REAL ESTATE SHORT SALE EXPERIENCE! HOW TO BUY REAL ESTATE USING SHORT SALE? ----------KNOWLEDGEFINANCIAL.COM Due to the sub-prime mortgage crisis and declining real estate prices, many homeowners are finding themselves owing more on their mortgages than their properties are worth and facing pre-foreclosure. So, there are many short sale and pre-foreclosure opportunities for investors these days. Buying a short sale property is a good investment because the properties are purchased at a discounted price. In a short sale, the lender agrees to accept a discounted amount to pay off the loan balance and writes off the remaining amount. The short sale process can take around 90 days or longer so you need to be patient. There are some steps that you need to take in connection with a short sale process: ----------------------------------- Write a letter or call the seller and let them know that you are interested in purchasing their property. This can help them by closing the sale quickly. If you have cash, that’s even better. Also let them know that you would like to talk to them about avoiding foreclosure by doing a short sale and why the short sale is a better alternative for them. Once the seller is receptive to a meeting, you can explain in more detail the short sale process and the benefits to the seller of not ruining their credit and losing the property to foreclosure. If the seller is interested, then you and the seller will need to decide on a purchase price. -------------------------------------- It is a good idea to have the seller contact the lender or give you authorization to contact the lender to find out if the property qualifies for a short sale first. Many lenders will not discuss the process until a notice of default has been filed on the property. You don’t want to waste time on the transaction if the lender is not receptive. If the property does qualify for a short sale, then once you have the property under contract, you need to present a short sale package to the lender for their approval. The lender must approve of the short sale before the transaction can close. Short Sale Packages You may want to hire an attorney to help you with the short sale process or you can do it yourself. Your short sale package should always include the following items: An executed letter of authorization from the seller advising the lender that you are the seller’s authorized representative and authorizing the lender to release any information about the seller’s loan to you. A preliminary Net Closing Statement. -------------------------BUY AND SALE HOMES AT KNOWLEDGEFINANCIAL The preliminary closing statement is referred to as a HUD-1. It can be prepared by you or your attorney or a title company. I suggest you use a title company or an attorney to do it for you if you have never prepared one. A hardship letter stating the financial reasons why the seller can no longer make their mortgage payments. The reasons could be because of a job loss, illness, divorce situation, etc. ----------------------- Always include a comparable market analysis prepared by a Realtor® which shows the current active, pending, and sold listings in the area similar to the subject property. The information should be current and no older than 90 days given the current market conditions. A copy of the accepted purchase agreement signed by you and the seller. -------------------- A copy of any real estate brokerage commission agreements. -------------------KNOWLEDGEFINANCIAL.COM FHA or Federal Housing Administration properties require an application to participate and FHA Counseling Certification. If you need further information, you should contact HUD. For Veterans Affairs (VA) properties, you must submit a Compromise Sale Package. For more information, contact the U.S. Department of Veterans Affairs. The seller’s W-2 or 1099 tax information for the last two years and bank statements. The lender will need to approve both the sales contract and the broker commission agreement. ------------------------------------------KNOWLEDGEFINANCIAL.COM Short Sale Tips Follow up with the lender within 3-5 business days after submitting the short sale package. Call the lender’s loss mitigation department first until you reach the person who is in charge. Meet with the appraiser to determine the price that the bank will accept. [Note the rules regarding selection of lender appraisers may be changing soon due to new regulations that have been passed by Fannie Mae and Freddie Mac. Check the Fannie Mae or Freddie Mac websites to find out more about the new rules.] Once the lender accepts your offer, you can make your closing arrangements. Have your financing or cash ready to close quickly. Keep in mind that not all lenders are willing to accept short sale transactions. You may have to walk away. However, if you are really interested in purchasing that particular piece of property you can track it and wait until it goes to foreclosure auction or becomes a bank-owned foreclosure (REO). Lenders are more willing to negotiate with REO’s than short sales. Once the property is on the lender’s books, they are more anxious to get rid of it because they are not in the real estate business. Right now lenders have many foreclosure properties in their inventory, so you can find favorable investment opportunities. --------------------------------------------------------BUY AND SALE HOMES AT KNOWLEDGEFINANCIAL.COM WHAT IS REAL ESTATE INVESTMENT TRUST {REIT'S} A Real Estate Investment Trust or REIT is a tax designation for a corporation to invest in real estate and either reduce or eliminate corporate income taxes while offering investors high yelds of return, as well as liquid methods of investing in real estate. REITs are required to distribute 90 percent of their income, which may be taxable to their investors. REITs that distribute all of their income generally pay no corporate tax. REITs were structured for real estate investments to be similar to mutual funds for stock investments. REITs can be publicly or privately held. Public REITs can be listed on public stock exchanges like shares of common stock. REITs can be classified as equity, mortgage, or hybrid investments. Equity REITs, which are the most common type of REIT, invest in or own real estate and make money for investors by collecting rents from the real estate. Mortgage REITs lend money to owners and developers, or they invest in financial instruments secured by mortgages on real estate. Hybrid REITs are a combination of equity and mortgage REITs. Since real estate offers investors diversification, investors have different options to consider. You can own real estate directly or invest in REITs. If you are going to invest in real estate ownership directly, keep in mind sometimes values go down. However, most real estate appreciates in value if you keep it long enough. Another thing to keep in mind about owning real estate is that real estate taxes eat into your profits. Also, as a real estate owner you constantly have to worry about physically maintaining the property or hiring someone else to do it. REITs give investors the advantage of purchasing shares of a real estate investment trust or investing in a mutual fund that specializes in public real estate, which means the investor does not own the real estate directly and avoids the worries, hassles, and costs of a property owner. The types of real estate that REITs invest include shopping centers, office buildings, apartments, warehouses, and hotels. For instance, many REITs invest specifically in one area of real estate like shopping malls. Other REITs may only invest in a specific region, state, or country. Investing in REITs is a way of receiving liquid dividends by participating in the real estate market. Many large financial institutions, insurance companies and banks have formed real estate investment trusts as well. And their stocks are traded on the security exchanges Generally, REITs are considered more desirable investments than Limited Partnerships. As you can tell, REITs offer clear advantages to investors and should be a part of any successful investment portfolio. Source: ------------------------------------------BUY AND SALE HOMES AT KNOWLEDGEFINANCIAL.COM THE ADVANTAGE OF OWNING REAL ESTATE IN A TRUST Retirement and the security of our future is a major concern to most today and at a much younger age than in the past. There are many options individuals and couples are choosing as a way to ensure a financial future. Some are still choosing to keep their money in savings accounts and certificates of deposit while others are investing in stocks and bonds. While each of these options gives the investor some sort of income, many are also choosing to invest in real estate. One of the most common forms of real estate investments are real estate trusts. The advantages of owning real estate in a trust are numerous. There are also different types of real estate trusts you can participate in. One type of real estate investment is an irrevocable living trust. When a homeowner dies, real estate must generally go through the probate court in the state where it's located. This can often take months. Putting real estate in an irrevocable living trust helps to avoid this sometimes long probate. When real estate is in an irrevocable living trust, the owner can live in the home until s/he dies but the real estate is titled in the name of the trustees of the trust, which are usually the survivors. By using an irrevocable living trust, the property is deeded to the survivors without having to go through probate. There is also a $25,000 ad-valorem property tax exemption on an irrevocable living real estate trust. This is just one of the advantages of owning real estate in a trust. Another form of a real estate trust is real estate investment trust, also known as REITs. REITs are a tax shelter for corporations that own real estate because while they are earning income, the REIT helps them to eliminate or decrease the corporate income taxes. In addition, the trust is required to give 90 percent of its income to the investors of the real estate. Real estate investment trusts can be held privately or publicly. There are three types of real estate investment trusts: mortgage REITS, equity REITS, and hybrid REITS, which is a combination of the two. The most common type of real estate trust is the equity trust, which owns real estate in the trust and provides trustees income through proceeds from rental payments. REITs offer a steady source of income for the trustees. This is why more and more individuals are choosing some form of real estate trust as a main investment source. Yet another advantage of owning real estate in a trust is that real estate trusts add diversity to your portfolio. If all you have in your portfolio are stocks and bonds, which can go up and down, the addition of real estate increases the returns while decreasing the risks. -------------------------------------------- KNOWLEDGEFINANCIAL.COM ADVANTAGE OF REAL ESTATE INVESTMENT real estate investment also has its benefits. In terms of leverage, real estate is the far superior investment. Leverage means the capacity to use other people’s money, to include other investors in your acquisition of property. You can, of course, invest other people’s money in stocks, but it is harder to do and less reliable. Investors are more willing to invest in a property or a well-defined development project where they receive tangible results and returns. With greater likelihood of obtaining investors to collaborate with you, the possibility for investment expands, and you can invest more money in more properties and receive greater returns this way. In terms of taxes, real estate investing allows more tax deductions than stocks do. For real estate investments, you can deduct mortgage points and any money you spend in advertising, vacancies, or maintenance from your taxes. Capital gains vary from 5 percent to 25 percent and depend on how long you own the property and on your income tax bracket. By contrast, stock expenses are not deductible, and the government will take 15 percent off the top of your profit when you sell. Every form of investment has its benefits and drawbacks, but real estate investing has proven to be consistently reliable and more profitable in the long-run for those who commit to it.