The Banks and You

Posted on June 8, 2015 by

Here is some news that might surprise you…

banks and hedge funds can actually make your business stronger, especially if you own property.

I can say this with confidence because I’ve been in this business for a long time, and I want to share with you what I know about the relationship between you and the banks:

Banks: Right now, banks are holding the prices up artificially, meaning that values are rising. Banks are pushing the limits of pricing. They are getting data on the best-selling styles, features, and geographic areas. They know which houses sell and rent the fastest. Remember: banks are in the real-estate business; a business makes money. Do not expect them to treat you like a friend.

Hedge Funds: According to The Wall Street Journal, hedge funds are gathering analytics on the type of housing that is in demand. Their information is so specific that they know which houses’ rents can be increased. They also control the home owner and rental market, making it clear which way you should go when you put a house under contract.

Example: My Short Sale Experience

In January, I put a contract on a short sale house that I thought was undervalued. I did my due diligence and thought this house was quite the buy. It was priced at $164,999 and needed $25,000 in repairs. Once the repairs were done, it would be worth approximately $260,000. However, there were a few problems. The house was on a bad lot: the front had a big slope, and the back yard was tiny.

The bank took 4 months before it answered my offer and came back with a rather fuzzy counter. They said that my cash offer had to net the seller $165,000. I have no idea what the expenses of the sell/ bank were. I suspected from working with FHA that the expenses would include the realtor fee and closing costs. This meant my offer would have to be $20,000 more than I had offered initially.

So, what did I do? Knowing that the market is always changing, I re-evaluated. I found there were two sold comparables in the subdivision that had sold for $140,000, $20,000 lower than the house I had bid on. In response, I changed my offer to $140,000. The bank rejected it.

What is the lesson? Banks are keeping houses waiting for the price to increase. They are not being penalized by the feds or their shareholders to get rid of non-performing assets. This means that they can take their time and make the most money. My opinion is, they are not motivated to give you a good deal when they can make more in the future.

The Banks, the Hedge Funds, and You

As I said, banks are not mom and pop set-ups. They are businesses out to make money, and emotion does not play into their decisions. They have a large 10,000 house inventory, so they’re looking at analytics. They know what is selling and how much they can squeeze out of each house.

Since I know how the market works, I will tell you this: Given the banks’ strategy, I am searching the internet to find out what the banks know are the important factors in pricing and speed for sales.

The hedge funds also have a large portfolio of houses: 5,000 as a minimum to get the same information. They are hanging their portfolio house holdings by asking questions that you should be asking when you are buying a house and putting it into your portfolio.

Here are some questions you should consider:

  • What are the factors needed to sell fast?
  • Which houses rent really fast and are in high demand?
  • Which have the highest profit margin?

Understand these questions and you will dodge a bullet: When you buy an undesirable property, you will get a discount. The newbie investor may consider this profit, BUT the reality is you give the same percentage discount as you get on dysfunctional property.

The banks have learned what a dysfunctional property is, and you can learn from that also. Knowing a dysfunctional property will keep the profit where it belongs: in your pocket. Consider these things: houses that are on a non- level lot or are built into a hill. Houses that are split level, that have a pool, power lines, or are near strip clubs, commercial districts, fast food restaurants, and white noise. Also included are properties near swim and tennis courts, condos, in poor school districts, are on corner lots, have only on-street parking, and are on streets with two yellow lines. (If you don’t know what these thing s are, I’d be happy to explain at our meetings or on face book.)

Here is the upshot: Investors make profit when they buy. They make money when they make sound offers on dysfunctional properties. This is how you, too, can make more money and give others a good value.

Overall, be thankful that banks are difficult to work with. I know this sounds strange, but think about it. When people cannot qualify for housing, they remain tenants. When people cannot qualify to get a loan, the properties which have been difficult to rent will have a rental increase and be in higher demand.

Russ HinerRuss Hiner is an active real estate investor, coach and mentor. Russ is currently the leader of the Atlanta REIA Creative Deal Structuring Group and co-leader of the Atlanta REIA Mastermind Group. Russ also teaches several Atlanta REIA Workshops throughout the year on a variety of real estate investing topics such as Negotiations, Wholesaling 101, Wholesaling 401, Real Estate 101, Property Management and more.

Contact Russ Hiner

Russ HinerRuss Hiner is an active real estate investor, coach and mentor. Russ is currently the leader of the Atlanta REIA Creative Deal Structuring Group and Atlanta REIA Mastermind Group. Russ also teaches several workshops throughout the year on a variety of real estate investing topics such as Negotiations, Wholesaling 101, Wholesaling 401, Real Estate 101, Property Management and more.

Contact Russ Hiner

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