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April 29, 2010

Will the Healthcare Bill Help You or Hurt You?

Recently, President Obama signed into law historic health care reform legislation…but what will history remember it for? Will it help or hurt the poor and middle class it’s meant to help? In his latest Conspiracy of the Rich bulletin, Robert Kiyosaki explores the implications of the health care bill for you and your money.

"As an entrepreneur and employer, this new healthcare bill affects how I look at and evaluate every employee. As employee costs go up, taxes increase, and business slows, I’m forced to let more workers go as well as hire more slowly and carefully."

– Excerpt from Robert’s Conspiracy of the Rich bulletin

April 26, 2010

The Basics of Real Estate Investing: Finding Motivated Sellers

A motivated seller is someone who needs to sell their home, not someone who just wants to sell their home. Someone who just wants to sell their property is usually expecting a full-price cash offer and if they get it fine, but if they don’t, they have the time and resources to wait until they find someone to pay their full asking price for the property.

On the other hand, a motivated seller has to sell the property by any means necessary and is looking for a solution to his or her immediate problem, which is to get rid of the property now! A real estate investor who comes up with a workable solution can usually buy such properties at bargain prices.

Truly motivated sellers make up a small portion of the real estate market. Most of the properties that you find listed in the multiple listing service (MLS) and even a good share of properties that are FSBOs (for sale by owner) are for sale by unmotivated sellers. Just because an ad or a listing advertises a “motivated seller,” it doesn’t really mean that they are. The term motivated seller has been highly overused by agents and sellers hoping to generate interest in their properties over the past few years.

The best way to find out if a seller is truly motivated to sell their property is to find out as much as you can about the seller’s specific situation. The basic and most important question you need to get an answer to is, “Why are you selling your home?” Smart investors will develop trust with a seller prior to asking the question. However, investors generally don’t have a lot of time to spend getting to know each and every potential seller; the key is to become skilled in talking with people and getting the information you need in a short amount of time.

Screening sellers to determine their level of motivation (and there are various levels of motivation) can be done with a simple phone call. For example, if you are calling on a FSBO ad you found in the newspaper or on the Internet, start your conversation by asking details about the property. Get the seller talking about easy things such as the number of bedrooms, bathrooms, the total square footage, the size of the yard, other amenities, the neighborhood, and the neighbors. Most sellers will be in their sales mode and tell you about how wonderful this property is. After they have warmed up to you by telling you about their little piece of heaven on earth, just ask casually, “That sounds like a wonderful property…why would you ever want to move?” More often than not, you will get an honest answer that will help you determine the motivation level of the seller.

If the seller responds with something like, “We really don’t have to move, but we would like to move to a little bigger home across town if we can sell,” then you probably don’t have a true motivated seller. Thank them for their time and move on to the next call. But if the answer is something like, “We really don’t want to move, but my husband has been transferred and we have to sell,” then you may have a motivated seller. Continue the conversation and try to find out all you can about their particular situation. You can create your own list of questions, but things you might want to know could include:

• How soon do they need to be out of the house?
• Have they already purchased another home?
• Do they need all of their equity out of their current home to purchase a new home?
• What is the current value of their home?
• What is their current mortgage balance?
• What is the condition of their home?
• Are they willing to consider seller financing?
• Are they willing to consider a lease with an option to buy?

Remember, you are trying to find out all you can about their particular situation so you can more easily come up with a solution. Over time, you will develop a list of your own of questions that help you determine a seller’s motivation level.

Although motivated sellers make up a small portion of the real estate market, they are out there. Finding truly motivated sellers results in good deals for investors. Motivated sellers are not too difficult to find, you just have to know where to look. Here are a few places to search and some ways you can attract motivated sellers and get them to contact you:

• Research classified ads in major newspapers. Get in the habit of looking at the real estate for-sale ads in newspapers every day. Look for key words that might indicate a motivated seller, words like transferred, handyman special, and must sell. Create a list of key words that indicate some level of motivation.
• Review ads in free papers, such as the Pennysaver or Thrifty Nickel. Many people who truly need to sell their property typically are in financial crisis and may not be able to afford major newspaper ads. Gather all the different free publications in your area on a regular basis and screen the real estate section for motivated sellers.
• Search Internet ads. There are numerous places a person can advertise on the Internet for free (Craigslist is one of the most popular sites). Search as many of these Internet sites as you can and find out which ones carry ads for your area.
• Review radio and TV station classified ad sites. Many local radio and TV stations have an Internet site that includes a classified section for online ads.
• Review the Multiple Listing Service (MLS). Have the real estate agents on your Power Team supply you with a hot list of listed properties (each week or every few days) that have key words indicating a possible motivated seller.
• Research old or expired MLS listings. MLS listings that have been on the market for 90, 120, 180 days or more are likely to have sellers more anxious to sell. You can also have the agents on your team provide you with a list of expired listings. You can send a letter of intent to owners who couldn’t sell their homes through the MLS to determine their level of motivation at the present time.
• Call on for-rent signs and ads. Every time you see a for-rent sign or ad, record the property address and the phone number. Call the owner and ask them about the property. If they say that they are not interested in selling, ask them if they have any other properties they would be interested in selling. You might find they have several that they would like to sell. Empty properties tend to motivate landlords.
• Check evictions records. Research court records to find landlords who are evicting tenants. You might find an angry landlord who would be willing to sell, especially if the tenant trashed the property on their way out.
• Be alert as you drive. Always be on the lookout for rundown and/or vacant properties. Note the address and ask the neighbors about the property to see if you can find out who the owner is and why the property is vacant and/or rundown. If you knock on enough neighbors’ doors, you will probably find someone who knows about the property.
• Always advertise yourself. When talking with neighbors of vacant properties or even your friends and family, let them know that you are always looking to buy homes and that you specialize in renovating rundown properties. Be sure to emphasize that you pride yourself on improving neighborhoods and increasing property values. You may even consider offering a finder’s fee if you end up purchasing a property they recommend (note: first check to see if there are any state or local laws regulating finder’s fees). Everyone you meet should know that you are looking for homes to buy—you are essentially building a small army of scouts searching for you.
• Drive different routes going and coming from your work and when running errands. In addition, consider going to a store in a different neighborhood—you never know what you may come across just driving around.

After gaining a basic understanding of real estate investing, a lot of new real estate investors begin their investing quest by looking for houses to buy. This can be a very frustrating experience, since there are thousands of houses in the market place for sale. To be successful as a real estate investor, you don’t want to spend your valuable time looking for properties to purchase. You want to spend your time looking for motivated sellers! Making investor-type offers to unmotivated sellers is a waste of your time and theirs. So do yourself a favor and concentrate on finding motivated sellers.

The ideas mentioned in this article are just a stepping stone. There are many other places to look for motivated sellers. Future articles on the basics of real estate investing will discuss even more places to find motivated sellers. Additionally, future articles will also discuss how to market your business and get motivated sellers calling you. For now, don’t concentrate on finding properties to buy, concentrate on finding motivated sellers.

April 23, 2010

Nonverbal Skills

There is a plethora of readily accessible information on effective communication, though a disproportionate amount of counsel is devoted to the honing of one’s verbal communication skills. This is quite unfortunate, since it is estimated that as much as 93 percent of communication is nonverbal in nature. If such statistics are to be believed, a meager seven percent of the message we present is comprised of our words, the remaining amount consisting of such things as eye movement, vocal tone, speed of speech, facial expressions, use of space, gestures, posture, inflection, eye contact, and body movement. To a business person who has predominately focused on verbal communication in his or her efforts to become more successful in their chosen field, this realization should be sobering. This is especially true because a person could have all the right words, and still fail miserably.

Last article discussed the importance of becoming conscious of one’s subconscious mannerisms and tendencies and the effect that they could have on one’s audience was discussed. Indeed, it takes much effort to overcome these tendencies, but it can be done. It is important to learn how to eliminate mannerisms that are counterproductive, refine those that are ambiguous, and adopt those that are beneficial and work to reinforce your verbal message.

However, doing so is only half of what it takes to become an expert at nonverbal communication. You must also learn how to interpret the nonverbal cues of your audience. If you devote your attention to learning this skill and are successful, you will have an unspeakable advantage when giving pitches, speeches, and presentations, or even when making conversation with a potential customer or associate. We have probably all wished at some time or another that we could take a peek inside someone’s head or magically hear their thoughts to be able to know what they were thinking. To some extent, when you became a master at observing and interpreting another’s nonverbal communication, you can do just that.

Any time you interact with people, they will have some reaction. Although the possibilities are endless, in the business world, a few of the most common reactions are interest, annoyance, confusion, impatience, disbelief, disagreement, uncertainty, and approval. It is very important to have some idea of how your audience is internally responding to your interaction in order to continually evaluate exactly how you are communicating and determine how to proceed. A wise and effective speaker knows how to use cues from an audience to adjust his or her presentation or side of the conversation throughout the length of his or her address. You can imagine how disastrous it could be for a speaker to misinterpret his audience’s attitude toward his presentation.

For example, suppose an entrepreneur is pitching a new business idea to a group of venture capitalists from whom he hopes to acquire funding. His audience is interested, but slightly confused. The speaker interprets their facial expressions and other body language as impatience and becomes flustered. He picks up the pace and literally zooms through his next four slides and rushes through his accompanying monologue, ending his presentation rather abruptly. Since his audience’s true mindset was confusion, his response—rushing—was the single worst thing he could have done. It is safe to say that his chances of receiving funding considerably decreased. This illustration represents quite a common scenario. Fortunately, it is one that you can learn to avoid by learning to read your audience.

The Mood: Interest

The Cues: Eyes are on you or your material (slides, handouts, etc.). Facial expressions may include furrowed brow, or raised eyebrows. If seated, the listener may be leaning forward, or sitting, as the saying goes, “on the edges of their seats.” He or she may touch or stroke their chin or jaw line. Their feet are pointed toward you, or foot, if legs are crossed. There is an absence of fidgeting or glancing around the room; in fact, a captive audience usually will not respond to distractions such as outside noises, a door behind them opening or closing, someone whispering or coughing, or a ringing phone.

Course of Action: Keep doing what you are doing. Maintain their interest by asking questions, or involving them in your speech: “The scenario I just described is quite a common one in our industry. You’ve been doing this a long time, Mr. Johnson. I am sure you have been in a situation just like that yourself at one time or another, am I right?” or “ [laughing and making eye contact] I think we all know that type of offer all too well, don’t we?” Use your body to illustrate your points. As an example, slump your shoulders ever so slightly as you talk about a problem in the industry, and then perk up and widen your eyes in excitement as you present your solution.

The Mood: Impatience

The Cues: Avoids eye contact with the speaker, and may glance often at the exit. Feet—or foot, if legs are crossed—are pointed toward the door. Audience may check their watches frequently, rapidly tap their pens on the table, or begin gathering up their belongings. More signs may include rapid nods with closed eyes, hurried “Mm-hmms” accompanied by hands waving to move on, closing or folding closed any handouts you have given, and sighs while they sit perched on the edge of their seat as if ready to jump up and briskly walk out of the room the instant you finish up. They are unlikely to ask questions during or at the end of your presentation, as they do not want to give you any more of their time by asking to you respond to a question.

Course of Action: Never call someone out by making it obvious that you have noticed their restlessness and impatience. If you are in a face-to-face sales or similar situation, hand the person your card and tell them you would love to discuss the subject in more depth at a time more convenient for them and ask permission to contact his or her office. If you are giving a presentation, finish up your immediate point, and then start your launch into your next point with a phrase such as, “Picking up the pace a little bit here…” and then continue on, slightly abridging your message to include only the most pertinent of information. At the end of your presentation, say something like, “I know how valuable your time is, Ms. Maxwell, and I thank you so much for giving me the opportunity to meet with you. That concludes my presentation. I am happy to answer any question that you might have, either now or at any point in the future.” Make sure to give your listener your card again.

The Mood: Confusion

The Cues: Head may be tilted, eyes may be squinting, and the listener may actually be scratching his or her head.
The Course of Action: Again, you do not want to point out that you have noticed your listener’s confusion. Slow the pace, and finish up what you are saying, and then say, “Before I move on, I generally like to ask my audience if there is anything I can clarify for them or if there is anything they would like me to discuss further, since this particular concept is very complex and often needs to be explained further or described in a different way. Does anyone have any questions?” If the situation is such that you are afraid your audience might be insulted by the previous course of action, try some slight tweaking: “Before I move on, I generally like to ask my audience if there is anything they would like me to discuss further, since this particular concept is quite interesting and people often would like to delve a little bit deeper. Does anyone have anything they would like me to address in more detail?” Be sure to not act put out or patronizing if your audience does want you to clarify something.

The Mood: Uncertainty, Evaluation

The Cues: Scratching the back of the neck, biting lip, tilted head. May place finger or fingers over chin and mouth or look at the ceiling while trying to make a decision. Some experts state that clasping both hands together and interweaving one’s fingers and then resting one’s chin on knuckles is a sign of contemplation or evaluation. A variation on this gesture would be clasping hands and “steepling,” or raising and touching the tips of, the index fingers and bringing them up to the chin. Occasionally, a listener will cross his or her arms as he or she evaluates your proposal, usually while still focusing their eyes on you.

The Course of Action: Continue on, putting your best foot forward and really driving home the point. At the end of your speech, ask if they have any questions and answer them as thoroughly as you can. If appropriate for the situation, you may say, “You seem to have some reservations. I would love to address any concerns you have.” There comes a point though, where you must stop talking. At the point at which you are both silent, do not be the one to speak first.

The Mood: Disbelief

The Cues: Eyebrows raised and knit together with eyes widened or squinting. Mouth open or showing traces of a smirk. Eyes on you with face turned slightly away.
Your Course of Action: Don’t feel threatened. Look at their disbelief as an exciting challenge to overcome. Lead into your sentences by saying things like, “Many, many people initially find it difficult to believe that we are able to offer such results, but as you can see…” Offer the evidence. Show the charts. Win them over with proof and subtle persuasion.

The Mood: Defensiveness & Discomfort

The Cues: Closed body language, such as crossed arms and legs, chin tucked down into chest, and no eye contact. The whole body tenses up and hardens. Your listener may move further away from you, or if sitting across a table from you, may place something between the two of you as a barrier, such as a pen, or tablet of paper. If the conversation is taking place while standing, he or she may clutch his or her purse or briefcase in front of their body, as a sort of shield.

Your Course of Action: Immediately back up and give your listeners some space. Resist the natural tendency as a human being to mirror his or her closed off body language, instead making a conscious effort to appear as open and relaxed as possible, thereby setting him or her at ease. Choose your words carefully, and if you can pinpoint an earlier statement that may have put them on the defensive, try to subtly amend that statement when appropriate. “And while we are discussing lawyers, I would like to amend my earlier statement concerning their profession. It was poorly phrased and did not communicate my true feelings. Attorneys offer an invaluable service to society in general, and to members of our profession in particular. There is no mistake about that. What I am proposing does not negate that in any way, and is another tool…”

The Mood: Disagreement

The Cues: Person may show obvious signs of disagreement, such as shaking head, looking away, smirking, fidgeting (especially with fingers or fingernails), looking around at others in the room and sharing glances or expressions, rolling eyes, raising one eyebrow, and sometimes clearing throat. Conversely, a more polite listener may have a blank stare and a totally expressionless face, or a forced smile that does not warm or soften the eyes, indicating that they strongly disagree with what you are saying but have no desire to challenge you or contradict you and will hear you out.

Your Course of Action: As tempting as it will be to bristle up and puff out your chest and cop an attitude right back, keep your cool. If you respond in kind, they will only dig their heels in further. Instead, remain courteous and appear oblivious to their attitude toward you. Spend extra time on the evidence, such as slides that give information that validates your assertion. If you have any compelling evidence say something like, “Now bear with me and try to keep an open mind for the information I am about to present,” and then launch into it. Also mention credentials or anything else that gives you credibility. “These calculations and projections were put together by our consultant, formerly head of the department of [blank].”

Obviously, every situation is different. And as you can see above, some cues can mean vastly different things in different contexts. For this reason, cues should always be interpreted in conjunction with other cues, not on their own. Do not allow yourself to become frazzled, frantically searching a person’s countenance for clues and over-analyzing every single gesture. Definitely, you should be aware of the information given above, but we are all hardwired for nonverbal communication, meaning that you should trust your gut instincts when you have a hunch what someone’s body language means.

Secrets to Being a Super Landlord - Part Two

Owning rental real estate can be very rewarding, but it can also be very frustrating, especially if you decide to manage your own properties. Rental real estate is really the perfect investment…that is, until you put tenants into the equation. Tenants – you may love them or you may hate them, but you can’t do without them. There is simply no way around it. You must learn how to effectively deal with tenants and become a super landlord.

The first article mainly discussed the tenant-screening process. In review, there is no absolute right way to screen a tenant, but a good screening process will help you become a super landlord and will set you up for success. It is important to develop a system that works for you and use it on every new tenant. Never skip this step!

Assume that you have purchased a good rental property, one that will produce a nice positive cash flow, and now have it rented to a properly screened tenant. What do you do next? Just collect the rent and hope for the best? It isn’t quite that simple. It seems that everybody has ideas about how to be a great landlord. Some suggest that a landlord be a hard-nosed business person that doesn't give an inch and rules with an iron hand. Others advise landlords to love their tenants like their own family, be kind, and gentle. What should you do?

As with most things dealing with real estate, there is no foolproof, absolutely right way to be a perfect landlord. Everybody has their own personality and their own strengths and weaknesses. Realize that many people are not cut out to be a landlord or just don’t want the hassle. If you bought the property right, you always have the option of hiring a professional management company to manage your properties. As you increase the number of properties you own, you will probably find that hiring a management company is not just an option, but a necessity!

Before you jump into the landlording business with both feet, you may want to determine if you are cut out to be a landlord. Start by asking yourself these questions:

• How well do you communicate with people?
• Do you like to work with people on a one-to-one basis?
• How well do you deal with uncertainty?
• Are you willing to stick to a long-term plan?
• Can you make quick decisions?
• How do you deal with conflict?
• Are you able to defuse potentially volatile situations?
• How much time can you devote to your job as a landlord?
• Are you willing to give up some or a lot of your time and freedom to be a landlord?
• Are you tough enough when you need to enforce the rules?
• Are you willing to work with people and provide them a great place to live?
• Can you respond to issues in a timely, professional manner?

Make the right decision. If you don’t think you are cut out to be a landlord, hire a professional management company to manage your properties.

However, most of us at one time or another will need to take on the role of being a landlord, even if it’s only on a temporary basis. Therefore, it pays to know something about being a landlord. Here are some tips that may be helpful to you in your adventures in landlording.

Landlording Tips

1. Invest in the right market segment. You do have a choice as to where you invest. There are all sorts of communities that you could invest in, so pick a community that has people you will be comfortable dealing with. Are you comfortable dealing with high-end clients? Do you feel more comfortable dealing with people in working-class neighborhoods? Are you comfortable working in low-income neighborhoods?
2. Take good care of your property. If you take good care of your property, your tenants will most likely take good care of your property as well. Starting with your first contact with a prospective tenant, begin building high expectations. Let the prospective tenants know that you like to provide a clean, well-kept home for them and that you expect them to take good care of the property. Treat your property with respect and they will likely follow suit. Inspect the property regularly and have a lease that spells out what the tenant is expected to do as far as property upkeep. For single family homes, the tenant should be responsible for all the yard work. Have the property in nice condition when they move in and expect the tenant to keep it that way. Send thank you cards to tenants who are keeping the property in good condition.
3. Create a relationship with your tenants based on mutual respect and courtesy. Always be friendly, pleasant, and treat your tenants with respect, but keep the relationship professional and businesslike at all times. Return phone calls promptly. Be responsible for repairs. If a repair is going to take awhile to get to, for whatever reason, keep the tenant informed about the status as often as necessary to minimize their concerns. If you show concern for your tenants, there is a better chance they will respect your time and your property.
4. Make sure your tenants know all the rules. All of the rules should be spelled out in clear language in the lease agreement. During the initial interview with the prospective tenant, the rules should be discussed. Again, during the lease signing, the rules should be covered in detail and signed by the tenant. Having a spot for the tenant to initial next to each rule is not a bad idea. Then if you ever end up in court and the tenant says, “I didn’t know I couldn’t raise pit bulls in the second bedroom,” you will be able to point to the pet policy section of the rules that they signed. Don’t leave anything out.
5. Enforce the rules. Make sure you enforce the rules for all the tenants. Special privileges for some tenants and not others will get you into big trouble. If your rules say that the tenant will get an eviction notice if they are more than three days late with their rent, then if they are three days late, post the eviction notice, no matter what their excuse. If they pay their rent, they won’t get evicted, but it lets them know that there is no flexibility in the rental policies. If your tenants know the boundaries and those boundaries are constant, they will be more comfortable and content. Yes, you need to be concerned about your tenants and let them know you care, but you need to be tough. Are you up to it? If not, you may need to rethink your decision about becoming a landlord.
6. Communicate clearly, openly, and early. Do you like surprises? When it comes to business, probably not. Surprises can lead to misunderstanding, and misunderstandings can lead to unnecessary conflict. Your property is your tenant’s home, a very important element in their lives. Communicate clearly and early if you are going to change anything, like raising the rent or working on the property in a way that might disturb them. And after you have communicated with your tenant, make sure they really understood what you said.
7. Try to keep your good tenants. Replacing tenants can be very costly. So if you have good tenants, try to keep them renting from you. You still have to enforce all the rules, but if a rent increase will force them out of the rental, then you may want to rethink the rent increase, especially if the rental market is on the weak side. A few other hints: remember all the names of your tenants, including their children. Remember tenant’s birthdays with cards or small gifts. Do maintenance promptly. Thank tenants for keeping the property in good condition. Do what you can to really make them feel like you want them to stay.
8. Your tenants could be buyers for property you have for sale. Even though you hate to lose good tenants, they could very well be an excellent buyer for properties you may have for sale. Get to know your tenants and find out what their long-term plans are. Are they looking to buy as soon as they can? Do they need help with credit repair? You can help them with credit repair by reporting their on-time rental payments. You can direct them to credit-repair education or reputable agencies that help people. If they are renting a single-family home from you, you could even put them on a rent-to-own program and eventually sell them the property. Do what you can to help them.
9. Don’t become a burned-out landlord. Keep a balance in your life. Landlording can be very demanding. Make sure you plan before you have too many properties to handle on your own. Get the help you need. Be willing to delegate some or all of the work. Don’t forget you have a life outside of landlordship. You are supposed to own your investments; your investments should not own you. If you are tied to your properties night and day, your properties own you, and you really just have a job. That is why it is so important to buy properties right so you can afford to have the properties managed and still get a good, positive cash flow.

Landlording isn’t for the faint of heart. It can be a great experience, but make sure you are up to the challenge. Know when to get the help you need; don’t become a slave to your properties!

April 12, 2010

Do You Know Who Rules the World?

A lot of people put their faith in Obama and the government to save them and the economy. But can Obama really save the world?

In his latest Conspiracy of the Rich bulletin, Robert Kiyosaki explains why Obama is powerless to save the world—and reveals who’s really in control.

"I began writing COR before Senator Obama became President Obama. At the time, he was hailed as a savior, the president that was going to make things right, and was swept into office with very high approval ratings. Today, his ratings are down, even after winning the healthcare reform issue. Why?"

– Excerpt from Robert’s Conspiracy of the Rich bulletin

Read Robert's latest post here: http://www.conspiracyoftherich.com/read/current/

April 07, 2010

Why Your Dollars Are Really Debt

Most people think their cash is money. But the reality is that it’s debt. This is confusing for normal people – and for good reason.

In the second installment of his series on “Why This Crisis Doesn’t Make Sense to Normal People,” Robert Kiyosaki explains why your banker wants you to use your credit cards and spend your savings–and why understanding the system will help you win as others lose financially.

All of the paper money in your wallet or bank account is really debt. In earlier times, paper money was backed by gold or silver. After 1971, money became an IOU from the government. Today, money doesn’t exist unless someone borrows money."

– Excerpt from Robert’s Conspiracy of the Rich bulletin

You don’t want to miss this!

Read Robert's latest post here: http://www.conspiracyoftherich.com/read/current/

April 06, 2010

Short Sale Magic - What is a BPO and Why is it Necessary?

A few years ago, few people had ever heard of a short sale. Nowadays, short sales are common real estate lingo. The total number of short-sale transactions has skyrocketed in the past couple of years. The news media throws out all sorts of statistics. For example, one in five real estate transactions now involves a short sale, and in some areas, up to 50 percent of the real estate transactions are short sales. Who knows what the true numbers are but one can say without hesitation that in most parts of the country there are a lot of short sales going on!

In today’s real estate climate, if investors do not take advantage of the opportunity offered by short sales, they are really missing the boat. Investors need to be trained experts at negotiating short-sale deals. Our company offers both online and live courses dealing with foreclosures and short sales. These courses, coupled with a good real estate coach, will prepare investors to compete.

To start, let’s define a short sale. A short sale occurs when a property (usually in foreclosure) is being sold by the owner and the lender accepts a payoff amount that is less than what is actually owed on the property mortgage. In other words, the lender is willing to discount the mortgage payoff rather than go through the complete process of foreclosing on the property.

Why would a lender take a discount on the mortgage note? Why wouldn’t they just foreclose and sell the property? The truth of the matter is that the bank probably would foreclose if the property had substantial value above the mortgage balance. If a property has a current market value substantially above the mortgage balance, the bank can reasonably expect to foreclose on the property, take title, and resell the property at a high enough price to recover their foreclosure expenses and the outstanding mortgage balance. But do most properties in foreclosure today have current market values higher than their outstanding mortgage balances? Most certainly not!

When highly mortgaged properties go into foreclosure, the last thing the banks want to do is actually complete the foreclosure process, take title to the property, and try to resell. The banks stand to lose a lot of money. The proceeds from the property sale usually do not cover the outstanding loan balance, let alone the expensive foreclosure costs and fees. Loans in foreclosure, classified as nonperforming loans, can’t be leveraged into more borrowing power for the bank. The banks are not only losing money on the non-performing loan, they are losing money on the lost opportunities of making additional new loans.

By agreeing to a short sale, the bank may be losing some money, but not as much as if they completed the foreclosure process. It is a buyer’s market, and the banks know that when they do sell the property, it will have to be at a substantial discount. Most wise banks and lenders will choose to approve a short sale.

However, this does not mean short sales are easy! On the contrary, short sales can be very difficult to complete, and banks seem to take forever to make decisions. Successful short sales require cooperation between the stressed-out property owner, the lender, the property buyer (quite often a real estate investor), and, many times, a real estate agent who has the property listed. And if the real estate investor’s goal is to quickly resell the property, the investor’s end buyer needs to be included in this ever-expanding group.

The person facilitating the short sale has to first educate the property owner about how the short sale works and let him or her know what documents will be required to be submitted to the bank. If the property owner agrees to fully cooperate and try for a short sale, he or she then provides a letter of authorization allowing contact with his or her lender about his or her loan. The person coordinating the short sale then proceeds to contact the bank who owns the mortgage note and requests a short-sale package.

But who at the bank (or lender) needs to be contacted in order to get the short-sale package? It certainly isn’t the teller at the drive-up window, or any of the local loan officers, or even the president of the local branch. Sometimes just finding the right person to speak with at the bank can be challenging.

Banks have a special department, usually called the loss mitigation department, that handles loans that are in default. When a loan goes into default and the bank decides to start the foreclosure process, someone in this department will be assigned the loan. Note that individuals in the loss mitigation department can have 50 to a 100 or more defaulted loan files that they are working on at any given time. The person coordinating the short sale for the homeowner needs to locate the specific person in the loss mitigation department who has been assigned the homeowner’s loan file. This person (the loss mitigator) will be the one who receives the short-sale package and coordinates the bank’s review process that results in either an approval or disapproval of the short sale.

The short-sale package provided by the bank gives the specific requirements and instructions for submitting the documents the bank will need to review in order to approve (or reject) the short sale. Once the short-sale coordinator knows what documents the bank requires, he/she works with the homeowner. He/she assembles the package and the completed package is then submitted to the bank or lender. Note: it is very important to make sure the package really is complete and includes every document and record the bank has asked for. The price offered for the property will be based on what the investor is willing to pay and the bank will have to decide if they are willing to discount the mortgage note to that amount and accept the offer, willing to counter offer with a higher price, or reject the offer all together.

The loss mitigator usually has the authority to approve a short sale if the offer price is within a certain percentage of the value of the property. For example, if the property were valued at $100,000, the loss mitigator may have the authorization to approve offers that are within 18 percent of the $100,000 value. An offer of $82,000 or above would be automatically approved (assuming all of the other documentation is in order and shows the homeowner(s) really has a hardship and can no longer make the mortgage payments).

But if the offer were lower than the $82,000, the bank would probably counter the offer with a higher price closer to the $82,000. So, no matter how good a short-sale coordinator (usually the real estate investor) is at putting together a great looking, complete, and neat short-sale package, no matter how good they are at educating the homeowner, no matter how good they are at talking and negotiating with the loss mitigator, if their offer is not within the required percentage of the property value, the short sale will most likely not be approved.

How does the bank determine the value of the property? The bank’s loss mitigation department is probably not very close to the foreclosure property and is most likely located in a completely different state, clear across the country. The loss mitigator (or someone from his/her office) can’t just take a long lunch and go out and look at the property to determine its value. What do they do? To determine the property value, the bank has to rely on what is called a BPO (broker’s price opinion).

What is a Broker’s Price Opinion (BPO)?

A BPO is a tool used by lenders and mortgage companies to determine the value of a property in situations in which they don’t want the expense and delay of an appraisal. The BPO is most commonly performed when a property is in default and the bank or lender wants to know what the value would be if they had to take the property back and resell it as an REO (real estate owned) in the current real estate market. Thus, lenders are looking for a quick-sale value, a price the home would most likely sell at in 90 days or less.

BPOs are typically completed at the request of the REO department or the loss mitigation department. Real estate agents who work in the area of the subject property are requested to perform the BPOs, since they are more familiar with their local real estate market and are best equipped to determine a quick-sale value.

What is a BPO report?

The BPO report is a combination of information, not just a value of the property. Although it is not as detailed as a full appraisal, it still contains enough information for the bank to get an idea of the property condition, how saleable it is, and its quick-sale value. Many banks or lenders requesting a BPO will have their own forms they want filled out for presentation of the information.

What are the two main types of BPOs?

There are two major categories of BPO’s, the drive-by BPO and the interior BPO. The reason for the BPO will determine which type of BPO is ordered by the loss mitigation or REO department. If the reason for the BPO is a short-sale offer, most likely the loss mitigation department will order an interior BPO, to better establish the value of the property.

Basic Information Required in a Drive-By BPO:

In general, a lender requesting a drive-by BPO will want, at a minimum, information on:

• Property location
• Type of neighborhood
• Type of zoning (SFH, multiple units, etc.)
• Conformity to zoning and neighborhood
• Property age (when built and age of any additions)
• Property type and style
• Condition of all exterior features (roof, siding, foundation, etc.)
• Occupation status of the property
• Estimated square footage of the property
• Estimated room count
• Estimated lot size
• Type of parking (garage, carport, RV parking, etc.)
• Minimum of three photos: one of the front of the property, one photo that verifies the address, and one street scene (and perhaps one of the side or back of the property)
• Three currently listed comparable properties (with all detailed information)
• Three sold comparables (within the last three months). The most recent sales are the best, especially in a declining real estate market)
• Quick-sale value of the property
• Broker or agent information

As you can see, even a drive-by BPO requires a lot of work.

Basic Information Required in an Interior BPO:

An interior BPO generally requires all of the information included with the drive-by BPO and the following additional information:

• Detailed square-footage measurements (of the home and property)
• Individual room measurements
• Exact room count (number of bedrooms, baths, etc.)
• Interior features (fireplace(s), special treatments such as decorative molding, custom kitchens, hardwood floors, etc.)
• Condition of the interior
• Specific interior damage, including repair estimates
• Estimate of costs for removing trash
• Estimates for cleaning of the property
• Detailed pictures of the interior and its condition
• Specific pictures of areas needing repairs
• More exterior pictures showing condition of the yard and any out buildings
• Comments on how to secure the property if it is vacant
• Comments on need to board up the property if it has broken doors and windows
• Other information as required by a specific lender

Banks and lenders use these BPOs to establish the value of the property and then use that information to evaluate the short-sale offer price. If the BPO comes in too high, it will kill the short sale.

Investors working short sales need to be involved in the BPO process. They need to do their own BPO and make sure the comparable properties being used truly are good comps and reflect the condition of the subject property.

Look for future articles discuss short sales and ways the investor can help the BPO agent with their job and make sure the BPO value submitted to the bank is accurately based on the current real estate market and true condition of the property.


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