What this means is closing costs are higher than I am used to.
Actually, I spoke with the escrow agent and got some more details. Oklahoma is one of the last states in the nation that uses Abstracts. An Abstract is a book that lists the original grant and all subsequent conveyances and encumbrances on the property. When you buy a property or get a lien on it, this book has to be updated and then run past a lawyer. You can image the extra costs that incurs. So a rough estimate of my closing costs, including title insurance, is around $1,200, which is roughly half of what they would be here in Arizona.
The good news is that if I use the same escrow company for the refinance, many of these charges can be waived or reduced if the refi happens within 6 months or the purchase. And I will not need to purchase buyer's title insurance on the refi since it stays in effect forever as long as I am the owner. This is similar to buying title insurance here in Arizona and requesting the policy be kept open for and flip.
OK Property Purchase Moving Forward
My out of state property I mentioned earlier is located in Oklahoma and that purchase is moving forward smoothly. The contract has been signed and escrow has been opened. For the purchase of this property, I am buying it with one of my LLCs and using the second as a hard money lender to the first. This lets me get a cash price from the seller and then after escrow closes, I'll turn around and refinance it with a traditional lender. This means I'll need a mortgage showing the second LLC as a lender. The escrow company we are using doesn't do mortgages, so I found some mortgage forms online and bought those to use. I'll fill them out, get them notarized, and send them to the title company for recording. Those should go out tomorrow. Escrow is set to close the end of February, so I expect things will be fairly quiet until then.
The next step is setting up insurance coverage to go into effect on the close of escrow.
The next step is setting up insurance coverage to go into effect on the close of escrow.
AP Story About Fraud And Foreclosure Help
The Associated Press has a story about how rising foreclosure rates are leading to a rise in fraudulent foreclosure avoidance services. The story lists three of the most common scams. What caught my attention was the first one: A company loans or gives the property owner money in exchange for the owner signing over their house to them, money that comes from the built-up equity in their home. The former owners are now renters, but they get to stay in the house and, supposedly, the money they received from the company for their equity is used to pay off the delinquent bills. The fraud allegations arise when the former owners claim they did not know they were signing away their property.
This method is basically what Live Free Investment Group (as well as other companies) does here in Phoenix. As I discovered during my visit with them, they are in the process of adding some forms to their paperwork that make it abundantly clear to the owner that they are no longer going to own their home. This should go a long way towards preventing such situations as the AP story talks about.
It's a tough spot for the investor to be in. It's very easy for the homeowner to sign away his property, get some money and get out of debt, then turn around and claim he didn't know what he was doing. Even with signed documents that clearly acknowledge the owner is giving up his property, all it takes is one judge to agree that the poor, distraught owner was taken advantage of by the mean, fancy-talking investor. Nevermind that the investor has helped the owner avoid having a foreclosure on his credit report or that he has helped the owner get financially solvent again.
The news coverage will never be in favor of the investor. It is a much more heart-wrenching (and therefore higher ratings-getting) story when portrayed as some couple being swindled out of their home. Just look at the AP story. The couple profiled look to be in their 50s or 60s and have lived in the home for 20 years. The accompanying picture shows the man frowning, angry at the evil corporation that did this to him. Now, I don't know the details of their case and the Nebraska Supreme Court did rule that they were defrauded, but I can guarantee you that, even had the court sided with the loan company, the slant of the article would still be the same. Unfortunately, even with clearly spelled out contracts, people still expect to be protected from their own stupidity.
This method is basically what Live Free Investment Group (as well as other companies) does here in Phoenix. As I discovered during my visit with them, they are in the process of adding some forms to their paperwork that make it abundantly clear to the owner that they are no longer going to own their home. This should go a long way towards preventing such situations as the AP story talks about.
It's a tough spot for the investor to be in. It's very easy for the homeowner to sign away his property, get some money and get out of debt, then turn around and claim he didn't know what he was doing. Even with signed documents that clearly acknowledge the owner is giving up his property, all it takes is one judge to agree that the poor, distraught owner was taken advantage of by the mean, fancy-talking investor. Nevermind that the investor has helped the owner avoid having a foreclosure on his credit report or that he has helped the owner get financially solvent again.
The news coverage will never be in favor of the investor. It is a much more heart-wrenching (and therefore higher ratings-getting) story when portrayed as some couple being swindled out of their home. Just look at the AP story. The couple profiled look to be in their 50s or 60s and have lived in the home for 20 years. The accompanying picture shows the man frowning, angry at the evil corporation that did this to him. Now, I don't know the details of their case and the Nebraska Supreme Court did rule that they were defrauded, but I can guarantee you that, even had the court sided with the loan company, the slant of the article would still be the same. Unfortunately, even with clearly spelled out contracts, people still expect to be protected from their own stupidity.
PAQN Reverse Split Arbitrage Trade Completed
As mentioned in the comments of this post, I finally received some of my round up shares from the PAQC / PAQN reverse split arbitrage play. I received 100 shares in my Scottrade account on Friday. I am told I should receive another 100 shares in my Schwab account today or tomorrow.
This morning, I sold the shares in my Scottrade account for $1.15 per share. If you recall, I purchased 30 shares at $0.30 each. My total cost was $16.05. I held the shares for 60 days, had them reduced to 1 share after the split, then received another 99 "round up" shares to bring me to a round lot of 100, and I received $107.99 from selling them. Total profit, including commissions on the buy and sell sides: $91.94. ROI: 573%. Annualized ROI: 3,485%.
Hopefully, I can do this again tomorrow in my Schwab account.
This morning, I sold the shares in my Scottrade account for $1.15 per share. If you recall, I purchased 30 shares at $0.30 each. My total cost was $16.05. I held the shares for 60 days, had them reduced to 1 share after the split, then received another 99 "round up" shares to bring me to a round lot of 100, and I received $107.99 from selling them. Total profit, including commissions on the buy and sell sides: $91.94. ROI: 573%. Annualized ROI: 3,485%.
Hopefully, I can do this again tomorrow in my Schwab account.
Next Property On The Way (Hopefully)
I've decide to get a jump on one of my goals for 2007 and am in the process of picking up a new rental property! This one will be out of state and I'll be using a property manager to manage it. The property is currently rented with a lease though November. I won't say anything else because there are no contracts yet, but I'm excited about the opportunity.
I hadn't planned on investing out of state mainly because I didn't want the headaches that can go along with out of state landlording. Instead, I had been concentrating on the filled lease option properties that some companies in the Phoenix area are selling. I don't want a negative cashflow property and the only way I could see to make those investments cash flow positive would be to put in $10,000 to $20,000 of my own money and, even then, the cash flow would be pretty small. So I was out driving one morning and had a small epiphany. I had seen some properties for sale in the Midwest a couple weeks ago. At the time, I had dismissed them in favor of going after the lease option deals, which I thought I could get into with less cash. But now that I was committed to putting more money into the investment, these properties suddenly seemed more attractive. They may not provide the appreciation that the Phoenix market might, but they would produce nice cashflow each month and the entry costs would be much lower. In fact, I may be able to get two properties instead of the one I'd get here in town!
I hadn't planned on investing out of state mainly because I didn't want the headaches that can go along with out of state landlording. Instead, I had been concentrating on the filled lease option properties that some companies in the Phoenix area are selling. I don't want a negative cashflow property and the only way I could see to make those investments cash flow positive would be to put in $10,000 to $20,000 of my own money and, even then, the cash flow would be pretty small. So I was out driving one morning and had a small epiphany. I had seen some properties for sale in the Midwest a couple weeks ago. At the time, I had dismissed them in favor of going after the lease option deals, which I thought I could get into with less cash. But now that I was committed to putting more money into the investment, these properties suddenly seemed more attractive. They may not provide the appreciation that the Phoenix market might, but they would produce nice cashflow each month and the entry costs would be much lower. In fact, I may be able to get two properties instead of the one I'd get here in town!
