When parties enter into an agreement to sell/purchase real property, the buyer is required to deposit funds into an escrow as a good faith of the purchase. Escrow is a unique third party to the transaction that coordinates with all the principals of the transaction including the Buyer, Seller, Title Company, and Lender. Escrow provides assurance that funds will not be released until all instructions and criteria are met. Once all parties are satisfied the funds can be distributed and title recorded in the buyer’s name.

In order to close the escrow and convey title to the purchaser, Escrow must meet specific instructions to the transaction which include lender conditions, clearing seller liens from the title policy to convey clear title to the buyer. These liens usually include property taxes, current mortgages, and Home Owner Association dues. In some cases, liens to be cleared may include back owed child support, mechanical liens and the like.

Escrow is also responsible to prepare an estimate for the Seller and the Buyer of approximate amounts they will be receiving when escrow closes or funds they need to provide prior to close. This estimate is called an estimated closing statement. This estimate is completed when loan documents are received from the Lender and all parties are in the final stages of the transaction and preparing to close. Loan documents are signed in the presence of a Notary Public.

There are many states in which a settlement attorney is used instead of an escrow company. The settlement attorney meets with both parties and loan documents and signed, monies change hands and ownership is transferred all at one time. In states where escrow companies are used they are more cost effective and are involved in the transaction from beginning to end. In escrow states, once the loan funds, the escrow company prepares for the Deed of Trust, Grant Deed and other pertinent recordable documents to be recorded with the county recorder. Upon recording confirmation, ownership is transferred to the purchaser. Escrow then prepares a final closing statement which reflects the balancing and disbursement of funds to all parties.

Here are a few steps that anyone can follow to evaluate a rental property purchase. The most important ratio you need to evaluate is the house price-earnings ratio.

House Price/Earnings Ratio = House Price / Rent – Expenses

This ratio determines what your property will EARN you ANNUALLY compared to what it will take to MAINTAIN. Maintenance costs include property management fees, potential HOA fees, taxes, etc… The more active a role you take with your rental, the lower the expenses. If you want an outside company to manage your rental expect a 10% rent surcharge per month for their services.

Let’s look at an example neighborhood in Northern San Diego County. This neighborhood is gated, close to schools, and is highly marketable to military families stationed at Camp Pendleton. If you want more information or to see the properties submit a request for more information on our contact page.

Neighborhood: Calle Elegante, Vista, CA 92083
HOA: $118-130/month depending on unit size
Owner Occupancy: 11/30 roughly 37%
HOA Responsibilities: trash, grounds keeping, limited insurance, gated entry, on-premises playground

It is important to note that an owner occupancy percentage (the ratio of homes occupied by renters vs. owners) less than 51% allows only cash and conventional buyers to purchase the property (due to bank lending rules). These lending rules also dictate that we place a minimum 20% down payment of the purchase price. Consider that after the units under mortgage duress are sold to new owners, the owner occupancy rate can potentially extend above 50%; this will cause properties to appreciate by accommodating all types of loans. Owner occupancy is determined by dividing the number of total units by the number of units occupied by owners.

16/30 properties are currently for sale, either short sale or bank owned. The high inventory in this particular community and inability for FHA/VA buyer’s to purchase makes this a lucrative investment. The units were built in 2006 and first sold in 2007 so they are in near mint condition (condition varies by unit).

Low Price Unit: $175,000
Price per/sqft = $101.92 for 1717sqft 4BR/2.5BA Unit (LOW), $115.74 for 1512sqft 4BR/2.5BA Unit (LOW)
Down Payment: 35,000
Closing: 30 days
Closing Costs: 2.5% credit requested by buyer = $0 (*hint*, ask your Realtor about the different types of closing cost credits. Simply asking for a percentage is not enough; if your agent does not include a key legal statement you are GIVING AWAY MONEY.)

Assumed property characteristics:
Property tax rate: 1.3% (via tax records)
Re-assess property after purchase for value: $175,000 (free assessment in SD County)
New annual property taxes 2010: .013 * 175,000 = $2,275/year

Projected Rent: $1700-2000/month = Est. $1850*12 = $22,200.00/year

Projected Expenses: $118 HOA Fee/month + $189.58 taxes/month + $751.55 mortgage (30 year at 5%)/month + $150/month (reserve fund for repairs/upgrades) = 1209.13 *12 = $14,509.60

Rent - Expenses: 22,200 – 14,509.60 = 7,690.40 (CASH FLOW)
House P/E Ratio = House Price / Rent – Expenses
P/E Ratio = 170,000 / 7,690.40 = 22.1

The P/E ratio is roughly 22. In general, a healthy company has a P/E ratio of 15-25. Considering that real estate is a SLOW GROWTH investment a P/E ratio in the 20's is a sound investment. Also consider that lending is tight, cash reserves are low, and unemployment is high. All of these factors contribute to a depressed economy that provides an opportune time to invest.

An investment in this property will take 4.5 years to pay back your principle cash investment. All figures and gains account for no appreciation or depreciation of the property. Consult us about what position the market is in and what additional terms you can negotiate. Once again, 16/30 units in this complex are for sale or in the process of foreclosure. The current owners paid an original sale price ranging from $430,000 – 450,000 in 2007.

This article was written to provide some piece of mind for the frustrated, over-worked and under-paid middle class that despite qualifying for a sizeable mortgage cannot purchase a home.

There are three main types of sales in today's real estate market; traditional, short sale, and foreclosure (REO).

The traditional sale is what most first time home buyers expect. In a traditional market a buyer views properties with their Realtor, applies and qualifies for a loan with a major lender, and submits offers on their desired properties. It is very important to note that the sole decision maker regarding offers in a traditional sale is usually the OCCUPYING OWNER. An offer is submitted, reviewed by the listing agent and owner of the property, and acted upon accordingly.

Traditional sales in a foreclosure market are FEW and FAR-BETWEEN. Why would anyone sell when prices are at a ten year low? If you find a traditional sale the property is most likely turn-key (great move-in condition) and priced adequately. It will not stay on the market long and you will have stiff competition from buyers with significant down payments. As an entry-level buyer finding a sale of this nature will be DIFFICULT.

Short sales were created to relieve homeowners who have negative equity from their loan. Negative equity is when an asset, particularly real estate, is valued less than the mortgage taken out against it. When a homeowner's mortgage is "underwater", they have the ability to list their home for sale at a reasonable market value. If they find a buyer, secure the relevant contracts, and submit these documents to the bank they can PLEAD! to be released from the loan. There are no guarantees, minimum three months wait, and possible tax obligations that send many running.

In a short sale transaction the BANK that owns the mortgage makes the decisions about what the home should sell for. It is completely up to that bank to approve, disapprove, or counter any offer that is submitted. For this reason purchasing a short sale is a long and frustrating process. Success can be achieved by buyers with flexible timelines and careful planning. Consult an REO or Short Sale Specialist for actionable advice.

REO, Real Estate Owned, Foreclosure - the infamous listing type that attracts herds of buyers and Realtor's with absolutely no idea how to submit an attractive offer to the bank. An REO is a listing type that occurs after a property has been foreclosed on. After foreclosure the property may be purchased back by the bank to sell on the open market. Purchasing an REO property is difficult so make sure that you STRICTLY abide by the guidelines set forth on the MLS and supplemental addendums.

When structuring your offer ask the agent if you are requesting repairs, more than 2% closing cost credit, requesting specific title/escrow companies, or asking for more than 30 days to close escrow? If you are asking for any of the previous items your offer is weak. It will most likely be brushed aside for a clean offer that obligates the seller to do as little as possible to close escrow. Despite the fact that it may be YOUR RIGHT to request a specific title/escrow company, when dealing with a bank I recommend that you exercise your rights as a buyer effectively. At the end of the day the highest and best offer always wins. Pay close attention to the term "best". An offer well above asking price might clinch the deal...but if you ask for the wrong terms it will MOST CERTAINLY kill your deal.

The hard truth is that if you are working with someone that does not intricately understand the REO/Short Sale market you are at an extreme DISADVANTAGE. When you have submitted multiple offers with no success...Please, contact an REO or Short Sale Specialist.

Purchasing a home may be one of the biggest investments of your lifetime. If you decide to sell, it can also be one of your greatest liabilities. It is for this reason that many home owners turn to Realtors to help them complete the process with efficiency and ease. In the best of circumstances, Realtors can help you sell your home faster, for a better selling price and with less of a headache. In less ideal circumstances, a Realtor’s help can be life changing.

When making that monumental decision to purchase a home, nobody anticipates that down the road that home could be facing foreclosure. In the current economic climate, this is a harsh truth that many people are now facing. In order to potentially avoid this situation, those who are unable to continue paying their mortgages have the option of putting their homes up for short sale.

In a short sale, a bank or mortgage lender agrees to let a property owner sell the property for less than the outstanding balance of the loan due to the property owner’s financial hardship. With this step, the property owner avoids foreclosure by immediately selling the property and turning over all proceeds of the sale to the lender.

While Realtors’ home sale expertise can provide you peace of mind, their short sale expertise can serve as a life preserver for your financial future. Not only are these transactions difficult to negotiate with lenders, but they are also time sensitive. Your Realtor can help you through every step of a short sale in a time when you don’t need the added stress of trying to navigate the process with a lender who’s financial goals likely conflict with your best interests.

When you find yourself in this financially tough position, you need not worry about how you will pay for your Realtor’s help. His or her commission comes directly from the proceeds of your home’s sale. If your short sale transaction does not complete, your Realtor receives no commission and you will not need to come up with any additional compensation. This means your Realtor will work to help you sell your home and avoid foreclosure.

It is important to remember that whether or not you choose to use a Realtor to secure a short sale, you will keep none of the proceeds of your home’s sale. Thus, your financial condition can only improve with a Realtor’s assistance and expertise.

When you decide to have a Realtor on your side in this difficult time, you add no risk and gain a much greater chance at saving your financial future from the burden of foreclosure.

Real Estate is a competitive field. Clients, colleagues, and competing agents all play under a set of parameters determined by highly volatile market characteristics. There is no predetermined solution to an escrow problem; each transaction brings a new group of players to the table. Each player involved in that transaction holds a different card to make up a winning hand. These cards may reflect corporate statutes, financial obligations, beliefs, work ethic, etiquette, due diligence, personal incentives, and more often than not—pride. These forces and the motivations behind them can kill deals in an instant. With such a large pool of players involved in every transaction it is apparent that the most difficult hurdle to clear is communication. To communicate effectively each player holding a card must define their goals, initiate a plan, relay information and execute their duties in timely unison. Strong team dynamics create the most successful real estate companies. Teams that are accountable, trusting, and honest about their goals are far more likely to work in a fluid manner than others.

You may be a client of mine, a colleague, or a competitor – but at the end of the day we all want to receive the achievement of a closed escrow. You are only as strong as the weakest link that makes up your team. Make sure your full house is in order before you lay cards down on the table.