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Short Sale Questions May 26, 2009

Posted by W. Keoki McCarthy in Bank owned home, Foreclosure, houses, Invest, investing, Investor, real estate, real estate investing, REO, Seattle Real Estate.
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A client asked me some questions about short sales.  I thought the answers I gave them may interest you.  The red writing below is from my client and my answers are in black.

What happens to this home if the bank (underlying lienholder) makes  a move? 

If the bank takes it’s next step it will give them a notice of default for which they will need to cure their arrears or go to auction.  This could take another 3 months to over a year depending on how aggressive the lienholder is and how well the seller works with the bank.  If it gets all the way to auction the bank may set the minimum bid to the amount owed.  However, they may also set it at a value that they think it is worth to try to unload it at auction.  Most of the time the bank sets it pretty near what is owed as they don’t want to leave money on the table.  Once it is an REO (real estate owned in bank lingo) they will hire an agent to list the property for a price they determine through some internal metric.  They will have an appraisal and a couple of broker price opinions to help with that process.  It will probably be listed near market value but they tend to start on the higher side in the beginning. 

 When would they agree to best price??  Before or after foreclosure sale? 

Almost certainly before auction as a short sale or after auction as an REO.  It is doubtful it will be priced well at auction.  Right now it is a short sale.  As I mentioned before we can negotiate pretty aggressively as a short sale because there is less competition.  At this point we would send in an offer and paint a bleak picture.  If we can scare the bank into not wanting to get it as an REO and give the VP of loss mitigation enough to cover his butt when his/her boss asks why they lost so much we can probably get a pretty good deal. 

If we don’t get them to give us a reasonable deal at short sale we can wait until it becomes an REO.  At that time they will slowly lower the price until it sells.  The one downside is that we would have more competition at that point because there are more buyers for non-shortsale properties as they are more of a sure thing.  75% of buyers do not make offers on short sales because they don’t have the luxury of waiting months to know if they win or not. 

We could write up an offer, take it to the current sellers and have them agree to the terms subject to the approval of the underlying lienholders.  Once the offer is accepted, we put a package together to send to the bank explaining the pitfalls of the property and why they should just unload it to us (help the VP justify our offer to the higher ups). 

Remember I wrote this about a specific property so it is not always like this.  However, this is a pretty good explanation of what we do when trying to help people buy shortsales.

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First Time April 2, 2009

Posted by mstand in market conditions, real estate, Uncategorized.
1 comment so far

First Time
This is my first time blogging. Though I have spent more hours than are productive reading other peoples opinions.  My first career was in high tech sales and marketing. After riding that horse through the glory days of the rise of Microsoft and the dot com bubble, things suddenly came to a screeching halt. The unthinkable had happened. There was not any more investor cash to burn on great ideas like Home Grocer.com. I learned two concepts from the dot com era–”the next big thing” and “underwater.” And what was the next big thing after the dot.com bust? Real Estate of course. So here I am again, at the end of another bubble. I look back at the dot coms, Enron and WorldCom as just a warm up for what faces us now. The tech boom was mostly about spending large sums of money trying to create “the next big thing” Welcome to the future digital world .Even our Government tried to take credit for the internet phenomenon. Who could forget Al Gore running around the Microsoft campus with a PDA holster strapped to his side? But the “next big thing” does not have the same connotation in 09 that it did in 00. In 2000 people were betting on the “next big thing” now they are betting against it. “Underwater” certainly has the same connotation. One could be even more dramatic and refer to it as drowning. Government solutions to problems that do not include common sense and practicality always amaze me. I am sure you have had the same thought. Take overspending for example. We all admit most of us have too much debt. What are the conventional methods for dealing with loans? Either pay it off, restructure, refinance– most popular option– or take a loss, write off, declare bankruptcy. Why does this seem too complicated for our politicians to do? There always is a different agenda that appears to trump commonsense. Natural disasters occur. Things burn down and are rebuilt. How many small businesses could be spurred from the breaking apart of a large bank? Maybe our society will go back to the model of having many smaller business serving people instead of large conglomerates. But the real barometer of recovery will be when all of us start to reduce or eliminate our debt to the level that we feel comfortable making investments and taking on payments again. Then the economy will begin to grow-albeit at a more cautious pace. Don’t wait until 2010! Let’s start now to rebuild. Eliminate your debt. Then we can all pursue the “next big thing”. If you want to comment on ways you are accomplishing eliminating debt or restructuring, I would love to hear it.

Statistics for King County March 7, 2009

Posted by W. Keoki McCarthy in Invest, investing, Investor, market conditions, Northwest, real estate, real estate investing, Seattle.
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I received these statistics today from a title company.  They are for February 2009 vs February 2008

King County:

Total Active Listings          2009 / 9,525        2008 / 9,875               

    % change vs 1 year ago    -3.54%

 Median Price         2009 / $375,000       2008 / $429,900 

    % change vs 1 year ago     -12.77% 

 Total Sales         2009 / 661        2008 / 1,148

    % change vs 1 year ago     -42.5% 

The fact that the median price dropped 12.77% doesn’t surprise me nearly as much as the fact that we closed 42.5% less units.  That is a huge decrease.  I am curious if it is a sign of a worse year or if it’s because everyone was waiting to find out what would happen after the stimulus package goes into effect.  If March is down as well then I’ll assume it’s the former.  On an anecdotal note, I’ve seen a pick up in business for our company so I am hoping that we just had a lot of people on the fence last month.

HELOC Investing Strategy November 23, 2008

Posted by W. Keoki McCarthy in Invest, market conditions, real estate, real estate investing, REO.
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I went online today and saw that HELOC’s (home equity line of credit) are floating at around 4%.  That is really low.  Most HELOC’s are tagged to the prime interest rate.  So, as long as the fed thinks our economy needs a cash infusion and there is not alot of inflation, prime is going to stay really low.  Does this mean that it will be 6 months 1 year 3 years?  I do not know.  However, I do not see the economy recovering quicker than a year so I think it is a safe bet that it could be at least a year.  

Now, how does that help you?  Well, consider this, if you buy a rental home and you put down 20% cash and get a loan you will pay about 6.5% interest on a 30 year fixed (just a rough guess this does not constitute an offer of a rate).  Now contrast that with putting 20% down and financing the rest with a HELOC.  Here is the difference.  On a $300,000 purchase price putting 20% down The 6.5% interest rate will have your monthly payment at $1516.  The 4% HELOC will be at $1145.  The HELOC is 25% less per month.  

What are the benefits?  

1st The HELOC is 25% per month cheaper possibly allowing you to have positive cashflow with only 25% down.

2nd When you do not have to have a financing contingency (with a HELOC you have the money in hand before you make the offer) you can be more aggressive with your offer because the seller knows you are buying and not hoping for a loan.  I have seen that get a buyer an additional 10% discount on an offer.

3rd most likely when HELOC’s start rising in cost, it will be because the economy is doing much better.  That would allow you to refi or maybe even sell for a profit.

Real Estate and Stock Markets are both down. Where should I put my money? November 20, 2008

Posted by W. Keoki McCarthy in Invest, market conditions, real estate, real estate investing, REO.
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We interviewed W. Keoki McCarthy, MBA, owner of McCarthy GMAC Real Estate and asked him  whether to buy stocks or real estate.  He said, “The obvious answer is both.  If you can diversify you should.  There is no excuse for being too heavily invested in one place especially in this market.”  With the volatility in both market places these days it is hard to decide whether to put your money in the markets or under the mattress.

 The major difference right now between the two markets is negotiability.  “imagine if you could call your stock broker and say I’ll take Microsoft for $10 per share even though it is listed on the market for $20.  You would probably do it because even if prices went down you have bought below the market”  said McCarthy.  Obviously the stock market does not work that way.  The prices are set by supply and demand automatically.  You really can’t buy below the market at the time.  Real estate on the other hand allows for this.

 When you buy real estate you negotiate with the seller and generally speaking there is not another bidder it is just you and the seller. “It is possible to buy a home in today’s climate for upwards of 25% below market value.  That’s a nice cushion” said McCarthy. 

 McCarthy also mentions that a great source of good deals are from bank owned properties.  When a bank forecloses on a home and it is not bought at auction it goes to the bank and is called an REO (real estate owned).  Banks then hire specialists to sell these homes.  Northwest REO a division of McCarthy GMAC Real Estate represents many banks in King and Snohomish Counties.

Bank Owned Homes October 27, 2008

Posted by W. Keoki McCarthy in Bank owned home, Foreclosure, Invest, real estate, real estate investing, REO.
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We have a division at our company called Northwest REO.  They sell exclusively bank owned homes and help bring investors together with banks.  In a nutshell, When a bank forecloses on a home and it is not bought at auction it goes to the bank and is called an REO (real estate owned).  Banks then hire specialists to sell these homes.  Northwest REO a division of McCarthy GMAC Real Estate represents many banks in our area.  We have a listing team and a buyers team.  The listing team works with banks to help them liquidate their assets.  They are the contact between our team of buyers agents and the bank. 

 Our team of buyers agents then help buyers acquire these homes.  We have helped many buyers over the years and are experts at this process.  It takes an expert to navigate through the sea of REO paperwork and the special process that one goes through to purchase these homes.  If you would like the benefits of purchasing a bank owned property you have found the right team. 
I would like to announce a feature that we have at NWREO.  If you are a twitter user you can sign up for tweets of our up and coming listings.  These are bank owned properties that are either in the middle of evicting an occupant or fixing major repairs.  They are not on the market but generally will be within the next month.  You can stay on top of it by following us at www.twitter.com/northwestreo

Investing in real estate as a group July 9, 2008

Posted by W. Keoki McCarthy in Invest, real estate, real estate investing, Uncategorized.
2 comments

One of the things I advise investors that are going to partner up and purchase a property together to do is to put some rules about how to fairly deal with work done by one party on the property.  Who has to do what and when and what do they get for doing it.  Otherwise, both parties will wonder if the other person is pulling their fair share. 

 

My first example:

Two investors purchase a property together.  They put up 50% of the money each so they own the property equally.  Investor A is very handy – he was a carpenter in a past life.  Investor B is not handy at all – he is a CPA by day and a couch potato by night.  Some work needs to be done to the property.  What if A decides to do some of the work himself instead of hiring a contractor?  As an owner, should he be expected to work for free for the good of the partnership?  Or, should he track his hours and then expect that B will put in as many hours?  What if B, being lazy, never puts in the same amount of hours?  Isn’t that unfair to A?  It can get even more complex.  Picture this; A spends 14 hours doing yard work in a month.  B did the books for the property at year end in about 4 hours.  In this scenario, it appears that B did not work as hard as A.  However, A and B could have hired out a yard person at $10/hour to do yard work costing $140.  They could also have hired a CPA to do the books at $90 an hour costing $360.  In this case it looks like B got the short end of the stick.

 

Here is another problem.  What if both partners don’t have an equal share of ownership?  If it is a 60/40 split do you want to count hours trying to figure out if A has done 60% of the work? 

 

I also see investors saying, I’ll do all the work and run the show for a larger percentage of ownership.  That can be dangerous to both sides.  If A must do all of the work and they get an extra 10% ownership, the danger is that huge problems could arise and A will need to spend a lot of time and effort to mitigate them, but, when the time comes to sell the property, there is minimal gain.  A will go uncompensated.  Or, conversely, there is a huge gain and A is unjustifiably rewarded 2, 3, even 10 times more than their effort.  This is one of the least effective methods as it is impossible to foresee the future value of a property.  Therefore, someone is most likely going to lose with this method.

 

How do investors deal with these problems?  The simple solution is to pay the investor that does the work the wage it would cost to hire a third party.  If this is written into your operating agreement it will save you a lot of headaches in the long run. 

 

A question I get frequently is this.  Does the investor doing the work make the same hourly wage that a professional makes?  Yes, if the investor is as good as a professional.  If the investor is not, then pay the total cost saved by not hiring a pro.  Example paying a rookie $90/hour to do plumbing because a plumber makes that amount is probably not fair.  I may be able to fix a leak but it might take me all day whereas a plumber may take 15 minutes.  Try to pay the partner the cost it should have been, not by the hour.  Or, for bigger projects get bids and let the partner that wants to do the work be a bidder.  If his/her bid is lower, they get the job, if higher go with the pro.

 

This is not the only way to go.  You can be creative.  However, this is the way that I’ve seen work the best.  You still have to trust the other party as they are going to have to use their best judgment to determine how much they saved the partnership to know how much to get paid.

 

One last bit of advice.  Don’t partner with investor B.  While having a CPA around is nice, non handy couch potatoes tend to make bad real estate partners.

Phase I and Phase II Environmental Reviews July 5, 2008

Posted by W. Keoki McCarthy in Invest, investing, Investor, Podcasts, real estate, real estate investing, Seattle, Seattle Real Estate, Transactions.
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In this episode I interview Paul Riley of the Riley Group. The Riley Group, Inc. is a Pacific Northwest based firm providing environmental, geotechnical engineering, wetland consulting and contractor services since 1996.  Their clientele include retail, mixed-use developers, dry cleaners, plating and other manufacturing facilities, gasoline service station owners, financial lending institutions, municipal governments, realtors, and public utilities.

Riley specializes in assisting clients in the development and/or assessment of commercial and industrial property including  geotechnical investigations, wetlands, contaminated site characterization, risk assessment and remedial design.  You can contact him by going to http://www.riley-group.com/

Ahead of the Curve – Renton July 1, 2008

Posted by Trish Johanson in houses, Invest, Northwest, real estate.
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Get Ahead of the Curve

Just add a little rain water and watch it grow! For the past few years Renton has taken a 360 turn and reshaped what it has to offer. Yes, it still houses Boeing and Kenworth (which are on the leading edge for Hybrid trucks). Many new residences are finding this town has everything they need.

 

You can live in downtown without a vehicle. Everything is within walking distance: grocery stores, electronics, commute systems, restaurants, apparel, home and garden, athletic club, cinemas, beaches, water slide parks, fitness center. Whatever you need, it’s there or will soon be there.

 

The new Seattle Seahawks Headquarters and Training is in construction with a completion date of summer 2008. Located along the shores of Lake Washington makes it a great place to watch training while spending a day at the lake. Here are a few pictures of the many great things to happen to Renton.

Seahawks HQ

Seahawks HQ

The Landing – 68 acres of shops, cinemas, restaurants

The Landing

Barbee Mill – New homes and Townhomes along the shores of Lake Washington

Barbee Mill

One of several styles at Barbee Mill

Barbee Mill

 

 

 

Market Conditions April 2008 March 27, 2008

Posted by W. Keoki McCarthy in market conditions, Northwest, real estate.
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NWREporter April 2008

All five metropolitan areas in Washington that are included in a national survey of home prices showed gains in the fourth quarter of 2007. Roughly half of all metro areas continued to show price increases when compared to the previous year, according to the latest quarterly survey by the National Association of Realtors®.

In the fourth quarter, 73 out of 150 metropolitan statistical areas show increases in median existing single family home prices from a year earlier, including 11 areas with double-digit annual gains – two of which are in Washington state. The survey found 77 areas with price declines, including 16 with double-digit drops.

In the fourth quarter, Yakima claimed the second largest single family home price increase where the median price of $170,600 rose 18 percent from the fourth quarter of 2006. After Yakima, the strongest metro price increase in the West was in the Kennewick-Richland-Pasco area, at $172,400, up 14 percent from a year ago.

Lawrence Yun, NAR chief economist, said disruptions in the mortgage market have played a role. “The continuing crunch in the jumbo market that began in August has disproportionately reduced the number of transactions in higher price ranges,” he said. “For buyers who need loans of more than $417,000, mortgage interest rates have been running more than a percentage point higher, and that has been having an obvious impact. Higher ratios of sales for more moderately priced homes are naturally dampening the national median price as well as the data for some of the more expensive markets.”

NAR President Richard Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said he is encouraged with plans to increase conventional loan limits. “Higher limits for FHA loans, which go into effect March 14, will be a big help to first-time buyers in high-cost markets. Higher limits for conventional loans purchased by Freddie Mac and Fannie Mae will take a bit longer – when they become available, high-income, borrowers in high-cost areas will have access to affordable and safer financing, and that will help unleash pent-up demand,” he said.

Editor’s note: A March 1 survey of single-family inventory in the Northwest MLS database shows more than half (51.2 percent) of current listings in the tri-county region (King, Pierce and Snohomish counties) have asking prices of more than $417,000. In King County, more than two-thirds (67.5 percent) of single family homes offered for sale are priced above $417,000.

“With the market in a state of flux, it’s especially important for consumers to stay abreast of widely varying and changing market conditions. We encourage them to have a traditional long-term view, which means taking the time to thoughtfully research the market. More than ever, the best resource is a Realtor® who can put local conditions in perspective, provide advice and negotiate the transaction.”

Despite the annual decline in the fourth quarter median home price, the typical seller who purchased their home six years ago still saw a very healthy gain, according to NAR research. The median increase in value for sellers who purchased that home in the fourth quarter of 2001 is 31.2 percent, and the median home equity accumulation is $49,000.

Median Sales Price of Existing Single Family Homes,
Metro Areas in Washington State
Metro Area

4Q 2006

4Q 2007

% Change

Kennewick-Richland-Pasco

151.2

172.4

14.0%

Vancouver-Portland-Beaverton

285.4

290.5

1.8%

Seattle-Tacoma-Bellevue

372.9

377.5

1.2%

Spokane

189.2

194.1

2.6%

Yakima

144.6

170.6

18.0%

U.S.

219.0

206.2

-5.8%

West

355.0

324.1

-8.7

NAR began tracking metropolitan area median single-family home prices in 1979. First quarter metro home price and state resale data will be released May 13. For details, including charts for all 150 metro areas in the survey and comparisons by state, visit realtor.org.