Success in Real Estate - At Any Level
Success in Real Estate - At Any Level
Success in Real Estate - At Any Level
Business levels can be defined as:
Level One: The Tech-This is the How-To level where everyone starts. One makes the same money at this level as one makes going to college-Zero!
Level Two: Marketing and Systems-This level is achieved after the investor sort of figures out the how-to of investing (including marketing and closing transactions) and is completing deals. This is the "Mom and Pop" storefront analogy: You're making money, but working your rear-end off. This is where most businesses die because of owner burn-out.
Level Three: Outsourcing-This is the level of the business whereby you're now a business owner (normally with employees) and you hire others to perform most of the daily tasks within your business. It is this stage of business where you begin to work ON your business rather than IN your business. This is what the E-Myth is all about. With the right business model at this stage, your normally not limited by geography. For example, I set up a business outlet in another state in about 30 minutes.
In order to move your real estate business into a Level Three business, you will need to learn certain terms. Here are some I have found very helpful.
DELINQUENCY: The day after a payment is due, a loan is DELINQUENT. For example, if the grace period runs until the 16th of each month (as it does for most conventional and FHA loans) payments made from the 17th to the end of the month results in the loan actually becoming DELINQUENT for a short period each month.
DEFAULT: A loan is IN DEFAULT as soon as any payment has been due and unpaid for more than 30 days. Lenders normally have collections departments established to handle owner's of loans in different stages of default.
FORECLOSURE: The legal process by which a lien holder repossesses a property.
FORECLOSING ATTORNEY: Attorney representing the foreclosing lender. A knowledgeable attorney can be a great asset in getting short sales through the system.
NOTICE OF ELECTION AND DEMAND (NOD or NED):This is the result of legal action taken on behalf of the lien holder. This notice serves to inform the borrower and the public that their property has entered the foreclosure process and will be sold at an auction at some specified date (about 110 to 120 days henceforth). Foreclosure lists are normally generated from "NOD" lists.
PUBLIC TRUSTEE: My state has a third party representative in between the lender and the borrower (and the public) in a deed of trust state. They conduct the public aspects of the foreclosure process. After the NOD (also commonly called NED) is filed, the homeowner generally has to work through the appropriate county public trustee to work on their loans. Each county has a Public Trustee's office whose charter is to notify the public and, receive cure payments, and to conduct auctions. Most states do not have public trustees.
CURE: An amount of money determined by the bank and the bank's attorneys needed to pay all arrearages on the delinquent loan. Successful curing will result in a withdrawn NOD, and a re-instated mortgage.
AUCTION: A foreclosure sale. An auction is the public sale of a mortgaged property, following foreclosure of the loan secured by the property. In today's market, it's typically the 1st lien holder who promulgates the typical auction and ends up with the property.
nd now some key Bank Personnel/Terms :
SERVICING COMPANY: Most entities that we think of as "banks" or "lenders" are actually service providers, that are servicing a loan for some third party. The actual lien holder could be a group of investors (Wall Street) or even a country. Short sales are typically transacted through the service provider.
DATA COLLECTOR: Level one person at a servicing company (bank). After a short sale package and offer has been sent in, their responsibility is to ensure that all of the short sale documents are appropriate. They forward the package to the assigned mitigator for determination. These people can be the most challenging people to interface with through the entire transaction.
LOSS MITIGATOR: Level two person at a servicing company (bank). After a short sale package and offer has been sent in, they "mitigate" the bank's loss by following a set of mathematical computations (internal to the bank). Most of the time, a loss mitigator has approval authority of a short sale offer. Sometimes the losses are sufficiently large that the short sale approval process may involve the management chain as well as the investor.
And finally some Bank Workout Options:
These service providers have more options than just short sales. Below are a list of the more common options and their relative meanings:
Reinstatement--Catch-up on late payments and bring the loan current--can also be called a "Cure."
Forbearance--Take the total of the arrearages and divide this number by six or twelve months. Homeowner has to be able to pay this amount monthly PLUS their regular monthly payments. Low probability of success, and bank's do not favor these.
Loan Modification--Basically a "re-casting" of the loan. The bank reps will take the total of the arrearages and pile it on to the principle (the bank can even alter interest rates). Homeowner must qualify for this option. Sometimes the bank will discount the interest rate and even the principle balance. Currently there is over a 50% default rate on modifications that are zero to eight months old.
Short Sale--The bank takes less than what is owed. The lien holder may seek monies owed.
Deed in Lieu--Sign over deed and give keys to bank and walk away. Junior liens normally kill this option. This option is sometimes called "Cash for Keys."
Foreclosure--A repossession of the property by the lien holder (1st normally). These properties are known as REOs (Real Estate Owned).
In order to move into a Level Three business, you do need to know what to offer on properties. Without making offers, you do not even have a Level oOne business. The key point is to understand that we have to be ever more diligent on calculating the offer. Note, formulas used to calculate offers on long-term hold real estate are not at all related to fix and flip formulas, and these deals are normally disastrous for the unsuspecting investor.
We talk much more about this in the What2offer mentoring program. After years of doing these calculations by hand, my partner and I have developed an online real estate software to make our lives much easier. We can now crank out offers and determine the exit strategy in seconds.
To Your Success,
Tom & Svein
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