Real Estate Consultants

Seller Financing As A Solution

2008-04-18T18:27:00.003-05:00

Seller financing can be a great way to get a house sold without slashing the price. By recognizing the millions of people who can't get traditional financing as potential buyers, resourceful property sellers (and their real estate agents) can minimize their time investment in getting a property sold. Even better, sellers who offer financing can usually get a higher asking price for their property, even in the slowest markets. Clearly this is a win-win situation.

Most home sellers never consider financing the buyer directly because they are not aware of the benefits or don't fully understand how creating a note works. Let's take a closer look at the advantages of owner finance.

Three Advantages

Seller financing is very powerful when the market is slow or when there are many similar houses on the market. Just listing the house as "OWC" - Owner Will Carry - will make the house stand out and attract more buyers. Because many individuals cannot get funding from a bank, offering financing will open the doors to these prospective customers as well, essentially significantly increasing the pool of potential buyers. So, advantage #1 is MORE BUYERS.

Seller financing also brings the property seller another critical advantage . the likelihood of selling for a higher price. Offering to carry back a note will not only greatly increase the number of potential buyers, but also bring a unique demographic of buyers who are willing to pay more for a given property than the general population. Advantage #2: MORE MONEY.

Additionally, when the property seller finances the buyer, they get to act as "the bank". That means they could structure the deal to collect interest. Over time, if the seller holds on to their note, this can add up to tens of thousands of dollars in additional income. Advantage #3: LONG TERM PROFIT.

The Seller's Strategy

Even when these benefits to "carryback" lending are made clear, many sellers are still hesitant to offer financing because they are entering unfamiliar territory. It's a natural, human response -- everyone is uncomfortable with new things.

For many property sellers, considering owner financing when they've only dealt with buyers via traditional funding is definitely "thinking outside the box". But once sellers understand the process, they are likely to choose seller financing instead of the unattractive option of cutting the listed price or waiting indefinitely for the "right buyer".

A seller-financed real estate sale is simply a real estate transaction where the seller acts as "the bank" or lending institution. The seller sets the sales price, determines and accepts a down payment, and then finances the remaining balance. The final step is the part that may scare some sellers, but in actuality, it can be very simple. Here is an example.

If the sales price is $100,000.00, and the buyer gives the seller $10,000.00 cash (the agent.s fee will be deducted from this down payment), the seller will finance the balance of $90,000.00. The buyer and seller would then agree to the terms, such as the interest rate and the total term, and use an attorney to create the mortgage document and close the deal. From that point on, the buyer sends the seller monthly payments for the house he/she has just purchased.

Special Circumstances (and a Solution)

The whole process can really be that simple. But, there are some substantial differences between a seller-financed deal and one that relies on traditional bank funding.

First of all, the seller in this example does not receive a large, one-time payment at the time of the sale. In fact, they will only receive the down payment, and in some situations, most of that will go towards paying the real estate agent's fee. On the other hand, the seller will be receiving monthly payments at a decent interest rate, but this income stream can't be used as a down payment for a new house.

Since many home sellers are also looking to buy another property, the seller will need to get enough at closing to pay their own down payment. Without this payment, the seller's hands will be tied when they look to purchase another house and need to have a substantial amount of funds available. There is a common solution to this issue, however.

The Solution

In order to get the money the seller needs from the loan they just created, the seller could sell the monthly note payments to a specialist buyer for a lump sum of cash. If the seller finds someone willing to buy the payments, now they can "have their cake and eat it too".

In summary.

Step one: Use the seller finance option to find unique customers willing to buy the house at a higher price than would have been possible otherwise and complete the real estate transaction quickly.

Step two: Decide on the terms of the deal and create the note.

Step three: If the property seller needs immediate cash to buy another house or for any other reason, their new incoming payment stream can be resold. The person who buys the future payments from the seller will provide the funding to act as a down payment on a new house, and every party involved in the deal comes out smiling.

The Benefits Of Seller Financing

2008-04-18T18:18:00.002-05:00

Many home owners dread being involved in a situation where a property they've listed for sale has been sitting unsold for too long. The basic reason is usually the same - the asking price is too high for the market conditions.

In these situations, the seller is forced to lower their price in hopes of making the property more attractive to buyers. Unfortunately, this technique doesn't always work to sell the real estate, especially if the seller is unwilling to "discount" their house by much, or if the market is weak.

A great solution for the seller is to open up to an entirely different segment of buyers by offering seller financing. This way, the property owner can often sell their house for their desired asking price (or even more), and find a buyer more quickly than with conventional real estate methods.

Some homeowners are hesitant to offer seller financing services because of a lack of understanding about how private financing works.

Like other things that seem complicated on the surface, it's simply a matter of grasping the fundamental issues specific to seller finance. By following the proper procedures to locate a prospective buyer, create a note, and resell the note to a note purchaser (if necessary), a real estate seller that is willing to "think outside of the box" can sell their home for more money and close the deal faster as well.

Finding a prime buyer for seller financing

The majority of home buyers looking for seller financing look through the "For Sale By Owner" ad listings in the local paper. Even in today's Internet-dominated world, newspaper advertising continues to be an effective means to reach those looking for seller financed deals. A simple sale ad including the line "seller financing available" or "credit issues OK" should help to generate interest from the right potential candidates.

Doing the deal

Once a serious buyer is "on board" to buy, the seller works with that party to set the terms of the note. It is especially important to draw up the contract to favor the note holder when the property owner will need to immediately resell the note in order to receive a large lump sum of cash for their future payments.

Larger down payments are better than smaller amounts, and shorter terms (5-10 years) and higher interest rates (12%-20%) are usually preferred by buyers. It is the property seller's option to determine what is acceptable and what terms to which the buyer will agree.

Once the details of the initial payment, payment term, interest rate, and any necessary clauses are established, the buyer and seller can create a new seller-financed note. Creating the note can be handled with standardized boilerplate or the assistance of an attorney, although some note sellers manage the private sale of their home without any paid legal counsel at all.

Once the newly-created note has been reassigned to a buyer, the property seller will have "cashed in" their future monthly payments for an immediate lump sum payment from the note buyer - an amount similar to what they would have received from a conventional sale.

Locating the right note buyer

The best method to find note buyers is using the Internet. Using a popular search engine website with keywords such as "buy monthly payments" or "buy mortgage payments" could lead to many interested buyers.

Enlisting the assistance of a note finder

In the secondary finance industry, a unique group of individuals exists who specialize in locating buyers. These cash flow specialists - often known simply as "finders" - have a unique understanding of what most buyers are looking for. These finders are happy to work with property sellers (or their real estate agents).

While note finders can't offer any legal advice or assist with the creation of a note, they are qualified to give general recommendations about note buyers' buying criteria. Most importantly, note finders will be able to help locate a buyer for a newly-created cash flow.

Creating an attractive note for resale

Note payers and note buyers are usually looking for very different things. Most payers would love a "no money down" purchase over 30 years at a low interest rate, but buyers wouldn't want anything to do with this sort of note because it is a bad deal for them.

An initial down payment of at least 10% of the sale price, a fully amortized term between 60 and 120 months, and an interest rate of 12 to 20% is typically what a note buyer is seeking. These conditions are necessary in order to minimize the discount to the note seller. Note buyers will always reduce the payout amount somewhat in order to counterbalance the risks - limited equity, a payer with low or no credit score, possible foreclosure, or having to foot the bill for legal actions and selling the property via auction.

When property sellers are willing to offer an unconventional, private financed note to sell their house, the end result is often much better than the alternative of lowering the price until a "traditional buyer" finds the deal attractive. Smart sellers who can apply owner-finance techniques will have a huge advantage in closing difficult deals in tough markets.

Time Value Of Money

2007-03-16T20:09:00.000-05:00

Time affects the value of money. It's the age-old adage that dollars today are worth more than dollars tomorrow. Grasping this important perspective goes a long way toward understanding the private paper marketplace. And it puts you in an excellent position to clarify certain financial decisions for your business.

To understand this concept, think of the flow of dollars in terms of the old bromide - "A bird in the hand, is worth two in the bush!" You know you won't go hungry. You also know that you won't have to spend any more time trying to catch your dinner!

What about those two birds in the bush? They present a whole series of decisions. For example, do you have to let go of the bird you have if you catch the two in the bush? Are there really two birds in the bush? Can you catch both? If you only catch one, will it be a better bird than the one you already have, and so on.

The point is simple: All investments involve a certain amount of risk. You are giving up money you already have, for an anticipated future that is greater. And, in deciding the worth of the expected additional benefit, you must evaluate risk of loss, depreciation, and opportunity cost.

Balancing these considerations is achieved through yield. The yield is your rate of return over a given period of time. Yield is used to judge use of a particular investment in itself, as well as in comparison to competing investment opportunities.

The Time-Value-of-Money

Intrinsic to yield calculations is time. Why is that? Well, lots of things can happen over time, and nobody knows with absolute certainty what it will bring. The longer you have to wait for your money, the greater the risk that you may not receive it or, at least, not all of it. Likewise, don't be deprived of the use of your money for the investment period and the collateral risk of lost opportunity with respect to alternatives.

The relationship between time, risk, and value is a natural consequence. Two basic mathematical formulas bear this assumption out. Fortunately, it works the same whether you are in Tranquility, New Jersey, or Bountiful, Utah. Even better, the formulas are plugged into simple financial calculators, which are easy to use, inexpensive, and available anywhere.

The first formula is where we take $1 and invest it at a set rate of interest over a period of years. We will know exactly how much the future will be at the end of that time.

The second formula is the reciprocal of the first. It tells us what a future value is worth when discounting the investment to its present value relating the time-factor, yields are calculated as an annualized percentage rate.

For example, we have a $10,000 note with a 10% annual interest rate, all due in one year. The first formula tells us the value of the note: $11,000 in one year's time, a yield of 10%. In two year's time, the value will be $12,100. In three year's time, the value will be $13,310.

Conversely, the second formula tells us that $11,000, due in one year, is worth $10,000 today, when discounted to yield 10%. So, what should we pay for $13,310 to be received in three years, discounted to earn 10% on our money? The second formula tells us $10,000 is the present value or purchase of $13,310 due in three years, discounted to yield 10%.

Yield is figured in one of two ways. First, compounding the future value as in example 1. Or second, discounting the present value as suggested in example 2. With either calculation, the value of money is directly related to the time when it is received.

Discounting

Here's a real-life scenario that demonstrates the importance of yield calculations.

Kerry Cash is looking at two competing, $25,000 private mortgage notes to purchase and wants to receive a 14% return on his money.

Anita Dough's note is payable monthly over 15 years, with a balloon due in ten years. Iwanna Hall's note is payable monthly over 20 years. Both are earning interest at 10% and both are comparably risk-rated. Each seller wants 82 cents on the dollar for the notes or $20,445. Kerry wants to earn his investment. Which note would yield Kerry his desired return, Anita's note or Iwanna's note?

The payments on Anita's note total only $44,882, while Iwanna's note equals $57,902. However, when discounting present value to yield Kerry's 14% rate of return, the stream of payments for Anita's note equals $20,445 (82 cents on the dollar), while the discounted present value of Iwanna's note to only $19,401 (78 cents on the dollar). How does this occur? Iwanna's note will not be paid off for 20 years, whereas Anita's note is paid in ten years. His is the power of time when it relates to money. Therefore, Kerry would purchase Anita's note.

Knowledge is power! You can use your understanding of the time-value-of-money to give added value to your clients and grow your business.

Turning Paper Into Gold

2007-03-16T19:46:00.000-05:00

So you want to buy some real estate without using any of your own money? Let me show you how you can accomplish this objective.

There are a few prerequisites. First, the property should be free and clear. Next, the seller must be willing to carry back a note that is secured by the property. So, you've found a good prospect? Great! Here's what you do.

Strategy 1
We have found a free and clear single-family residence that is selling for $160,000; the seller wants $32,000 or 20% down. The terms of the note are:
N = 360 Monthly Payments
I = 10% Interest Rate
PV = $160,000 Present Value
PMT = $1,404 Monthly Payment
FV = $0 Future Value

What we do is create a note for the full purchase price of $160,000, due in ten years. The balloon payment at the end of ten years is $145,500.

We explain to the seller that we can give him the $32,000 down payment, but he will have to agree to go without the first 30 months of payments on the note. He agrees to this after we illustrate additional financial benefits that he will realize from our creative financing (as I will explain in a moment).

Next, we are going to sell the first 30 payments to a note investor for $35,367, which will result in a 14% yield to the investor.

You can pocket the $3,367 difference between the amount the investor will pay for the note ($35,367) and the amount you have to pay for the down payment ($32,000).

After the 30 payments are received by the investor (which you as the buyer of the property will be making), the payments will revert back to the property seller. Using your financial calculator, the present value at that time will be $157,042, with 84 payments remaining. (Remember the seller received a $32k down payment, so he actually makes $189,042, over the ten-year financing period, plus ongoing interest on the remaining balance.)

The results are that the seller gets $32,000 cash at closing. You purchase the property with no money down and keep $3,367 at closing.

Make sure that when you sign the purchase agreement the contract states, "this agreement is contingent upon the buyer selling 30 monthly payments of $1,404 for a minimum of $32,000." Furthermore, you should have the note sale close at the same time as your real estate purchase.

Strategy 2

Create two notes on the above property and sell the first. Here's one way of doing it:

Create a first mortgage for $100,000, at 10% interest, amortized over 30 years with a monthly payment of $877. We will sell this mortgage to an investor for $80,000, or at a discounted yield of 13.8%. We will also create a second mortgage for $80,000, at 10% interest, amortized over 30 years, due in 15 years. The monthly payment is $702, and the balloon is $65,331. The seller will keep this 2nd mortgage.

You will give the seller $70,000 down from the sale proceeds of the 1st and keep the remaining $10,000 difference. Your benefit is that you get the property with no money down, all the appreciation, and $10,000 at the close of escrow. Yes, you are paying $10,000 more for the property ($100k + $80k - $10k = $170k), but you will be paying for it over 30 years.

The seller gets a larger down payment of $70k and a monthly payment of $702 for 15 years or $126,360. After 15 years he gets a balloon of $65,331.
So the total amount the seller gets over 15 years is $261,701. Of course, you could give the seller less of a down payment and pocket the difference, depending on your negotiating skills.

There are a multitude of ways to purchase real estate with these types of strategies. Sit down and write out what you want to accomplish. I will help you design strategies to accomplish your goals. Money is not the problem here! If you have a little time and the right situation, these strategies can make you a winner.

The Best Deals Include Paper

2007-03-16T19:30:00.000-05:00

Often the best and most creative real estate deals will include “paper” or some kind of seller financing. Exchanger's, in an elite category of the real estate industry, are very familiar with this strategy and are highly skilled at complex deal structuring.

Unlike traditional real estate brokers, Exchanger's are "free birds", unconstrained by the rigid orthodoxy of the retail real estate profession.

Most Exchanger's have achieved the status of a Certified Commercial Investment Member, which is the National Association of Realtors’ most prestigious designation. Further, most have also completed the rigorous Society of Exchange Counselors’ program, another prestigious qualification.

Adept at counseling their clients in a shifting marketplace - closing sound transactions in economies moving from tight money to easy money and back to tight money conditions - Exchanger's are economic survivors well-schooled in taxation, economics, investment analysis, and alternative financing. Most are experts at creating and maneuvering private paper, a necessity often presented by the complexities and mechanics of successful exchanges.

Exchanger's rely heavily on other brokers - providing opportunities for motivated retail agents to participate in these exhilarating and rewarding deal-making experiences. To illustrate, I will share this example with you:

A semi-retired gentleman walked into Renee Realtor's office, desiring to unload thirteen older rental units on 1.5 acres. A thorough interview revealed that the Seller was worn out managing the dog-eared property and his wife wanted to live in a shiny new home. However, they still needed investment income and they preferred low-maintenance rental real estate.

Renee's analysis determined that: rents could be doubled within twelve months’ time; deferred maintenance could be caught up from monthly cash flows; and the underlying 1.5 acres alone would be worth three times the purchase price in ten years or less. Renee knew that professional Exchangers, George, was seeking investment property for a client who was the business manager of a private pension fund.

George had also recently listed a $180,000 small commercial property, owned by a successful paint and body shop. Renee got excited about the possibility of making three deals out of one.

Renee contacted a note broker (such as myself) to arrange for the purchase of the newly created note that would be coming out of the transaction. She then quickly found her Seller a new $95,000 home; the listing agent was more than willing to cooperate with the exchange (even in the existing sellers' market); and the agent happily gave up the full selling side split.

At closing, George's Seller sold the commercial building to the pension fund for $180,000, financed by a seller carry back mortgage. The pension fund paid all closing costs for that side of the deal. At the same time, the pension fund paid $95,000 cash for the new home - then gave Renee's Seller the home and the commercial building in exchange for the thirteen rental units.

To reconcile each party's needs, George's Seller signed a ten-year leaseback for the commercial building, to provide the investment income that Renee's Seller wanted. The $180,000 note created by the pension fund was "walked-over" (moved) to the thirteen rental units to balance the equities - giving Renee's Seller his free and clear commercial building, while providing the financing needed by the pension fund to complete the purchase of the thirteen rental units. And at the closing, the $180,000 note was sold to a note broker such as myself, providing George's Seller with the cash he required.

Visionary thinking allowed Renee, George, and the retail agent to achieve their clients' objectives - at the same time enabling Renee and George to move difficult properties.

Everybody wins!

Real Estate Paper The Hidden Market

2007-03-16T19:21:00.000-05:00

Are you aware of just how large the paper market or the seller-financed mortgage market truly is? One out of thirteen homes sold in the U.S. has some kind of seller financing. Further, this market continues to grow at the rate of over $4 billion a year.

Government and industry sources estimate that $335 billion in private paper exists in our country right now! Of that total, nearly $100 billion consists of private residential mortgages.
Just what is private paper or seller financing, anyway? Generally speaking, private paper refers to the notes and security instruments created by private parties.

Private parties are those individuals or investors who are lending from personal assets rather than through large institutional lenders.

Although the majority of private paper assets exist in the form of mortgage notes generated when sellers carry back some or all of their equity in the properties they sell, a great deal of private paper is also created as a result of other types of transactions. Attorneys, for example, have taken promissory notes secured by real estate as payment for legal fees. Swimming pool builders and home improvement contractors use the private paper device to secure payment for their work. Real estate brokers have taken private paper for their commissions. Bail bondsmen often take private paper security for their bail funds. Divorce and probate settlements frequently utilize private paper to facilitate the equitable distribution of assets to the affected parties.

Many folks believe that the growth in the mortgage industry and the low interest rates our economy has enjoyed over the past few years have wiped out the need or inclination for private paper. This is not true. Since 1993, private residential paper assets have grown from $75 billion to approximately $100 billion. That’s $4 billion per year in new private paper created over the past six years.

NoteWorthy

The incredible growth in the private paper industry has refashioned what was once a small market into a full-blown financial sector in its own right.

What just a few short years ago was a “hidden market” has slowly crept from darkness into light. Networking has become the byword, as industry participants have learned to work closely with one another. Modern technology has also played a significant role, as communication between note professionals has improved. Another key ingredient that is propelling the growth of the note industry is liquidity!

No longer are note buyers playing strictly in their own backyards. A farmer in Bigfield, Indiana dealing with his local note broker can now sell his note to an investor living in Joe, Montana. What’s the significance of this? Simply put, the movement of capital, which in turn lubricates the economy.

The average note holder is now holding a high-return, highly securitized instrument, which he can keep or sell with relative ease.

Selling A Partial

Did you know that a note holder can even sell just part of a note and keep the rest? That’s known as a partial purchase. This device is fairly unique in the investment world. How many investments allow you to sell a portion of your future revenue for cash right now, while still receiving the other portion of that revenue stream as income?

Investors now have a higher degree of confidence in purchasing paper or playing the paper game. Further, they have an increased opportunity to find enough deals to sustain their portfolios and their investment objectives.

Conversely, sellers enjoy an increased bidding atmosphere that will usually ensure they get the best price available.

The Growth

Private paper assets have grown at the rate of $4 billion per year over the past six years! Where did that growth come from? Your clients!

Chances are you are actively involved with, or at the least somewhat aware of, your clients’ financial affairs. Somewhere along the line, you most likely have some input in your clients’ decision-making processes. Being aware of the private paper marketplace, and having at least a basic understanding of how it operates, opens up all kinds of possibilities for the creative professional to provide solutions for his clients’ problems.

The primary service you offer your clients is counseling or advice. The more you know about the paper game, the better counseling you can provide. The better counseling you provide, the more your clients rely upon your judgment. As this reliance grows, the expansion of your practice is a natural consequence. Credibility fuels prosperity!

The Future

In the months ahead, I will provide you with an updated road map of the paper game to guide you through this hidden market - and demonstrate how you can increase your business by having this knowledge and an understanding of real estate paper.

Make Big Money In Real Estate

2007-02-06T23:17:00.000-05:00

Real Estate is one of the oldest forms of investing known to man.

Real Estate investing is easy and fortunes are made in a simple manner. For example, and investor decides that a desert area will eventually become an industrial development. He purchases a number of acres at a very low price. If his guess turns out to be correct, ten years later he sells the land hundred times more than what he paid for it.This can happen in any part of the country and is not an exceptional case.

As the population keeps growing in the U.S., land prices continue to raise and it means that Real Estate will continue to offer one of the best investment opportunities in the country.

Compared to most forms of investment, Real Estate offers greater profit potential. Of course, not every piece of land will turnout to be a winner, and despite the great potential rewards in some cases risks are involved, so the necessity of careful study before invest.

One of the problem of Real Estate is his lack of liquidity.Liquid assists are those easily converted into cash like stocks or bonds. Most Real Estate investments take years before you can make some money, so it is not wise to tie up all your assets in this type of investment. Your financial situation will determine how much you can wisely invest in properties.

There is a difference between a land speculator and an investor.A speculator buys land with the intention to make a quick sale and fast profits and will not hold land for a long period of time. An investor, on the other hand, looks for a long time gain,and usually buys only what he can afford to keep for an indefinite period of time.

If you are new at this field, it is wise to refrain from any as peculation until you become more informed, and you will have to devote considerable time to study and research. It is wise also to consult specialists before you act.

Without realizing it, you already made a very successful investment in Real Estate if you bought your own home.

Before you look for areas to invest, consider the condition of your own house. If you have any plan for selling it, good landscaping has been known to considerably increase the value of a home.
Large profits can be attained by purchasing run-down homes and restoring them for eventual selling, but some factors have to be considered:

* You must know something about architecture and remodeling and get and idea of how much it will cost to get the house back into shape. Consider what you will be able to do yourself and what it will cost you if you have to have it done.

* The location of the house is the most important factor to consider. Study the neighborhood, shopping, and transportation facilities.

It can also be profitable to lease land for commercial use. Land which borders highway is extremely valuable for purpose such as warehouse, gas station, etc.

Land development companies frequently run advertisements offering country retreats. Be wary of these offers as they themselves make a large profit at the time they sell you the land, so it is much more profitable for you to buy your own.

When you buy property, buy at a price that involves a minimum financial risk. Invest only a modest amount of your own capital,when you sell, determine if a cash or installment sale is the best, based on your over-all income tax status. Learn by looking back on the mistakes made in the past and by reviewing the opportunities you have missed.

Prepare a list of all properties available in your area and think up the best future use of the properties. Learn to purchase land before there is a demand. To buy land well in advance is the only economical way at today's prices. Then hold the property until you can resale for large profits. Don't sell all your desirable properties and keep just lemons.

If you are willing to leave the cities, you should not have any trouble finding inexpensive land for sale. If you discover a tract of land appealing to you but not listed for sale, contact the Country Register's Office and he will tell you who is the owner. Get in touch with him and he could be willing to sell.

As a rule purchasing tracts of land within thirty miles from a growing city is often a sound investment. Deal only with qualified realtors. Be careful of individuals who offer quick profits.

Before taking any action, study what has been written about the subject. Know why you should and should not buy. Stay conventional and don't buy white elephants. Look for hidden defects and make the property attractive before offering it for resale. Study local conditions and be sure it is practical.Constantly look for bargains and quality properties with exceptional features that will make the sale easier. Follow up on For Sale signs, make inquiries.

When discouraging elements occur, minimize your losses by whatever means available. Don't throw away money on repairs for poorly located property or in an area of surplus rental units.

Before you attempt to sell, find out how the prospect can use the property profitably. Ask yourself if you would purchase it if you were in the prospect's shoes. Ask yourself if the future use will fit any of the many types of specific businesses. Can a hospital,a bank, an apartment complex, condominium or professional building be located on the property.

Learn to analyze the pros and cons of a real estate problem.Break it down into its various elements. Know if the answers you come up with are satisfactory and practical. Try different approaches to the problem.

You are necessary looking for the "top" or "bottom" of the market, or the current economic situation. You are looking for a variety of properties which have a higher value dependent on the use that can be established for them.

There are always opportunities in Real Estate during good times and bad, but it is up to you to pick and choose only those very best deals, especially during times when it appears that Real Estate values and demand have reached their peak or in times when it is practically impossible for most anyone to get bank loans due to the tight money market or impossible interest rates.

How To Acquire Property Without Risk

2007-02-06T22:25:00.000-05:00

There are a number of ways to acquire property without risk. We list a number of the most important:

* Restrict the size of the investment and the amount of indebtedness.

* Sell at a profit a part of what you have purchased.

* Buy only such property as you are willing and able to hold for an indefinite period.

* Make an estimate of gain or loss probabilities before you buy.

* Withstand all pressure of people who try to induce you to sell at a loss.

* Increase desirability of the property before you sell.

* Observe the effects of local improvements, movements and activity. Develop ability to buy Real Estate with the greatest potential for the future. The successful buyers of Real Estate have a good knowledge of facts and laws, learned under a great variety of circumstances. They realize the importance of making investigations. They know economics and business conditions locally and nationally. They study trends, growth areas and property utilization. They have a correct idea of their own personal finance limitations. They have a high degree of interest, judgement and imagination.

* Adaptability, fortitude and a high degree of resourcefulness are other attributes to successful Real Estate investing. Desire for ownership and not being adverse to going into debt are very important.

* If a property appears to be greatly under priced never quibble over price. List all the significant advantages and disadvantages of each property. There should be some reasonably outstanding features that will generate enthusiasm. Decide to buy on the merits of the property, not because someone is suggestive. If you lose a good deal, a better one will come along. Resist speculation fervor.

* If you are buying a property to hold for a long time, compute the taxes, interest, insurance, etc. You will have to pay while it is in your possession.

* Realize that when the market is good and the price is rising you can always buy, but when the market is going down it is difficult to sell. Don't sell too quickly and do not over-extend yourself.

* Realize that increasing value of improved (homes buildings,etc) result mainly from increasing population.

* if you are interested in making money investing in Real Estate foreclosures, the best way to succeed is to develop a financial plan based on your tax bracket so that you will know when to sell off which properties and when to keep them for future increase in value. You will need to recognize when there is "concealed"equity in a property which is not visible to other investors.Look for homes from 5 to 20 years old with potential net profits of no less than $4,000 when you convert them.

* Know the laws in your state pertaining to the foreclosure process. Look over all the small print in contracts. Most of them favor the seller. If you are the buyer, have the contract changed to fit your requirements.

* Be careful at auctions so that you don't get carried away with the bidding; determine in advance the top you will go and stay with it.

* Strive to locate and purchase distressed property before foreclosure proceedings start and you can generally assume conventional loans under the same circumstances as presently exist.
* When you have purchased the property in a slow Real Estate market, it is easier to sell since you have probably acquired it at several thousands below the current market value.

* It can be good policy some of your property and keep some. For example, if you can sell one-half of the property and get mos of your money back, you will be able to retain the balance for future enhancement and use the proceeds of that portion sold to speculate in other properties.

* Speculation is not all profit. As time goes by taxes and assessments increase; some properties may have to be sold to pay for such increases.

* The greatest deterrent to a person buying Real Estate is the fear of making a mistake. Of course a person can't afford to make many mistakes in Real Estate speculation just as in any other kind of business.

* During a period of inflation, land is the best investment.During a recession or depression, land is the worst investment.If a recession appears imminent sell, even if on a contract for a reasonable down payment and monthly payment on the balance. You will have an income and also have the property as collateral. You can be sure that as long as general economic conditions are good, the value of well selected Real Estate will increase.

* Populations increase by birth rate and by influx. Check to determine the past circumstances of the local economy, the demand for public services and the future growth potential. The fact that a city has increased in population is not significant in itself. Perhaps there has been an annexation of adjacent areas.

Yes! By comparing, learning and using good common sense you can profit in Real Estate regardless of recession, depression,interest rates, or inflation!...And without excessive risk!

Practical Real Estate Techniques

2007-02-06T21:37:00.000-05:00

They say that "death and taxes" are the only two certainties in this life. When it comes to achieving financial independence, death and taxes are essentially the same thing. Just as friction wears the tread off your tires, tax friction rubs the shine right off your financial statement.

Over time, the friction of taxation will do to your financial future what the Colorado River has done to the Grand Canyon.

In order to build wealth, you must maximize your tax deductions, thus minimizing your recognized taxable income.

Many property Sellers mistakenly think they need to pull all of the equity out of the sale of their real estate. Uncle Sam doesn't seem to think that's such a good idea, especially if you are an investor. That’s why he slaps our hands so hard by taxing us on our gains and rewards us handsomely with tax savings when we structure our transactions creatively.

The U.S. Tax Code provides several strong incentives for doing just that, and the effects can be extremely powerful in building wealth. Two of these incentives make it exceptionally profitable for you to "both a lender, and a borrower be!"

Section 453 of the United States Tax Code (Installment Sales) allows investors to avoid the bulk of their taxes due on capital gains. Utilizing the Seller Financing technique, we can defer these taxes by paying them in very small increments over a long period of time. There are several other benefits as well.

When offering Seller Financing it improves the marketability of our properties. If structured correctly it also creates an opportunity to maximize sale values. Although the value added appears more pronounced in a slow market, the tax benefits make Seller Financing extremely attractive regardless of economic conditions.

Seller Financing or a carryback note also provides us with a well-secured, high-yielding, near-cash asset that offers us a broad foundation and a great deal of flexibility in building our investment portfolio. Such notes strengthen our financial statements, while earning much better returns than saving accounts.

Interest payments can kill our efforts to achieve financial independence. There is an exception, besides the tax break, that lending our equity brings to the table. Uncle Sam throws investors another meaty bone as well: Tax Code Section 163, allows us to write off interest on debt used to finance the purchase of our investment assets!

Financing a high percentage of the purchase price provides a large interest deduction in the early years of ownership. This deduction generates a tax shelter, which shields any positive cash flow. It also shelters the non-cash equity buildup occurring through principal reduction on the loan. At times it may even shelter some of our other income from taxation as well.

Investment debt allows us to control more properties, so we can build our wealth portfolios more rapidly. At the same time the mortgage interest deduction reduces taxation. This allows more of our dollars to remain where they belong -- working for us to further speed up our accumulation of assets.

By loaning our equity in the form of Seller Financing, and borrowing more heavily on new acquisitions, we can maximize our yields through increased profits and reduced taxation. For the investor looking to pyramid real estate assets -- the use of these practical financing techniques is often the best way to go.

Here's a perfect example -- Say a client or an acquaintance owns a $75,000 rental home with $35,000 in equity. He wants to sell this rental in order to purchase a $120,000 duplex, which has $30,000 in equity. At first glance, a Section 1031 tax deferred exchange might seem like a good way to go. That could be an excellent strategy. But what about this…

Say, your client has a solid Buyer who only has $8,000 cash to cover the down payment for your client's property. The duplex Seller wants to cash out from the sale of his property. What do you do then? Here is a practical technique that will satisfy everybody and pump up our client's investment portfolio to boot.

Your client sells his rental home and carries back a Seller Financed second note of $28,000 for 25 years, at 11.5% interest with an eight year balloon payment due (charging the Buyer a $1,000 premium to offset your client's closing costs). Your client nets $7,000 after closing. But with only $7,000 net cash from the sale of the rental, he is still $23,000 short for closing on the duplex. If your client sells his note to a note investor or gives the note to the duplex Seller as part of the down payment, it will trigger a taxable event for your client.

Your client offers the duplex Seller $7,000 cash down and a new second mortgage for $23,000, which he will sell to an Investor for $20,500 at the close of escrow (a "simultaneous closing"). This new mortgage is amortized over 135 months at 10% with a balloon due in eight years. To make the note more attractive and reduce the discount, your client pledges his own $28,000 note (from the sale of his rental property) as additional collateral for the new $23,000 note he gave to the duplex Seller.

This strategy mitigates your client’s capital gains taxes, so his dollars go to work acquiring more investment assets. The financing structure also gives him a higher mortgage interest deduction and increases his tax shelter as a result of a new and higher depreciation basis. Meanwhile, the 11.5% mortgage payments he receives from his Buyer are covering the payments on the 10% second mortgage he gave to the duplex Seller.

At the end of the day, your client received all of the same benefits he would have realized from an exchange. The difference with this more practical approach -- your client was also able to loan out $5,000 of his equity and gain an additional $11,042 over eight years. This is a 14.66% annualized return on his $5,000, by the way.

Using a few practical techniques and the services of a good note broker, you accomplished your client's investment goals and made him an extra $11,042 in the process! We aren't surprised when he refers two of his friends to us.

Sub-Prime Lending Markets Will Affect You

2007-02-06T21:26:00.000-05:00

Forget all the negative press about "predatory practices" that have put some of the major sub-prime lenders out of business lately - there is much more to the picture! A sub-prime lender is one who lends money to high-risk individuals.

The biggest players, including some large banks and insurance companies, are losing tremendous sums of money at the sub-prime game.

Over the past several months, most major sub-prime lending companies, including the biggest and oldest in the business, experienced some difficulty in one way or another. Many have either struggled to keep their doors open or have actually decided to file for bankruptcy.

Those still standing have had their investment ratings downgraded due to the industry's legal and political risks, not to mention the financial realities of doling out money to high risk borrowers, secured only by high risk, high loan-to-low-equity-value properties.

The strategy of aggressively creating loans and then selling them off in pools of securities, known as "securitization", has given fuel to this multi-billion dollar industry, at the expense of profits.

Equity Is Still King

Spending money to make money might make sense in the right business platform - but giving it away tends to spill red ink all over the place.
Consolidation in sub-prime lending markets will likely make equity king again - forcing deal-makers to return to "practical solutions" for real estate financing options, and not always just for sub-prime borrowers.

How This Affects You

Okay, it’s time to think of new ways to help your clients. Creative solutions for everyone.

For many of you it will be a whole new educational process. Fortunately, you don't have to look far - I am a quick phone call away. And the time to get started is sooner rather than later.

Remember, every deal is different and I can always give you some basics so you'll have a complete understanding, and the ammunition, for counseling your clients on closing deals in a less fluid environment. For example, did you know that table funding (otherwise known as simultaneous closings) has become one of the hottest techniques in real estate transactions over the past eight years - making up an estimated 20% of all private note sales? Several issues ago, I explained how Sellers needing cash could sell a newly created note simultaneously with the sale of their property.

Installment Sale

Additionally, in the last issue, I pointed out that most Sellers assume that they need all the cash at closing. However as I explained, an installment sale can often be a better alternative, both from a tax and a reinvestment standpoint.
Also in the last issue, I illustrated how a client holding existing paper can use that paper as collateral to secure more assets, while continuing to enjoy higher returns and more tax benefits.

The Best Strategy

If you or your clients are disposing of real estate assets or need to liquidate existing notes, feel free to give me a call ahead of time. I am happy to help you determine which strategy might work best.

What I am proposing is that you use one of the many alternative-financing techniques, providing a broad range of options so your clients can complete transactions in a manner that is acceptable to them.

More Options

Here are a handful of options you can choose from: 1. Private seller carry back purchase mortgages; 2. Table funding; 3. Trading equities; 4. Exchanging; 5. Substituting collateral; 6. Bartering; 7. Using land contracts; 8. Converting existing notes to cash; and 9. Structuring lease options. All of these deal-making strategies have been used for decades and are valid, viable, and valuable techniques.

Problem Solving

Professionals such as Realtors, attorneys, CPAs, and mortgage brokers have used these techniques reliably for years - knowing that they offer practical solutions for their clients.