(FORT COLLINS) The nationwide credit crisis may have turned “the American dream” into an extended nightmare for many Colorado home buyers and sellers.
Banks and mortgage lenders (who are not going out of business) have tightened up their lending requirements to the point where many home buyers today can no longer qualify for a mortgage.
Record foreclosures, rising unemployment, losses in the financial markets and the current credit crunch have not only reduced the number of buyers who can buy but have also increased the number of houses that sellers need to sell.
Prices are under pressure as home sellers lower their asking price to attract a buyer, and as lenders resell their foreclosed homes below market value.
And it’s turning into a vicious cycle — as many buyers need to sell their current home first — and many sellers (unless they plan to rent) need new financing to get into their next home. As a result, a sea of real estate agents, mortgage brokers and home builders are going out of business. These professionals are in the business of serving buyers and sellers. But that’s hard to do with the credit crisis when the entire real estate industry traditionally relies on mortgage lending to finance buyers and get houses sold.
What can homeowners do to sell their homes? How can buyers get financing if they can’t meet the tougher lending criteria on credit scores, income verification, down payment amounts and debt ratios?
There’s one local real estate professional who has found a way to make things work even with the present banking crisis. James Orr is a founder of LTBR LLC. Since the 1970s his family has been buying and renting houses in New York and Florida and he has continued in their footsteps throughout the Northern Colorado region without ever relying on banks.
Orr’s business takes over existing mortgages or brings in private lenders allowing him to pay homeowners all cash for the properties. He then offers his properties for rent or “for sale by owner” using a variety of unique seller financing programs.
By taking a long term approach and never relying on banks, business has never been better for Orr and his business.
James says it’s normal for people to think they must be desperate before calling him to buy their house. “It’s a very common misconception. But until I look at a house and do some research, I won’t know my game plan for the property or what I can offer. But after a single visit to the property and meeting with the homeowners I can let them know exactly what I can do. My offer is good for 7 days and it’s only at that point, with my offer on the table, that a seller can decide if I’m going to become their buyer.”
In fact, price is not an issue for Orr. As an investor, what’s important to him is the determination of what income the property can produce. “It’s easy to determine. I also do an appraisal and look at the recent comparable sales. Then I do whatever I can to offer a seller up to full price today — or about what they might net sometime in the future pursuing a more conventional route. What I can pay depends on the condition, location and financing options available for that type of property. It only takes about 10 minutes to prescreen a property over the phone and to set an appointment. We typically buy 1 out of every 4 properties we see. In fact, for about half of those I have purchased, the seller pursued their other options and then came to realize that my offer was the best all along.”
“I can pay a fair price on a home that needs work. I might even plan to increase the value or marketability by adding a bedroom or bath, finishing a basement or installing a new heating system. Brand new carpet and paint will go a long way to attract a qualified buyer. But I understand that many sellers don’t have the time, inclination or money to remodel a house… just to get it sold. We solve that problem for sellers.”
Overpricing a home could be the biggest mistake. Listing agents sometimes suggest (or a seller might decide) to ask for a higher price than needed. This might be to test the market or leave wiggle room to negotiate. However, this can backfire if the seller wants (or needs) a quick sale, or when the “days on the market” stacks up causing buyers to wonder what’s wrong with the property.
Another misconception about how James Orr buys houses is the idea that he’s probably looking for sellers in financial distress. “Look, when a seller is out of time or out of options, then I’m usually their best solution — if their property is not over-financed. But most people headed for foreclosure are either overleveraged or actually looking to save their house. If I buy the house the seller must move. They really need to get into a more affordable home… but sometimes I can help by swapping properties.”
Orr warns about companies and real estate investors who target distressed homeowners. “Recent laws have been passed in Colorado that apply to any business and investor who targets people in foreclosure. Be cautious, do your research and perhaps seek legal advice when anyone wants to charge you an upfront fee for helping to get your loan modified, or… if they’re promising to lease the home back to you. That rarely works out like the borrower expects and can lead to accusations of fraud. Perhaps rightly so.”
What does a real estate investor like James Orr do with the houses he buys each month? What about the houses his family has bought over the last four decades? Simple. He rents them out or resells them. “We’re usually managing a large number of properties at any given time. Each month we may have a few houses for sale or rent. Some we’ve owned for years and others we have recently bought.”
With a reasonable down payment, Orr says he can sell you one of his properties using his popular owner financing programs — even if you have damaged credit or a short job history.
His most popular owner financing program includes the opportunity to build “sweat equity.” Before repairing or remodeling a newly acquired house, Orr offers it in “as-is” condition to his buyer’s list. This allows his client to do the work (to suit their own preferences) in exchange for all or part of a down payment. “I have a lot of buyers who check my website each week looking for these ‘fixer upper’ deals. But if the home is not under contract within 10 days or so then I’ll hire my contractors to fix it up completely.”
His next most popular program is a down payment assistance plan. Many buyers turn to Orr because they don’t have the down payment required by today’s cautious lenders. James helps buyers build up equity or a down payment over time with his rent-to-own (or lease with the option to buy) program. In this program you can rent the property you’ve decided to buy, but have the option to close anytime over the next 1, 2… or even 5 years. A portion of the rent each month is credited toward buying. Additional amounts can be paid monthly for more rapid equity build up plus other promised amounts can be made later… like proceeds from the sale of another property or a pending tax refund.
Once the buyer has enough “skin” in the deal, Orr can close with owner financing at the predetermined, mutually agreed upon price and terms. Or the buyer can close with a new bank loan. According to Orr, “There are so many reasons my buyers like some time before qualifying for a mortgage. They may need to sell their house, work on their credit, establish more time on a job or establish two years of provable income on tax returns when self-employed. All our buyers are put in touch with a sharp mortgage broker who creates a plan for them. We can recommend an affordable credit repair company that can do unbelievable things given even a short 6 to 12 months to work on a file. This also helps out some sellers who have found themselves in over their head.”
Unfortunately many of the mortgage programs once available are now gone. It’s reported that 75% of the available lending disappeared when FHA changed their rules last October and again early this year. But, if you have money to put down and can prove your income, there are still loans available now. In fact, some rural development loans and VA loans still allow qualified buyers to borrow with no money down.
“We help all of our buyers get a bank loan as quickly as possible… or we finance them ourselves. But we don’t rely on banks. That keeps us in control and maintains our sanity. But we get those loans done every chance we get. In fact, sometimes a buyer can qualify and doesn’t even know it. Other times they can qualify but need a flexible seller. We’re one of the most creative and flexible sellers you’ll ever find,” says Orr.
“President Obama says today’s economy is the worst since the Great Depression and it may take many years to recover. Unfortunately I think he’s right and so do many sharp economists.”
James Orr is a founder of LTBR LLC and one of the top marketing and business consultants to real estate investors nationwide. He is the author of over a hundred real estate courses for real estate entrepreneurs on creative financing, private lending, marketing, business development and ethical business practices.