I often get calls from consumers who ask me about foreclosures.  Many times these people are looking to buy their first investment property and they've been told, or somehow extrapolated, that the foreclosure market is the place to be.  While it is possible to find a solid investment in a foreclosure, it is not the best strategy to narrow in to just foreclosures.

Having spent quite a bit of time in the REO (Real Estate Owned - the industry term for this segment) business, both on the asset management and listing agent side, it has been easy to see how much the business has changed.  I believe at one time you could probably find a better deal among foreclosures vs general listings.  However, in my opinion, that type of general application is no longer true.  Asset managers typically seek out multiple opinions of value on the home - usually in the form of an appraisal and a Realtor's Broker Price Opinion.  Typically if those values are not within a predetermined variance they will then get another opinion of value to help reconcile the issue.  That number is determined to be the Fair Market Value and from that number the list price is derived.  Implicit in the term Fair Market Value is that the value is fair - meaning that it takes into consideration the market forces, repairs, etc. and derives a value based on the exposure to all entries in the market.  Some REO companies specifically seek to price their property on a 90-120 value, meaning that the property will be exposed for a longer time and, presumably, generate a higher price.

Generally speaking, most REO companies have a policy that dictates every step of the process.  You are not likely to swoop in on the property in the first 30 days and offer 80% of what they are asking and get an acceptance.  Most REO companies are looking for a net on fair market value in the low 90% range in that first 90 days or so on the market.

The good thing about REO listings is that because there is no emotional stake in the property they are also very systematic about the disposition of the home.  Typically they will evaluate their marketing strategy monthly and make changes to the price if appropriate (and if no one has bought the home after a couple of months it is probably appropriate).  Additionally the net of fair market value that they will accept tends to decrease meaning they will look at and potentially accept lower offers.

Almost all REO companies require their properties (foreclosures) to be placed in the local MLS.  If a property happens to be priced too low your chances of scooping it up before others notice is relatively low as many times it will take a few days to negotiate an acceptance with the REO company (via their local listing agent who communicates with the asset manager).  Perhaps the 'best' deal that can be had on a foreclosed property is after the property has been on the market for an extended period and has become shop-worn.  Still, one needs to exercise caution because there could be a reason no one else has purchased the property.

There is quite a bit more to the foreclosure/REO process, but I wanted to make the point not to narrow yourself to a 'foreclosure' because you heard of someone who got a great deal on one.  In my experience, there are just as many great deals in the non-foreclosure market.  Really it comes down to finding an area that you know and recognizing a good deal when you see it.

If you spend all your time "chasing deals", you are going to get very tired and probably not "catch" very many.  Your best bet is to hire a solid Realtor who knows their stuff and keep your ear to the ground.

Questions - Call me (James Brinkman, West Elm Properties, Austin Real Estate) at 512.698.3525 or email Brink@WestElmProperties.com

Most people know you can use your IRA or 401(k) to invest in stocks, mutual funds, bonds, CDs and other similar items.  Did you know, however, that you can also possibly use your retirement accounts to invest in almost any type of real estate as well as real estate investment trusts, private notes and loans, mortgages, LLCs, LPs and Sub-Chapter "S" Corps, just to name a few?  Of the 45 million individuals with IRAs, only 3% are invested in these alternative assets.  The numbers for the 401(k) are roughly similar.  Typically these investments are done through self-directed IRAs or self-directed 401(k)s, which combined can be called Unlimited Retirement Accounts (tm), or URA (tm) for short.

Possibly the least known but most powerful way to invest in real estate is through a Solo 401(k). 

The Solo 401(k) has several distinct advantages over the IRA. 

• Your contribution limits can be higher - The amount of money a person is allowed to contribute to a Solo 401(k) is greater than what they typically are allowed to contribute to an IRA.  This can be the difference between $4,000 and $40,000 in some instances.
• The contributions can now be made into a Roth account inside the SoloK - The Pension Protection Act of 2006 makes the Roth 401(k) permanant.  This act was signed into law by President Bush on 8/17/06 and removed the 12/31/10 expiration date that was in force previously.  Besides the tax benefits of the Roth (not taxed when the money is pulled out), currently with a Roth inside a Solo 401(k) there are no income limits, unlike on an IRA.
• There are no Unrelated Business Income Taxes (UBIT) - Within the SoloK, Unrelated Business Income Taxes will not come into play if you leverage any portion of a real estate investment purchase.  In an IRA when a portion of a real estate purchase comes from a loan you have to pay UBIT on the related portion of the profit.

As a Certified Consultant through the IRA Association of America, I can help you understand the amazing possibilities available for your retirement accounts.  If you have any questions feel free to call me or email me at Brink@WestElmProperties.com

Unlimited Retirement Account and URA are both trademarks of the IRA Association of America and Jeff Nabers.

As I mentioned in my last blog on Investing in Austin, I attended a class on investing which piqued my interest because I found a source for 100% financing on investment properties.  Combine that with other strategies and you could be looking at being able to buy investment properties with no downpayment and no money out of pocket for your closing costs.  Before I get too far down that path, let me back up a little...

Most people I talk with want to buy investment property but most I speak with have something that is holding them back.  Here are the common obstacles and answers to those obstacles:

• "I don't know what to look for" - I do, I am the expert, and that's why I am here to help you.  As your Realtor it is my job to monitor the market and find the properties that I believe will work for you and your investment goals.  I also consider it my job to educate you to the point that you feel comfortable and confident in the decisions you make.
• "I feel unsure/insecure about the future of real estate" - That's an easy question to understand right now with the news dominating the national headlines.  Know this though, real estate in Austin has appreciated at an average rate of over 6.5% annually over the past 30 years and the outlook for the Austin market appears to be strong well into the future.  The 50 year growth trend line for real estate in the United States is also 4.5%.  If your investment goals include building wealth, investing in real estate should be a part of your investment strategy.
• "My budget can't handle negative cash flow" - I certainly understand, that is why I will help you find a property that will minimize those risks and help you structure the deal so that you can have positive cash flow in your first year. 
• "I can't afford the downpayment" - Most people believe they need 20% down for an investment property.  That isn't the case in most instances.  As I've mentioned, I now have a source for lending that can obtain 100% financing which means no money out of pocket for your downpayment.
• "I don't have time to manage it" - There are plenty of capable management companies in town who will manage your property for a small fee.  Frankly, I think its a fantastic idea to let someone else manage it.
• "I have past credit issues" - The lending industry has loan products for almost any situation.  Don't let this fear hold you back from exploring your options.

The reasons people buy investment properties vary.  Some of the main reasons for buy investment properties are:

• Accumulate wealth
• Retirement Income
• Capital Preservation
• Capital Appreciation
• Rental Income
• Career Opportunity

What reasons are important to you?  That is a critical question to determine so that you can assess what the best type of property is for you and what the best strategy is for you.  Not every property works for every situation.  Each client's situation is unique and every property is different.

Questions? Call me, James Brinkman, West Elm Properties,  at 512.698.3525 or email to Brink@WestElmProperties.com

When I began my career in real estate in 1992 I was still in college and not completely sure which direction I would go within the real estate.  Quite frankly, I wasn't fully engaged into getting into the real estate business for my career until 1993 when I switched majors from the PPA program (a professional accounting degree) to my eventual Real Estate/Finance major. 

In 1994, upon graduating from The University of Texas at Austin, I went to work at Keller Williams Commercial, Shopoff-Gurkin, for Doug Gurkin.  Doug was one of the two brokers who owned KWC and much of the business that he had done over the prior few years had to do with helping investors, many of whom hailed from California, buy investment properties, mostly duplexes and fourplexes, in the Austin area.  Most of them had purchased their investment properties between 1989 and 1992 so by the time 1994 rolled many of them had experienced significant gains on their property's valuation and were looking to exit the market, via a 1031 exchange, and reinvest somewhere else.

If you've very much of what I've blogged about you've probably noticed that I enjoy studying and discussing market trends.  Much of this interest was sparked during my time at Keller Williams Commercial and during my previous time at Brock Consulting Group.  Even with my dealings with my clients who are looking to sell and buy a home, I bring that extra ingredient of analysis to the equation and take pride in making sure my clients get a good deal for whichever side of the deal they are on.

This takes me really to one of my main goals in real estate - to help my clients achieve financial security through their real estate transactions. 

It starts with the first time homebuyer, who moves from renting to owning their first home.  The statistics show that the average net worth of a renter is less than $5,000 whereas the average net worth for a homeowner is over $170,000.  Its a fantastic feeling to help someone find that first home, at a good price in a solid neighborhood, and know that they've just taken a monumental leap toward increasing their net worth and financial security.

From there the next step many of my clients take is moving up.  In en effort to help my clients financial situation I typically offer a move-up program to my clients.  Many time moving up in price range can make the percentage increases in the market have a bigger effect on your bottom line net worth.

After that, most of my clients start to consider buying an investment property.  It really is a fantastic idea for someone who really is looking to increase their net worth and provide a future income.

Recently I went to an investment class and I will share more on buying an investment property, the art of getting in with no net first year cash cost as well as 100% financing in my next blog.

If you have any questions feel free to contact me off of the West Elm website or email me at Brink@WestElmProperties.com .