I have a good excuse (and a note from my Doctor).

This past August (2009) I was awakened to chest pains and a pounding headache and, well, I’m 54 so I thought that it was ambulance time.  Wrong! 

Yes, the that was the time, but when I got a rather contentious, unhelpful 9-1-1 dispacher at 4 AM I was in no mood to debate ANYTHING so I drove myself to the emergency room of a local hospital that I’m very familiar with.  How I made it there, God only knows.

Then the fun really started.  When the E.R. physician determined that this was more than he dare handle, the nurse called the paramedics, who took me to a trauma center in Sana Ana.  After some testing they finally determined the problem to be a dissected Aorta and performed emergency surgery to correct it.

Unfortunately, I also had a massive stroke while on the table which caused some paralysis.  The good news  is that the surgery was a success (and I’m posting here again).  The other news is that the paralysis part is a much slower recovery than I would have ever imagined, so I’m taking more time away from business.

One of the big things that I’ve learned is that there are a lot of caring medical professionals in this world.  Another is that I have a lot more people, friends and family in my life that care about the important things than I could have ever imagined.  Lastly, if you don’t have your affairs together, including a medical directive to be used in the event that you can’t make your own decisions, then get one.  Today, without delay.

I used a particular escrow officer for about 12 years because of her relationship with the person who processed my conventional loans for many years. I’m a slow learner apparently, because anytime I’d ask Judy (not her real name) if she could do something out of the ordinary, she’d say “No!” and say it with a huff.  One day, she got upset with her employer and abruptly quit, leaving her less experienced assistance to take over her files.  It never occurred to me that she might just be saying “no” when she didn’t understand something.  My new escrow officer has the right attitude and anytime I have something different or out of the ordinary, I ask her: “How do we do such-and-such?”  If she doesn’t know or understand, she says so, and then we work out a solution together.  It’s no big deal.

I’m almost embarrassed how long I put up with the bad-attitude escrow officer with the closed mind.

Live and learn.

Many people talk themselves out of entering the real estate arena because they can’t forecast future real estate prices accurately.  Worrying about buying at the very bottom of the market may not be that important. Just look at stock traders, for example. They don’t have to buy at the very bottom because they can chose to wait (perhaps very patiently) while the stock goes up over the long run. Now day traders are a nervous lot, and they are rarely able to call the bottom. All they have to be able to do is to either buy well enough to make consistent profits, regardless of the direction of the market.

You can do that, too, by purchasing options on properties, leveraging your position without obligating yourself should you make a bad call.

If the property that you anticipate acquiring cash flows, then you can afford to wait.

If the only deal that you know how to make is a quick turn deal then you merely need to have researched your target properties well enough to know what’s selling, in what value range, estimated monthly depreciation/appreciation and just figure these in when building your profit margin and business model.

If properties are depreciating at an estimated 1% per month, and fixup and resale time requires four months, then make certain that you provide this extra expense into your overall holding costs and only take deals that allow for this extra expense.

Basically, if anybody tells you that the market’s going to drop another 25%, unless they own every deal in the community, it’s only an educated opinion (or W.A.G.). Even some gal or guy with 100 rental houses can only speak from the experience of prior markets.

If you’re paying attention to the trend, the market bottom will only matter if you recognize it and run out of capital to take advantage of the long-term upswing. And, you’d be too busy making money to really worry about it that much.

What I’m also saying is that an awful lot of people will use their lack of ability to forecast a bottom as a reason or excuse to stay OUT of the market. It just doesn’t have to be that way, of course.

The “trend is your friend” and “the dip is your ship” (I just made up the latter and, while I don’t know exactly what it means, it has a nice ring to it)

Consequently, California’s title insurance industry has re-established vital customer services for which the real estate and mortgage lending community has largely become dependent on.

However, there’s another side to this. I witnessed outraged real estate people, some active and some wannabies, not only cry foul of the temporary shutdown period, but acted as if the document services that they were accustomed to receiving for free were entitlements that they deserved. A few even rattled about the “Freedom of Information Act.”

This is lunacy. Nowhere is it written that title insurance companies, which are private, for-profit enterprises, are required to give out this information, let alone do so for free.  That they have done so in the past is only a matter of tradition and due to competititive forces as some title companies use such data access to their advantage.

For starters, recorded documents are available for viewing to the public at each County recorder’s office, and online for some Counties.  When I started in the business fax machines were not widely available nor where PC’s invented, so if I wanted to see a recorded image of a Grant Deed or Deed of Trust or other lien, I either had to visit the County recorder’s office directly, or persuade my title company to produce a photocopy and mail it to me.

Initially, when online documents became more widely available, but for a cost to the user, only a few could afford or justify the expense.  Then title companies, desperate to attract or at least maintain business, began offering access to these services for free or nearly free, at least for established customers.

The other side of this is that by not offering these services so freely, real estate investors and industry people could create a de facto barrier to entry to others wishing to enter the investing or real estate services arena.  For established companies, this is a real advantage, and perhaps there are other advantages that can be explored from the perspective of benefits to consumers. 

But my primary satisfaction would come from seeing the elimination of people who demand these services from the title companies and then casually and abusively take more and more resources from the customer service portion of these vendors, for which the expense is surely passed along to the ultimate customer.

So, there’s two sides to this controversy, for which you might see an advantage to you directly should this area yet again be revisited.

As fewer services are made available for free, this creates a much larger hurdle for existing investors and would-be investors.

In effect, the lack of free services will weed out casual info requests and up the ante for people who might have done a few deals during the market frenzy or are contemplating a deal or two now. Hence, no more toe-in-the-pool to test the water temperature. It’s going to be a more ‘are you in or not?’ for better or worse.

Of course, investors who already have a ‘research machine’ in place will largely be unaffected.

I’m not in favor of scaring people off from real estate investing, especially when it’s due to limiting access to information.

However, there are a few arguments that support this:

One is that the information is still available for free at the county recorder’s office(s). People can still make arrangements to do their research at the real and true data repository. This is the metheod that Ward’s training is all about and it hasn’t changed much in a long time. It’s only been the last few years when online data was made available, for free, that many of us got lazy and used the title company in lieu of performing our own research.

Another argument in favor of this restriction is that it requires would-be investors to make something more of a commitment to investing. If you are going to do this business, you’d do well to learn how to do the research and be less dependent upon the (free) services of others.

Here’s how smaller investors and newbies can work around this change:

1. Make a decision. Are you serious about investing in real estate? If so, you’ll need to make a commitment, probably monetary, time and better training.

2. Learn how to do your own research. Once you’ve learned how to chain out title and make the habit of actually reading key documents, you won’t want to go back because you’ll profit from this knowledge.

3. Consider working with more experienced investors who have their research machine in place. Most experienced investors do not view newbies and casual investors as adding anything to their enterprise and, in fact, may view newbies as taking away valuable time, energy and potentially a few deals. So, before approaching the pro’s, best have a plan in place as to how you’re going to add to their operation. Hint: It better be pretty darn tangible.

4. It may be possible for someone to establish a working relationship with a title company in another state outside CA and pull nationwide data. That would get you back in to CA info. However, if you’re only getting data infrequently, it may be easier just to pay for it.

5. Be prepared to ante-up and pay for the service(s) that you need. You’ve had a great free ride an there’s no rule to say that title companies owe us this service. When I was new, I had to practically beg for a copy of a recorded document and they required me to pay up front to order a prelim.

6. Consider paying for shared-access by putting together little groups. This will still require you to pay, however you might keep your costs low and in control.

Some county recorders make real estate records available online; some free and some pay as you go. Los Angeles county isn’t one of them. If you don’t want to make the drive to Norwalk, try Courthousedirect.com. which offers limited access for LA county and you can pay for documents that you require.

You can also subscribe to any number of other services offered by companies like First American or Fidelity, as well as the big database repositories like Accurint, Titlepoint, etc.

Personally, I think that title companies are not the bad guys. If I was in their shoes I’d be pretty tired of providing free services (which most certainly cost them something to obtain, maintain, and dispense) to people who may, or may not, provide much or any business in return for the service. There are a lot of time wasters out there!

Ward says it best: “What’s bad is good!”

If you are serious about making money in this business and have made the commitment, you’ll do whatever is necessary to get what you need to do profitable deals. And, those who do the work will receive the benefits.

I walked away from a little deal earlier this week.  A woman contacted us by submitting an heir advance request form. 

The basic facts are that her Husband’s parents had both died a few years ago leaving a small house in a tough part of the Inland Empire, along with a vacant parcel several blocks away.  The Mother’s estate, the last to die, had never been probated and she left no Will (hence “intestate”).

Although the house doesn’t have a mortgage on it, there are about $3K in back property taxes plus a variety of City liens.  As is often thecase, this is where this family’s story goes downhill.

The Husband was in jail for what was probably not the first time and expected that a longer commitment was awaiting his future.  The Wife has no income and, unable to pay the water bill for several months, the City turned it off then ultimately “Red Tagged” the house and pulled the certificate of occupancy, forcing out the wife and teenage children.  The City promptly boarded up the house to protect the copper, I guess.

The Wife, being resourceful (but dirt broke) had to borrow $1.00 from her friend in order to fax a copy of the Mother’s death certificate to us.  Very sad situation. 

We discussed choices and agreed that an heir advance was not available because there was no open probate, let alone an exit plan to repay the advance.

An administrator loan was out of the question because there was no way that either the incarcerated Husband or displaced Wife could make payments, nor did the property value support the loan-to-value protective equity that we require, and we were back to the issue that the family had no means to open probate.  Also, the alleged heir, the logical first choice of administrator, was hardly bondable as probate bond companies aren’t rushing to do business with people in jail or prison.

After some wrangling, Wife agreed to convince Husband, the heir, to sell and assign his interests in the estate to us for $15,000, on short terms.  We promptly arranged for Husband to sign documents in jail with my own notary super-signer, Ernie, and got thru that hassle.

Monday morning, Wife calls to ask to “cancel the loan.” She knew this was a sale, not a loan. This kind of claim of ignorance drives me nuts although by this time, I was ready to throw my hands up anyway.  You see, the previous day I did a little more due diligence and discovered that:

1. House was in a part of town that I’d never visit during daylight hours, let alone night
2. The cost of rehabbing the house would never be finalized as we would be constantly replenishing the stolen copper (wiring and pipes)
3. Across the street was a fleet card gas station, a car body repair shop and several warehouses that backed up to the (convenient for them) railroad tracks.
4. Probability of additional liens from Department of Health Services looked higher than estimated
5. After-repaired property value was looking like $60K subject to further decline, and fix-up would likely top $40K

This deal now reminded me of the joke cartoon that was past around many years ago for a missing dog: small brown, three-legged terrier, left ear chewed up, right ear missing, not fond of strangers, recently castrated.  Answers to the name “Lucky.” 

So, I was happy to unwind this inheritance purchase deal and assured this Woman that we’d destroy our documents and would not pursue it any more.  Also, we’d promptly return her ‘original’ documents consisting of copies of the decedent’s orignal 1968 deeds and lots of Code Enforcement notices. 

Frankly, I couldn’t have been any happier or quicker to get out of this mess.

My friend Will, Cousin Randy and I left LA mid-morning Thursday 5/28 and drove the Cayenne Turbo up I-5, cut thru Gilroy and up the 101 to the City.  An easy drive and we missed most of the traffic, too. 

After settling in, we went across the street to Ruth Chris’ steakhouse for what I would describe as an overpriced, tough steak with expensive sideorders, served in a beautiful setting by efficient staff.  I’ve had better experiences with Sizzler, however I’m biased, maybe because I bought the ranch and made my mortgage payments to the guy that started Sizzler, a real gentleman in every way.  But I digress…

When I go to a seminar, especially one where any of these three are speaking, I know that I’m using my time and money wisely.  I always walk away with useful, creative ideas, often an epiphony of the meaning of certain concepts, and overall great experiences.

There are really three events, at least, that I observe:

1) There are the speakers, who are long-time, active, seasoned investors.  They are not teaching something that they just heard six months ago, tried once successfully and now are guru experts.  These guys are the real deal and make their livings investing in real estate.  I doubt what they make from speaking and publishing is a significant part of their income.

2) The listeners- the seasoned, active investor attendees - are as big a part of these events as the speakers! A lot of people don’t consider this, however I believe it to be true.  You have to have good speakers to attract people, but if all you have are eager newbies to an event, the energy is brief.  With Miller, Schaub and Fortunato, they attract investors who are largely highly experienced, high net-worth, and bring much knowledge to the event and contribute greatly to the overall experience.  You won’t find them at loan-mod or short-sale workshop seminars, either.

3) The third event is harder to describe and maybe a bit more personal.  What I’ve found at these, and a small handful of other events, is the seminar that goes on in my head!  This is to say that I hear and see certain things at these events that trigger great ideas for my own business.  Some of the ideas get implemented, many do not, however the effect of the total experience is that of a “muse;” that force or influence that develops overall better, creative ideas and inspires one to act.

It’s also important to meet people and integrate well socially when attending these (all?) events, however I do not like the concept that some people refer to as ‘networking.’  My reasoning is that the people who go to these events wanting to use the events merely for their own business/social benefit without adding to the experience are there to take, not to give.  I find it fairly easy to spot them because they always want something, or are promoting something with little consideration to the listener, or are aggressively trying to get free advise without paying their way.  It’s very obvious and I find that particularly unattractive.

Fortunately, by far the great percentage of people at the SF event were there to have a good time, visit with old and new friends alike, and  take in the experience that only San Francisco has to offer (I’ve never had the opportunity to ride a cable car anywhere else…and Disneyland doesn’t count).

Next stop of the Jack Miller train is Reno, July 11-13, 2009 in Reno.  Will I see you there?

It seems that his idea was that I would feed him deals that he would work and learn the probate investment business by, presumably, applying what he learned along the way on those leads. 

This, of course, is not going to happen.

I tried to make the comparison with two fishermen.  One would never ask the other to find his fish, or would another, perhaps more experienced fisherman, ask the other one to reel in his fish and land it. 

The only exception would be when someone hires an experienced guide.  Fishing guides will sometimes even bait your hook, if that’s the way you want it.  You’ll pay for that service, of course.  And to be clear, I’m not in that business.

Same with hunting or any other game sport.  It’s all about the hunt.  If someone is in this business because it’s just about the money, then I have no idea how to help them get the feeling that results from locating a good prospect, taking the seller through the transaction process, and completing the deal (analygous with pulling the trigger, I guess). 

Also, most every successful real estate investor that I’ve met has some of the same characteristics; they get a thrill out of the hunt.  In fact, for many of us, that’s almost the alpha and omega of dealmaking; acquiring, renovating and managing or reselling a property for profit is only something that’s necessary to receive the monetary benefits. 

Now, you could pay someone to bird-dog your prospects, split tasks with a partner, acquire a property from a wholesaler or even work with a sharp real estate agent who’s dedicated to finding you the kind of deals that you like.  However, your role as sportsman (or woman) is significantly reduced.  Maybe to the point of canned tuna or venison jerky.  Just think about that.

But the hunt, that’s the big thrill in itself! Personally, I think taking that away from someone would not be doing them any favor. 

Several would-be real estate guru’s have tried eliminating that phase from the deal-making process by selling people a turn-key property, complete with tenants and management in place, in faraway places that the new owner/landlords would be unlikely to visit.  I think that there are class-action suits pending on at least one of these promoters.  Consequently, I’d be careful who I’d want to do business with, and that would be a fairly short list.

So, if you really want to exceed in this business (probate) or any other real estate market, you’d do well to learn how to bait your own hook and track your own game.  If you’re not willing to do that, you’d better be prepared to find someone who’ll be your guide and bring your checkbook.   

And if all you want is a tuna sandwich, forget the entire adventure and buy a can of Starkissed.

“It sounds like you’ve been dealt one bad break after another.

First, you bought a house, maybe your very first home, and expected it to go up in value, most like, because that’s what property does, right?

And I’m bet that you were really worried (if not in absolute fear) that, if you didn’t buy something when the market was “hot” you’d lose your chance, right?

Of course, if the property did go up in value, and you gained a lot of equity over the amount you owed the lender, you’d want to keep that should you have decided to sell the house (at a profit, of course). RIght?

Now, when you got that loan, you qualified with full documentation of your prior years taxes, proof of income, paycheck stubs, your impeccable credit (which I sure you have because you sound like a responsible kind of person who pays their bills and keeps their word, and such. Right?

And the lender that made that loan used “real money” to fund the purchase, not some goofy credit or fluffy arrangement, but rather the lender cut a check or wired the money to the seller who you purchases this house from, correct?

And, being a stand up kind of a person, you probably put the traditional 20% down payment on the property when you bought it, like many of have in the past. In fact, you may have used the proceeds from the sale of your prior home towards the purchase of your present home, so you’ve definately got “skin in the game” as some people say.

So, when you go to sell your house, and it’s worth less that you owe, being a responsible, stand-up kind of a person, and an ethical borrower, you plan to repay the lender the difference between what they gave you (remember, it was real money…from somebody’s account, somewhere!) and what you’re house will net after paying for costs of sale (commissions, escrow, and such).

That COULD be a very big number. I’m impressed that you are the kind of person who refuses to, under any circumstances, take the low road and avoid paying back that lender’s money that the sale of the house didn’t generate.

When this is all done and behind you, I know that you’ll sleep better at night because you’ve done the right thing. And maybe you’ll return to this site and tell everybody how you did the right thing, repaid the shortage yourself, and didn’t have to work with any of the vultures.

If only more American would adopt your ethics, we wouldn’t be in such a big mess (right?).”

My point: Most every one of us, whether we be owner, borrower, lender or investor, have played a role in the financial mess.  Pointing fingers won’t fix the problem.

On the other hand, we don’t make money if we don’t make offers and do deals.  Here’s what I experienced during the last few days:

An attorney friend of mine called a week or so ago and told me a story about his client who was trying to sell a rental house in the San Gabriel Valley area of L.A. but could not close escrow due to a title problem.  On top of that, the property was in foreclosure on the 1st and 2nd, also had a delinquent 3rd, and the trustee sale was set for next Tuesday. 

OK, I can deal with this.  I cut my teeth solving title problems and tend to think of probate issues as title problems (preventing me from getting marketable title).  So, I started the dance with the seller.

Now, from the get-go, I had some difficulty verifying value.  My assistant found comps that supported $375K+ and the seller had a buyer in escrow for $330K.  When I first spoke to the seller he only told me about two of the three loans.  I only discovered the 3rd during our first pass research work-up.  Liens totalled about $235K including about $20K to cure if took the property subject-to all three loans.

Then, the horse-trader in me came out.  I have a certain property (land w/mobile) that is a little too far for me to manage and I wanted to somehow use that as my contribution to purchase the equity in the seller’s house.  I have about $30K in that property (which I took back as a result of a 1st TD that I owned on it.)

My goal was trade the mobile for something I didn’t particularly want, but that I could use, that was marketable, and hence get my money and a little profit out of the mobile.  This is a very basic Peter Fortunato strategy: “Use what you have, to get what you need, to get what you want.”

Then I started focusing on the title problem, which related to how he acquired the property via a less-than-arms-length transaction with his Mother while she was in a nursing home, prior to her passing.  A conservatorship proceding was started for his Mother by the other siblings who didn’t like how that deal went down some six plus years ago.  They got a court order preventing the Son (my seller) from selling the property. 

Although the Mother has since passed away, the title company of my Seller’s prior escrow didn’t like the court order, no matter what.  My title company (aka Earl’s House of Title - motto: “You can pay more and you wish you had”) said “no problem” about the order, so that was not in the way for me.

We haggled over the phone Tuesday, seller called early Wed. to say he accepted my offer, then got cold feet by noon.  Then his feet warmed up, he called my field assistant to set signing app’t, but kept pushing that out.  Meanwhile, the foreclosure clock keeps ticking…

I learn very late Wed. night that docs were signed and we were ready to go, until…I went to check out the property.  I generally don’t go look at a property until I have it under contract because, well, I’m lazy, that’s my system, and it seems to work (for me, anyway). I virtually NEVER meet sellers or borrowers in person and have developed a phone persona that’s very effective in making deals.

I drove to the property, which was a much easier drive than I expected, only to discover that this was a much worse situation than I anticipated.  Also, the ‘friend’ who was staying at the property was no ‘friend’ of the seller at all, and was a very upset, supposedly paying tenant who was determine to test any and all tenant’s rights laws.  I’ve seen messy places filled with junk before, and this one was no different, but it was also a heavy fixer.  Nope, this one wasn’t for me.  I’ll keep looking, thank you very much! 

So, I called the Seller and gave him the good news.  He started trying to sell me on this house’s features like a man about to go to the electric chair. 

The major mistake that I made was that I got caught up in the problem solving mode and forgot about the basics of the deal.  I really question the value and it’s likely the prior escrow’s buyer got cold feet for any number of other reasons.  I think that property might be worth $300K+ with about $50K of work.  Deduct 10% cost to sell, hodling costs, intrinsic cost of my capital, hassle factors, and I would have had to buy this for about $125K to feel like it made sense.  Was I crazy?  It looks like I sure got distracted with fixing problems and forgot about the profit part.

Like my old WWII (Austrian) flight instructor (who taught me to fly) used to remind me about priorities:  Aviate - navigate - communicate.