HUD Drops 90 Day Seasoning Rule - Makes Acquiring and Reselling Foreclosures Even Easie

The Department of Housing and Urban Development recently announced a temporary policy change that will have significant positive benefits for anyone looking to acquire foreclosures, especially those looking to fix and flip.  Previously, FHA has required that any borrowers seeking to finance their home purchase using an FHA loan, must purchase the property from a seller who has been the owner of record for 90 days or more.  This has made it difficult for investors looking to rehab gutted foreclosure properties and resell them for a reasonable profit since they then had to either hold the property for 90 days (dramatically increasing their holding costs and decreasing potential profit margin) or they could not sell to buyers looking to purchase a property with an FHA loan product.  The 90 day seasoning rule also made it difficult for investors or primaries looking to purchase REOs using FHA loans.  With the available inventory of REOs shrinking and demand rising, banks are usually able to liquidate their best REOs on the open market within days or weeks of taking title after a foreclosure.  Since the bank did not, in those cases, own the property for 90 days or more, those looking to pick up bargain priced REOs using an FHA loan couldn't do so.

This will all change starting February 1st when HUD will begin a one year period during which the 90 day seasoning requirement will be lifted.  In a document announcing the change, HUD Secretary Shaun Donovan said, "As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential home buyers.  FHA has an unprecedented opportunity to fulfill its mission by helping many home buyers find affordable housing while contributing to neighborhood stabilization."

"FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties," said FHA Commissioner David H. Stevens. In the same document Stevens states,  "This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity."

The temporary lifting of the 90 day seasoning requirement will come with some restrictions that are designed to prevent abuses. Probably the most significant is a clause stating, "In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the lender meets specific conditions."  It appears that all that is necessary to meet these "specific conditions" is to show that substantial improvements/repairs have been made to the property to justify the extra cost.  This should not be a problem for rehabbers as they can show these improvements via receipts, before-and-after photos and descriptions of work completed etc.

This change to the FHA guidelines is scheduled to only last for a year, so now is definitely a great time for investors interested in flipping properties and home buyers looking to purchase a residence to jump into the market.  If you are interested in purchasing REO properties for investment purposes in Las Vegas, foreclosure capital of the nation, please contact Glenn Plantone today.

Glenn Plantone (702) 769-9872 or teamplantone@gmail.com

MGM Update January 2010

As those of you who follow my articles and blogs know, I have been tracking the MGM Signature Towers Hotel Condo in Las Vegas very closely over the last year. Many of my investors have asked me to write an update on the project. Here is the most recent information on price and sales trends from the beginning of last year (2009) to the start of this year (2010).

The MGM Signature is a Hotel Condo complex consisting of three high rise buildings that were completed in 2006. This makes it one of the few Las Vegas high rise condo projects that was completely finished and sold at boom prices. All three buildings (576 units per building) totaling 1728 total units were sold before the real estate bubble burst in 2007. In 2006 an average studio unit (520 sq. feet) sold brand new for $485,000 and an average one bedroom unit (874 sq feet) sold for $745,000. The least expensive studio sold originally for $318,250 and the least expensive one bedroom was sold for $494,000. Most were financed with 20% to 30% down and there were very few cash sales.

The MGM now represents a unique buying opportunity for investors as the real estate crash has sent prices tumbling to between $0.20 and $0.25 on the dollar from their original sales prices only four years ago. By the end of 2009, we were seeing several studios selling in the $120,000 range and one bedrooms in the $180-$190,000’s. I have followed the project since the prices started falling in 2007 and by 2009 I was ready to recommend the project to my investor clients. I continue to work hard to find units for my clients and the lowest possible prices and because of my experience and knowledge of the project, I have the distinction of having negotiated the lowest purchase prices for both a studio ($99,900 at the end of 2009) and a one bedroom unit ($176K for a beautiful 8th floor pool and mountain view just one week ago.)

In 2008 we saw very few foreclosures and very few resales on the MGM properties. That changed dramatically in 2009. Last year there were over 220 studios and 90 one bedroom units that were foreclosed upon. This figure represents about 18% of the total project. By comparison, other condo projects in Las Vegas experienced foreclosure rates as high as 35% in 2009. I believe that we will see an avalanche of foreclosures on the MGM Signature properties in 2010. Normally, this wave of foreclosures would mean even lower unit prices to come. But I think the heavy demand for the MGM Signature units will keep prices stable throughout 2010. Because the prices have dropped so steeply, the properties are now able to generate positive cash flow. This is keeping demand extremely high for the few available units that come onto the market. We have run into multiple offer situations for all of the foreclosure units that have come onto the market over the last several months.

The MGM Signature was built and marketed as a hotel-condo, as such, it offers tremendous flexibility. You are able to live in the unit full time if you desire, rent it out independently to a long term tenant, lease it out for short term nightly rentals and manage it yourself, or place it with a management company who will handle short term nightly rentals for you and split the revenue with you. Using a management company is the most popular choice for most investors. With sufficient notice, you are able to stay in your own unit as often as you like with minimal cleaning costs if you choose to have the room serviced by your management company. Most investors use the MGM Hotel Residential Services Company as their management company, but many do not realize that there are three other companies that provide excellent service, some with higher occupancy and in most cases better revenue splits for the investor. This, of course, could mean a higher cash flow on your investment. I have a detailed analysis of the similarities and differences between the four companies if you should desire to compare them. (Contact me if you would like to receive a copy of this comparison.)

Currently, there are four ways to buy a unit at the MGM Signature. The first is to buy a resale unit. I don't recommend this method. Resale units are either units that have been bought by other investors at cheaper prices and are now being resold or units where the owners are desperately trying to lose as little money as possible on the sale.

The second method is to purchase a short sale. The short sale route is long and tedious but we have had some success. We tie up the unit at a good low price and wait and hope that the negotiator is able to get an approval from the bank before the unit is sold off at the foreclosure auction. I have had a couple of short sales that have ended with a successful purchase and lost a couple to the foreclosure auction.

The third way to acquire MGM Signature units, is to buy a bank owned foreclosure property (an REO.) This is a great method and the most common way I use to acquire properties for my investor clients. We are able to get a good look at the unit, get good clean title, and have the purchase of the unit done safely and easily. Because of my contacts with the various listing brokers I have been able to develop great relationships and purchase many units for my investors at the best possible prices.

The final way to acquire units, is to buy them at the foreclosure auction (trustee's sale) before they return to the bank and become an REO. This method has its risks but with proper due diligence it represents the absolute best way to get the lowest price possible.

I have been very successful in purchasing Signature units for my investors because I have been attacking this project from all three sides.

I highly recommend that anyone interested in the MGM Signature come and stay at the hotel-condo and visit with me so that you can gain a clear understanding of all the variables that are involved in this project. We can tour the property, talk about and meet with the management companies, look at the one bedroom vs. the studio units, discuss the psychology of views (strip side vs. mountain side) and get a general overall understanding of the property.

I will be following the MGM Signature Towers very closely this year as I project it will be a great time to pick up units at prices well below the developers cost to build. Feel free to contact me directly should you have any questions or interest. May we all have a great 2010.

Thanks

Glenn Plantone

702.769.9872 (cell)

teamplantone@gmail.com

2009 In Review

2009 was a year of expectations and a year of hopes.  Some of these were met, some were exceeded, and others will wait and continue to seek fulfillment in 2010.  We all knew that the foreclosure wave would continue to sweep over the nation’s beleaguered real estate markets.  And it did.  Las Vegas once again led the United States in foreclosures as more bank owned properties than ever flooded the market.  We hoped that this influx of affordable properties would lure some investors back into the stagnant Las Vegas real estate market.  But no one expected just how tantalizing that lure would be.  As investors from California, Canada, and all over the world sought to purchase cheap Las Vegas real estate that was suddenly cash flowing positively for the first time in years, home sales in the valley boomed.  Throughout the summer of 2009, Las Vegas posted sales numbers that exceeded those of the boom years in 2003 and 2004.  As quickly as foreclosures re-entered the market, they were gobbled up in their REO form by eager investors cashing in on what had become the greatest real estate buying opportunity of our lifetime. 

And we all hoped that this re-energizing of the real estate market would spread to the economy at large.  It didn’t.  To spite the high hopes of many generated by the seemingly endless stream of economic stimulus packages introduced by the new Presidential administration, an economic recovery failed to materialize and December saw some of the worst unemployment statistics since the recession began.

And yet, this bad news for the economy at large, may translate into good news for investors looking to purchase real estate in 2010. Normally, the excess of demand that we have been seeing in the Las Vegas market would push real estate prices higher.  But the general economic downturn may curb those price hikes and keep properties in Las Vegas at their historically affordable levels through the next year.  Especially for those willing to acquire properties through the trustee sale, properties that need a little work, or unconventional properties like high rise condos. 

As the supply of turn key, single family REOs has dwindled over the latter half of the year, my investors have found that the best way to acquire profitable real estate in Las Vegas is to think outside the “herd.”  We have been investing with great success in properties purchased through the trustee sale auction, high rise properties like the MGM Signature Condos, and properties that are not “turn key” such as “stripped” foreclosure homes.  Since the vast majority of investors are not purchasing these types of properties, we are able to continue to get great deals on investments that will generate strong positive cash flow.

I look forward to 2010 as a year that will continue to allow my clients to purchase Las Vegas real estate at deeply discounted properties.  Hopefully, the nation’s job, credit, and financial markets will begin a steady recovery and everyone can begin to benefit again from a robust economy.  Until then, we are wise to once again remember the words of the great financial giant Baron Rothschild who made his fortune largely during the years of the Great Depression, he said, “Buy when there is blood in the streets...even if the blood is your own.”  Now is truly the time to take advantage of every opportunity to create wealth for our future. 

If you are interested in taking advantage of this historic opportunity to purchase great Las Vegas real estate, contact Glenn Plantone at 702-769-9872.

Stripped Homes Offer Great Profit Potential

It's the newest thing in housing these days... 4 BD/3BA... no kitchen.  No kitchen, no ceiling fans, no landscaping, even no light fixtures.  Yes, it appears that appliances and hardware are the latest casualties in the nation's foreclosure meltdowns.  A recent article in the New York Times calls attention to this growing phenomenon.  It cites a recent ad in Craig's List where the owner makes no effort to hide his intentions.  " 'Stripping House — Before Foreclosure,' the ad declared, offering potential buyers the cabinets and counter tops, the sinks and toilets, the doors, the appliances, the sprinklers. Even the palm and citrus trees in the yard were for sale, with a catch. 'You dig,' the author advised."  According to the article, areas like Las Vegas, which have seen the nation's highest foreclosure rates, have also been affected the most by home strippers. 

Some metro areas, like Phoenix, have laws in place that make stripping homes prior to foreclosure a felony under a state fraud statute.  In cities like this, the FBI has been able to apprehend home owners attempting to liquidate appliances.  Although the sentences for these crimes is usually quite light (18 months probation for a recent offender), police hope that criminal prosecution may deter home owners from trying to strip their houses before they leave.  But in other cities, like Las Vegas, there are no laws that make gutting your property prior to eviction illegal.  Mortgage contracts do specifiy that homes must be kept in good order, but the lack of state law on the subject makes the issue a civil, rather than a criminal, matter.  And legally pursuing home owners that sell off a home's assets prior to foreclosure is not usually a profitable venture for the bank, as costs of a lawsuit greatly outweigh potential recovery.
 
This has led to rampant home stripping in the Las Vegas area.  But we don't need an article in the New York Times to tell us that.  I see these stripped homes first hand every day.  In fact, they have provided me and my investor clients with some great money making opportunities.

One of my most recent purchases was a 2113 square foot home that was only three years old.  When we walked through the house, it was a mess.  It had no kitchen and needed new paint, carpets, and various hardware items that had been stripped.  We purchased the house for $104,000.  It had been sold new for $319,000.  After putting in a brand new kitchen for $4500 and spending $1500 on new carpets and $1500 on new paint and accessories, we had a beautiful home for a total of $112,000 ($53 per square foot.)  We were able to turn around and lease the property under a two year contract for $1295 per month.  This created terrific cash flow for my client and translated to acquiring the home for $0.33 on the dollar at an 11% cap rate (based on the $104K cash purchase.)

These types of deals are available for anyone who is willing to put in the time and effort to revamp one of these foreclosure homes that have been gutted by the previous owner.