What is the Most Important Job Skill?

Job Skills

This question was posed to me this weekend when my son asked me how I do my job.  Working in real estate I work with people from all walks of life.  More recently I engaged services with graduate student name Maria (hiding her real identity).  Maria is a full time working professionals seeking a graduate degrees through night school and online learning classes.  Maria was very concerned about how the deferral of her student loans would impact her affording a new home.  This is not uncommon.  The government has reported student loan debt well into the trillions of dollars (https://www.forbes.com/sites/zackfriedman/2017/02/21/student-loan-debt-statistics-2017/).  When I asked about her plan to pay off her loans she answered that; “…hopefully when I graduate I will be able to apply for a higher paying job.”  This leant me to think about my conversation with my son.  In the 80’s an important job skill was resume writing.  In the 90’s job interviewing.  In the early 2000’s it was networking.  Although these all have importance I am learning that financially independent people learn how to creatively financially engineer every aspect of their lives.  New technologies with crowdsourcing in order to finance real estate, movie, even business acquisition and start up projects is only one example of creative financing.  Let’s also not overlook job skills as a fair “trade” to acquire a service or asset.  One example would be to take an equity position in the purchase of a house in exchange for providing services to remodel and oversee the construction of the house.  One partner buys the house and provides funding for the rehab costs while the other does all the work.  This is a strategy I recently used for a house purchase of a single-family remodeling project in southern California.  With my skills in sourcing materials and labor, my partner can focus on finding funding sources that ensure this project can be completed.  Over the next two weeks I will be discussing additional creative solutions to financially engineer real estate transactions.

New Remodeling Project: Downey!

This is a great 4-bedroom 2-bathroom house in Downey that I recently closed.  I wanted to get the BEFORE video done right away so you can see the condition we bought it in.  This is going to be a beauty!  My goal is to complete the job in 8 weeks and under my projected budget — Take a look —–>

What This Single Mom Did To Keep Her House

House

You arrive home tired and exhausted from a long day at work only to find the house is empty and very quiet.  An envelope addressed to you is left in the usual place where you usually place your things when you arrive home.  Opening the letter you find a one page note:

I’M SORRY BUT I JUST CAN’T HERE ANY LONGER.  I’M MOVING BACK HOME TO SORT THINGS OUT.  TELL THE KIDS I LOVE THEM.

Can you imagine coming home from a long day at work to this letter?!?!  Neither can I!

But for Norah this is exactly what happened.  This was a serious problem.  The spouse, father and income-contributor of the family had just deserted a family that very much depended on him.  Norah had to make some hard choices over the next few weeks.  Because she had made the purchased the home she was living in prior to getting married, her primary residence was in her name only.  After sorting out her situation Norah had approached my colleague with the idea of selling the house for $375,000.  She would then downsize into a less expensive apartment that she and her 2 young children could start over.  Norah felt she had enough equity to cover two years of rent but still had sizable monthly bills.  One of the largest bills was her automobile loan, a stiff $400/month.  Norah still owed $9000.00 on the auto loan so the debt wasn’t going away anytime soon.  After learning about Norah’s circumstance my colleague could see she was in a tough position. Not just because of her bills, but because of her life circumstance.  Loosing the financial and emotional support of her spouse, uprooting her 2 young children, selling the house, moving into new surroundings and into a new apartment.  This would be a lot.  My colleague sat down with Norah and looked at her monthly budget.  There was no question that she earned a good living, but the auto loan was expensive.  Looking deeper into the details my colleague found that Norah had the money to cover the mortgage.  She just didn’t have much left over after paying all her bills.  To provide a solution she suggested that she would be willing to buy the house from Norah with a 5 year option.  As part of her down payment, which would be non-refundable she paid off the car note to the bank.  She then originated a promissory note with Norah in which Norah would pay her $137/month for the next 5 years.  My colleague agreed to reduced the auto loan by $1000 and then deduct it against the Option purchase price she offered.  This would keep the monthly auto payment down.  Even better, she told Norah that if during or at the end of the 5 years she wanted to buy out the option from my colleague, she could purchase the house back at a price they would agree to, or a 10% increase whichever was less.  They agreed to the deal.  Norah had to agree to not miss any payments on auto loan and maintain the property(repairs), taxes and insurance.  So what did this accomplish for both parties?

-Norah was able to continue to live in her house and keep the children in the same school district.

-Norah was able to sell her house at $375,000 without hassle by accepting the option.

-For the next 5 years Norah can sort out her financial goals without the pressure of moving and starting all over again.

-Norah will still be paying down her mortgage debt so if she sells the house in 5 years she will still have received 5 years of mortgage interest deductions on her taxes.

-For the next 5 years if Norah’s financial situation improves she may buy out the option and repurchase the house – thus never moving.

-Norah reduced her monthly expenses by refinancing the auto-loan with the Option buyer at a more affordable payment which will leave her with more money in her pocket at the end of the month.

– The buyer’s option guaranteed a minimum of a 10% increase on the purchase price if Norah were to buy out the option.  A 32% return on investment after paying $9000 to pay off the original auto loan.

-Even if Norah doesn’t buy out the option she agreed to continue to maintain the property (repairs), pay the mortgage, taxes and insurance so the buyer has zero property management issues to deal with.

Although Norah could have sold her home, this solution gave Norah favorable options in which to stabilize her life circumstances to give her the confidence to face her financial challenges from a position of strength.

Don’t overlook WIN-WIN scenarios.  The obvious isn’t always the best solution.

Contact me if your looking for solutions to your housing needs!

buyorrentmyhomes@hotmail.com

 

The Seller Carry-Back Solution

seller-financing

So now you have made years of payments to your mortgage and slow steady appreciation of the market has improved housing prices.  But a recent layoff has just caused a sudden job loss.  The severance being offered will only last a few short months.  A review of personal finances reveals that the house payments that the job supported will be almost impossible to carry through the transition from your outgoing job to a new one.  So you make the decision to downsize your lifestyle till you get solid footing with a new job.  However after you put the house up for sale you notice the offers are well below your asking price.  This is where selling TERMS through a Seller Carry-Back could make the difference between selling your home and not at all!  This is a real scenario:

Selling Price = $400,000

Bank Loan = $150,000

Seller’s Equity = $250,000

You up one morning to find an email from a local builder that believes the house has tons of potential.  Their plan is to add square footage and remodel the kitchen and bathrooms based on the pictures in your listing.  But the buyer thinks the price is too high.  Additionally the builder already has multiple projects in process and cannot borrow all of the funds he would need to finance the purchase and remodeling.  What can you do?  Offer TERMS.  Here is how this recent sale took place.  A seller made an offer to the builder buyer, so that, if the builder would pay the $400,000 asking price, the seller would offer a promissory note of $250,000 with no interest and no payments for the amount of the Seller’s Equity till the builder completed the remodel and sold the house.  The builder would assume the payments on the sellers existing $150,000 Bank Loan.  The builder took the deal and opened escrow.  With the house payments being assumed by the builder, the seller could breathe a sigh of relief.  The whole project would last six months, and resulted in the creation of a newly remodeled home that sold for over $730,000!  The seller closed with the builder for the $400,000.   The builder paid back the $250,000 promissory note (the house equity) and the $150,000 Bank loan when he sold the house to a couple that was looking for a new home in that neighborhood.   By selling the house with TERMS the seller created several opportunities:

  1. The seller was able to sell the house for $400,000.
  2. The buyer builder did not have to qualify or apply for a $400,000 loan to buy the house.
  3. The builder assumed the monthly payments on the Bank Loan.
  4. The builder was obligated to a “Promissory Note” for the seller’s equity ($250,000) with No interest and No payments till he finished and sold the house.
  5. The builder only had to obtain a construction loan for  $125,000 to remodel the house to improve the property.  This reduced the builders out of pocket borrowing costs and reduced the amount of leverage he would need to re-sell the house.
  6. The buyer builder made a profit in the tens of thousands of dollars by only borrowing $125,000 using a seller-financing and a seller carry-back strategy, instead of borrowing the entire $525,000 to achieve the same sales price of $730,000!

This deal is an example of a complete WIN-WIN for both buyer and seller and solved the problem for each party involved!

The Lease Solution

lease

In 1992 an up and coming real estate investor/agent found himself over his head in the commercial real estate market — $5 Million in debt!  He couldn’t pay back the loans for his commercial real estate projects.  At the same time many developers were getting out of commercial real estate because the market was collapsing.  Not a single banker would negotiate or restructure his debt.  His loans were causing him such a headache he couldn’t pay his bills including his mortgage.  He had to downsize immediately!  So he put his house on the market before serious trouble ensued.  But he didn’t try to sell his house.  Instead he recognized that his home had value and if he could find a suitable renter, it would allow him to return to his house after getting his financial situation in order.  He consulted several colleagues and determined the best idea was to find a tenant that would pay a full year of rent in advance.  This strategy would allow him to keep his house, even though he would have to move out temporarily.  He called every realtor he could think of and asked if they could knew of a renter who could make a full years worth of payments — up front.  Weeks passed when one morning an associate learned about an athlete who had just retired from sports and was between home purchases.  The athlete wanted to take a couple years to make her next buying decision.  After walking the property the athlete said “I’ll take it.  Would you be ok if I signed a 2 year lease?”  The investor/agent couldn’t have been more excited.  In actuality the athlete liked the home so much she actually stayed much longer.  This gave the investor/realtor the time he needed to rebuild his residential real estate business, which at that time was his only source of income.  It took 8 years — but he did it!  Eight years after he had left his home he was able to move back into his residence which had never gone into foreclosure.  Foreclosures are on the rise again.  If you come across someone facing financial strife please refer them to this blog.  There are more and more solutions available to ease the burden and solve the problem at hand!

Short Sales: Do you need to list with an Agent?

cfk

The loan modification failed.  You’ve shelled out tens-of-thousands of dollars in attorney’s fees.  The impossible-to-pay mortgage payment is WAY behind.  All the agents of foreclosure (Realtors, Lawyers, Media, Guru’s, etc.) are telling you the same thing:  A short sale is your only option.  It’s your only way out.  So it would seem practical that your next step would be to contact a realtor to list the house for sale.  Well — you would be surprised how many realtors I have met that simply focus on “getting the sale” to “get their commission” that they forget the obvious:  the homeowner is the client, not the bank.  Realtors who focus on the sale typically only focus on “what the lender wants.”  If your a homeowner in this predicament remember — TERMS are all that matters to a homeowner in a short sale transaction, NOT price.  A homeowner needs TERMS to ease the burden of dislocation.  Let’s be real.  The homeowner is about to lose their house.  It will be potentially one of the most traumatic experiences of their LIFE.  What should a homeowner do?  This is what I would do — First — I would interview a potential listing realtor.  I would ask this simple question:  “What terms were you able to get your last short sale client at closing?”  If the agent begins to deflect the question with a canned response that is similar to this… “Well with short sales, its up to the lender…”  I would RUN.  Not walk,  RUN!  This is a realtor who has NO IDEA what they are doing!  So don’t be surprised if they get you NOTHING at closing.  NEXT, I would keep calling till I found a realtor that could give me a verifiable deal story.  An instance of how that realtor was able to negotiate time or money.  Or both.  Keeping in mind verifiable means, the agent will give you the contact information of the homeowner they helped.  Like anything else, never assume a story is true no matter what you have heard about a particular realtors reputation.  Verify everything.    Why does this matter for homeowners?  It’s like this:  This is your LAST chance to get help — you have NOTHING TO LOSE BY SIMPLY ASKING.  In addition, you might be surprised to hear what the lender is willing to do to move on in the process.  Most recently I met a homeowner who was offered more than 120 days — 4 months — to find a new residence.  That’s 4 FREE MONTHS OF RENT!   Another homeowner I met was offered over $10,000 by the lender to ease the burden of moving within 30 days!  THAT IS WHY TERMS MATTER!  You never know until you ASK.  If you find yourself in a Short Sale scenario contact me through my blog.  I can help!

California November 2016 Home Sales Report

nov

Red hot California November Real Estate sales may have cooled from October, but overall continued its uphill trend with NorCal and the Central Valley seeing 8.5% price growth!  That’s a huge increase from last year.  How do you think 2017 will fare?