How Can Realtors Sell Renovation

Selling Renovation

This is becoming so hot right now with all the foreclosures on the market but you have very few lenders who know how to originate, process, and close these.  Aside from that, you have few loan officers who are specialists in this area (and by the way you want to be working with a specialist) which creates issues because loan officers not familiar with the process on these are "winging it" and this is where your horror stories come from.

So work with a specialist!

Anyway...the topic for today is how can Realtors sell this in the marketplace.  Part of my continuing education class curriculum is going over how to sell this and quite frankly it's really easy.  You're doing it right now and you don't even know it.  Here's how..

When you're taking a client through a property do you ever make suggestions on carpet, paint color, or possible improvements they can make to the home to "make it theirs"? Use phrases such as "add your own personal touch"?

Sure you do.  What you're doing is selling renovation financing already it's just you're not connecting the dots with the client which is letting them know they have a way to do this now instead of later and over time (this is where you direct them to the specialist you've teamed up with to explain further, just leave it at that)

Let's face it...

They may say they are going to do it but over time that intent diminishes because life is busy, they will get distracted with other things and it will never get done; so by letting them know that this is an option now and that they can finance the cost of repairs into the loan along with their purchase - and they can move into the property and quickly begin and finish their desired improvements, is really really powerful and motivating.

Why? This creates the vision in their mind what the home will look like completed and we all know visuals are extremely powerful and will move people to action.  You're selling feelings here.  Besides, I would rather make the home my own then rely on the seller making improvements or "settling"on a house that was newly renovated that isn't just right but "will do" paying a premium for that house... and heck maybe over time even redoing those renovations to satisfy my own liking...

What a waste of time, money, and effort.  I would utilize the opportunity to do it now and turn the home I "just like" into the one "I really love" now.

More Ways To Sell Renovation

That's just one way.  Another way is to overcome property condition objections.  Ever have somebody walk in and before they even see the rest of the house, and say "nope, no way, carpet is ugly, cabinets gotta go, I'm done here"? 

Yea, you've been there before.  Use this as a tool to again, describe in short, what they can do.  Find out if that's really the objection.  

If the area is great, price is great, school district is good (if applicable) just ask this simple question to intrigue them and get them thinking... If I could show you a way where you could replace all of these ______ (whatever it was they had a problem with) brand new roll it into your loan and have it done the way you want, and have it done right after closing, would you be interested in knowing more and would you want to move forward on this home?

Spark interest; find out what is really bothering them about the house.  Will this always work? Will this be the answer for everybody? No, of course not but just like in baseball, can't hit the ball unless you take the bat off the shoulder and swing.  Same goes here, you won't know unless you ask...it's just another tool in your toolbox you can use to sell more homes.

Properties in need of repairs

Renovation financing is perfect for those "ugly properties" that need repairs just to get the financing done because standards, lets face it, have tightened up.

Instead of avoiding these, if you have a client interested in one of these properties, you should be smiling from ear to ear as they are already sold on this property and plan to make improvements as they want "the good deal" since it needs repairs. 

This is where you sell renovation financing and let them know they are creating additional equity through the improvements and they are able to obtain the financing with a low down payment solving two problems - purchasing the property and renovating it - all in one loan.

Example:

Purchase price - $50k

Estimated repairs - $40k

As is value - $50K due to condition

After-improved value - $120k once fixed up (which by the way is how we base their maximum financing off of, after-improved value which is why this option is so appealing)

Options to buy - cash as financing it with a regular loan will not fly due to repairs needed

Money needed for repairs - $40k

Total cash out of pocket - $90k

Now Using Renovation Financing See the Difference

Same as above for price and repairs so total NEW purchase price- $90k

After-improved value - $120k

Down payment on loan (depending on program) - either 3.5% or 5% (investor loans 20 and 25%) based on the $90k

Total cash needed - 3.5% of $90k = $3,150 5% of $90k = $4,500 + any closing costs that are not covered by the seller.

Difference $90k in cash OR

Put down $3,150 to $4,500 and use renovation financing to get this property.

Total equity - $30k
Total money out of pocket saved = $THOUSANDS

Not too shabby huh?

Either pay $90k out of pocket to pay cash and fix up or use renovation financing with minimal cash out of pocket and use banks money at low interest rates.  Fully amortized loan over 30yrs

Option 2 is definitely the smarter one.  This is an easy sell.

Some More Options

Now you can use this loan to sell updates to a badly outdated property as well.  Needs completely updated to modern standards - no problem - you can do anything from light to moderate (painting, carpet, cabinets, to plumbing, electrical) all the way up to tearing the house down and rebuilding on same foundation.  Has mold or lead based paint? No problem there either - done! 

More complex properties such as mixed use or manufactured - done! 

Conclusion

So you see, there are many ways to sell this and we are in a very wet, muddy, crazy marketplace right now but there is a way for you rise above the competition and dominate this piece of the market and do very well because I'll tell ya...

Nobody else is focusing on this at ALL.  They are scared of it.  That's because of the stories that they've heard and been told but then again were they working with a specialist and what was the whole story, would be two questions I'd be asking. 

Don't be scared of it - learn it, sell it, dominate, and have a monster successful 2013 because again, this will be the next real estate trend...

You can read When To Use Renovation Financing post as well here.. http://swigartsmortgagejournal.blogspot.com/2012/10/when-to-use-renovation-financing.html

Dustin

FHA Fund In Deep Doodoo

FHA's Finances

You're probably laughing at the title but it's true folks...FHA is in DEEP doodoo (my spelling I don't care) and has been for a long time.

Rueters released an article recently stating that unless FHA does something soon it will be drawing money from the Treasury...

So what's new in Washington? More taxes, more bailouts, more losses being covered up and now FHA will increase fees yet again to try to shore up the balance sheet and avoid a so called bailout.  However what's the difference right? All of us as consumers are bailing them out by paying higher fees for the mortgages.

The fund is a total disaster and the program is so outdated it's had little changes since it's inception in the 30's.  They know it needs restructured but choose to kick the can down the road. (just like everthing else, ha)

FHA now insures 1.2M mortgages and their share of the market has increased to 15% from 5% in 2006. The article went on to say that it missed needing to draw from the Treasury due to $1B in settlements from servicers...hmmm.. could that be why Wells was the next target?

Estimation is the fund will not be back to it's 2% capital ratio requirement until sometime in 2017...this just strengthens my prediction we're not going to see rates go anywhere upward - they just can't - anytime soon; they're relying too much on new activity and higher fees to keep the ponzi going.

Plus with the lawsuits they're hoping to generate some more revenue for the fund.

We're playing a dangerous game of Russian roulette here.    Just see this quote from Maxine Waters below

"At a time when the private market constricted, the FHA stepped up, providing crucial liquidity and access to the mortgage market," said Representative Maxine Waters, a senior Democrat on the House Financial Services Committee.


She warned against taking any actions that would "precipitously" choke off loan availability.

Oh yea...they know what's up.  If we choke off credit - crash and burn baby...

So What Mindset Should You Have About All of This?

So what does this mean for those in the industry? Consumers? Well folks you can't change it; it's happening and you're not personally going to do anything about it so if you're shopping for a loan and all you qualify for is FHA, you're just going to have to take it from behind...and you'll be forced to like it.

If you're in the business like I am I know what's going on and I understand it.  For the consumer I know it's hard as you don't go through it every day like we do.

The good news, because I try to focus on the good because you'll cause nothing but anxiety and stress if you don't, is that there is a real opportunity to utilize a program FHA offers and to take advantage of it.

What is it? It's the 203k renovation program.  I've said in earlier posts that this will be the new real estate trend, and it already is beginning to be, for some time to come.  Without going into full detail as my blog post will explain, you can buy a fixer upper and finance the cost of the improvements into the loan...
and your maximum financing is based on after improved value of the property...This is an awesome program but it does suck that it will be more expensive now...

However - if you find a property that is priced well below market value and put the right improvements into it, you CAN create instant equity.  Go here for details and read my blog post on it. 

Again folks, please keep in mind it's not your loan officer or realtor who caused all this mess...(see below)


Yeah Buddy!



It's these guys...they know, knew it, and let it happen because there buddy lobbyists were filling their pockets full of cashish. 

Stayed tuned and lets see what happens now that the election is over and we'll get to hear some nice juicy stories like we've been like the General Petraeus's little affair and whatever else they want to release now that Obama is back in for 4 more years.

Hold your hats...







Credit is Starting to Ease

As we all know we've been hammered everyday about the economic conditions we face. It's funny though how, when speaking about mortgages, the media fails to talk about government backed loans. They only talk about Fannie and Freddie but leave out Ginnie, which backs FHA securitized loans.
We still have financing available for first time homebuyers and marginal credit loans through financing with FHA, VA, and USDA rural housing loans. When talking with prospective buyers I keep hearing how "scared" people are to make a move. After I explain some of the conditions in the market and why the stock market is so volatile they settle down and understand what is happening with market dynamics.

The automobile industry used to be the main driver of the economy and signaled the dominance of manufacturing in our economy. Well now the main driver is housing. Yep that's right back in 2001 after the 9/11 attacks government was reluctant to impose regulation on the only part of the economy that appeared to be thriving, the red hot real estate market. Now we are facing the problems that all the credit default swaps, collateralized debt obligations, and other derivatives, that have caused problems for the banks and institutions that had them on their balance sheet.
We are in a flushing out phase and it will end, just not immediately. The Housing Recovery Act of 2008 made great strides to modernize FHA and come out with a tax credit for first time homebuyers in order to get them back into the market. Lets face it we need the first time homebuyers back in to purchase bloated inventory so we can start the domino effect again.

I want to explain a little bit about what is going on in the credit markets. I believe through education, you can ease your prospects minds with important information and convert more leads into sales.

Lets start with the credit markets. Credit markets are vital for individuals and businesses who need to access credit in order to purchase goods and services, make payrolls, expand business operations, make capital expenditures, school loans, and more.

The most important spread being watched right now is the LIBOR/OIS Spread. This is the spread between dollar LIBOR (london inter bank offered rate) and the Overnight index swap rates. This is a good indication of the willingness of banks to lend to each other. To give you a comparison before the credit crunch the LIBOR/OIS spread was 11bps (bps mean basis points which is 1/100th of a percent, example 11 basis points is .11% - 100bps is 1%.) The higher the spread the less likely banks will lend to each other. This week it closed at an a staggering 331bps but dropped from 341bps, which means we are seeing slight improvement.

Now what about all the selling? Well with the craziness in the market and Hedge Funds, investment vehicles for the wealthy, are deleveraging their positions and being forced to sell due to redemptions from their wealthy clients. Hedge funds are down about 19% ytd (estimate), some hedge funds after fees return 20%-26% annually. Hedge funds make their money in the stock market, credit markets, and derivative markets but in some cases borrow heavily to invest and hedge their bets. That's fine and dandy in an economic boom but in a slowdown like this they must sell and deleverage their positions causing downward pressure in the markets and then also selling on the down side, short selling, put options, etc, to keep from losing money from long, bullish positions, which causes more downward pressure. Not to mention mutual fund clients are selling their positions to meet growing redemptions from their clients as well. Thus creating the volatile environment we find ourselves in.

If you had some extra money laying around right now would be the best time to invest in real estate, and stocks pounded and are now undervalued.

The moral of the story, educate your clients in contrary to what is being splattered on the media, we are in election time and some news stations with political agendas are attempting to make this look like this is all the Bush Administrations fault and are attempting to make it sound so HORRID. Both parties failed to take action but many attempts were made but shot down by democrats in Congress. Right now is the best time to buy a home and with the Treasury recently being given 1.1Trillion dollars in buying power to purchase mortgage-backed securities (the main driver of mortgage rates) we should see some easing in the rate volatility here shortly as well.

If I can help with anything feel free to call or email me. Stay positive, do your homework on the market, this kind of thing happened in 1987 as well but how soon we forget.

God Bless!