90 Days Waived- A Gift for a Year to Real Estate Investors

Did you read about the gift given to real estate investors by HUD & the FHA? Someone finally woke up and realized that artificially setting a 90-day waiting period to sell a house backed by government financing was slowing down the revitalization of inner-cities. I'm not sure why it took so long to figure this out, but I am glad they did. Funny thing, it is only slowing down rehabs for a year, then we'll be back to normal.

For one year we can buy and sell houses as quickly as we can and the buyers can receive FHA backed loans. If the house sells for up to 20% higher than it was purchased for, no special paperwork will be required. If it sells for more than 20% of the original purchase price, documentation showing improvements that justify the new selling price will be needed.

There aren't any details about the needed documentation, but keeping all receipts for goods and services that go into improving the property would be wise. Taking photographs and/or video wouldn't hurt for backup documentation.

Tell me what you think. Is this a good idea or a bad one? If it a good idea, why only for one year?

January 19, 2010- New Year's Day!

Each year as New Year's Eve and Day approach, my mind turns to making goals for the new year. It used to be all about the numbers- how much money, watching my weight, studying a certain amount of time each day, number of daddy daughter dates for the next year, etc. I became fixated on goals that were measurable, realistic, time specific and actionable. As soon as the numbers slipped, even a little, I became discouraged.

A New Year, A New Way of Thinking

On the first of the year I asked myself, "Why can't I start each month with this type of introspection? But then again, what about the beginning of each week? Hey, what about each new day being filled with hope, excitement, and introspection?"

Then and there I decided to, as much as possible, make each day the beginning of a new year. What does that mean?

• Everyday day is a day to wake up excited about
• Goals can be renewed everyday, regardless of my success of reaching them yesterday
• I am continually optimistic about the year in front of me
• My family, friends, and partners (not mutually exclusive, one from the other) are cherished in my life and I look for reasons to be with them

How Do I Feel?

Part two to my new year is to continually ask myself, "What do I need to do to feel good about today?" This will answer two questions:

1. What is important? Accomplishing important tasks makes me feel great!
2. What do I need to do to take care of myself and the ones I love? Unless I take care of myself and them, I will not feel good about the rest of my life.

Crunching the Numbers

Do I still care about the numbers? Absolutely, but in a completely different way. They allow me to track my progress and keep score, but they do not dictate to me if I am a winner or a loser. I win every day that I make progress- personally or professionally.

What do you do to keep the spirit of the new year alive?

Contract Sales- Make a Good Deal

You have a house. You want to sell it on contract to a good buyer- fast and full priced. How do you make a good deal and protect yourself.

Let's Make a Deal!

How do you structure your deal to make the most of your willingness to sell on contract? Let's cover the selling price first:

• Since you are willing to carry the contract, you should ask for full price. What's full price? First, find 2-3 Pay an appraiser. It will cost you $200-400 and make sure that it's an appraiser that is recommended to you. There are too many appraisers who are afraid to give an accurate appraisal.
• You don't not need to pay any closing costs. Don't let anyone tell you that you need to pay 3%- that's only for a government loan. You are not the government. You are not constrained by government rules on seller assistance. Get the full price.

The interest rate will have a significant impact on the month payment from your buyer. Too high and you put them at risk of defaulting on the loan. Too low and you are missing out on a significant amount of profit. Of course the payment will need to cover taxes, insurance and any underlying mortgage.

Next- you need an amortization term. Possibilities? Interest-only, 30-year, 25-year, 20-year, 15-year. (Actually, any number of years would be fine.) Again, this will impact the monthly payment. The longer the term, the lower the payment. It will also impact your taxable income. Shorter terms have more principal paid each month. The principal paid back to you is not taxable.

The term of the loan depends on how long you want the capital to be out. Some people will need 1-2 year balloon payments because they need the cash back fast. Others want a long-term cash income stream that would last for their lifetime. The buyer may have refinancing constraints, such as a bankruptcy or short sale. Common balloon periods are 3-10 years, unless the seller is looking for long-term income.

Protect Yourself

First, get to know your buyer. Sit with them. Understand their story. Then, verify it. Get a background check. Not just a credit score- their credit may be really bad but they could be a great buyer! (See my last blog to read why.) See if they have a criminal background or any other issues other than their credit scores.

Next, make sure that they have a down payment. At least 5%, but 10-20% is even better. You are selling them an expensive asset so they should have "skin in the game." Contract home buyers qualify for the $8,000 first-time home buyer tax credit offered by the federal government. They should also qualify for any state or local tax incentives.

Use an experienced title company to close the transaction. They will protect you through ensuring the transaction is recorded correctly. You will also need a seller's title insurance policy. Your buyer's title insurance is only good until you sell the house.

Set up the monthly payments to go through an escrow company and ensure that taxes and insurance are collected each month. They will also pay any underlying mortgages to protect the buyer.

Need More Information?

This is just a minimal outline of how to do a contract sale. There are tax and legal ramifications of selling a house on contract. You should contract professionals. Expect to pay fees- title company, legal, or even a real estate agent's commission, to close this transaction. Another source of advice would be professional real estate investors.

Don't know any real estate investors? Go to a local real estate investor's club meeting. There are people at the meetings who can help you.

Contract sales are a GREAT way for both parties to get what they want. The more open and honest people are, the more likely a good deal can be struck.

Tell me about your last contract sell, or e-mail with any quesitons!