Sunday, April 26, 2009

Real Estate Investing Strategies - New Regulations May Slash Your Profits

By Jack Sternberg
New regulations about to go into effect may dramatically change the way you conduct your real estate investing business. When these new regulations, called "The Uniform Closing Instructions" (UCI) are introduced, they may very well limit your ability to make profits in real estate investing.

What are Closing Instructions?
Closing instructions are the instructions for the Title company on all the complex, nit picking requirements the lender requires BEFORE they will release the money.
The current closing instructionsthat lenders use vary wildly from state to state, and even county to county, as do settlement agent practices. This results in increased costs across every aspect of the closing process, costs which are then passed along to consumers, both in money and time.
The non-standardization of the closing instructions is basically the central reason some lenders permit certain types of transactions and others don't. Basically, closing procedures and documents are different from one place to the other.
This is all about to be changed. The UCI will require the closing instructions to be standardized throughout the country.
So just how will the new closing instructions affect you, the real estate investor?
1. The title companies that once were your friend and may have been willing to "look the other way" if your deal did not meet all the instructions perfectly, will soon have a fiduciary responsibility to abide by the rules outlined in the UCI.
2. There will be no more buy-low-today, sell-high-tomorrow double-closings assuming the buyer needs/wants traditional mortgage financing. Pre-foreclosures, simultaneous sales, wholesale flips, pass-throughs, etc., will all be restricted.
3. If the buyer is using cash, then the rules are still open BUT the title must be seasoned for a minimum of 12-24 months before the house can be traditionally financed by a mortgage company for the retail amount. E.g., mortgage companies will no longer loan $100K on a home worth $110K that was just short sold for $45K.
4. No more getting a buyer financed with traditional funding, selling to them for a medium to large profit, without title seasoning for a minimum of 12-24 months.
What does all this mean to you? The new creative investors will be cash buyers that can buy and hold a property for 12-24 months regardless of the cash flow. This could spell trouble for most investors who do not have large amounts of cash lying around to buy and hold properties (and who have the luxury of waiting a year or two to make a profit.)


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