Andy is a wholesaler and rehabber based in Denver, Colorado and he spends about an hour taking us through his strategy and sharing tips, tricks and the secrets to his success.

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This is pretty startling legislation if passed so it’s important that we real estate investors pay attention to what happens down in Texas.

If we’re forced to pay a minimum of 82% of FMV for rehabs I can guarantee there will be fewer investors rehabbing. Here’s the email…

New Foreclosure legislation will create problems

In an effort to protect homeowners from foreclosure rescue scams, the Texas Attorney General Greg Abbott is asking the Legislature to expand his authority to crack down on fraudulent practices under the Texas Deceptive Trade Practices Act. Sponsored by state Sen. Craig Estes, R-Wichita Falls, the foreclosure protection legislation is supposedly designed to curb growing problems with “scam artists” who prey on homeowners facing foreclosure.

So far so good, except the proposed legislation is so seriously flawed it will create more foreclosures, which is what we do not need in Texas.

If enacted, the law would require an investor to pay at least 82 percent of a home’s “fair market value” (FMV), and that just doesn’t make economic sense.

I have paid less than 82 percent of FMV for a distressed property on numerous occasions, and so have all of my more than 200 professionally-trained HomeVestors franchisees, as well as thousands of other real estate investors across the country. We are not scam artists, but this legislation would prevent us from purchasing properties. That would be a shame because we are responsible for revitalizing neighborhoods by purchasing properties that, often times, no one else will buy. We rehab the properties, put them back on the tax rolls and provide affordable housing for homeowners and tenants.

As real estate investors, we protect American neighborhoods by improving the quality of housing and the quality of life in the communities we serve. Since 1996, HomeVestors franchisees in Texas have purchased 12,406 houses and sold 10,420 of them—we have purchased almost 40,000 houses nationwide. Our franchisees are required to conduct business ethically and pay a fair price for properties. If we had to pay at least 82 percent of FMV we would not be able to buy most properties. Thus, more houses will sit empty and deteriorate. Neighborhood values will decrease. Vagrants will move into the houses. Crime statistics will increase in these neighborhoods. Eventually, lenders will be forced to take back houses, rehabilitate and sell them, but the homeowners protected by this legislation will still be left with no money and a foreclosure on their records! That’s a great disservice to Texas homeowners.

Here’s why requiring payment of at least 82 percent of FMV just doesn’t work. At HomeVestors, our model is to pay 60 percent of the retail value of a property, less repairs. For a $100,000 property that needs $25,000 of repairs, we would pay approximately $45,000. Our total investment, with numerous affiliated closing fees and expenses, would be approximately $89,250, leaving us a reasonable profit of $10,750 if all goes well. And in today’s economy, there are more surprises than not.

If $45,000 doesn’t sound like a fair price in exchange for a franchisee risking his money to acquire, repair and market a property, I can provide a long list of satisfied customers who gladly welcomed our cash offers. In many instances we saved them from foreclosure, dings on their credit scores, potential bankruptcy and more.

This proposed bill may protect Texans from unscrupulous foreclosure advisors and investors, but it will also create more problems for homeowners and communities. Stop Senate Bill 354. Tell the Attorney General that we’re all in favor of protecting Texans from scam artists, but we don’t want to prevent honest investors from rescuing ugly houses and enhancing our neighborhoods. If investors can’t buy houses in foreclosure and make a reasonable profit, they won’t buy them at all.
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To email Sen. Craig Estes yourself and express how YOU feel about this, here’s the link (it takes a minute to load):

http://www.senate.state.tx.us/75r/Senate/members/dist30/dist30.htm#form

Let me give you a few examples of what I mean.

A few years ago, I saw the writing on the wall with regard to stated income loans. I just knew that they were going away. (If you’re thinking, “What? Whaddya mean no more stated income loans?” then you especially need to keep reading).

I had several self-employed residential mortgage clients that were going to be affected by that so I contacted them all two years in advance and told them that if they wanted to be able to continue to use conventional loans to finance their properties they needed to start showing income on their taxes. What was the response?

“Yeah, but then I’ll have to pay more taxes.”

Last week one of the investors contacted me and was desperate for a refinance of one of his properties to pay off a private lender. Yep, you guessed it.  He had no income on his taxes to document his income and owns more than 4 properties so he is unfinanceable.

He asked, “What should I do now?”

I told him that he could start working with portfolio lenders to refinance his properties into his LLC so he can pull them off of his personal credit. They also may be a little more lenient in the income qualification – using deposits and business income.

He said, “Yeah, but the rates are higher than what I have right now.”

People, the “yeah, but” is lethal.

Real estate investing (like a good marriage) is a series of compromises. You have to weigh the consequences of your decisions. Pay taxes and remain financeable or don’t. Lose a little cash flow to become financeable or don’t. It’s your decision. But that decision will have consequences.

The investor in this example is stuck. He has “yeah, butted” his way right into failure.  He is still trying to do business the same way he has always done it and he is so entrenched in his ways that he is losing tons of opportunity.

What about you? Are you still trying to run your business using outdated strategies? Or are you flexible enough to pay attention and take the advice of the ones who are doing their best to advise you?

Be smart enough to immerse yourself in “what’s working now” because I guarantee you it isn’t the same stuff that worked a few years ago.

Here’s the list of states and counties:

Nebraska:
Eligible counties are – Buffalo, Butler, Colfax, Custer, Dawson, Douglas, Gage, Hamilton, Holt, Jefferson, Kearney, Lancaster, Platte, Richardson, Sarpy, and Saunders Counties.

Indiana:
Eligible counties are – Adams, Bartholomew, Brown, Clay, Daviess, Dearborn, Decatur, Gibson, Grant, Greene, Hamilton, Hancock, Hendricks, Henry, Huntington, Jackson, Jennings, Jefferson, Johnson, Knox, Lawrence, Marion, Monroe, Morgan, Owen, Parke, Pike, Posey, Putnam, Randolph, Ripley, Rush, Shelby, Sullivan, Tippecanoe, Vermillion, Washington, Wayne, and Vigo Counties.

Wisconsin:
Eligible counties are – Adams, Calumet, Crawford, Columbia, Dane, Dodge, Fond du Lac, Grant, Green Lake, Iowa, Jefferson, Juneau, Kenosha, La Crosse, Marquette, Manitowoc, Milwaukee, Monroe, Ozaukee, Racine, Rock, Richland, Sauk, Sheboygan, Vernon, Walworth, Washington, Waukesha and Winnebago Counties.

Illinois:
Eligible counties are – Adams, Clark, Coles, Crawford, Cumberland, Douglas, Edgar, Hancock, Henderson, Jasper, Lake, Lawrence, Mercer, and Winnebago Counties.

Missouri:
Eligible counties are – Adair, Andrew, Callaway, Cass, Chariton, Clark, Gentry, Greene, Harrison, Holt, Johnson, Lewis, Lincoln, Linn, Livingston, Macon, Marion, Monroe, Nodaway, Pike, Putnam, Ralls, St. Charles, Stone, Taney, Vernon, and Webster Counties.