Minnesota Real Estate Investors Association, Inc.

We live in uncertain times.  After the mortgage meltdown and the almost collapse of the financial industry, the real estate market has been going through several ups and downs.  The median sales price in my area went from its peak of $238,000 in June 2006 to a low of $138,500 in February 2012, back up to $210,000 in June of 2013 and we are on our way back down, currently sitting at $179,850 for January 2014.

There have been some wild swings in the past few years and the people that understand that and have kept a close eye on the trends, and have not been afraid of the market have made a lot of money the past few years.  However, I have seen most people sitting on the fence and haven’t done anything.  I can understand the feeling of uncertainty and being afraid to make a mistake, but let’s face it, if you’re afraid to make a mistake, you will never make it big.

You’re probably thinking right now “That’s easy for you to say Mike; you’ve been at this for a long time and have more experience than I do”.  While for many of you, that may be true, however, for your info, I have probably made more mistakes than most of you ever will, and I am still making mistakes.  But that is not holding me back.

That is one of the most common traits I see from those who are successful, even in this wild and uncertain market.  They are not afraid to make a mistake, and often do, but they don’t let that hold them back.

Everyone wants to minimize their risk of making a mistake and losing money or damaging their credit, myself included.  However, I see way to many people with paralysis of analysis and never do anything.  So what’s holding you back? 
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Over the past, the most common question I have heard is “what are you going to do about the Dodd-Frank Act”?  And my common responses have been, “not worry about it” or “understand it and work around it”.  So what is your response, and will you survive not that the dastardly bill that is now in full affect?

Many people are worried that this new law that has been in effect since January 10, 2014 will put them out of business.  There are many new regulations pertaining to lending and one segment in particular that affects investors the most, especially in the coming years with our current economic situation and that is seller financing.  People are worried that these new regulations will have a dramatic impact on our business, and I have heard several people predict that parts or all of the Dodd-Frank law will be repealed.

I don’t put a lot of faith in congress repealing anything these days.  Look at Affordable Health Care for instance; does it look like that will be repealed?  No, so why would you expect the Dodd-Frank Act to be any different?  The Dodd-Frank Act was a response to the sub-prime mortgage meltdown crisis to put the blame on a segment of the economy that was politically acceptable and to repeal it now would be an admission to that fact.  In an attempt not to offend certain political ideologies here, I will not get into the cause of the sub-prime mortgage meltdown crisis, or the political reasons for appealing the Dodd-Frank Act, but I will explain what it means to us as investors.

Here is the simple break down, as I understand it.
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This spring the market was chugging along just fine.  Then a 30 year fixed rate loan increased to just under 5% and the market came to a crashing halt. During the months of August and September, one of our largest local lenders saw a 72% decline in new and refinance mortgage applications and retail, renovated properties seemed to just sit there if they were priced a little high. 

Interested rates dropped by a mere half percent and houses that were sitting there started selling again and mortgagee applications returned to the same levels as they were in June and July.

I am assuming that the Feds will keep rates low for the foreseeable future because the economy is still too fragile, as evidence by less than a 1% rate increase in the real estate market.

Ok, so it’s been a while since I have been able to post any updates to the blog.  This spring we were busy buying, selling and rehabbing houses.  Plus I spent a lot of time building and improving our website and member management and event registrations system call PROS – Professional REIA Operating System for REIA’s (Real Estate Investors Association).  And now we are spending our time creating new marketing campaigns and chasing down anything that might smell like a lead.

So what’s going on in the markets right now?  There are several issues we are dealing with lately.  Most recently, Interest rates have started to climb and there is a huge lack of inventory.  The lack of inventory can be explained by the rise of hedge funds buying billions of dollars worth of inventory directly off the market and from the banks, pulling most of the Shadow Inventory, out of the shadows. 

That is one of the primary reasons for the lack of inventory, but not the only one.  The banks stopped filing foreclosures, or at least slowed way down last year to deal with other issues, including packaging up shadow inventory for the hedge funds.  The banks are back on track now, but all that inventory that would have been hitting the market right now, is just now going through the foreclosure process and is expected to hit the markets later this year.

I have been hearing from fairly reliable sources, that the amount of expected foreclosures over the next few years is equal to the amount of foreclosures that have already happened over the past few years.  It should be an interesting next few years.

“Get Off Your Butt and go Buy a House.”  This is a statement I had heard years ago from an old friend when I was complaining about being a broke struggling want to be investor, so I listened to her and did it. That was back in the late 90’s and it was a good ride for many years.  But the last few years have been tough on a lot of real estate investors, me included.  Many of us had to hunker down, retrench and then recover from our battle wounds.  The length of recover was/is directly proportional to the magnitude of your original symptoms.  Some people unfortunately didn’t have the financial or emotional strength to weather the storm which I completely understand as I was almost one of them.  But now it is time to look forward and plan for the future rather than having to deal with repercussions from the past. 

I understand that there will still be a few things we all need to deal with from the past few years as we move forward, but move forward we must, and this is the year to do it.  Even though last year was a relatively good year for real estate investing, it was still a tough year for many investors because of all the competition and the lack of inventory on the market.  I personally struggled finding rehabs as well.  Between my partner and me, we looked at over 400 properties, make close to 200 offers and only got one MLS offer accepted.  Looking back, off all the properties that we made offers on that sold, they were all in multiple offer situations.  Even though we had plenty of cash to buy and always offered quick closings without contingencies, we were always out bid with very similar offers.  Many of those other properties that didn’t sell are still on the market and still overpriced. 
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Beginning on January 1, 2013, a new real estate capital gains tax will take effect to pay for Obama Care. When Obama Care was passed back on March 23, 2010, one of the funding measures was to take from Medicare.

“Bet you didn’t know that, did you?”

So how are they going to recover those costs for Medicare that they stole for Obama Care? Simply increase taxes on real estate and other interest and dividends. This new 3.8% tax is expected to raise $210 billion over the next 10 years.

The new 3.8% Tax Rate applies to:

• Individuals with adjusted gross income (AGI) above $200,000
• Couples filing a joint return with more than $250,000 AGI

Types of Income:

• • Interest, dividends, rents (less expenses), capital gains (less capital losses)

The new tax applies to the LESSER of:

• Investment income amount
• Excess of AGI over the $200,000 or $250,000 amount
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When I first started real estate investing back in the early 1990’s, it was a struggle to find good training for beginners.  So I eventually got my real estate license and through marketing, I found a few local and successful investors who took me under their wings and that is where I got most of my training, but it was still very limited, because those investors only did one thing, but they were good at it.  However, for me to get out on my own and do things their way would require me to have a rich uncle who died and left me a fortune to invest with.  But I didn’t have a rich uncle so I had to learn something different.

That is when I started looking for alternative training sources, and in my state, there was no local resource.  That is when I started seeing a rise in infomercials and I started buying their training courses, and I got upsold to their seminar, and then their coaching programs.  And slowly, I started to do a few deals that I never even knew could be done before I bought those courses.  I started creating seller carry back notes, selling those notes to raise the down payments.  We did substitutions of collateral, wrap around mortgages and then I learned how to buy pre-foreclosures.  I was doing short sales for years before the term short sale was first used outside of the loss mitigation departments.  I was rehabbing and then I learned how to Wholesale, which I said couldn’t be done, until I bought a course on wholesaling and I made it work J

I learned all that because of infomercials.  However, these days, our inbox is loaded with infomercials.  And finding resources to learn real estate investing is easier than ever before, thanks to the internet, emails and webinars.  It seems like no matter where you turn, there is another infomercial in your inbox, on your smart phone, on the TV and everywhere you look.
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We knew this was coming, just a couple of weeks ago, BoA (Bank of America) sent out a letter to 1,000 customers who are currently in default offering them the option to rent the property back from BoA at fair market rent if they simply deed the property back to BoA in lieu of a foreclosure. This will only add to the currently unknown number of properties in the Shadow Inventory.

On Thursday April 5, 2012 the Federal Reserve issued a policy statement on the rental of REO’s.

The general policy of the Federal Reserve is that banking organizations should make good-faith efforts to dispose of OREO properties at the earliest practicable date. Consistent with this policy, in light of the extraordinary market conditions that currently prevail, banking organizations may rent residential OREO properties (within statutory and regulatory holding period limits) without having to demonstrate continuous active marketing of the property, provided that suitable policies and procedures are followed. Under these conditions and circu Read More...

On Friday September 2, 2011, the federal government sued 17 big banks for selling mortgage-backed securities to Fannie Mae and Freddie Mac after those securities turned toxic.  This is just another example of the underling disease infecting this country.

In the 90’s, the federal government was pushing banks to make it more affordable to first-time home buyers and lower income families to qualify for a mortgage to promote their American Dream agenda of everyone in America owning a home.  At first the banks pushed back and said this was a bad idea, because a good percentage of the borrowers would never be able to pay the loans back.

The federal government, in their infinite wisdom cr
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