No Shadow Inventory!!??…This Is Big

 I’m sure you’ve heard it….just wait, the second wave of foreclosures is coming!

All of those foreclosures the bank is hoarding, tens of thousands of them, just waiting to flood the market…

We’ve been hearing that for over a year now. I’ve never quite bought into it, and what I’ve always said is that this market could handle more inventory than most would think…there is so much pent up demand it’s nuts.

The assumption I’ve never challenged, until now, is that these foreclosures EVEN EXIST!

Take a look at the latest numbers crunched by Sean O’ Toole at Foreclosure Radar.

I have not verified the numbers myself, which would be quite an undertaking, but I do know Sean is one of the sharpest guys I know, and I don’t know how you can argue with the data…basically, sales volume has been so great it is outpacing the numbers of foreclosurs hitting the markets…I’ve been saying that for over a year!…in the mid to late 90’s, it did the exact same thing amongst record breaking foreclosures (I still thought there was SOME decent buildup in the wings).

Now, it’s probably important to point out that there are massive numbers of defaults and foreclosure sales that are hung up…massive…but still, there’s not one person I’ve spoke to that didn’t believe that there masses of foreclosures post sale that were sitting inactive not even being placed on the market.

So, check it out for yourself- the implications are huge for investors, because investors who are waiting to buy may really, really miss the boat….waiting is harmful to your wealth! …cheers! (here’s that link):

I know it’s hard to read, so you can sign up directly to get this report at

http://www.foreclosuretruth.com/blog/sean/september-ca-foreclosure-report-more-shadow-inventory

http://www.ForeclosureRadar.com  it’s free and invaluable info…

Kurtis

Market Is Flipper’s Paradise (almost)

 Howdy.

We just finished putting our Cat City fixer up on the market after a 2 and-a-half week rehab.  By morning, we had two offers, one over full price.  An investor we wholesaled a duplex to just finished his rehab at almost the same time, put his on the market, and has multiple offers on his property as well.  We have a 5 minute quickie video coming soon on how we got this deal, estimated repairs, did the net sheet, and staged it.

68280 Alcita Road, Cathedral City, CA           
(Bought for $65k,  Over full priced offer, listed for $139k)

Kitchen Before

Kitchen After

I think that was the longest gap I’ve gone without writing a blog post in the past 3 years (last one was July)

Part of the reason for this is that we have been so darn busy wholesaling and setting up for a new real estate investor’s association we plan to launch in January (cat’s out of the bag)…the other reason is that, well, not a whole lot has changed!!  We’re in somewhat of a holding pattern…inventory is at a trickle, buyers are getting more and more eager, and as to all that “shadow inventory”…your guess is as good as mine..

…but what I can tell you, the market can absorb A HECK OF A LOT more inventory…

We are still experiencing extremely low inventory, and fresh, remodeled houses are almost non-existant (outside of the flippers of course).  Buyers are becoming frenetic.  This is a flipper’s PARADISE.  If you can score a deal in the first place that is!  (I would rather flip in an environment where it’s tough to get deals but you know they will sell quickly versus the reverse ANY DAY OF THE WEEEK- it’s all about speed and volume).

Still, it’s not all perfect- appraisals are still undoubtedly too low and the 90-day anti flipping, anti-common sense rules for FHA buyers are still in place, creating challenges- but there are so many buyers that a little bit of gumption, a little bit of pickiness and restraint on which buyers you take, and a decent and clean entry level house WILL SELL.

So, we are making a shift in direction with our webinars, blog posts, and instructional stuff- I AM VERY EXCITED TO START COVERING NEW MATERIAL…yes, we still wholesale REOs full time as our living; however, we are on our fourth retail flip (not counting the many, many we rehabbed before the Great Implosion), and it really is fun again…so please stay tuned for a series of brand new webinars and content on:

1. How to get bank foreclosures in a market that gets multiple offers
2. How to get financing from private investors
3. How to estimate repairs
4. How to quickly sell your property for maximum dollars (staging, using online advertising and video, etc.)

Still, it’s important to mention that wholesaling will probably be our primary business model indefinitely because it stabilizes our cash flow and greatly reduces risk…I STRONGLY recommend that if you are short on capital and trying to break into REI, that you learn how to conjure money out of thin air (wholesale your deals)…

The good news is that we are having (what may be our last on wholesaling) a workshop on November 7th and 8th.  We have an early bird special for those who register by Sunday the 18th (save $400)…the event will be in Palm Desert (very close to Palm Springs) and will cover every single thing you need to know to go out and create cash money immediately wholesaling REOs. 

WE ARE GOING TO COVER HOW TO GET DEALS IN A HOT MARKET, IN DETAIL….

For more information and sign up link, go to:

http://www.FarBelowMarket.com/workshop-sign-up.asp

Don’t wait, every one of them has sold out, we keep it small so it can be more interactive.  We hope to see you there….more to come!

Kurtis

Market Update …(and a Hot Tip)

For the past few months we’ve pretty much seen a holding pattern.  Scarcity remains in the marketplace, with multiple offers on bank inventory commonplace.  The other common thread is that appraisals are not doing us any favors,  with overly conservative valuation models making  it tough whether you want to sell OR you want to buy.  Beautiful potential buyer-seller love connections are getting dashed by spiteful lending protocols!

The good news is that it looks like inventory may, MAY,  start to pick up again.  Yes, we have been hearing that for months, but for the “… third consequetive month, foreclosure sales have jumped significantly as lenders come off the moratorium”, according to Foreclosure Radar, the only company that tracks every single foreclosure in California.

Also noteworthy, Notice of Defaults, the first step in the foreclosure process, increased to the second highest level on record, also according to Foreclosure Radar statistics.  However, NOTICES of Trustee Sale, the final step that schedules the actual foreclosure sales have dropped by almost 30%, indicating that lenders are STILL holding back.

What does all this mean?  To me, it means that although lenders continue to hold back, I think we will see a slightly increased number of units finally making it to the market.  It also means that we will NOT get the “tsunami of REOs” that many have predicted…which could work out just perfectly for flippers/wholesalers because it will loosen up our ability to get deals without killing values.

In fact, I really believe a good healthy dose of new inventory will not only help get the wheels unstuck, but contrary to intuition, I think will actually INCREASE values.  Why?…because what is happening is that the lack of comps are contributing to appraisals being low because there are very few “Sold” comparables to prove value, so it’s a bit of a Catch-22; appraisers won’t let values move up without proof, and their low appraisals prevent the proof from materializing.  More inventory combined with these bidding wars would provide increasingly higher “sold” comps, give the appraisers more ammo for raising values, and basically get things “unstuck”….more to come, we’ll keep you posted…in the meantime,

…here’s a little “insider” tip we use to get deals even in this constipated market..
TARGET FAILING ESCROWS!

We always look for opportunity in challenges- and the fact that appraisals make it tough for us flippers to move our finished products is the down side; the flip (pun intended)  side  is that is also makes it tough for FHA buyers to close (btw, I am not for this, FHA buyers being able to close would be a healthy thing for all of us, but if it is a choice between investor buyers keeping things moving vs. the property rotting vacant, then of course we need to jump in and take over until lending practices get their head out).

There are a LOT of pending escrows that should have gone (qualified eager buyers, eager sellers), but again, because of the anal retentive lending practices, these escrows almost go the distance and fall apart at the bitter end…..CALL ON THOSE ESCROWS!!

Here’s the upshot, we’ve always said that the best chance to get deals is through relationships, and that goes double right now.

Calling on “stuck” escrows not only gives you a shot at deals
….BUT EVEN BETTER, IT GIVES YOU AN EXCUSE TO CALL REO BROKERS!

I can’t stress this enough.  When the inventory does give, which we all pretty much know it is a matter of time, the relationships you put into place now will reap rewards later (and very possibly now).  “Pending” and “Contingent” escrows are a great place to start, look them up in the MLS or have your favorite buyer’s agent help you out.

As always, I hope you find value (and profit) in our tidbits, be happy and prosper and we’ll keep you posted what happens next- if you want us to custom find you a deal, email us now at Deals@FarBelowMarket.com.

Kurtis Squyres

http://www.FarBelowMarket.com

http://www.FlipForeclosuresForProfit.com

Lipstick On A Pig

Here’s some inside scoop for you if you are planning a fix n’ flip… Across the board, every one of our professional flipper friends are pulling hair out over hitting appraisals.

Basically, the investors are getting killer deals, fixing them up BEAUTIFULLY, and when they put them back on the market they are getting offers right away (I’m telling you, flipping is fun again, Cindy and I have 2 going).

However, the challenge right now is that the end-buyers out there are actually qualifying for the loans, but the properties aren’t! …What do I mean?

These ludicrous appraisals keep coming back from the ultra conservative banks (NOWWW they decide to get conservative, it’s probably the safest time to lend in 7 years!).

They are comparing freshly remodeled houses against trashed lender owned stuff and being ruthless. A low appraisal means no loan for the buyer…what’s the remedy?

Well, a year ago we said your rehabs had to be really good- top notch- b/c buyers were sluggish, and they needed a GOOD reason to buy your property over the masses…well, buyers are now out in FULL FORCE, and we are seeing multiple offers on just about every good deal. So, what we are experimenting with, is get a killer deal of something that is in horrible shape, and do a clean, adequate job of rehabbing it (you always need new carpet and paint), but don’t go crazy with the appliances and higher end stuff..

..think clean, not glitz….

and put it on the market below the others and shoot for a lower selling price…don’t do a bad rehab, just a low end one- mow the yard, don’t re-landscape everything, see if you can get away with refacing or painting cabinets versus ripping them out, etc. With all the activity out there right now (be sure and confirm that with your area), you should still be able to sell quickly and make appraisal if you keep your end price down….we’ll keep you posted as the market continues to evolve….

Be Happy and Prosper,

Kurtis

Second Wave Of CA Foreclosures Coming

Well, it appears that the results of California State Senate Bill 1137 accomplished what we thought it would, prolong a bad situation.

Bill 1137, what I call the “pull-the-bandaid-off-really-slowly” bill definitely did succeed in delaying foreclosures for a few months. However, it is turning out that the vast majority of the foreclosures are still coming home to roost, just in a delayed manner.

If you were following us toward the last quarter of 2008, we spoke a lot with REO brokers how listings were crawling almost to a halt. We knew it was mostly because of this legislation, but we didn’t know what the end result would be. Now that the moratorium is ending, we have some figures for you – check out this chart of California foreclosures from our friends at ForeclosureRadar.com.

Remember, Notice of Default is the first step in the CA foreclosure process. Lenders must wait 4 months after this is filed to actually foreclose, so there is a big lag time.

Now, if you look at the number of Notice of Defaults (NODs), the number plummeted to under 15,000 in September. By the end of December (following the end of the moratorium) this number was right back up to a new record, 43,000.

So it would appear as though we will be seeing another resurgent wave of foreclosures in 4 to 6 months following these defaults.

Now, there is a difference in what we are going to see in the next round.   Also, if we analyze the types of loans that went bad in the first tsunami, it  seems the subprime paper, the “warheads”,  that led the tip of the missile, are actually “contained” and have mostly worked their way through the system,  according to Mark Hanson of the professional Real Estate & Finance research group.

The new wave is actually alt A, higher grade loans that were a result of property values falling below the loan balance of the homes so even people with good credit had no way out but to rent and hang on or walk…NOT subprime loans…to me that alone is a good sign that we are at least working our way through the oceans of foreclosures.

Also, pending sales (properties are in escrow) continually increase. So we are seeing volume increasing and inventory decreasing.   If you read my past blogs you know that I feel these are much more important indicators than median home prices.

In summary, we will undoubtedly experience a large resurgence in foreclosures over the remainder of 2009, but the price levels we have dropped to have attracted a lot of buying activity and inventory levels are no longer exploding, possibly even decreasing.  We may not have hit bottom, but I personally think that the free fall we have experienced in the past has subdued.  We have historically low prices, low rates, you can cash flow properties in your sleep, and the government is taking pretty extreme measures to make sure that mortgage lending continues…it does not look at this time that home lending will “collapse” any time soon.

Bottom Line:

If you are a passive income investor and you are looking to build wealth, take advantage of these historic low prices, historic low interest rates, and now loosening investor policies (FNMA now allows 5 to 10 investor loans as opposed to 4 as of February 6^th FNMA New Investor Loan Guidelines DO NOT wait to start accumulating properties..in the words of Warren Buffet, “…if you wait for the robins, spring has already come”.  If you haven’t signed up to receive FarBelowMarket.com steals, sign up now on our homepage here.

If you are an active investor looking to generate a living doing real estate, build a business wholesaling investment properties to the passive buyers we just spoke to, do a few retail flips if you have the cash availability (to do retail flips you will need a money partner or SOME cash, hard money is very conservative these days).  Definitely go sign up right away at http://www.FlipForeclosuresForProfit.com for lots of free video on how to flip and wholesale houses.

And both camps should start learning how to use existing financing to build a portfolio of rentals over the next two years, if you don’t I can just about guarantee you will kicking yourself.

Join us for a free webinar on owner financing this March 2nd at 7PM Pacific by registering here:

Register HERE

All Bank Owned Foreclosure Deals Completely Gone!

Just kidding…sorry, that was a dirty trick, but I wanted to make sure that I made a few things clear!

In regards to my last blog post, I had a couple respondents that were a little discouraged because they seemed to think that what I was saying is that bank foreclosures will stop being a source of deals. Another email I received read as follows:

“kurtis you are obviously on the cutting edge and I’ve enjoyed your perspective and opportunities in the past, but you are totally mis-guiding your following with these latest emails. time to get real”.

I appreciate and relish feedback like this, and through clash of ideas and debate we all learn and deepen our knowledge.

However, I don’t think I was entirely clear about my point- I take the blame for being obtuse with my message and I apologize.

First of all, I absolutely, positively, do not think REOs are about to dry up anytime soon, nor do I think they will stop being our primary source of deals anytime soon as well…nor do I think the market is making a u-turn and is about to head back up anytime soon.

Here is what I am saying…in the past decade Cindy and I have now experienced two major shifts where our methods of finding deals ceased to work (in what seemed) overnight…the first time was in 2002 (buying HUD foreclosure went from a booming business to almost completely dry in a matter of months).

Then, after experimenting with a barrage of impotent business models, we went to buying preforeclosures. It was such a hot competitive that it took months more of trial and error for us to start knocking out homeruns again.  Finally, we were knocking the cover off of the ball until, you guessed it, our solid ground gave way once again…in 2006, “Whammo!” …once again easy street went straight off a cliff when preforeclosures with equity became impossible to make a living from.

Let me tell you first hand, when this happens, when something really works well for a few years and you get it really dialed in, and then out of nowhere within several weeks it completely stops working…Well, it’s like being sideswiped by a Mack truck you didn’t see coming, and it is not fun…then the “OMG what do we do now?!” scramble dance begins all over again.  So, I am not trying to be Chicken Little here, we’re more like a skitish antelope in the Serengetti where the slightest shift in wind, the slightest sound, we stop and observe.

If you are a part-time investor throwing offers out there, that is one thing. However, if you are full time wholesaler or rehabber there is something to be said about having more than one source of deals so you will have a backup should things change. This is all I am saying…..and you cannot deny that we are experiencing massive change. It is impossible I think to predict with 100% certainty what the outcome of government intervention will be, and I was not exaggerating about the frenetic buying activity exploding in our area – things are moving and shaking out there.

For the last 2 years we have come to rely almost solely on bank inventory for our deals, we are regularly getting incredible deals; however,  I admit that this time around we ARE hyper sensitive to change …(people also thought we were crazy when we started writing bank offers at the end of 2006).

Although our business is thriving experience tells us to be downright paranoid; we watch the market like hawks and startle at the slightest bump in the night…we are on 24/7 guard duty for you.

So keep those offers going out, keep finding those bank deals, and keep your eyes open for new opportunities but don’t get too complacent if what you are doing works great, because the only thing that stays the same is that things will eventually change…and sometimes they forget to send you the memo first ; ).

Bailout Effects Already Seeing A Result

I have spoken with a few REO brokers now after looking at comparables the other day blew me away to find out, “What the heck is going on??”……no new REOs, and the ones on the shelves are selling like hotcakes.

It seems that Countrywide a.ka. Bank of America, and Washington Mutual/Chase did indeed impose a moratorium on auction sales.

All brokers I have spoken with have not had any new recent listings…their existing inventory is selling quickly as well…they are actually a little nervous because the faucet has temporarily been turned OFF.

If you had read my blog entry titled “The Bailout” several weeks ago this is exactly what I had predicted. I said the government/asset managers/loan servicers would start restricting the supply – this makes sense because it creates more demand, holds up values, and stops the relentless bombardment of inventory….and the difference is that now they CAN because the government is taking some of pressure off of the banks with a tool called “cold hard cash”…..

and this is exactly what is happening…

…less inventory (supply) = more demand, and this creating a strong support level for prices (in my area at least).

Personally, this is not as good for our business because it becomes a little more challenging for us to get deals…hey, if it benefits the whole, which I think it does, I am all for it…..and I’m always up for a challenge anyway ; )

(besides, if it is trickier to get deals, it makes FarBelowMarket.com services more valuable, so maybe it’s not such a bad thing for us)

Anyway, to recap, inventory is flying off the shelves and there is almost nothing available in my area that is not a short sale..

….this is HUGE for retail flippers, HUGE, HUGE…

For flippers, it may be a little tougher to get a deal, but once you get one you know you can move it fast….I would rather flip in that environment ANY DAY, over a dead market where you can get a deal fast but selling is a crap shoot.

It’s not quite as good of news for long term holders (not horrible news, just a little tougher to get a deal).  Also, perhaps restricted supply will keep the rental market strong, but that is a total guess.

How long this freeze will last and if the floodgates will come gushing again I can’t say, but you will hear it here first if and when that happens.

Be Happy and Prosper,

Kurtis

P.S. I am reiterating my advice that if you are used to shooting REO fish in the proverbial barrels like we are, you might consider adding some diversity to your strategy i.e. direct mail, “We Buy Houses” signs,

just in case…we are.  (don’t interpret this to mean that REOs will stop being  a source of deals, they will be for a long time, but maybe not as easy as we’re used to).

Moratorium On New Foreclosures?

Report From The Frontlines:

I was comping a property for a 1/4 mile radius in a solid Indio neighborhood yesterday, and I was STUNNED.

Of everything on the market, there was literally NOT ONE clean or semi clean property that was not a short sale…

Guess how many “sold” properties and “pending sales”?

THIRTEEN.

Of every single “pending sale” (no cherry picking, all of ‘em), guess what how many days it took to sell?

81397 Senegal 12
81416 Date Palm 0
81582 Sant Clara 8
45666 San Gabriel 63
45824 Chamerop Palm 12
45906 Chamerop Palm 32

AVERAGE: 3 WEEKS

This is GREAT news for retail flippers, REALLY good news.

We literally have a housing shortage here….sound nuts?

For THIS geographical area, and THIS price range, it is a SELLER’S MARKET…..lunacy?…hmmmm (did I mention that we are starting to hear “multiple offers” on most of our offers now?)

Our secret REO info source, our guy who does “trash-outs” for the banks (gets rid of debris and belongings and secures the property for recently evicted foreclosees) says there is a 90 day freeze on new foreclosures…at this point I don’t know if it is local or what but I’ll find out more and you’ll be the first to know…

….but if that’s true, it will exacerbate the falling supply, and increase demand even more. REOs will continue to be a goldmine but as an insurance policy we have decided to fire up our “We Buy Houses” campaign of signs and direct mail – if your sole source of deals is REOs, it might not be a bad idea to diversify a little bit just in case.

….this news is hot off the press, I’ve said for months look at SALES VOLUME and UNSOLD inventory, NOT home prices…

Provided that 1) there is no economic meltdown, 2) median income levels don’t plummet, and 3) our mortgage industry doesn’t lockup entirely -

I will debate anyone that we have reached a bottom or we are at least as close as you can possibly reasonably get for this geographical area at this price point….

…a sub $100k property IN CALIFORNIA can now generate $1,300 gross monthly rent. I don’t think we will see this again…this is well over 9% returns after property tax and insurance. Trust me, with the stockmarket the way it is, there is an infinite supply of buyers for this investment.

….I love opposing points of view so sound off at http://www.FarBelowMarketForum.com

if you disagree….but be prepared to tell me how prices can substantially decrease if there is literally almost no available inventory and decent properties sell in less than 30 days as they hit the market =0 )

Right now, it DOES NOT MATTER if foreclosure activity accelerates, because it is my contention that between first time homebuyers that can now afford and landord buyers that can cash flow these things all day long, there is literally an infinite buyer pool that can handle any inventory that the trustee sales can dish out. (A massive decrease in income levels would be a different story, but I don’t think that will happen or else we will have bigger problems!)

Now, if Riverside County is a leading indicator for the rest of So Cal, which I have always hypothesized that it may be, it could be good news on a broader scale (I am not crawling out to that limb quite yet!).

Stay Tuned….change is happening on so many levels….and change = opportunity…God Bless our country and our new leader.

Kurtis