Frequently Asked Questions
Q. Can I use my own lender?
A. Currently, cash offers are needed in order to win bids and edge out competition on a majority of foreclosed properties. There are certain types of properties that require cash offers and there are other properties that will allow for a financing contingency. On rare occasion, I can place an offer on a property and use a residential lender. Regular Real Estate allows for mortgage brokers to write the loan... foreclosures typically require cash, commercial money or hard money. Most of these banks who are selling the foreclosures sell them AS IS, Where IS.
Q. Why do we use First Choice Bank?
A. First Choice Bank has funded a cash facility for Mass Consumption, LLC that is extremely progressive. Mass Consumption LLC has access to a $1,000,000 line of credit for acquiring foreclosed properties. As a member, I can bid on foreclosures with the LLC's funds and allow our investors to simultaneously take the property through a Series LLC. There are nominal costs associated with process, however without the LLC's cash we would run into serious problems when bidding on foreclosures...ie getting beat out on bids I learned this lesson early, in one of my first disappointing experiences as an investor...
I was out looking at properties with your "friendly neighborhood realtor"...very nice lady, but she had no idea on how this game worked. I came across a brick ranch that was very beat up, but had HUGE upward potential in Wheaton. It was listed at $159,000. I had been "low-balling" all over town to no avail...so I offered full list price. (as a side note-the only things that result from low balling are spinning your wheels and missing good deals). They came back and said they had multiple offers. After a lot of non-sense and back and forth, I countered with $100 over the highest offer. My agent was disappointed to tell me that they had a cash offer and were done negotiating. I was baffled... who has $159,000 in cash just sitting around? And either way what difference did it matter, I had a higher offer! That was my first and last lesson proving that "Cash is King" in this business.
Q. Can I flip properties?
A. Yes...but I advise holding ALL real estate as a rental unit for 1-3 years. Taxation, profit margins and appreciation all play into my advice here, but each investor is different and has different tolerances and objectives. Rather than trying to buy/sell and quit your job, my advice is to rehab, rent and refinance to retire early one day. I believe holding properties as rentals and cash out refinancing the properties to be a far better return, but you can certainly buy/sell and make a very nice return. I, along with many of my investors, have bought and sold. The one piece of advice I would give any investor is that typically, to sell the units the rehab is more extensive...ie replace kitchen cabinets as opposed to painting them. Keep that in mind when you move forward with your next investment... Buyers are far more sophisticated than Renters.
Q. Do we get clean title?
A. Yes all properties will be closed with clean title... that is a stipulation on any deal.
Q. Do you have a management company?
A. This is in the works, and will hopefully be up and running soon. I am currently interviewing candidates.
Q. How did you get into this business?
A. Shortly after I realized that working in Corporate America for the next 30 years was not for me, I started reading every book I could get my hands on regarding starting your own business. At the time it was $250,000 to buy a sandwich franchise where you could eke out $40,000 a year in profit. Books like Rich Dad, Poor Dad can give you warm fuzzies... there is even some nice theory, but there was nothing practical or specific enough for me to put to use...much less quit my job. After careful consideration I decided I would buy a house, live in it while I rehabbed it and rent a room out to a friend in order to cover costs. As all rookie investors do, I called up a family friend who was your "friendly neighborhood realtor" and started my hunt. This is a great way to waste time and spin your wheels. After many years of taking my lumps and learning things the hard way through tough situations, we have put in place a very competent team of rehabbers, banks, leasing agents and support staff that allow us to thoroughly enjoy this system of rehabbing foreclosures.
Q. 100% Financing
So you’re sick of the cash out refinancing? So am I. While it’s certainly worth it to utilize the bank’s money in these projects, it’s not always a fun process. Our new construction financing program will blow you away.
Our new program is based on 80% of the END value and will be available up front. I have 2 commercial banks that will allow you to finance my projects this way. This program is limited to our projects. Here are some details from one of the banks. The loan functions like a construction loan and will provide your funds for rehab up front in the form of an escrow account.
It has taken me 10 years to establish the credibility to provide this program, but we have it in place, not only with one bank, but 2. I couldn’t be more thrilled!!!
Q. ANOTHER RATE CUT
What does another rate cut mean to investors? It means that the Fed is making a serious attempt to curb the struggling real estate market. By lowering the fed funds target rate to 3.0%, the Fed has established a sincere effort to remedy their overzealous increases of the recent years. The theory behind raising rates 17 consecutive times, was to hedge against inflation. Inflation is extremely difficult to gage, and in all honesty, I have a hard time depending on the government to accurately gage inflation. In my opinion energy costs and gasoline are the major source of inflation in the country. As we continue to see interest rates cut, this will ultimately help the US economy and will ease some of the “inflation” that the average Joe feels.
I studied economics at the University of Illinois. The theory or idea that increasing interest rates curbs inflation may be valid, but I have another perspective. As rates go up, as they did from 2005 to 2006, this hurts the average American’s pocket book. Think about it. Credit card payments go up, home equity loan payments go up, and ultimately this cannibalizes the paychecks and pocket books of the American people. I understand the theory, I really do. My argument here is that we (and the Federal Reserve Bank) need to examine rates and inflation in a different way. Inflation is defined as the increase in the price of some set of goods and services in a given economy over a period of time. It is measured as the percentage rate of change of a price index.[1]
In my opinion, the price of milk, cars, food, etc. has not increased or “inflated” beyond a reasonable scope. The price of money however was “inflated” drastically from 2005 - 2006 and was kept artificially high in 2007. By the 7th time rates were increased, I felt as though the Governmet/Fed was egregiously overreacting. I predicted that this was a foolish move that would ultimately hurt the US economy. Many made the same prediction. Many people, as I do, feel that the Fed typically overreacts. It’s just my opinion, but the fed funds rate cuts to 1%(post 9-11) was aggressive. With all the uncertainty post 9-11, I did feel that it was deemed as necessary and prudent. The increases in fed funds rate (and ultimately the prime rate) from 2005 - 2006 was excessive, to say the least. Economic growth has slowed, the “R” word is everywhere..and here we are cutting rates again.
So what does all of this mean to us as investors. This means that the softening economy has forced the Fed to lower rates, which will cost the average Joe and the average investor less to own their home. Rates go down, prices tend to go up. We’ll see if this happens. It’s my opinion that 2008 will be a year full of incredible deals and incredible cash flow opportunities. I’d suggest fixing your rates with Prime for the remainder of the year, for short term real estate transactions. For your homes and your long term holds, I’d recommend locking in longer term products. I have a 30 yr. interest only loan on my home. Great product! The majority of my investment real estate is fixed at 7% until early 2009. If you are investing in our program today, First Choice Bank, will fund your purchases at 90% with a prime (Currently 6%) floating product.
I have said this over and over again, “NOW IS THE TIME TO BUY”. Our average foreclosures is priced at $100,000. At 6% interest only, your payment will be $500/mo. Add in your RE taxes and Insurance, and you’ll likely be around $750/mo. Our average rents are $1,100.
With just 10 purchases, you could be cash flowing $3,500/mo. This will likely take care of your personal mortgage and maybe even your car payments. But Josh, What if Prime jumps back up? Well that’s a great question. We don’t know when rates will go up, but if you were to fix rates now you may pay a slight premium. That being said, your cash flow situation will likely remain tremendous, as the mortgage crunch has forced first time home buyers to remain renters. Take advantage now, the opportunities are abundant.
Q. The Ultimate in Protection for Investors
One of our goals here at Robert Anthony Real Estate is to protect our investors. Through Series LLCs we are securing an incredible level of protection for our investors. Each property should be run like a separate business, each property’s expenses and income will flow through their respective bank account. If you feel this is excessive, no need to worry, you can combine LLCs via quit claim deed if you would like. The reason we are so adimate about utilizing Series LLCs is that this process provides an incredible level of protection for investors. A wide variety of potential law suits may largley be covered by your home owner’s insurance policy. This is our first line of defense. Our second line of defense is the Series LLC. If you really want to protect yourself there is a 3rd recommendation that I could give you.
If you are having a roof installed, it’s always a good idea to have yourself added to the Roofing Contractor’s General Liability Policy AND their Workman’s Comp Insurance. There is no cost to do this, (I just recently did this) and it provides another level of protection. There are all sorts of ways that you can protect yourself, but in my opinion these 3 layers of protection, in conjunction, are nearly iron clad.
Nothing in this world is certain, but these 3 steps will be a tremendous way to indemnify yourself, and allow you to sleep easy at night.