Margaret Avery-Moon

It is a drag to every investor when they see the deed restriction on a Fannie Mae owned home. The investor who wants to buy a foreclosure and fix it up to sell it in a hurry has to stall on their plans because Fannie Mae adds deed restrictions. The following is some information you need to know before you consider flipping.

1. You may not resale the property at above 120% of the purchased price. This amount never covers the cost of improvements, commission, or other expenses. It only works if someone is willing to buy the property in the same As-Is condition the original investor purchased it.

2. You may not convey the property for 90 days. You can have it on the market and advertise it but you may not actually change title until the 91st day from the day you closed on it.

3. An FHA borrow can't open escrow on a home that is flipped until the 91st day. This is an FHA policy, not a Fannie Mae. However, it complicates the selling of a flipped piece of property.

Fannie Mae's logic about their Anti-Flipping policy is that they want to prevent someone from buying a Fannie Mae home and making minor cosmetic changes and selling it for an inflated price.

However, how possible is it today to sell something at an inflatted price? First of all, it is likely the person buying a flipped home is going to need a loan. I think the appraisers out there are smarter than Fannie Mae thinks. An appraiser does their homework and is out there to protect the Lender.

Investors in the flipping business are doing a world of good to a neighborhood. They find something needing work. Generally, what they buy can't be purchased with a loan due to the condition of the home. They will improve the electrical, mechanicals, and do much more than cosmetic improvements. They are bringing the home up to the neighborhood's highest and best condition. A buyer gets to enjoy a remodeled home and live in an area they can afford. I feel the same about the FHA requirement. We need these flippers because they are willing to invest and take the risks. They don't make money everytime they flip. Maybe we should be writing letters to the Lenders and Fannie Mae. I think these policies are not helping today's market.

This is a fantastic time to buy a home. Lender Owned Homes (foreclosed homes) are representing around 5% of the market on our local MLS but they represent close to 20% of the sells. This is because they are priced right. They are deals! Here are my MUST know facts about Lender Owned homes.

Do your homework first. Some of these homes will need a lot of work. Know what it will cost to buy a appliances, cabinets, toilets, lights, flooring. Why are you buying the home? If it is for a rental investment then keep your improvements low cost and simple. If it is for yourself, then feel free to spend more on quality. However, stay within what the neighborhood can bare. If you want to flip the home, be clear about your profit margin. If going into a partnership, create an LLC and be very clear as to each others roles and what you will do should one become ill or unable to perform.

Generally speaking, a Lender owned home is priced to sell. Be ready to make an offer close to or at the asking price. You will lose out with a low ball offer. Cash is good but make sure you can prove you have the cash in the bank by providing a letter or copies of bank statements or CD. If you are getting a loan, prove that you qualify and that the home will qualify.

How do you find a Lender Owned home? Check out what publications post the notices when homes go into foreclosure. In Tucson, it is the Tucson Territorial. Read the postings and research the homes that interest you by reviewing the county records. Find out when the auction is and attend it. OR, just contact the Lender and let them know you are interested. Or, find a REALTOR with the expertise in Lender Owned homes. Some advice here.....attend an auction for fun before spending your cash. Learn the system first before you risk your dough. Good luck!

Looking around and exploring real estate will help you get an idea of how sellers are pricing their homes. Then, take it one step further and find out how much the homes you looked at eventually sold for and how long it took for the seller to get an offer. If possible find out what the terms were such as AS-IS, cash, short escrow period, or did the seller pay for repairs. If you notice the buyer used an FHA or VA loan, chances are the seller had to do a lot of repair work before closing. After viewing what has sold in the area you are looking, you can shape what you are willing to put into a home to get it updated, decorated, landscaped, and finished according to the way you want it. If you want move-in-ready, be clear as to what that means for you and if it is realistic in the areas you are looking. Some older communities have not been updated or just barely.

You don't want to make an offer and suddenly be bound to deadlines you don't quite understand and risk your earnest money so my advice is to do some reading ahead of time. CAREFULLY review a purchase contract LONG before you make an offer. Know the process from making an offer to the close of escrow and getting the keys to your home. Discuss with your Realtor the details of an inspection, usual length of time for an inspection, the appraisal process and when to do it, the buyer's inspection and notification response time and how your earnest money is protected. Understand your warrant-able items and personal items and everything you are buying. Knowing all of this in advance will allow you to feel comfortable and confident about the deadlines and what you have obligated yourself to do. When you see something you want, don't hesitate. Make the offer.

Now, before any of the above begins, see a Lender about your qualifications for a loan. There are many different types of products out there. When you make an offer, you will need to show proof of your ability to obtain a loan or if you are buying with cash, you will need proof of funds. This information will be in writing and placed with your offer. Without it, your offer doesn't stand a chance of being taken seriously. If it is a short-sale or Lender owned property, no matter how good your offer looks on paper, without proof of funds it isn't worth the paper it is on. So, make sure you are ready.

Allow time to buy a house. It takes time to inspect a home. Negotiation doesn't end with the purchase agreement. In fact, I think that is the easiest part. The inspection period can bring up a lot of information that may change the worth of the home. There is more to negotiate. Getting to a final close isn't simple. Make sure the person who represents you is persistent and available by phone. However, you too must make yourself available and able and ready to make decisions and meet with your Realtor to go over details throughout escrow. This is an important financial investment so be ready to invest your time as well.

How you view these times may depend on how long you have lived and what you have survived. I truly do feel lucky that I am not in my early 30s with a mortgage, two car payments, kids in expensive sports and after school activities, and realizing that I don't have a job. That is where it hurts. But, you will get through this. I thought the 80s were bad here in Tucson. The mines closed down and there were many foreclosures, people out of work, RVs for sale at gonga deals and then the Savings and Loan debacle happened followed by the stock market crash. I know people who lost everything they had. So, if we can learn from our past, we can move forward. Staying out of unnecessary debt is important. You don't need those new shoes or a dinner out if you have to put it on a credit card and not be able to pay it in full at the end of the month. These are not investments. Your home is a good investment and the interest works for you. Cars don't appreciate so pay them off and keep them.

I know it is bad and people are losing jobs but this is also a time for opportunity. If you stay fearful, you will become frozen and ill-prepared for opportunities. Also, make sure you have the true facts. The media is cramming a lot of negative information down our throats and some of the statistics are skewed. Daily I hear people say that there are no loans available, no lines of credit and that people can't get credit. People are getting loans. There is money out there. People are starting businesses and getting loans for them. Use this as an opportunity to shop around and find a Banker. Yes, a true Banker who knows you and your business. Develop a trusting relationship. Find a Banker who is a decision maker. Use a local community Bank if you can. Don't just look for a good rate on your checking account, that will get you NO WHERE. A Banker on your side during these times or for that matter, during any time is a cornerstone in creating sound financial backing. Refinance your mortgage if you will be saving on interest.

Make sure you have a financial planner. No matter how little or how much you make, investing is key to success.

Find time to volunteer. Volunteering will make your community better and it puts you in front of more people. You will learn new skills and employers, clients, and or customers will appreciate your service.

Keep your resume up-to-date and shop around for jobs even if you have a job. Look for companies that are growing. In my business, the foreclosure industry is booming. Homes for sale between $100,000- $150,000 in good condition are selling quickly! Investors know it is a great time to buy. I also see the Internet offering new pathways for buyers to find homes and sellers to sell. I get pschyed about the great possibilites while some other agents are morning the easy times and looking for work.

Develop your hobby into a part time business. This is the time for entrepreneurship. Stay open to possibilities. Support your local businesses. And, find time each day to be grateful. My former business was in the Healing Arts and I learned a lot about the physiological changes in the body through thought. Do you realize that the cells of your body react to your thinking? So, don't let these times drag you down, learn new habits and create a solid future for yourself and loved ones.

It is dificult to price a home especially if a home is in an area where very little has sold recently. But, it isn't impossible. We just need to work with it and offer a lot of information to our clients to help them come to a price that will bring in an offer.

So many people place a lot of importance on price per square foot. While this should be one of the factors, in my opinion, it is only one small factor. However, the multiple listing service provides this information and everyone feels is the most important question to ask. I just don't agree.

The overall condition of the home, the number of bedrooms, bathrooms, sinks, materials used to construct the house, the location of the house, updates, remodeling, the landscaping, views, and so much more has to be considered before placing a value on a home. When I list a home in an area that has very few recently sold homes, I research a similar neighborhood for comparison. Additionally, I try to find very similar homes in terms of age, construction, updates, landscaping, and all. Then I subtract or add for additional characteristics such as a pool and spa, view etc. If I can drive by sold homes, and view photos, I do. I have found the listing and selling agents to be available with information about the home that they sold which really helps.

Some home owners feel their home is more valuable because they have more square footage because they enclosed their garage. Buyers today are looking for purposeful rooms and not just big spaces to heat and cool. Storage, garages, and such are important and purposeful. People today have computers and need offices. They need a wide wall to hold their TV and they don't like being crowded but space just for space isn't what they want either.

When in doubt, I use an appraiser. An appraisal provides the potential buyer a lot of confidence in how to structure an offer.

So, think it through before you jump on that price per square footage number as a way to calculate the value of your home or to make an offer.