Four years after home prices hit their peaks, CNNMoney looks at how 330 metro areas have fared.

Source: IHS Global Insight/PNC Financial Service

Depending on your area, many times it is not that hard to find a great real estate deal. In some areas you’ll see 20 to 50 percent as distressed sales. Even with this type of market, there tends to be an elite class of properties that stand out among the distress category.

It could be because of location, condition, price or terms that cause these types of properties to be stand outs and it is in this category that I’ll share some secrets as to how to get them.

PART I

Short Sales

Based on price these seem to be one of the most attractive categories to pick from. Not only that, but there are so many of them. The problem with short sales is that it comes with a HUGE contingency. It is subject to the lender’s approval.

That means the buyer and seller can agree on the price and terms, but it means nothing until the bank approves it. Many banks have a loss mitigation department and their objectives can be quite different from the seller and buyer.

Tip 1

One key is to work with approved short sales . That most likely means an offer was submitted and the bank had approved that offer and for some reason it fell out of escrow. The buyer and seller already know that the bank will accept the price they did previously. This helps a lot when looking to purchase short sales.

Tip 2

It’s a numbers game. Most experienced short sale agents do not think much of the first offer(s). The Listing agent knows it just starts a process with the bank and that statistically the buyer will end up finding another property instead of waiting 4 to 12 weeks for a response. In this case, a second key is to recognize that purchasing short sales is a numbers game and it usually takes about 10 offers to equate to 1 close. Play the game correctly and you’ll have a valid chance at owing some really good properties.

Tip 3

Think in nets. Usually, a good story and a strong qualified buyer with a large down matters to sellers and is essential to getting your offer accepted. With banks being so overwhelmed with loan defaults, the standard mode of operation is the path of least resistance. The primary indicator that they use is what they will net from this sale. So when making offers, look to see how you can show that the bank will net the most from working with you.

Tip 4

You MUST have an agent team that is aggressive in follow up. Remember, your offer may be used just so that the Listing agent can start talking to the right bank department or person and you can easily be ‘forgotten.’ I can think of over a dozen stories like these from other agents in the past 2 weeks! Follow up is a must and you need to have someone who has the resources to do it.

Tip 5

Keep your deposit check. There is no reason to open escrow when such a major contingency exists. You can not tie up the property by being in escrow. Let’s say you open escrow and wait 8 weeks. In that time 4 other offers come in and are presented to the bank. The bank can accept another offer even if you are in escrow.

Tip 6

Work with an experienced team. Don’t get sold on what an agent can do for you, have them prove it to you. That’s right – if you miss this step you can waste a lot of time. Many agents do not have successful experience in this area, transact too infrequently or do not have a team.

Experience

If they are learning on you then you could be paying too much or missing out on the best deals. Ideally, you want someone that has been through a market cycle before, is working fulltime and has no other occupation. They should have specialization in what you are looking for. An easy way to tell is to look at their business card. If they are not even trying to brand themselves as an expert in the category you want, then why take that chance working with them.

Transactions

They should have no less than 10 qualified active buyer clients. If you are the only one or 1 of 3 then you should run. If you needed to do brain surgery, would you want a doctor that does 1 every 6 months or see the doctor that has 1 to 2 surgeries every day. There is safety in crowds and working with an agent that doesn’t have a strong active client following in your category is a huge indication to ask a lot more questions.

Team

If they do not have a team (a real team) that can service you then there is really no way you can find the best deals. The reason – it takes a lot of hard work. This is not rocket science type of hard, more like ditch digging hard. If you want a Grand Canyon real estate steal then you need to have an agent team that can throw their resources behind you.

Caution, don’t get tricked by a franchise name thinking familiar is better, because the reality is that all of their agents are independent contractors and the ‘team’ may be nothing more than promotion and not the ditch digging hard work needed to win the best real estate deals.

The best way to find out is to ask who is on the team, what do they do and how will they service you.

In the next series we’ll talk about how to get the best REOs on the market.

How Low Will They Go?

People have a major misunderstanding of what they expect to accomplish when trying to purchase distressed or bank owned property. I emphasize trying because those same people end up never buying anything.

So how low will the bank go on a short sale or REO? If you’re hoping for a number, you can stop reading. If you’re hoping to steal the property, you can stop reading. If you’re hoping to buy property for 50% of market value, you can stop reading. If you’re hoping to wait and buy the property for less by dealing directly with the bank, you can stop reading.

There are four things you need to understand: 1) The bank only accepts short sales when they believe it’s in their best interest! 2) Banks do not voluntarily accept losses. 3) Banks will always try to limit their losses. 4) Banks know the fair market value of the property.

These four are in no particular order. If they were, number four would probably be number one. I talk to people on a daily basis who want to make offers so low, I can only assume they think the bank has no idea what the property is worth. Don’t be so naive. The bank has a legal obligation to get the highest amount possible for any property. The bank can even be held liable for the difference if they are negligent in approving a sale that is too far under fair market value with no justification. Stories of someone picking up a property at 50% of market value are either urban legend or missing critical factors that played a part in the purchase.

You Can Get Good Deals In Distressed Real Estate

Yes you can. Just be realistic. If you think you can purchase real estate at a 50% discount, you’re not realistic. There isn’t one single situation, no matter how desperate, that would cause an owner to sell their home for 50% under market value when an experienced Realtor can sell that same house for 30% under market value in the same amount of time under the same conditions. Anyone who tells you they did is leaving out part of the story. However, it is very possible to buy distressed homes at a 25% discount. Anyone who tells you a 25% discount isn’t a good deal, doesn’t know real estate or investing in it and you’d be better off steering clear of the real estate advice they have to offer. As a matter of fact, a 25% discount on anything you buy, whether it be gasoline, groceries or a car, is a great deal.

I see so many people that won’t buy unless they can get it for no more than 60 cents on the dollar. They pass on property that’s 25% under market value. Big mistake, here’s why:

Let’s assume there are 10 properties with market values of $100,000 each. 9 of these homes can be purchased for $75,000 each (25% discount) and one at $50,000 (50% discount). This is a fair ratio for illustration purposes. In the real world, it could easily take you more than a year to wait it out for the 50% discount. It’s very possible that you never find something discounted that much.

Investor A buys the 9 homes for $75,000 each

Investor B buys the 1 home for $50,000

Assuming a 5% annual appreciation for each property, this is what each investors real estate portfolio would look like 5 years later:

Investor A’s Equity = $473,653 ($100,000 original FMV x 5% annual appreciation x 5years – $75,000 purchase price x 9 properties)

Investor B’s Equity = $77,628 ($100,000 original FMV x 5% annual appreciation x 5years – $50,000 purchase price x 1 property)

Investor B’s strategy to wait for the great deal cost him nearly $400,000. He made the mistake most amateur investors make; focusing on only one thing – discounted value. Investor A created wealth through leverage. Professional real estate investors know that leverage trumps discounted value every day of the year. Leverage is so powerful, had Investor A bought all 9 properties at full market value ($100,000), he still would have equity of $248,653 or triple Investor B’s investment with a 50% discount. In this market, you can buy real estate at a 25% discount all day long and maybe never find the 50% discount.

Top 10 Tips For Purchasing Short Sales and Bank Owned Property

1. Be realistic. Reread the tale of two investors above if you still don’t understand how being unrealistic can and will cost you dearly.

2. Get off the fence and get in the game. If you’re waiting for the market to drop, reread the tale of two investors above to remind you of how much waiting can cost. Learn more about timing real estate markets here: Secrets for Timing The Real Estate Market

3. Know the true market value of your target property.

4. When making an offer, be able to support the amount of the offer. Pulling a low ball number out of thin air isn’t going to work. If you don’t understand why, reread the four things you need to understand in bold type above.

5. In a short sale, the bank will only accept your offer if it’s a better alternative to foreclosure. This means that the bank will take the fair market value of the property in its current condition, subtract the costs of foreclosure and selling it as an REO, and the "fudge factor". The "fudge factor" covers the costs that will accrue if the bank has to take the property back at foreclosure and includes lost opportunity, risk of vandalism of the vacant property after foreclosure, declining market risks and time to sell as an REO. The "fudge factor" will be the only area the bank will be willing to negotiate. This is the supporting amount mentioned in tip #4.

6. In REOs, the bank can be more "motivated" during certain times of the year. They will generally be more likely to entertain low offers at the end of the month, quarter and year. The banks want to get real estate off their books and these calendar targets can create motivation. But remember, be realistic. Just because it’s nearing the end of the year, doesn’t mean the bank is going to jump at an offer that’s ridiculous.

7. Having access to REOs before they are listed can give you a big advantage. How do you get this information? Here’s one way: Hawaii REO Bargains

8. Don’t get emotional or stuck on any property. Real estate investing should be run like a business. Keeping emotions out of it allows you to make rational decisions.

9. Understand and accept the risks involved with these types of properties. To get the good deals, you will have to accept risks involved with them.

10. Retain the help of an expert Realtor with experience in these types of properties to help you. Don’t think you can do it yourself. That mindset can cost you thousands. Besides, as the buyer, you don’t pay for their services.

Hope this helps. Until next time, happy house hunting!

Elliot Lau

Address

City

Price

HOA

Est Cash Flow

23436 VIA JACINTO

Aliso Viejo

$359,000.00

($230.00)

$304.70

Rental Comps

Address

City

Price

HOA

Est Cash Flow

27906 Amber 231

Mission Viejo

$359,999.00

($230.00)

$239.65

Rental Comps

Address

City

Price

HOA

Est Cash Flow

26847 Poveda 22

Mission Viejo

$325,000.00

($342.00)

$384.66

Rental Comps

Address

City

Price

HOA

Est Cash Flow

26858 Jadestone 199

Mission Viejo

$350,000.00

($245.00)

$383.21

Rental Comps

Address

City

Price

HOA

Est Cash Flow

26611 Guadiana

Mission Viejo

$354,759.00

($328.00)

$253.15

Rental Comps

What Nouveau Riche University Is

Nouveau Riche IS an MLM company. Their most loyal and passionate “alumni” will argue otherwise until you’re blue in the face. Just remember, if it walks like a duck, quacks like a duck, and looks like a duck, it’s a duck. So what if it is? The concept of MLM is actually a good business model. It’s just that MLM has gotten a bad rap. For example, unethical people misleading others that “it’s not MLM.” For those living in denial, let me offer some advice. First, if you are so convinced that you’re onto something real, be proud of it. Most of the MLM stigma is because you’re afraid to admit it and “trick” prospects into coming to a recruiting meeting. Second, tell the truth. You created the stigma MLM as earned, you get rid of it.

How to spot an MLM? Look for the signs, catch-terms, and typical MLM phrases. Here are some Nouveau Riche terminology and its translation into MLM:

Independent Student Advisor (ISA) = Up-line, Sponsor, Mentor. This is the person who brought you in and gets a portion of your money you paid to get in. In this case your up-line gets about half of the $16,000 you pay to get in.

$16,000 Regent Tuition/Education/Courses = Product. If you don’t provide something in return for money, the government considers it an illegal pyramid. As long as you receive something “of comparable value” for the amount of money you paid, you’re not a pyramid. I suppose if it’s spun right, it’s not totally beyond the realm of possibility that you get $16,000 worth of education. Just understand that you can buy the same information at Border’s Books for under $500.

Learning Seminar = National Conference. Every MLM has them. They are very motivational, uplifting, attitude strengthening meetings. They are needed to keep you “in the game.” They are the high school equivalent to a pep rally. Nouveau Riche even throws in a few investment seminars. They have a few motivational speakers and self-help workshops that most can benefit from. You also get a heavy dose of the “success stories”, an endless parade across the stage of “ordinary people like yourself who’ve made it.” If you’re looking for a self’-help seminar, you might get your money’s worth. If it’s real estate education you’re going for, stay home, pick up a copy of Rich Dad, Poor Dad and put the rest of the money you would have spent into a high interest CD. By the end of the year, you could have enough for a down payment on your first property.

Learning Event = Recruiting Meeting. Your first introduction will most likely be through an invitation to one of these by someone you know who probably just joined and wants to share this exciting new opportunity with you. The meeting starts with some exciting ways to make lots of money fast in real estate. They may show “hypothetical” examples of the riches that lay ahead for those who see the “opportunity” and are willing to make the “investment” into their own education. The “education” you pay for will give you ALL the tools you’ll need to be a successful real estate investor. Next up will be the testimonials of people who have “had their lives changed” from NRU. With the excitement level peaked, they tell you how you can start your education to riches. You can start for as little as a few hundred dollars, but the person who brought you will tell you why you want to get the Regent tuition package which is slightly higher, about $16,000.

Other Commonly Used MLM Words & Phrases: Opportunity, life changing, mentor, coaching, coachable, conference call, retirement, financial freedom, synergy, network, passion.

What Nouveau Riche University Is Not

NRU is not a scam. At least not totally. You will get an education in real estate investing. It’s just REALLY expensive and you CAN get the $16,000 Regent tuition equivalent education for much less than $1000. I give the same education for free. I say it’s not really a scam because they do tell you up front what you get, and usually most ethical ISA’s present things straight, although there is a lot of exaggeration that goes on. But then again, tell me when there isn’t some form of exaggeration when sales are involved. The problem is, most people that cry scam don’t do any research before jumping in head first. They got wrapped up in the hype and take it all at face value. There’s always some vision of “financial freedom and getting rich fast” the person has formed when deciding to “enroll.” Some time after shelling out $16k, they realize it’s not what they expected, a get rich scheme via easy street, and cry “foul.” For them, their education was a $16,000 lesson in life. Although $16k is a lot for a dose of reality, I know of “life lessons” that have cost people hundreds of thousands of dollars.

I will acknowledge that there are people who have made money in NRU. Some have made a lot of money. The success stories fall into two categories. The first category are the ones that should be commended. But these same people would have made it with or without NRU. These people have the discipline, mindset, attitude, work ethic and most important, the constant pursuit of learning and improving; qualities all successful people possess. These people applied what they learned at NRU and with HARD work, became successful. Who cares that they paid more than they had to for their education? They’re not complaining, so what do you care? The second category of people who’ve made it leave a path of destruction behind them. While it’s true they made money in NRU, their journey involved recruiting. Lots of it. After their first two Regent recruits, every Regent recruit after that puts about $8000 in their pocket. If you get someone decent at sales, put them in a room full of hype, frenzy and a road map to riches, well, it’s like shooting fish in a barrel. Each “fish” equals $8k. You do the math. It doesn’t take long before you’d have a nice war chest to start your investing. Sadly, most of those fish will soon be crying scam on some blog. They’re the path of destruction I referred to.

NRU is not a university. At least not in the context that many people enroll under. They do have fancy marketing stuff that looks official, but when you really look at it, it’s a very HIGH priced education that is nothing revolutionary or contains any top secret formulas. But if you think that paying $16k makes it valuable and empowers you, who am I to stop you? Just be smart and do your homework before forking out $16k.

NRU isn’t as easy as it’s made out to be. In fact, it just doesn’t work in most cities. The theories taught are real. But theory and real world can be very far apart. It’s possible that if you applied some of the strategies taught enough times (100 or more), you might eventually get a hit. But the reality is most people give up frustrated way before that. Also, it could literally take 100 or more tries to get that one deal. Along the way, be prepared for LOTS of rejection; some pretty personal and cruel. One of the education courses should be on developing thick skin and handling rejection. That would be the most valuable course. If you think the rejection thing is minor and you’re not worried about it, be prepared for an eye opening experience. You have no idea what you’re getting into.

NRU’s examples of their “favorite deals” on Concierge are not accurate. Question the numbers. That’s all I’m going to say about that.

Now that you have a little more insight, here’s your homework. Read the comments on this post and see if you can tell the level of and length of time that person has been in NRU.

Here’s the scale:

1) Just joined – 1 year: Passionate defense of NRU; calling all naysayers ignorant, uninformed or close-minded. Anything negative about NRU takes a little toll on their faith and creates a little bit of doubt.

2) 1 year – 2 years: Defense not so passionate but still believe in NRU saying their experience was worth it.

3) 2 years – longer: Support of blogs calling NRU a scam.

Elliot Lau