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Posted on: 04/14/2008 Posted by: stevebuyshouses Blog Points: 856 View all blogs >> |
I have done a portion of the wholesaling stuff already so we will go to “flipping” or as I call it retailing.
Alright, what is the number one American dream? To be skinny right (just kidding)? No not really, to own a home. The first time homeowner, our favorite client. This is the standard “flip this house” model of business, but I have some strong opinions here.
First of all like when we talked about goals, you must know how many houses that you can buy and how long you can hold them. With this being said that is the first order of business before the whole buying and selling even starts. So we are going to assume that you have been paying attention and have the whole finances part straight and go straight to the goods.
I think it is important to discuss the best part of the market to sell to when you are talking about retailing.
I like to look at this two different ways; first is median home price and second is via median income for the area. The median priced homes in the area are the easiest way to figure out your strike point. I have found that the part of the market that is best for us as investors is the 60-100% of the median priced homes. There are quite a few reasons, but part of it is that you have to have enough equity in a house to be able to accept a 65% offer. That is the biggest, but also that part of the market is the “starting point” for most families. This tends to be the portion fo the market that is also most susceptible to the problems of general life; foreclosure, financial issues, layoff from work, etc. Any part of the market can experience these things but at this price point in the market it has a bigger effect.
Where median income is concerned it is important to note that the price of the mortgage payment is the key to making sure that you will have a buyer. In the current market affordability is the key to fast sales, heck who am I kidding, affordability is the key in any market. If you know the median income of your area you can work backwards to the affordable price point as well.
It is important to note here that since the shutdown of subprime lending, one of the only methods of financing for first time homebuyers is FHA. FHA insures loans issued by banks. Right now they don’t make loans, they just insure them, and therefore stipulate to programs for lending. The number one requirement is 90 days of seasoning, meaning the amount of time that the sellers has owned the house is at least 90 days. So on the 91st day you can sign a contract to sell to your buyer. The house must be finished to FHA standards and be appraised by a certified FHA appraiser. The rest is up to the buyer’s qualifications. The key in getting a buyer qualified through FHA is that there are not any late payments in the last 12 months. This is the main reason a buyer will be denied. There must be 3 trade lines that are reporting, unless you use manual underwriting. I strongly suggest using a lender that will do manual underwriting. The main difference is in the trade lines, in manual underwriting they will accept alternate trade lines for the three that are required. For example you can use rental history, a power bill, and a car note for your three trade lines. The next sticking point for FHA is debt to income ratios. Standard for FHA is 25% on the payments, interest, insurance, and taxes for the house versus the income of the buyer, or 43% total DTI up to 50% in some special instances. That is the majority of the requirements for the buyer, and of note there is not a credit score requirement. Once these things are fulfilled, remember that the seller can contribute up to 6% of the sales price toward closing costs, but the buyer must put 3% down minimum into the deal. There are currently accepted down payment programs for FHA buyers, but those are on the way out. You must note that the down payment of the 3% is to be from the buyer or can be in the form of a gift but it is sourced and seasoned either way. This means that they will want to know exactly where the funds have come from and how long they were there. This is to prevent the seller from contributing more than the 3%.
My suggestion is to capitalize on the lack of subprime lending and take advantage of the FHA option that we have available right now. This gives us an advantage in the market versus the average seller that will not allow for 6% sales concessions.
So what is the process? You want to attract motivated buyers to be able to sell your houses, just like to buy them you want motivated sellers. That being said I have used very simple advertising to attract these buyers for years. We use ads like this;
123 Elm St. Rent 2 Own
3/2 in W. Mobile newly renovated
Call xxx-xxxx
Or
123 Elm St. First Time Homebuyer Special
3/2 in W. Mobile newly remodeled
Call xxx-xxxx
You can also include phrases like “all credit considered”, and “let us pay your closing costs”. I have also been rally successful with a “why rent when you can buy” program. I have found that the best response is from the rental area of the newspaper. You want to attract people that are looking to rent, but may qualify to buy.
So I start marketing the house first, as soon as the outside is complete, in fact it is important to start as soon as possible. Once I get interested parties I will then set up a time to meet either at the property or at a my office. If you do not operate out of an office, I think the best plan is to talk to each of the people that call off of your ad and take down a phone number. Set a time for a open house twice a week and let the potential buyers know that you will be out there from 6-8 on Thursday night and from 10-12 on Saturday, or some version thereof. Make sure you make a call list to call each of your potential buyer and remind them the day of the open house.
Realize that I am not downing realtors at all, however I do believe that you as a investor should have a higher interest in selling your own houses aggressively than someone without an interest in the deal. Also remember what a realtor does when they market the property, not even talking about the ones that don’t even attempt to sell the house, but they attract and keep all of the potential buyers. Think of how much more powerful your business would be if you had control of the qualified buyers that you attract from the advertising of your house. If you already have a potential buyer for a certain type of house in a certain part of town, how much easier is it to get that next house? Is it even a real “risk” if you know you have a buyer already? You can’t do that if the realtor has the buyer, but you can if you do.
Alright, what is the number one American dream? To be skinny right (just kidding)? No not really, to own a home. The first time homeowner, our favorite client. This is the standard “flip this house” model of business, but I have some strong opinions here.
First of all like when we talked about goals, you must know how many houses that you can buy and how long you can hold them. With this being said that is the first order of business before the whole buying and selling even starts. So we are going to assume that you have been paying attention and have the whole finances part straight and go straight to the goods.
I think it is important to discuss the best part of the market to sell to when you are talking about retailing.
I like to look at this two different ways; first is median home price and second is via median income for the area. The median priced homes in the area are the easiest way to figure out your strike point. I have found that the part of the market that is best for us as investors is the 60-100% of the median priced homes. There are quite a few reasons, but part of it is that you have to have enough equity in a house to be able to accept a 65% offer. That is the biggest, but also that part of the market is the “starting point” for most families. This tends to be the portion fo the market that is also most susceptible to the problems of general life; foreclosure, financial issues, layoff from work, etc. Any part of the market can experience these things but at this price point in the market it has a bigger effect.
Where median income is concerned it is important to note that the price of the mortgage payment is the key to making sure that you will have a buyer. In the current market affordability is the key to fast sales, heck who am I kidding, affordability is the key in any market. If you know the median income of your area you can work backwards to the affordable price point as well.
It is important to note here that since the shutdown of subprime lending, one of the only methods of financing for first time homebuyers is FHA. FHA insures loans issued by banks. Right now they don’t make loans, they just insure them, and therefore stipulate to programs for lending. The number one requirement is 90 days of seasoning, meaning the amount of time that the sellers has owned the house is at least 90 days. So on the 91st day you can sign a contract to sell to your buyer. The house must be finished to FHA standards and be appraised by a certified FHA appraiser. The rest is up to the buyer’s qualifications. The key in getting a buyer qualified through FHA is that there are not any late payments in the last 12 months. This is the main reason a buyer will be denied. There must be 3 trade lines that are reporting, unless you use manual underwriting. I strongly suggest using a lender that will do manual underwriting. The main difference is in the trade lines, in manual underwriting they will accept alternate trade lines for the three that are required. For example you can use rental history, a power bill, and a car note for your three trade lines. The next sticking point for FHA is debt to income ratios. Standard for FHA is 25% on the payments, interest, insurance, and taxes for the house versus the income of the buyer, or 43% total DTI up to 50% in some special instances. That is the majority of the requirements for the buyer, and of note there is not a credit score requirement. Once these things are fulfilled, remember that the seller can contribute up to 6% of the sales price toward closing costs, but the buyer must put 3% down minimum into the deal. There are currently accepted down payment programs for FHA buyers, but those are on the way out. You must note that the down payment of the 3% is to be from the buyer or can be in the form of a gift but it is sourced and seasoned either way. This means that they will want to know exactly where the funds have come from and how long they were there. This is to prevent the seller from contributing more than the 3%.
My suggestion is to capitalize on the lack of subprime lending and take advantage of the FHA option that we have available right now. This gives us an advantage in the market versus the average seller that will not allow for 6% sales concessions.
So what is the process? You want to attract motivated buyers to be able to sell your houses, just like to buy them you want motivated sellers. That being said I have used very simple advertising to attract these buyers for years. We use ads like this;
123 Elm St. Rent 2 Own
3/2 in W. Mobile newly renovated
Call xxx-xxxx
Or
123 Elm St. First Time Homebuyer Special
3/2 in W. Mobile newly remodeled
Call xxx-xxxx
You can also include phrases like “all credit considered”, and “let us pay your closing costs”. I have also been rally successful with a “why rent when you can buy” program. I have found that the best response is from the rental area of the newspaper. You want to attract people that are looking to rent, but may qualify to buy.
So I start marketing the house first, as soon as the outside is complete, in fact it is important to start as soon as possible. Once I get interested parties I will then set up a time to meet either at the property or at a my office. If you do not operate out of an office, I think the best plan is to talk to each of the people that call off of your ad and take down a phone number. Set a time for a open house twice a week and let the potential buyers know that you will be out there from 6-8 on Thursday night and from 10-12 on Saturday, or some version thereof. Make sure you make a call list to call each of your potential buyer and remind them the day of the open house.
Realize that I am not downing realtors at all, however I do believe that you as a investor should have a higher interest in selling your own houses aggressively than someone without an interest in the deal. Also remember what a realtor does when they market the property, not even talking about the ones that don’t even attempt to sell the house, but they attract and keep all of the potential buyers. Think of how much more powerful your business would be if you had control of the qualified buyers that you attract from the advertising of your house. If you already have a potential buyer for a certain type of house in a certain part of town, how much easier is it to get that next house? Is it even a real “risk” if you know you have a buyer already? You can’t do that if the realtor has the buyer, but you can if you do.
