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[Note: To follow is an excerpt of a radio show interview conducted by Peter L. Mosca, host of Income Property Investment Talk dot com, with Jason A. Kotar, President of Kotar Associates, an education and consulting firm focusing on the real estate and home building industries, and the co-author of “Homes Buyers and Mortgages: A Guide to Purchasing Real Estate in Today’s Market.” To listen to the show archive or download an MP3, go to www.IncomePropertyInvestmentTalk.com/120909.]
Mosca: Jason, why don’t you just tell our audience a little bit about who you are and maybe the impetus behind why you wrote the book, “Homes Buyers and Mortgages: A Guide to Purchasing Real Estate in Today’s Market”?
Kotar: I have a master’s degree in education, so education has always been my love. When I got out of graduate school, I got into the mortgage industry and in doing that I learned quite a bit of information and worked with REALTORS. I noticed there was a lot of miscommunication, misunderstanding regarding the financial changes and how they impacted the REALTORS and that trickled down to the buyer and the homeowner in today’s market. With my father, we went ahead and developed a couple of continuing education courses in Florida and I have had the opportunity to travel extensively throughout Florida and train REALTORS. Through this we started writing the book. As REALTORS know you need to determine upfront if your buyer is a first time homebuyer, an existing homeowner looking to upgrade, or if they are an investor. Then the question is, “how do you get them financing in today’s market?” The days of giving three mortgage options and waiting for them to come back to you are gone. REALTORS need to know what programs are out there so when they meet that customer they are able to in a short period of time to determine whether they have a qualified buyer.
Mosca: Let’s give kudos to your dad, Barry Kotar, for helping you do the research on the book. You mention that 50% of the buyers in the market today are first time homebuyers. Who are those other 50%? Are they strictly investors right now looking to take advantage of the distressed asset marketplace?
Kotar: First, one of the things we talk about in “Homebuyers and Mortgages” is the impact people who several years ago bought a home, saw the value go down and bought another property to bail out on the old home. Well, Fannie and FHA, the main insurers of mortgage loans today, are saying if you have a home and you want to upgrade, you have to have a minimum of 25 to 30% equity in that home that you are going to be renting in order to use the rental income to offset your debt when qualifying. Really what you are seeing Peter and Dean is a lot of people that want to upgrade can’t because they don’t qualify with both mortgage payments. The other 50% of buyers are second homeowner investors. That’s what we are trying to get the real estate community to understand. The increased inventory has now opened up opportunities for investors.
Mosca: Do you stress in your CE classes that investor buyers are coming from a little bit of a different perspective sometimes?
Kotar: Yes. One of the things that we are going to talk about a little bit later is the opportunity with distressed properties. Talk to local banks. See what they have available. Maybe they are discounting properties with special financing terms for investors buying distressed properties.
Mosca: Why is it important for our friends in the REALTOR community to be aware of the financing options out there?
Kotar: If I could just back up one quick second and make sure that the REALTORS across the United States understand the direct correlation between jobs and foreclosures. As people don"t have jobs, unfortunately what happens many times is the foreclosures rise. We are continuing in many markets to see an increase in foreclosures. What I tell the REALTORS that I train and in the book is this opens up other opportunities not only for your first time homebuyer, but also for your investors. Fannie Mae purchases approximately 60% of all the loans out there today so if you are a REALTOR, six out of the last 10 transactions were Fannie Mae purchased loans. The key for REALTORS, yet again, is when you are dealing with buyers, you need to know if they are a first time homebuyer, second home, or an investor.
Mosca: The National Association of REALTORS is offering its members a short sale and foreclosure certification. They have an educational element to it; a live element and then they have some webinars that go along with it. Can you talk about the short sale versus a foreclosure versus the bank REO?
Kotar: A short sale is a property that has not been foreclosed upon, yet. The bank has not taken over ownership of the property. When you hear about a bank REO that means you are going to be negotiating directly with the bank whereas in a short sale you are dealing with a buyer and a seller. Of course, the bank has to agree with the short sale but it"s a two-way transaction versus a bank REO where you"re dealing directly with the bank. So, the difference is in a short sale you"re still dealing with a buyer and a seller but the bank has to agree to the lower sales price whereas in an REO or real estate owned the bank has already taken ownership and you are dealing directly with a buyer and a bank as the seller. It"s very important for REALTORS to continue to educate themselves.
Mosca: If you are blessed right now with cash or you are looking to purchase real estate at this particular time, is your message get out there and do it now?
Kotar: If you want to buy today, it’s a great time. If you area first time homebuyer, if you are an investor, there are opportunities. Get out and buy now.
Mosca: What is your golden nugget?
Kotar: The golden nugget is for REALTORS to understand that foreclosures will rise. With the rise in foreclosures, that opens up opportunity. We"ve discussed Fannie Mae foreclosures. We"ve discussed VA foreclosures. Well, there are also FHA foreclosures, which are HUD homes. Those are opportunities for investors and for primary residence buyers. I briefly touched on this earlier. Let me try this again. Banks that have loans on their books, those numbers will probably rise. Go ahead and once a month call your local banks, your big banks and ask them specifically are any of your properties that are bank owned, REOs, real estate owns, are you offering special financing for those properties? Do it every month because if they are not doing it this month they might be doing it next month. As things change, the realtors just need to continually stay abreast of the changes and see what the opportunities are. Foreclosures are the same going forward. Educate yourself and that"s the way to do it.