Besides the Purchase Price, There Are Other Costs You Must Consider

By Lloyd Segal

When flipping properties, you also need to consider repair costs, holding costs, real estate commissions, closing costs, estimated profit, and lost opportunity costs.   Let’s analyze each of these costs separately.

Repair costs.  The repair costs will likely be your largest cost, so you need to calculate them carefully.  If you’re able to inspect the interior, you’ll be able to estimate the repairs and renovations needed to make the house salable.  However, if you aren’t able to inspect the interior, use 10% of the purchase price as your estimate of repair costs.  In the alternative, multiply the square footage of the house by $7.00.  For example, if the property has 1,500 square feet, the estimated repair cost would be $10,500.

Holding costs.  It’s going to take you approximately 2-4 months to repair, market, and sell the property.  During those months, you’ll incur holding costs (i.e. mortgage payments, taxes, insurance, and utilities).  Neophyte flippers frequently forget to include these costs in their budgets.  If you’re worried about these costs, you can significantly reduce them by living in the house during this period, which is exactly what many flippers do when they are just starting out.  Instead of chalking up your monthly expenses as holding costs, simply consider it rent.  Another way to trim your holding costs is to price the house correctly the first time.  By offering the best home in its class at the best price, you’ll sell the home faster and lower your holding costs to more than cover the cost of selling the home for a little less.

Real estate commissions. You can assume you’ll pay a 6% commission to your real estate agent for selling the house when you flip it.  For that money, the agent will market your property for sale, list it in the Multiple Listing Service and related websites, advertise in local newspapers, receive and submit offers, negotiate with the buyer, and assist you with the timely close of escrow.

Closing costs.  You will incur closing costs when it comes time to sell the property.  These costs include escrow fees, title insurance, transfer tax, recording fees, and other miscellaneous charges.  For a rough estimate of closing costs, figure 2% of the anticipated selling price.

Estimated profit:  While we’re at it, let’s factor in profit.  You want to make at least a 20-25% profit on each of your flips.  In that way, if unexpected expenses do pop-up, you’ll have some margin before you lose money on the deal.  (And if you sell the house for more than you expected, or your expenses are lower, you’ll make an even better profit.)

Lost opportunity costs:  Opportunity cost is the cost of pursuing one investment choice instead of another.  Every investment you make has an opportunity cost.  With respect to flipping, lost opportunity cost boils down to making choices between various deals.  For example, if you are considering two potential deals and can only make one, which one is likely to generate the greatest return?  Which fits best into your workload, your skill set, and the time you have available?  If you can spend the same amount of time and money on a property that will generate a 20% return instead of another property that will yield only a 10% return, which would you choose?

Time:  Another cost that you may not have considered is your time.  Successful flipping takes time.  If you buy a property and plan to do some repairs yourself, you will save money on repair costs but you’ll also spending your time.  How much is your time worth?  If you’ll spend 300 hours repairing and renovating a property and will make $3,000 in profit, your time was worth $10 per hour.  If that sounds good to you, great!  If it doesn’t, you’ll need to adjust your cost estimates accordingly.  For example, if your time is worth $50 per hour, you should factor $15,000 into your budget for those same 300 hours.

Lloyd Segal

Chief Cook and Bottle Washer
Los Angeles Real Estate Investors Club, LLC
310-409-8310

www.LAREIC.com

 

 

What’s Triggering Non-Performing Mortgage Loans In 2020

By Fuquan Bilal

Deals on non-performing mortgage loans are in high demand. So, with the economy and housing market reportedly so strong, what might trigger mortgage defaults, and give note investors more assets to buy?

Being alert to these causes of default can give you the edge to see where things are headed, be able to get ahead of the competition, and work out notes, obtain deeds in lieu of foreclosure, or grant profitable short sales.

Rent Controls

Rent controls have long proven to be counterproductive. New sweeping rent controls in California and New York are only likely to prove the same. Investors have been buying up record amounts of property in the anticipation of bumping up rents, or flipping them to institutional investors for yields. Now those profits have been cut off. Lenders don’t want to loan on such deals, and those with commercial loans that are maturing could find themselves in trouble.

Consumer Debt

When regulators cut off the appeal and safety of making mortgage loans to retail home buyers, those with the capital found new ways to deploy their money. Consumer debt has been one of the biggest buckets. They have few rules in this space, and can charge so much more interest and fees. Then as usual, when people begin using these credit lines, creditors cut them off, sending credit scores diving and these borrowers into a downward spiral. That can also cut many homeowners off from home equity lines and prevent them from refinancing and tapping equity, even though they may have recently invested a lot of this credit in improving their homes.

Taxes

Some areas have been experiencing a whole new spree in taxes over the past few years. Look at NY. Following the cap on state and local tax deductions, they’ve been hit with online sales taxes, mansion taxes, new real estate transfer tax hikes, and higher annual property taxes. That could be just the tip of the iceberg depending on which way the election goes in November. Many people haven’t been prepared for all these tax hits.

Destruction Of The New Remote Working Economy

A new California law may have just put an end to the new freelance and remote working economy. The new law has given businesses the choice between treating freelance talent as full time in house employees, with all the risk and cost that brings, or to conduct mass layoffs. Most seem to be choosing the latter. Thousands of truck drivers could be out of work. Media companies are laying off hundreds of workers. Much of the California economy and tech industry have been relying on this type of talent to operate and make profits. Should this roll out to other states the impact will be even worse. Freelancing platform Upwork alone has some 12 million freelancers. As many as 60% of all workers in places like Brooklyn are believed to be remote workers. These workers have made unemployment numbers look low for years. If that type of employment is gone, what’s going to happen with a 60% unemployment rate? How about even a 16% unemployment rate? How are all of these people going to be able to pay their mortgages?

Failed New Construction Projects

In the long term we may still be far under the level of housing we need. Yet, builders have been focused on high end luxury product and smaller and smaller units. Thousands and thousands of these units squeezed into small urban areas are going unsold. Some have remained on the market for four years already. They are too expensive or just don’t fit what buyers are looking for. Sooner or later more of these developers are going to be foreclosed on.

Failed Investors

It’s been great to see the thousands of investors who have been inspired to get into real estate and mortgage debt over the past decade. Yet, many have been purely speculating. They are trying wholesaling, are bankrupting themselves on house flips without knowing what they are doing, or have bought into the pitch that it is only about cash flow. Many are only weeks away from broke. A couple of stalled closings and they are going to be in trouble.

As a forward thinking note investor, these are all huge opportunities to help others and make some great profits in the process.

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund

Fuquan Bilal

Fuquan Bilal founded NNG in 2012 with the principal mission of capitalizing on the growing supply of mortgage notes in the interbank marketplace. Mr .Bilal utilizes his 17 years of residential and commercial real estate success to identify real estate opportunities and capitalize on them. To date, he has successfully managed three private mortgage note funds that primarily invest in singlefamily performing and non­performing mortgage notes. His financial acumen and proprietary set of investment criteria enable him to purchase underperforming real estate assets at a deep discount of face and market values, thereby increasing the value of the assets. This, coupled with his ability to maximize the use of leverage, enables him to build strong, secured portfolios with solid passive income flows.

Virginia Land Trusts

By Randy Hughes, Mr. Land Trust

Our modern world is fraught with dangers and potential liabilities for the real estate investor who just wants to work hard and build an estate for his/her family. Learning how to conceal assets and appear poor should be the goal of all hard-working entrepreneurs. America’s legal system has run amok and if you do not concern yourself with asset protection you are doomed to fall prey to the 21st century terrorist…the contingency fee lawyer (and his/her client).

An interesting and not well understood fact about Land Trusts is that they do not have to be formed in the same state where the property is located (or where the beneficiary resides). Like the founding fathers intended, Land Trusts have been left to each state to develop how to rule on the use of them. There is no Federal Land Trust law. Only a few states have a Land Trust Statute (most have only case law supporting the use of Land Trusts from other states), but all states recognize some form of title holding trust. In this article, I will discuss the Virginia Land Trust Statute and its unique benefits to the real estate investor.

The English Statute of Uses was repealed by the Virginia General Assembly in 1792, thereby eliminating one of the hurdles to land trust validity. But in 1819 the legislature enacted a limited Statute of Uses which applies to declarations of trust in which the trustee has no duties whatsoever. Since Land Trusts are usually drafted requiring the Trustee to do something, even if only accepting property and deeding it out, this is all it takes to get around the limited Statute of Uses.

Land Trusts in Virginia work exactly like those in Florida and Illinois. 55-17.1 of the Code of Virginia spells out the modern-day interpretations which incorporates all these attributes. 58-77 (2) of the Virginia Code confirms that a trust is not taxed as a corporation. And, 8.01-81 et seq. of the Virginia Partition Statute verifies that the remedy of partition cannot be used by one beneficiary against another. Furthermore, there is no transfer notification requirement nor a requirement to disclose the beneficiary (as some states have).

Note: Virginia Land Trust Law (Virginia Code 55-58.1) requires an in-state Trustee. Therefore, if you are forming a Virginia Land Trust to hold title to property in any other state, you need to have a Virginia Trustee. I do not like this requirement because although I prefer my trustees located in the same state as where I am forming my trust, it is nice to have the option to use someone from another state.

So, how do you form and out-of-state trust to hold title to the property in your state? And, where can you find a trustee from another state to serve as your trustee? These are good questions for the concerned real estate investor who wants to protect his/her hard-earned assets. You will find the answers to these and many more of your questions at: www.landtrustsmadesimple.com

I encourage you to learn more by going to my FREE online training at: www.landtrustwebinar.com/411  and text “reasons” to 206-203-2005 for my free booklet, “Reasons to Use a Land Trust.” You can also reach me the old fashion way by calling me at 866-696-7347 (I actually answer my own phone unlike most other businesses in America today).

Randy Hughes, Mr. Land Trust

If you want to learn more about the wonderful world of trusts, please go to: www.landtrustsmadesimple.com for more information. Or, if you would like to attend one of my FREE Land Trust Webinars, go to: www.landtrustwebinar.com/411 Also, feel free to call me with any questions. I actually answer my phone! 1-866-696-7347

How To Get Back Your Passion For Real Estate

By Fuquan Bilal

PublicCo/Pixabay

Want to feel that real passion for real estate investing again?

Whether you got stuck spinning your wheels before you really got started, have taken an extended break or are just going through the motions now that the money is coming in too easily, it’s important to keep your passion on high.

If you’re not passionate about what you are doing, people will notice, and it won’t be long before things start to slide. You can lose your passion from discouragement or just because you’ve automated everything and it’s become dull.

Whether you crave getting that mojo back or you just want to be sure you are maintaining it, try these strategies…

Remember Your Why

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Why were you investing in real estate or what excited you about it in the first place?

Maybe it was for your lifestyle or for your family, or to help other people. Chances are that you haven’t crossed the finish line yet. You may have run into challenges, or it may have become very transactional. Yet, the odds are that you haven’t made enough money to future proof your family wealth for the next few generations yet. You probably haven’t run out of people to help.

Remember your why. Realize there is still a lot to do. Get moving on that.

Set Bigger Goals

You can make a million dollars a month in real estate and get bored. There is only so much shopping and golf you can do. Set bigger goals.

You might be the biggest investor in your town, in your niche or even Manhattan. There is still more that can be achieved.

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It doesn’t have to be about the money. It’s more about knowing you’ve really pushed the limits as far as they can go.

Billion dollar companies are almost becoming common. If a billion is too small for you, then think globally. Can you build a portfolio of income properties in every state or country or major city? Can you diversify your brand from just flipping houses to new construction or something else?

You don’t have to do it all yourself. Ask who you can connect with, align with or hire to get you there.

Hang Out With Amazing People

It’s important to spend time with your peers and passing on your learnings to help others. Firstly though, be sure to spend a third of your time with inspiring and uplifting people who will challenge you to level up your game. Do that and everything else on this list should fall into place. And if you can’t do so in person for some reason, engage on social media, tune into a great podcast every week, and find ways to do it virtually.

Do Something New

Constantly doing new things is important. It has countless mental and physical benefits. It will also fuel your passion in a variety of ways.

Maybe you’ll travel and have your eyes opened to just how much real estate there is out there. Or you’ll realize how much you really love home.

Find new ways to look at real estate. Take the plunge into new asset classes and strategies. You may find something you are even more passionate about once you taste it.

Go take on new activities and meet new people. Treat yourself to new adventures. Otherwise what’s the point of it all?

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Ask Who You Can Help

We tend to lose our passion when we focus too much on ourselves. Instead, ask who you can help. Get out there and ask everyone how you can help them in regards to real estate.

Who can you help find a home? Sell a home? Generate more income from real estate? Diversify their portfolio? Raise money?

Challenge yourself to deliver. Push your limits. You may find it incredibly rewarding and a new fuel for your passion.

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund

Fuquan Bilal

Fuquan Bilal founded NNG in 2012 with the principal mission of capitalizing on the growing supply of mortgage notes in the interbank marketplace. Mr .Bilal utilizes his 17 years of residential and commercial real estate success to identify real estate opportunities and capitalize on them. To date, he has successfully managed three private mortgage note funds that primarily invest in singlefamily performing and non­performing mortgage notes. His financial acumen and proprietary set of investment criteria enable him to purchase underperforming real estate assets at a deep discount of face and market values, thereby increasing the value of the assets. This, coupled with his ability to maximize the use of leverage, enables him to build strong, secured portfolios with solid passive income flows.

How To Avoid The Pitfalls Of Hiring A Bad Contractor

By Gary Massari 

One of the biggest pitfalls you can make is to hire a contractor without a check-off list.  If you fail to interview, prescreen, and check the contractor’s references, or set up the proper working relationship through the six critical documents needed to protect you and your investors when rehabbing, you could be facing serious problems.

I will share with you one of my most trying experiences when doing a rehab out of state in Atlanta, Georgia.  I hired a contractor on the recommendation of a new project manager without properly doing my research and homework. As a result, the job turned into a disaster with a 9 month time over-run.  This contractor under-bid all the other contractors we were interviewing, and we awarded them the job.  We put together a contract, scope of work, Insurance indemnification, and payment schedule.  Sounds good so far. Well, here is what happened.

The contractor kept asking for more money than what was on the agreed payment schedule, and after 3 months I had paid the contractor 80% of the entire budget with only 25% of the work done.  The contractor started falling behind with one excuse after another, claiming problem after problem. After each inspection, they would ask for more money to fix the new problems.  After I asked for all the paid receipts, the contractor ignored me.  They wouldn’t return my phone calls, or emails, I knew the contractor was going to skip out on the job with the money!

The contractor was gone with over $63,000 of rehab money with only 25% of the work done!  I was screwed!  So let’s go over the pitfalls so you don’t make these mistakes. All the signs were there. I should have known!

There are six critical documents you need to have the contractor sign immediately, before any payments are made:

  1. Independent Contractor Agreement (Make sure it is reviewed by an attorney.)
  2. Final Scope of Work (Line-item by line-item, with part numbers)
  3. Payment Schedule with 25% hold-back for last payment
  4. W-9 IRS Form
  5. Insurance Indemnification Form, with you as a loss payee, and Workers’ Compensation Insurance
  6. Final and Unconditional Lien Waiver

Let’s avoid pitfalls:

  1. All changes must be in writing and signed by both parties.
  2. Before any payments are made require copies of receipts.
  3. Make sure you have a Release-of-Lien signed before making the final payment.
  4. DO NOT get involved running errands for the contractor.
  5. If the contractor runs into problems and asks for more money, make them turn in change orders listing materials and labor.
  6. If the contractor takes on another job, and your project starts slowing down, make sure you put in a penalty on a per diem
  7. Make sure the contractor shows up daily to the job site.

Unfortunately, no matter how experienced you are, and how many rehabs you have done,  even a contractor you have been using can turn on you and make you and your project miserable.

Use the 6 critical documents I have listed, and make sure you use written Change Orders. Sign off on everything.

Hope this article helps you to avoid the pitfalls that can be very costly.

Gary Massari CEO of REI Fortunes, https://reifortunes.com

Bruce Kellogg, Real Estate Consultant

IS IT POSSIBLE TO INVEST IN REAL ESTATE PART TIME?

By Glenn Mananeng

Real estate investing is a great way to build wealth. This is an opportunity to invest your savings while working, studying or just enjoying life with family and friends as a passive investor and spending minimal or spending more time on projects as an active investor. This surely is a big decision; therefore, you need all the pros and cons from experienced individuals in the real estate industry.

New investors often find themselves lacking in time or resources to commit 100% in the business, leading them to ponder if it’s possible to do it part time. But is it possible though? Short answer, of course it is! Allow us here at Unique Wealth Education to show you the pros and cons of real estate investing.

PROS

Supplementary income – If you have another job on the side, you basically have two sources of income. This gives part time investors the advantage of having steady cash coming in while your real estate investment is generating cash flow or appreciation.

Fallback career – Part time investing lets you test out the waters. As good as it may seem, no industry is perfect and some have more risks involved compared to others, especially if you don’t have a mentor guiding you. Your investment properties will generate the income by itself and you can continue your current job. A win-win situation if you ask us!

Brand new network – Since you’re doing this part time, you probably have someone working with you. This gives you the opportunity to meet up with clients and fellow investors who can share valuable experiences. You might even pick up life lessons that will help you in other aspects along the way.

Flexibility – If you decide to have your investment driven by a reputable property management company with a reputable track record, you can go on your with your daily routine and agree on a convenient time to address any questions/issues. This is the case with many investors and it works out great.

CONS

Time-consuming – If you are a landlord, handling two jobs isn’t easy, especially if you decide to oversee your investments, such a rental homes (depending on the # of properties/units) without the expertise of a property management company. Dealing with the issues of getting a qualified tenant, maintenance issues that arise, and bottom line keeping your property rented continuously is a job.

Avoiding bad deals – If you are flipping, it is crucially important to be able to locate and asses properties in the right location, that has either a high rental demand or saleability. This is something that you can learn by being around experts that can help you assess the property by using current and future projected market data, a proforma and specific strategies. You will lose a lot of money if you buy in the wrong location and use the wrong (highest or wrong comparables) comps.

Not having a reliable construction contractor that can give you an accurate bid for the renovations prior to the purchase, can really hurt you if your budget is off. This is why investors (wholesaler or fix and flipper) should learn how to roughly budget the cost of renovations, as you never want to have the fate of my investment put into 1 contractors hands.

Lastly, weather your renting or flipping, have the right finishes. Take great pictures (before and after) when the project is completed, try to time the listing between school years which is the hottest selling and rental season.

By now, you probably realized that doing this part time or not, you need guidance from experienced real estate investors. Real estate investing can demand a lot of work part time or full time and this is particularly true when you have multiple properties already. Here are a few tips to do it effectively:

Find the right niche

You’re going to have to look into a strategy that has a more hands-free approach. It can get hard to choose from a vast array of real estate strategies out there. You only have a limited amount of time to commit therefore try looking into one what works for you and stick to it. The more you familiarize and master that particular niche, you’d be surprised how much less time you’re able to spend to produce results.

Generate leads

Focusing on lead generation can score you with the best deal in the real estate industry. Setting at least an hour or two a day (preferably at least 20 hours a week) marketing your business to generate leads can be a good start. Just a reminder, you have to understand that not all goods leads convert into successful deals prompting you to work even harder. You can ask around for suggestions to an effective lead generation program that can help you have a source of qualified leads and help yourself to a lot of data that meets your business criteria.

Expand your network

You need to have a network of professionals in real estate. Investing in this industry is a “people” business. You need to work with different types of people such as buyers, sellers, loan officer, mortgage brokers, appraisers, and the list goes on. Each person can provide a link for you to build a strong network.

Find a reputable mentor

Even the best investors were under the tutelage of a mentor. Joining a real estate team or finding a partner who does investments full time can provide insight and many benefits. These professionals are experienced, they know amazing deals. Factors like the right time to buy or sell, managing any risks that may come along the way, and increasing your chances to close the deal is a daily routine for them.

MORE INFORMATION:

Unique Wealth Education has a broad network of individuals who share the same passion in the real estate business. To help you expand your knowledge about the industry and be involved with professionals who are already active in the business, we invite you to our monthly meetup every first Thursday of each month. To learn more, call (734) 224-5454 or email us at [email protected]

Why Choose Probate Investing?

By Sharon Vornholt

Probates have been my #1 source of leads for more than a decade.  I love working with probates, however that’s not true for all investors.  The reason this niche is so good is because you will never run out of leads, and the heirs almost always need to sell the property.  It’s usually just a question of whether it’s a “pretty house” that will be listed (listen up Realtors), or it’s an ugly house needing repairs and updates that will be sold to an investor.  It’s a pretty straight forward choice in most cases.  Whether it’s a pretty house or an ugly house, there is so much opportunity here.

Why Do Investors Shy Away from Probates?

I think there are 2 main reasons investors are reluctant to work in the niche of probates.

1. First of all, they just don’t understand how the probate process works.

Investors think that they have to know a lot of legal stuff which just isn’t true. Since probate is a legal process, you do need to have a basic understanding of the probate process and the steps involved. Specifically, you need to know when the house can be sold.  One other thing that will help you tremendously is being familiar with the terminology used in probate.  Knowing these two things will allow you to show up as the “expert” to help them with their problem which is an unwanted house.

2. The second reason is that their mindset holds them back.

Probate investing isn’t that much different than other niches in real estate, particularly when it comes to off-market deals. There will be things you need to learn that are unique to that particular niche.

Because the property is part of an estate, it makes a difference in the way people feel about it.  Investors often feel like it’s creepy working with probates. Or they feel like they are taking advantage of someone at what is undeniably one of the worst times of their life when they make a low-ball offer.  They feel guilty even when it’s a fixer-upper that needs a lot of work.

It’s important to understand that it couldn’t be further from the truth.  In almost every case, the property must be sold before the estate can be closed.  That means that the heirs have to take care of the business of settling the estate, before the they can collect what they have inherited.

Here is the main thing to remember about probate; this is a great niche for investors because the heirs almost never want the house.  They just want the cash sitting in that property. This is also a very profitable and untapped source of leads for Realtors. In a seller’s market like we’re in now, a large percentage of those properties will likely be listed on the MLS. I’ve been doing this a long time, but I don’t know of a single Realtor in my area that specializes in probate property. As I said before, there is so much opportunity for both real estate investors and agents.

Showing Up as the Expert

Remember that marketing is how you get leads, and branding is why they choose YOU.

When you are able to show up as the expert to talk to a motivated seller, they will choose you over the other investors every single time because of your knowledge about probate.  The seller will be able to identify with you. They will also be confident they’ve made the right decision because they view you a trusted expert.

Armed with your knowledge about probate, all your marketing will get better results because you will have built a rock-solid brand around your expert status.  You begin this whole process by changing your mindset.  That’s the first step. Then once you have learned the terminology, you know the steps in the probate process, and you understand how to market to these folks, I can promise that you will be light years ahead of your competition.

 

Sharon Vornholt

Sharon Vornholt is the owner of Innovative Property Solutions, LLC in Louisville, KY.

Sharon owned and operated a successful home inspection company for 17 years. She began investing in real estate in 1998 and became a full time real estate investor in January of 2008.

Sharon specializes in wholesaling, and is also an experienced landlord and rehabber.

In addition, Sharon is an internet marketer and also writes articles for several national real estate sites. Sharon is the author of a popular real estate blog called the “Louisville Gals Real Estate Blog”. For your FREE REPORT “Probates and Absentee Owners: Your Fast Track to Real Estate Riches”, stop by her blog at: http://LouisvilleGalsRealEstateBlog.com.

To find learn how you can become the probate expert in your area, check out my course, Probate Investing Simplified

 

How Much Of A Threat Are Zillow & The New iBuyers?

By Fuquan Bilal

A new breed of iBuyers have their sites on transforming and taking over the real estate industry. How much of a threat are they really?

Hundreds of millions of dollars are being thrown into this new real estate strategy, and some of the most powerful companies are behind it. Should smaller real estate investors be worried?

The Rise of the iBuyer

‘iBuyers’ are the new name given to online home buyers who promise owners and sellers a quick transaction. The pitch is generally a cash offer and fast closing. While there are many small wholesalers across the country which may fall into this category, most notable are the big giants.

Zillow has moved into this space with its Zillow Offers program. Opendoor has attracted hundreds of millions of dollars in investment capital from funds like Softbank. Opendoor has also partnered with brokerage Redfin to buy up homes. Offerpad has partnered up with Keller Williams. Opendoor has also partnered up with home builder Lennar to promise a seamless transaction to cash in your old home and upgrade to one of Lennar’s newly built homes.

Buying the Business & Manipulating the Market

Zillow is notorious for losing billions of dollars in attempts to buy up different segments of the market. Their plans call for very slim margins and fast house flips. Opendoor smells a lot like other Silicon Valley startups which may be happy to lose a lot of money to push their competition out of the market.

Zillow is particularly worrisome due to how much influence they have over perceptions of home values. It’s easy for them to manipulate prices down when they want to buy, and up when they want to sell.

When you have a billion dollars to blow, it is pretty easy to artificially influence market prices in a given area and drown out the competition.

It’s something to watch.

Threat to the Economy

Perhaps the biggest threat these giant iBuyers present is to the housing and financial markets and the economy in general. While they may not yet be buying more than a few thousand properties each year, if they fail, they could leave many properties in foreclosure, cause huge losses for their investors, Wall Street and stockholders, and help vaporize billions of dollars from the economy.

These companies do not yet seem to have the experience to do this well. Their margins are slim. They could get stuck with a lot of inventory. Of course, this could be a great thing for those looking to buy up real estate in bulk.

Are iBuyers a Threat to Smaller Investors?

These giants may be of more help to smaller investment firms and individual investors than most realize.

It is true that they have a lot of advertising power and they may be happy to overpay for properties and can afford to outbid you. Yet, there is still a lot of room for everyone else.

To start, they are normalizing this form of buying and selling houses, which is great for everyone else.

So far the data shows that around 50% of offers they make are turned down by sellers. Plus, they charge hefty fees for the privilege of selling to them. Often 7% of the sales price or more. They still haven’t fully automated, meaning the process is much more traditional, involving inspections and Realtors, than they let on. Many sellers are going to be resistant to the fact that companies like Zillow are going to low ball them, and then put the listing on their own site for a profit the next day.

More significantly, these giants are moving slow. They are only in certain cities. Their buying criteria is pretty narrow. That leaves a lot of units for others to buy up. They may be generating a massive amount of Realtor leads in this way, but smart investors can leverage this noise to their own benefit.

Lastly, these iBuyers could become major buyers of your own real estate product too. Find the deals at the right prices and instantly flip them to Zillow and Opendoor.

It’s all about knowing who is in your market, what they are buying and for how much, and how you can use that to your own advantage.

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund

Fuquan Bilal

Fuquan Bilal founded NNG in 2012 with the principal mission of capitalizing on the growing supply of mortgage notes in the interbank marketplace. Mr .Bilal utilizes his 17 years of residential and commercial real estate success to identify real estate opportunities and capitalize on them. To date, he has successfully managed three private mortgage note funds that primarily invest in singlefamily performing and non­performing mortgage notes. His financial acumen and proprietary set of investment criteria enable him to purchase underperforming real estate assets at a deep discount of face and market values, thereby increasing the value of the assets. This, coupled with his ability to maximize the use of leverage, enables him to build strong, secured portfolios with solid passive income flows.

Generational Opportunities For Creating Cash & Wealth In Real Estate

Featuring Gerry Guterman 

The real estate market cycle appears to have come full circle again. This is one of those moments in which many will go broke, while others achieve substantial leaps in their wealth and incomes. It’s all about knowing how to take advantage of the market and the negligent moves of others.

While there are plenty of real estate investors still blindly and bullishly thrashing away in the market, and many uneasily eyeing where things are headed from the sidelines, the truly experienced are stepping in with predictable investment strategies. They see the same careless blunders being made by many of the same characters. They know where the market is going. They see the big opportunities to buy smart and convert assets into cash.

Where We Are in the Real Estate Cycle Now

It’s not rocket science. It’s no longer a closely guarded secret that only a few have the data on. All real estate professionals really need to do is look back at what was happening in 2005 to 2010. Then compare that to what’s happening around them today. You’ll see the same glaring mistakes.

Interest rates are going up, lending is tightening, oversupply is becoming an epidemic and too many people are paying too much for units that aren’t really a good fit for the market.

There are really only one of three choices to make in this phase of the market:

  1. Keep blindly investing and hold on as the sinking ships go down
  2. Do nothing and miss out on the best asset prices
  3. Replicate the successes of the biggest winners in similar historical cycles

Gerald (Gerry) Guterman and his firm sold out all of their real estate assets in 2006. They did it again in 2016. Since 1978 they’ve delivered 58.3% returns to their investors. Now Guterman Partners is in acquisition mode again.

Experience is Everything

Guterman Partners has managed almost 100M rentable square feet of real estate since 1969.

Among the buildings and locations they’ve been involved in that you may recognize are:

  • Galt Towers, Fort Lauderdale
  • Gramercy House, New York
  • Sutton Tower, New York
  • Ibis Club Apartment, Naples
  • Memorial Building, Houston
  • The Stanhope, New York

Gerry who is Senior Principal Partner and Chief Investment Officer at Guterman Partners has what is probably one of the strongest resumes in the business when it comes to being a sought out industry expert as well.

This includes being a guest lecturer at Cornell University. Being the founding benefactor of several charitable organizations and medical research facilities. Plus trusteeships and directorships with the Metropolitan Museum of Art in New York, New York City Opera and Dallas Opera, as well as The Rent Stabilization Association of New York.

On an international level Gerry has been Chairman of the Committee on Banking and Finance at the United States Center for Strategic and International Studies in Washington, DC. He has been an advisor to the governments of Romania and Austria.

So, if anyone has the depth and breadth of experience to really understand what’s going on in the market, and the track record of knowing how to manage real estate assets during these times, Gerry is definitely up there at the top of the list. We were hugely blessed with the opportunity to catch up with him for an exclusive interview and his take on what’s happening now.

Once Again, Generational Real Estate Opportunities

Gerry recently published the latest of his white papers covering the state of the market, and where he sees the opportunities now.

Among the current challenges he tackles in his report are:

  • The increasing number of rental to condo conversions
  • Reducing value of condominium units
  • Cash flow problems due to rising costs and rates
  • Difficulty in refinance for developers
  • Over-leverage by builders
  • Lack of product to market fit
  • Reluctance of lenders to provide more debt
  • Oversupply of luxury condo units

What this all leads to is that many of these developers are sitting on a huge amount of inventory. Inventory on which they can’t really reduce retail prices on themselves. While they are facing more cash flow crunches and challenges in restructuring debt. In some cases individual developers in NYC are sitting on 1,000 or more unsold units. They need out.

It’s a repeat of 2004 to 2008 all over again.

Though when the same problems show up, the same opportunities for creating great cash and leaps in wealth arise too.

Strategies for Taking Advantage of the Current Market

Gerry told us his firm currently sees opportunities in:

  • Medical offices
  • Retail strip plazas
  • Family sized apartments

This is of course restricted to certain states and markets. Most notably outside of some of those facing some of the most fierce political and regulatory uncertainty at the moment.

Among Gerry’s favorite strategies in this phase of the market is bulk buying of condo units. For example, 80 or so units at a time. Those units are converted or resold. Typically within 19 months.

3 Big Differentiators

Three things that Gerry tells us have really helped the firm continue to excel include:

  1. Making your money on the day you buy
  2. Focus on demographics and market fit
  3. Focus on the wife as the decision maker

Gerry says you don’t make a dollar on the day you sell. It’s all about what you are buying at. Guterman Partners targets prices of 45 to 55 cents on the dollar. That gives them plenty of room to absorb market fluctuations and to move units fast at a discount from the original list price, while still enjoying hefty profit margins.

However, not any product will do. It has to be desirable to the consumer. He says many speculators, converters and developers have had no interest in doing any homework on what consumers really want. They may put up stylish buildings. Yet, there aren’t many families who are really trying to move into micro-apartments in some of the better neighborhoods of Manhattan. He adds that you also have to consider who the real decision maker will be and what is most important for them. That often includes size of the unit and security features.

Guterman Partners is now raising capital for its 47th year. The current fund is a 506c offering for accredited investors, which pays out a cumulative preferred return of 7% to 12% and 50/50 split of profits.

Find out more about the new fund, the firm’s track record and Gerry’s white papers on the outrageous pricing of real estate, the tricks funds are using to try to get investors to accept lower returns, and the rules to successfully investing in real estate at GutermanPartners.com.

Where The Mortgage Notes Are Now

By Fuquan Bilal

Where are the mortgage notes for investors now?

The last few years saw some compression of yields and increased challenges in finding profitable notes and attractive returns for investors. There are deals out there, and there could be many more coming up, if you know where to look.

Biggest Multifamily Servicers

Multifamily loan originations have been setting new records over the past few years. For those seeking to tap into bulk pools of notes, these are the largest commercial loan services in the multifamily space now.

  1. Wells Fargo $682B
  2. PNC $655B
  3. Keybank $273B
  4. Berkadia $268B
  5. CBRE $208B

New York

Every real estate market in America is unique. Each is at its own phase in the larger cycle and has its own dynamics. New York unfortunately, appears to have fallen over a cliff into a new mess.

In the long run people from all over the world will always want to live in NY. Yet, whether it is crazy new mansion taxes, transfer taxes, sky high and rising property taxes, and taking away tax breaks, or overbuilding and lack of fit for the market, certain segments of the Empire State’s real estate market seem to be in free fall mode.

Retail vacancies are turning once popular shopping strips into apocalyptic looking ghost towns. 25% or more of new condos built since 2013 still aren’t sold. Median residential sales prices have fallen 17% year over year.

Some very big dealmakers have recently lost properties worth tens of millions of dollars to foreclosure. There may be more individuals who decide it is easier to walk away than to stomach owing far more on their homes than they are worth. So, from commercial mortgage notes to residential ones, there is plenty of opportunity to grab assets and debt at a discount.

Hot Flipping Cities

Watch the cities which have been among the hottest for flipping houses over the past few years. In some cases property prices tripled since 2008, with modest homes going from $50k to being flipped for $150k. There may be some substantial roll back in those prices coming. Those stuck with inventory may present prime opportunities for acquiring the property or debt at a discount.

Many new investors have tried to jump on the house flipping bandwagon inspired by ‘reality’ TV shows. Most new investors struggle with the big learning curve, and make way less than expected. They don’t have the expertise, teams, and systems to do it efficiently and are getting stuck. There will be plenty of private money loans up for sale that are backed by these properties.

The economy we live in is changing rapidly too. We are going through one of the most massive shifts in history. 80% of jobs are changing. Many property owners and buyers have over leveraged themselves in the past few years, and have been relying on outdated industries and jobs to pay the bills. Those who don’t adapt fast enough will lose their homes, unless they are fortunate enough for a new note holder to come along and provide a reasonable and attractive workout.

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund

Fuquan Bilal

Fuquan Bilal founded NNG in 2012 with the principal mission of capitalizing on the growing supply of mortgage notes in the interbank marketplace. Mr .Bilal utilizes his 17 years of residential and commercial real estate success to identify real estate opportunities and capitalize on them. To date, he has successfully managed three private mortgage note funds that primarily invest in singlefamily performing and non­performing mortgage notes. His financial acumen and proprietary set of investment criteria enable him to purchase underperforming real estate assets at a deep discount of face and market values, thereby increasing the value of the assets. This, coupled with his ability to maximize the use of leverage, enables him to build strong, secured portfolios with solid passive income flows.