Copyright The REO Mentor 2009 By Tony Alvarez Streetwise

Copyright The REO Mentor 2009By Tony AlvarezBy Tony Alvarez

StreetwiseStreetwiseStreetwiseStreetwise

Tonight’s Goal…

1. The practical side of the REO Business

2. How to attack a new “Target Market” & find the GOLD!

3. “Overcoming the Most Common Obstacles to Getting an REO Deal a Week”

4. The “ULTIMATE SOLUTION” 5. biggest hurdle

Copyright The REO Mentor 2009

Who am I & What did I do?

• Real Estate Investor 1980

• Cert. Gen. App. – Banks, Insurance, Feds

• Real Estate Broker 1999

• BK 1994

• Antelope Valley 1995

• Turned $6,000 to$7,200,000 in 7 years


What gave me the edge?

• I was broke – Highly motivated, determined & Committed

• Action – I knew where I wanted to go & Went!

• Appraiser - Understood how to identify VALUE/DEAL Quickly!

• Knowledgeable - Understood TARGET MARKET THOROUGHLY

• Initial Cash - Found Investors/partners for equity portion

• Financing - Hard Money Lender – Interviewed & Informed

• Credibility - Partnered with experienced successful investors

• Relationships - Created an interdependent team of area Pros

• Systemized Operations- Simple, clear, repeatable

• Timing – Entered the market at the bottom

• Education – Sought true consultants, mentors & educators

• Focused – Acquisitions = REO Agents


Over the past 28 years 90% of the properties I have

purchased were bought working with REO Agent’s


The Practical Side of the REO Business


Why work with REO Agents

When REO’s dry up you’ll still be getting deals delivered into your hands whether

it’sproblem properties or problem situations

• Probates• Major & minor fixers• Divorces• Rental Houses• Pre-foreclosures• Short sales• Fire & water damaged properties


Broad Strokes

Or… Buy Hold & Rent Long Term


Level I Investor

Chasing Deals = Short Term

Thinking!


Level II Investor

Develop long term relationshipswith area PROS YOU TRUST!

Then…Let the deals come to YOU!


Relationship Requirements

• Motion & Action• Be Consistent• Get Personal• Uniquely Communicate- BE DIFFERENT!• Diverse Contact & Interaction

Important, Informative, Friendly

Email, Friendly phone call, Snail Mail (cards or notes), Office Visit, Common

Interest (gym, sports)


Foundation & Fiber

Building long term business relationships/friendships…– Common interest – Trust– Honesty– Interdependency– Mutually beneficial – Equally highly profitable

XX


#1 Benefit

$ Consistent Income $


Why do MOST Investors reject this kind of thinking?

• Looking for a deal NOW!• Want cash NOW!• Too time consuming• Not a people person• Not relationship oriented• Too difficult• Do not believe they will succeed

Fear based thinking on false beliefs!


3 Important Steps

1. Decide what you want to do? - Buy to rent, sell retail or wholesale?

2. Choose a specific target market- Friendly to your specific needs

3. Load your GPS®= Set achievable destination

Commitment & Action!


You have to understand the details of your specific target

market…

- Supply & demand- Available financing- Investor capital & sentiment- Available work force- Cost of labor & materials- Local Gov. Attitude - Rental market statistics


• Goal

• Plan

• Systems

Without it you’re Without it you’re lost!lost!

Load Your Load Your GPSGPS®®!!!!!!

Load Your Load Your GPSGPS®®!!!!!!


Program Your GPS® For Program Your GPS® For Success!Success!


My Goal - 1995

– Equity= $1,000,000

– Monthly $= $10,000

– Paid off= 10 houses

When I headed to the foreclosure capital of the

United States – Antelope Valley

When I headed to the foreclosure capital of the

United States – Antelope Valley


By 2002

- Equity (before taxes) $7,200,000

- Monthly Income $53,000

- Total Houses Owned 83

- LTV 70%

By this time I was ready to call it quits!

But…


10 words from Bruce Norris

“Hang in a bit longer, your area isn’t done yet”

10 words3 more years…

$3,000,000


Started liquidating in 2005 for $10,000,000

Thanks Again Bruce!Thanks Again Bruce!


Short Term Goal 2009

- Equity $1,500,000 ???

- Monthly Income $20,000

- # of Unit Purchases 30

- LTV 0


Long Term Goal 2021

• Equity $20,000,000• Monthly Income $100,000• Total houses 330• Rentals Held 200• 30 houses a year until 2021• LTV 65%


Acquisition Strategies

A. Buying REO’s: MLS

1. REO Brokers/Agents – Relationship Driven- Broker Call – Prelisting -Broker Call – Pending Dying Deal

2. AUTO PILOT= Preset searches on MLS - Auto Prospecting – Search by Agent/Office ID, Property Details, Area or Price

- First day listings – Rare- I DON’T COMPETE!- BOM (Back on Market)- Contingency Active

3. Shot Gun Style (Click Here to View Example)


Acquisition Strategies (cont.)

B. Short Sales= SLOT MACHINES

• First day (Listing Agent)– Pending– Non MLS= We hand

to favorite agent to complete.

C. FSBO– Cash– Seller financing– Subject Too

D. TD Sales– Loan funds – Buy from TD

Buyer– Partner with TD

Buyer

E. HUD – Offers = Agent


Financing

• Local Banks

• Credit Unions

• Home Path (Fannie Mae 10?)

• Home Steps (Freddie Mac)

• Hard Money (The Norris Group)

• Private Investors (401K, IRA)


Financing Techniques

Financing: How do I finance my REO deals?

– Retail (LOCAL- SMALL- NEW Banks) Relationship driven!• 75% LTV, 6 1/2% Interest, Amortized over 30 years

due in 5 years. FNMA 10 LOAN LIMIT- Home path/ FREDDIE MAC

Home steps

– Private Money( LOCAL)My favorite source = REO Brokers & Agents!!!• Private Investor Capital (Pay 8 to 10%) NO POINTS!• Pay people to help me find Investor capital =

Financial planners

– Hard Money- Norris Group- Or Local

• Interest Rate= 12% Points=3.5 Term-36 months


Type of Repairs We Do

From minor repairs at around $5 psf to complete remodels at around $20 psf.

1. Minor Repair – Paint, carpet, appliances, cleaning

2. Medium repair – Minor maint., & A/C & heat repair, paint, carpet, appliances, cleaning

3. Major Repair – Complete remodel. New kitchen, bath, floors, lighting, windows, roofing, fixtures – Everything upgraded & replaced.

Bonus to Contractor or Crew Leader for early completion or under budget paid from

- Home Depot discounts & holding cost reserves


Repair Model

• Employee’s

• Independent Contractors

1. State of California states that if an Independent Contractors does not have any employees, they do not need workers comp.

2. MAKE SURE EVERYONE HAS WORKER’S COMP. & liability insurance.

This way you’re covered no matter what happens!


Exit Strategies

• Sales (MLS driven market)– Relisting with REO Agent that got us

the deal

• Rental (Declining rental market)– Renting at 10% below TRUE market

& offering an incentive (Free Rent)

• Wholesale– Seldom


Selling Obstacles

Low Appraisals - Lack of remodeled comparables- Out of area appraisers

- “Geographic Competence”

- Capital improvements not fully recognized- Financing Restrictions- Inspection Requirements

- Lender- Appraiser- Property Inspector- Termite


Appraisal Solutions

• Cover letter – Who you are, what’s in file

• Rent comparables – sold, pending, actives

• Capital Improvements (detailed list,

remodeled repairs)

• Additional backup offers

• Copy of accepted offer

• Market Update– dqnews.com, Latimes, Local, MLS

Hand the Appraiser the FileHand the Appraiser the File


Spanking the Appraiser

• Get appraisal copy

• Rebuttal letter (you)

• Send to loan agent

• Use Local appraisers

• File complaint -www.OREA.ca.gov -916-552-9000

• E & O – small claims

• Never complain directly to Appraiser!


Deal Review Time


Recent Deal Review

We started buying in August 2008

To date we have purchased 35 propertiesSold 10

In Escrow 3Active 1

Rented 20Rehab 1

Our Average Rental is

3 bedroom, 2 bathroom, 1224 Square FeetLot Size 6497, Built 1974

Purchase Price - $65,626, Repair Cost - $10,798Gross Rental Amount - $1,163

Net $698 (Minus 40% for taxes, ins, maint, mgmt, credit loss)

Source LTV Int. Rate Fee’s Payment Net Rent

TNG 60% 9.9% $3,617 $378 $320

Local Bank 75% 6.5% $995 $310 $388

If we were to utilize financing of total investment: If we were to utilize financing of total investment:


Our Average SaleThe last 5 properties:

3 bedrooms, 2 bathrooms, 1085 Square Feet Lot Size 6438, Built 1960 Purchase Price - $37,200 Repair Cost - $16,004

Net Profit - $25,095

Source LTV Int. Rate Fee’s Payment Net ProfitTNG 60% 12.5% $3,875 $554 $21,112

Local Bank 75% 6.5% $934 $288 $23,585

If we were to utilize 100% financing of total investment:

If we were to utilize 100% financing of total investment:

Ugly Duckling 3+1 w/garage conv. 1438 sq ft, 1954


Sale Detail – J-7How did we get this deal? Agent called us before it hit the MLS (Pre-listing)

Rehab Cost: Original Estimate ($13.90 psf) $20,000.00 Actual Cost ($14.63 psf) $21,043.52Complete rehab, new kitchen, bath, flooring, paint, roof, built carport, landscaping, new swamp

Escrow closing challenges:Very smooth, appraised at listing price & closed as scheduled.

Ratio’s for # of offers to purchase:(3:1)

Profit analysis & Breakdown: * With hard money loan

How did we get this deal? Agent called us before it hit the MLS (Pre-listing)

Rehab Cost: Original Estimate ($13.90 psf) $20,000.00 Actual Cost ($14.63 psf) $21,043.52Complete rehab, new kitchen, bath, flooring, paint, roof, built carport, landscaping, new swamp

Escrow closing challenges:Very smooth, appraised at listing price & closed as scheduled.



Purchase Price

Rehab Cost Holding Cost

Sales Cost Sales Price Net Profit Rental Amt

$32,000.00 $21,043.52 $1,698.34*$4,398.34

$8,000.00 $80,000.00 $17,258.14*$14,558.14

$995.00

Kirkland 4+2, 2 Car Gar. 1573 sq ft, 1957

-1-1

-1-1

Sale Detail – Kirkland


Rehab Cost: Original Estimate ($6.35 psf) $10,000.00 Actual Cost ($7.85 psf) $12,246.00Medium rehab – Paint, flooring, kitchen countertops, lighting, bathroom vanities, new swamp cooler, landscaping

Escrow closing challenges:Very smooth appraised at listing price & closed as scheduled.New swamp cooler was stolen from roof (no damage to property)




Rehab Cost: Original Estimate ($6.35 psf) $10,000.00 Actual Cost ($7.85 psf) $12,246.00Medium rehab – Paint, flooring, kitchen countertops, lighting, bathroom vanities, new swamp cooler, landscaping

Escrow closing challenges:Very smooth appraised at listing price & closed as scheduled.New swamp cooler was stolen from roof (no damage to property)



Purchase Price

Rehab Cost Holding Cost

Sales Cost Sales Price Net Profit Rental Amt

$46,000.00 $12,246.00 $1,894.02*$3,816.46

$10,000 $100,000 $29,860.00*$27,938

$1295.00


Overcoming the 14 Most Common Obstacles to Getting an REO Deal a

Week


StreetwiseStreetwiseStreetwiseStreetwise


The Obstacles

1.No Cash!

2.No Financing!

3.No Contacts!

4.No Experience!

5.I don’t know how to identify a deal (value)!

6.I don’t know how to analyze my target market!

7.I don’t have a plan and I don’t know how to create one!


8. I don’t have enough time to do this business!

9. I don’t know how to structure an offer that gets accepted!

10.They don’t call me back!

11.I don’t know any normal contractor or repair guys I trust!

12.I don’t know how to budget & estimate repair cost!

13.I don’t believe this works!

14.I don’t believe I can do it!

The Obstacles (cont)


The best solution that solves most of these obstacles is

PARTNERING!!!

$ The Odd Couple Make Bank $

Andrea & Rick

Met in 2002 @ Bruce Norris Seminar Andrea knew nothing about Real Estate – People

Person Rick was an appraiser & bought discounted notes Each started with $50,000 equity & borrowed from

Rick’s IRA First deal 2003 sold in 2005 for $140,000 profit Exit strategies wholesale, retail & hold long term

rental

Batman Robin

Made over $1,000,000 EACH in four yearsMade over $1,000,000 EACH in four years


Started 14 months ago No formal real estate education – No seminars Ken used to be in SFR new construction Steve owns a computer business Chose an area near their home Chose specific properties to target NO FHA, Fannie Mae ok - 3+2, only specific areas Learned the market by “Getting out there & looking at

properties”

Father & Son

TeamSteve &

Ken

Determination!

NO FEAR!!!

Met @ job interview December 2009 Got their 1st deal in May 2009 Started with $1000 from credit card & $1000 borrowed from girlfriend. Financed a mobile home on credit card Done 8 deals since May 09 – Net approx $200,000 Finance 100% of the deal through Private Party or Hard Money Goal is the retire by the time they are 30 years old

Erin From: S.

Africa Prior Job:

Waiter

Erin From: S.

Africa Prior Job:

Waiter

Joey From: Wash.

State Prior Job: Comm.

Fishing in Alaska

Joey From: Wash.

State Prior Job: Comm.

Fishing in Alaska


What’s the Lesson?

The right compatible partners can and will solve all of the obstacles you believe are keeping you from participating successfully in today’s Real Estate Market

Start creating & nurturing relationships.

Take action now. Do something today!

You’ll create a small change & that’s all you need to start the ball rolling in a new direction


What if I came to Orange County?

Orange County FAQ’s

Geographic Area: 789 square miles Population: 3,010,759 (2008)

Average household income: $75,078 (2008)

1. Identified 33 cities, 131 zip codes, 3 Major Sectors (North, South, Central OC)


Orange County MLS Stats

Area Average Listing Price

Average Pending Price

Average Sales Price

# of MLS Active

# of MLS Pending s

# of MLS Solds (90day)

# of MLS Active REO’s

% of MLS REO’s

# of SS

% of SS

Orange County

5254 1688 4459 200 3.8% 1306 24.9%

North Orange County

708,044.50

529,797.00

664,117.70 1312 613 1870 83 6.3% 467 35.6%

South Orange County

1,713,339.22

687,957.33

1,611,147.33

1404 212 1259 33 2.4% 319 22.7%

Central Orange County

980,936.25

633,365.67

920,255.67 1846 685 2480 67 3.6% 419 22.7%

MLS Lowest Price Band

Area Low Listing

Price

Average

Listing Price

Low Pending

Price

Average

Pending Price

Low Sales Price

Average

Orange County

89000 1,393,471 129,900 559,382 90,000 672,013

Santa Ana (All SFR’s)

129900 428,695 129,900 324,762 90,000 390,036

92703 (All SFR’s)

160000 331,286 129,900 293,495 90,000 277,862

92703 (2BD’s)

160000 265,961 129,900 221,571 115,000 249,362

92703 (3 BD’s)

185000 372,506 172,900 299,622 90,000 331,267

92703 (4 BD’s)

229900 520,980 200,000 381,063 211,000 401,897


Foreclosure: Heat Map

1 in every 221 housing units received a foreclosure filing in January 2010

View interactive graph at www.realtytrac.com

1 in every 221 housing units received a foreclosure filing in January 2010

View interactive graph at www.realtytrac.com


Foreclosure: NOD’s & Auction

Received notice of default or trustee sale within the last 120 days

Received notice of default or trustee sale within the last 120 days


Foreclosure Sales

Sold to Bank, Sold to 3rd Party, Cancelled

within the last 120 days

Sold to Bank, Sold to 3rd Party, Cancelled

within the last 120 days


Average Sales Price


Foreclosures by Estimated Market Value


Foreclosure Activity by Month


Orange County vs. Antelope Valley

Statistics Orange County

Santa Ana

Antelope Valley

Geographical Area

789 sq miles 27.1 199 sq miles

Population 3,010,759 339,130 284,298

Average Income $75,078 $54,239 $52,570

NOD’s 5957 597 1712

Bank Owned 1871 269 1259

MLS Listings 5254 336 825

MLS REO’s 200 26 206

MLS SS 1306 124 164

% REO’s in MLS .04% 7.7% 25%

% SS in MLS 25%% 36.9% 20%


Target Market

• Any blue collar neighborhood• College student rentals• Section 8 neighborhoods• Inner city near supporting

facilities


Specific Area’s

Santa Ana Anaheim Garden Grove Fullerton City of Orange Buena Park

Research Methods• MLS

– Tempo.socalmls.com

• Agents/Brokers– Called local Agents with listings

• Online websites– City-data.com (City Stats)– Chamberofcommerce.com (City Stats)– Orangecounty.net (County Information)– Quickfactscensus.gov (Area Info)– Ocmls.com (Search active listings)– Foreclosureradar.com (Foreclosure info)– Realtytrac.com (Search foreclosure info)– Rentometer.com (Rental stats)– Nrba.com (Search for Brokers & Agents)– Reobroker.com (Search for Brokers & Agents)


The Ultimate Solution

Understanding the difference between:

1. Psychological Fear

2. Physical Fear

Understanding the difference between:

1. Psychological Fear

2. Physical Fear

Psychological

FearPsychological

Fear

Physical Fear

Physical Fear


Physical Fear

It’s ok to RUN!!!

It’s ok to RUN!!!


Psychological Fear


Saving Private Ryan


The Brave


The Protector


The Unstoppable Spirit!


The REO Mentor1-800-276-7888 Ext. 201www.thereomentor.com

Email: [email protected]

Documents

Copyright The REO Mentor 2009 By Tony Alvarez Streetwise