times a week just to keep up so that I know what buyers and sellers are not only doing, but where there thinking is so that new buyers get the best possible information to make an informed decision.  Avoid surprises by slowing down, taking a closer look, imagine yourself the owner and potentially seller first – this is a great way to avoid pitfalls and start your home buying process.

To get more information on purchasing a home and home trends feel free to write me at buyorrentmyhomes@hotmail.com.

Facing Foreclosure: The Selling Option

Houe uphill

At some point, you might find yourself up against a rock and a hard place.  Been there, done that, I can tell you all about it.  The most important thing to remember is that creativity always trumps conventional thinking in times of need.  Especially when a deadline is looming.  The bank, debt collectors, almost anyone you have ever done business with, is now filling your mailbox mailing with letters,  phone calls fill up your voice mail, text messages blow up your phone – it never stops!  If you find yourself in this situation these are IMMEDIATE SOLUTIONS that can put you in a better situation, (depending on your exact situation):

  1.  CASH OFFER – This is your FASTEST path to cash.  Selling your house to a buyer that offers cash will allow you to sell your home in a no-nonsense way.  The buyer just wants to know, after paying off the loan on the home, that they will get free and clear title.  As fast as the title company can clear title, the deal will close.  If you are upside down with your loan, meaning your house is worth less than what you owe it is strongly recommended that you request a cash-for-keys condition in counter-offer to the buyers offer.  In this situation, the bank is agreeing to accept less money than what is owed on the home, but it is reasonable for a seller to be allowed “walking money” when the deal closes.  That “walking money” is what the seller will use as a security deposit and moving money towards their next residence.
  2. STAY IN YOUR HOUSE – A sale/leaseback is the most common way for a seller to sell their property today, lease the property back from a new buyer, and then purchase the same property back in the future.  The seller can either sell the property at a discount to the buyer so that the seller can purchase the property back at today’s value, or sell the property at today’s value and purchase the property back at a higher price in the future that is agreed to by the seller and buyer.  The advantage a sale/leaseback offers is that it allows a seller to geographically stay put and enjoy the benefit of their present location.  Examples would be a seller that needs to stay in a specific school district, a seller that receives medical services from a specific medical professional and military personnel that have pending orders to ship out, but have not yet been assigned a new base location.  The buyer must be an investor who has no intention of ever moving into the property whose primary goal is to rent the house for income.  Additionally, the seller should consult their agent how to draft the paperwork to ensure the future purchase date is specific and agreed to by both parties.  Contracts that state the “…seller can buy back the property in the future…” is too generic and must state a specific price, date, any extensions of time agreed to and how those extensions will be communicated by both parties.  For a seller that is resistant to moving or leaving, this method can be their best selling solution!
  3. LIST WITH A REALTOR – This method, while not as fast as accepting a cash offer, wastes minimal time because the realtor will market the property on the MLS system, giving the property maximum exposure to the market.  Additionally, an agent will work with the seller to sell the property for the highest and best offer based on the terms, conditions and price offered by the buyer that the agent feels has the highest probability of closing the deal.  Nothing can be worse than entering in to an escrow that doesn’t result in a sale.  Agents work very diligently with buyers and buyers agents to only do business with buyers that offer the highest probability to close.  A fee is paid to the agents to negotiate through all the offers and potential buyers, a process that allows the cream to rise to the top, to ensure a sale happens to the satisfaction of the seller.  Any seller who does not want to waste time with their property sitting on the market will list with a realtor to give the property the maximum exposure to draw qualified offers in the shortest period of time.
  4. FOR SALE BY OWNER – A solution where the seller representing themselves and the property that is being sold in order to work directly with buyers.  Although this process will eliminate the fee’s associated with listing with a realtor this method from my experience wastes more time on the market, unless the price, terms and conditions are highly favorable to buyers.  Rarely do I see sellers price or give favorable terms to buyers in their self-made-home-marketing.   A for sale by owner sale can generate an immediate buyer but the owner who is the seller now must open the escrow and ensure all of the deadlines are met according to the terms and conditions outlined in the purchase and sale agreement.  They must also be familiar with how to read the terms and conditions or hire a lawyer to explain the contract to them to ensure contingencies are removed according to the contract terms.  The advantage owners see in this solution is in not paying agent fees.  The disadvantage is that the property will not be marketed on the MLS for agents to show buyers eager home buyers.  This could make the buyer pool for the property significantly smaller for the property.
  5. HOUSE TRADE –  This is the SLOWEST path to cash and potentially a non-cash transaction where the seller is trading one property for another property.  Although a trade can take longer to match sellers of different cities and states together, this is a method of disposing a property where Seller A can assume the debt payments of Seller B and vice-versa in order to keep all financing in place and require neither seller to apply for a new loan.   A trade can also get creative in the event one property is valued much higher than the other property.  An example of this might be where a California seller with a property valued at $500,000 wants to trade a property with a North Carolina resident who is selling a property for $200,000, and wants to buy a property in California.  Since the California seller’s property is much greater in value, the California seller can offer to trade her property for $450,000 where the North Caroline seller sells at $200,000 and then owes the California seller another $250,000.  That difference can be turned into a promise to pay by the North Carolina seller.  In this scenario the California Seller moves into the North Carolina property for no money down, collects $250,000 of payments over ten years, and traded the property at near asking price.  The North Carolina seller moves into the California property with no money down, traded their property for $200,000 (full asking price) and makes the additional $250,000 payments over ten years.  In this scenario there is no upfront money exchanged by either party.  This can be a very clean transaction but it is strongly encouraged that legal counsel for both parties before entering in to the agreement.
  6. REFINANCE YOUR LOAN – This is a non-cash option.  This can be the most obvious solution, but, is not relies on the borrower’s creditworthiness.  With this solution a borrower that is still creditworthy might be able to get the property refinanced with little difficulty.  But . . . in the case of defaulted borrowers, my experience has shown me this solution has the least success.  Again the creditworthiness of the borrower is critical with this solution!

These are just a few of the options available to owners that are facing the possibility of foreclosure.  Like all solutions it depends on a borrowers situation at that time.  There are no guarantees with any of these solutions.  It is also strongly recommended that none of these solutions be executed until a borrower seeks the advice of legal counsel and a realtor in the event a realtor will be hired to represent a seller.

Any questions or requests feel free to direct your messages to krauseandco@hotmail.com.

Food Detox, Week 2

Bike

I have to admit I didn’t realize my detox updates weren’t posting to my blog so I wanted to catch up with you on our progress!

FOOD DETOX – Week 2, Day 2. So kicking the sugar habit and removing breakfast cereals for daughter has worked great! She remarked how she lost a pound and feels more energetic. I’m so proud of her!❤️ She’s riding her bike 🚲 every day now, which she had zero interest over the past year. There are tough moments with this eating program – I’m glad we are doing it over several months. She has experienced a few mood swings that caused her to snap at times😫, but I reassured her its a healthy part of the process. She doesn’t realize it but she’s going to bed and waking more easily, then before😴. I’m waking at strange hours, like WIDE awake 😳. She’s listening to more music 🎶 and watching less YouTube. 🤔 This week we are reducing our protein and carb intake to palm size portions and adding more veggies, salads specifically🥙. I’M DONE with the bagged salads! The dressings and toppings taste gross🤮 Back to buying heads of lettuce and spinach –> going raw🥦! She had a hard time with dinner last night – “Dad this sucks I don’t want to do it anymore!!!” 😡 But I reassured her she was doing great and we just brainstormed 20 or 30 ideas till we found something in the refrigerator. She is SOOOO missing peanuts🥜! Her favorite peanut brand are sprayed with canola oil, so we banned them🚫. I’m not enjoying fruit at all. If I have 3 grapes I’m done. The sugar in fruit just isn’t palatable. Bummer cause I used to love fruit . . . I’m amazed but she has taken to eating grapes, cherries and berries 🍒 so it’s much better than snacking on a bowl of cheerios at ten o’clock at night🌙. Last, my energy levels feel better 💪, I haven’t had a food coma bloating session yet, except when I went for Thai food last week, but hey, it was some REALLY great Thai food! #fooddetoxprogramsforlife

Feeling Tired All the Time

Tired

It’s not ok to feel tired all of the time. So my daughter really wanted to do a food detox with me….and…today is day 2. I agreed to do it over 90 days, not 7 like I used to. My body used to feel so mangled up inside doing the really short ones and caused too much inner chaos. In the first week the only adjustment to our food program we will be making is to cut out sugar from snacking and eliminating breakfast cereals. Goodbye pancakes 🥞. She is going to miss that Saturday morning ritual. We replaced both with non-dairy yogurt, fruit and raw almonds. 🍐 No honey or agave either. Stevia is ok. Lunch and dinner for week 1 will be the same except except white starch foods will be replaced with a salad or vegetable soup made from vegetable stock and raw veggies. Honestly easing my way out of sugar sounds easy but it really does require the discipline of drinking more water and resting more. The adrenal glands and kidneys need time to adjust to the change otherwise anything from dizziness and light headedness is likely to occur, for me at least. In week 2 we will be changing our dinner program to cut back on animal protein and cut dairy from the meal entirely. Lunch will stay the same. My daughter doesn’t know it yet but starting in week 2 we also CHANGE the dressing used on our salads and ranch dressings and other pre-made dressings will be replaced by simple Apple Cider Vinegar and olive oil. She can always opt out and have soup but the point is to move away from the store bought dressings that contain canola oil. Last but not least will be an increase in our exercise program. We have agreed to a minimum of a 30 minute walk together, even though i will do more. I want to get back to doing 20 pullups 💪 in a row! That’s a goal to work up to. To our health!😃🍇🍌🥑 #fooddetoxprogramsforlife

Foreclosure with Equity?

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It’s hard to imagine in this day and age with the amount of information available on the internet about how homeowners can avoid foreclosure that they still happen.  But they do.  Although the foreclosure process ends with the possession of the home (the collateral for the mortgage loan) returned back to the bank that is servicing the mortgage, what some people still don’t realize is this:  foreclosures with equity can be just as common a foreclosures without.  What is a foreclosure with equity?  It’s a foreclosure of a home that is worth more than what is owed on the outstanding mortgage.  Banks that service the mortgage loan for homeowners will use a Trustee to handle the business of sending notices and ultimately the sale of the property at auction if a mortgage is in default (has not been paid in full and on time).  In some cases, a property that is sold above what is owed on the original mortgage+interest+legal fees is classified as an Equity Foreclosure, meaning, the amount over what is owed to the bank is equity, the borrower’s equity.  BUT the borrower must makes a demand to the Trustee for the equity portion to be returned!  Although the bank does not get to keep this “overage” the borrower must make a demand to receive it.  The foreclosing Trustee will almost never make an effort to find the borrower if the borrower is still owed money from the sale of the property.  It is very important to understand that a borrower who has equity in their home can still experience a death, divorce, disability, loss of employment or income source or a variety of other “life events” that can cause a borrower to get behind on their payments.  If the payments continue to remain unpaid the bank who is servicing the loan can still move to foreclose the home, even if the home has equity.  One strategy to avoid foreclosure of a home with equity is the sale lease-back.  As a true win-win strategy it allows the borrower to lease back their home from a new buyer with a promise that they will be able to purchase the property back after a certain period of time has passed.  After the borrower repairs the financial damage that caused them to get behind on their payments, the borrower (who will temporarily become a tenant) will have the option to purchase the house back in the future at an agreed upon price.   The new buyer and the borrower will negotiate how the equity in the property is split before either party enters into the sale of the house and after reviewing the contract with qualified legal counsel.  The equity in this scenario is used by the borrower as a bargaining chip with the buyer and in turn offers the opportunity for a buyer to earn a return on dormant cash that might be earning a meager 1% or less in a savings account.  In my next article I will discuss ways to avoid foreclosure of homes that have no equity.  To your prosperity!