The vast majority of foreclosure auction investors pick up one to a handful of units a year at most, then either rent them out or fix them up for eventual resale. Typically they also troll for distress situations, pre-foreclosures and “ugly” houses.

But John Helmick, CEO of fast-growing Gorilla Capital in Eugene, Oregon, takes a very different, high-volume approach that can be summarized in five points:

1. Buy big — 150 or more foreclosures a year – but only by cherry-picking houses that have maximum potential for immediate turnaround and sale to retail home buyers or investors within about 60 days.
2. Have dedicated crews of contractors ready to go at all times to paint, lay new flooring, and repair whatever’s broken. Fix up costs should not exceed $5,000 to $15,000.
3. Provide seller financing to retail or investor buyers if that enables them to close on units within the target turnaround time.
4. Be the proverbial “800 pound gorilla” in select target marketplaces – dominating foreclosure auctions, tracking new filings, and understanding local demand dynamics and price trends in depth. Dense urban markets can be tough environments in which to be the dominant player — so look for outlying, lower-populatin counties where you can buy most of the foreclosed units that fit your investment criteria.
5. Specialize in foreclosures only. Never stray and go after pre-foreclosures or short-sale situations. They’re too much hassle…and you don’t get the rock-bottom prices that you can obtain at auctions.

Helmick started Gorilla Capital in 2005 following the multi-million dollar sale of an earlier business venture. Since then, the firm has positioned itself as Oregon’s foreclosure mega-player – buying up houses at low costs and reselling them at price points approximately 10 percent below actual retail, to move them out quickly.

Gorilla Capital focuses primarily on 15 counties in Oregon, but has recently begun to expand into other high-potential areas, such as Arizona. The company is not after massive, quick profits, Helmick told Realty Times in an interview last week, but instead seeks to churn out consistent, steady gross profits of around 9 percent after paying real estate commissions and other expenses.

Most of Gorilla’s houses sell fast — anywhere from 72 hours to 10 days. Median holding time from acquisition to re-marketing: just 58 days, according to Helmick.

Bottom line here: Carve out your own specialized investment niche. Target only markets you truly understand. Then stick with the program to achieve a highly-disciplined path to profits.

K. Harney

A certain inconvenient truth about the trend toward green building — that it will neither fade like a bad dream nor match the utopian visions of its most ardent advocates — is good news for both the state of New Jersey and the United States, according to veteran environmental attorney James A. Kosch, a shareholder in LeClairRyan’s Newark-based Tort Defense Group.

“Neither Rush Limbaugh nor Al Gore will be happy about it when the ultimate contours of today’s green-building trend have emerged,” Kosch commented. “And that is because the same macroeconomic factors that have been so visible this year — as reflected in the extreme volatility in gas prices and the capital markets — also tend to have a moderating impact over time.” Not so long ago, many observers still wondered whether the green movement that emerged in recent years, in part because of rising concern about global warming, would follow historical precedent and quickly fade.

“Memories of the early 1990s are still strong,” noted Kosch, a director of the New Jersey State Bar Association’s Environmental Law Section. “The idea back then was that everyone would have hand-pushed lawn mowers, recycle everything and drive tiny cars. By 1993, however, Americans all drove SUVs, rarely recycled and wanted the biggest power mowers they could buy.” This shift boiled down to simple macroeconomics: As gas prices plummeted, so did the level of interest in both the green lifestyle and in eco-friendly construction projects. Echoes of this were evident last year as average U.S. gas prices, which had soared to a record $4.10 in July, collapsed along with consumer demand in the wake of the global economic crisis.

“The pace of the green movement moderated,” Kosch noted. “Companies that were looking at going green a year ago — either because of shareholder pressure, marketing considerations or demands from the European Union — backed off a bit.” Interestingly, today’s green movement appears to be more deeply rooted than those of previous eras like the early 1990s or 1970s, said Kosch. Polls show U.S. shoppers still put a high priority on sustainability despite the recession, and marketers have responded by stepping up their green-themed promotional campaigns. Meanwhile, even today’s cash-strapped state and local governments continue to push for alternative energy and eco-friendly construction, and the Obama administration has committed to spending some $80 billion by 2010 on nearly all things green.

“There is a cultural shift underway,” Kosch observed. “Part of it has to do with improvements in technology. We can now ‘do green’ much more effectively than in the past.” Still, major uncertainties remain. Legal professionals tracking this trend are navigating uncharted territory on issues related to water reuse, energy generation and sales, tax credits, insurance, economic incentives, easements for light, air and conservation, and much more, Kosch explained. They must pay particularly close attention to the status of legislation and regulation that affects, or may affect, future projects, he added.

So far this year, for example, New Jersey lawmakers have introduced 20 or 30 green-building related bills. “Fortunately, much of this legislation shows a moderating sensitivity to the economic challenges now faced by New Jersey businesses. We’ve seen bills pass that provide flexibility,” Kosch said. “That is a positive development. After all, the Soviet Union tried command-and-control, and it didn’t exactly work.”

P. Mosca

Congress is pumping out reform legislation, with support from both sides of the aisle, that’s aimed at correcting some of the problems that contributed to the financial crisis.

Last week alone President Obama signed two major bills into law. The first is intended to combat widespread mortgage fraud.

It authorizes nearly half a billion dollars for the federal government to hire new prosecutors targeting mortgage fraud, and to beef up Secret Service, U.S. Postal Service and HUD fraud investigation capabilities.

The Fraud Enforcement and Recovery Act extends the federal government’s legal reach to pursue companies and individuals who currently avoid federal oversight and pursuit.

Under the legislation, people committing mortgage fraud would now be subject to federal investigation and prosecution, federal civil penalties and federal prison time — all of which are generally tougher than their state counterparts.

Since the FBI estimates that fraud schemes bilk home owners, lenders, builders and realty agents out of billions of dollars a year, the new law should send a message: Virtually all mortgage fraud is now in the federal arena. Don’t do it!

The second major bipartisan bill signed by President Obama last week was the Helping Families Save Their Homes Act, which makes the federal Hope for Homeowners foreclosure-financing and loan modification program easier for lenders and financially stressed borrowers to use.

The law also provides new protections for renters living in houses whose landlords are foreclosed upon. They will no longer be subject to immediate eviction following foreclosure, which is the case in many jurisdictions today, but instead will have rights to remain as tenants in the property for additional periods of time.

The law also significantly expands federal assistance to homeless relief and service programs around the country, giving local organizations and governments greater flexibility in the use of federal housing funds.

Finally last week, Obama administration officials confirmed that they are working on a plan — due out within weeks – that will create a new, unitary federal mortgage market regulators with the power to oversee all players — from small loan brokers to big banks — unlike the current, fractured system where multiple agencies have partial oversight.

Critics lay part of the blame for the severity of the mortgage crisis on the fact that no single agency had the power to take action to deal with the widespread lax underwriting, risky subprime loan products and abusive lending schemes that characterized the years 2002 through 2006.

K. Harney

Loan modifications and principal reductions are big news for homeowners, but what about real estate investors who own apartment buildings, strip shopping centers, and small office buildings?

Are loan “mods” possible for them?

Absolutely, says Jonathan Hornik, executive vice president and general counsel for Kennedy Funding, Inc., a New Jersey-based lender who not only helps investment property owners negotiate debt restructurings with their creditors, but provides the take-out financing to make the deals happen.

In fact, according to Hornik, far more loan modifications involving writeoffs of portions of existing mortgage debts are needed in commercial real estate right now.

Many income properties carry loans that must be rolled over — refinanced — in 2009, 2010 and 2011. But with declining property values, owners may not be able to come up with the financing needed to pay off what they owe.

The solution, said Hornik in an interview with Realty Times, is to negotiate a reduction in the principal balance owed to the lender, and pay that off with new replacement financing.

But you might ask: Are banks really willing to do that when borrowers are current on their payments? Hornik says large numbers of them “are more than willing to negotiate to less than the existing balance on a current mortgage. It all depends on the situation the bank is in.”

Many lenders are themselves under stress because of the economic downturn. They need to bolster their own capital bases, and may be willing to write off some of the debt an income property owner owes them in exchange for a single lump sum payoff.

How much might a bank reduce an investment property loan balance that’s current? Hornik says the reductions his firm helps negotiate can range from 20 to 40 percent.

Kennedy Funding’s role, said Hornik, is “to be the catalyst. We call your lender and negotiate the terms” of the writedown, if it’s at all possible. If there’s flexibility on the bank’s end, Kennedy then offers to either buy the existing note at a discount, providing cash to the bank. Or it provides the refinancing takeout cash to retire the debt at a lowered principal amount.

None of this comes cheaply, however. Kennedy Funding is a “hard money” lender, so interest rates on the new, smaller loan amount for the investment property owner can range from 9 percent and up, with at least three points. Loan to value ratios tend to be low, generally 65 percent or less.

At the end of the process, however, said Hornik, property owners generally owe less on the real estate and pay less per month, even with higher rates.

K. Harney

Being a salesperson is one of the greatest professions on earth. As real estate salespeople, we are helping people achieve the great “American Dream”. We get into trouble when we don’t understand the process of the sale. Most real estate salespeople have never studied sales. They have learned a few scripts and dialogues, but they don’t clearly understand the buying process. They have never become students of selling.

To be a Champion salesperson you have to understand and study sales. The first step is to understand the sales process. The truth in sales is that people make decisions based on emotion. How they feel emotionally about something governs their decision-making process. We don’t do things based on logic, reason, and intelligence. We will use those tools to justify our decision. Reality is we all act emotionally, and our behavior is shaped by our emotions. Because we are human, we are in a constant state of trying to satisfy our emotional needs and emotional wants.

How do we talk to our clients’ or prospects’ emotions? We need to first put ourselves in their situation. We need to clearly understand their needs, wants, and desires. We need to have true empathy for the prospect or client. To really be effective, we need to imagine what the prospects feel like. By clearly knowing their feelings, we can gently and patiently help them see our point of view.

For example, you are working with sellers who want to overprice their home. They believe they need to get above fair market value. The most effective way to turn them to reality is to empathize with their problem, to acknowledge that you understand their feelings. Once you do that, then you can gently show them why their desires will not happen. You have to meet those overpriced sellers where they are and work them towards your position.

If you draw a line in the sand and you are worlds apart, all you are doing is yelling at them across a canyon. You have to cross the canyon to their side. You need to lead them back across the canyon. People can often be like cows. You can push, poke, and prod them, and they won’t budge.

Your reason for your way has to be a benefit to them. Once they see how they can benefit, they will follow your thinking. The key is to talk to people in terms of needs and emotional benefits to them. Once you have established the benefits, you can persuade people to do anything.

D. Zeller