Posted by: Alan Brown in Single Families, secure notes, Retirement, Real Estate Investment, Real Estate, Private Lender, Land Trust, investors, Investment, investing, Hard Money Lender, Getting Started on
Jul 03, 2009
Investing in fixed secured real estate notes can yield fruitful returns often higher than mutual funds while providing security of investment only found with bonds and CD's. Conservative investors looking for stable long-term investments such as bonds, CD's or money-markets currently only receive APR rates between 2% and 4%. The inflationary period looming due to government spending, budget deficits and money printing will continue to drive these investments into the ground. A high price to pay for security of investment.
What Is A Fixed Secured Note Backed By Real Estate?
A first position high yield collateralized note much like a lean held by a mortgage lender on a piece of real estate that can be called due if the terms of the agreement are not met between lender and borrower. In this case, the note holder (i.e. private lender) would simply take control of the real estate if the terms of the loan are not met. The borrower (i.e. real estate investor) will buy a piece of real estate with the money provided by the note holder. The two parties agree on a set of terms of the note. The property is purchased and the term starts. A fixed secured note can also provide investors such as retirees tax free income by using a self-directed IRA for the source of the note. For more information on self-directed IRA's visit: http://www.trustetc.com
Terms
The terms of a fixed secured note are generally 3 to 5 years, 6% to 10% APR interest only with monthly payments. There is typically a balloon payment of the original principle payed to the note holder at the end of the term just like a CD.
Posted by: Nick Johnson in Single Families, Remodel, Rehab, Recession, Real Estate Investment, Real Estate Agents, Private Lender, Preforeclosure, Offer, Motivated Sellers, Mortgage, Market Prediction, Investment, HUD, Hard Money Lender, Getting Started, FSBO, Foreclosure, Financing, Economy, Due Dilligence, Bank Owned on
Feb 18, 2009
Over the past 12 months my partners and I have been buying single family home foreclosures. Homes are selling for deep discounts and providing high cash-flow rates once rented. Our strategy is not to buy and flip, but to buy, rehab then rent to provide cash-flow and capital appreciation. On the surface this may seem as easy as drinking coffee because of the high number of foreclosures available. But don't be fooled with high quantity and low prices. Buying foreclosure properties is not as easy as it may seem. Buying houses for cash has been our strategy which is one way to up your chances of success. Refer to my previous article "Buying Real Estate With All-Cash" In todays article I'll outline another strategy that when paired with all-cash works for us.
Relieving Some of the Burden
Buying homes at deep discounts for cash relieves vacancy pressure as there is no unerlying mortgage. You may still have a lean on the property held by a private lender but hopefully you have worked out the terms so that you have 60-90 days until your first interest payment. Racing out to find a tenant before your first payment is no longer a pressing issue. You can be more choosy when screening tenants. You can hold closer to your asking rent price and not decrease it just to get the property occupied. You can save money by performing more of the rehab yourself. These are just a few of the benefits.
The Problem With Real Estate Agents
As easy as it might seem to buy real estate at low prices, a problem has arrisen that must be addressed if we are to successfully close deals with banks. I have found, as with many of my collegues that seller real estate agents have all the control when it comes to you submitting your offer, deciphering which offers to submit, how much information they tell you ahead of time, and lets face it some blatently do nothing. As a buyer in the past I have typically used a buying real estate agent to help me track down candidate properties, perform showings and leg work. As a result I did not close many deals dispite offering near or above asking price. The reason...
Posted by: Nick Johnson in Rehab Money, Rehab, Recession, Offer, Motivated Sellers, Mortgage, Market Prediction, Investment, Getting Started, Foreclosure, Financing, Economy, Due Dilligence, Bank Owned on
Feb 03, 2009
In an up and down market there are those investors that will dig up opportunities regardless of the state of the economy. In the current climate banks are holding on to their cash with a wait and see attitude. Savvy investors are finding that buying with "All-cash" works as a viable strategy for acquiring residential and commercial bank owned properties. Investors with a wait and see attitude for institutional lending and financing are missing a great opportunity to buy while everything is on sale. Rock bottom prices in the residential and commercial markets in part have been driven down by the scarce availability of credit.
A Hostile Lending Environment
Currently, savings and loan banks, an alternative to commercial lending institutions and private lenders, will typically finance up to 65-70% percent of property values. Buyers in some cases are required to bring 30-35% to the closing table to even be considered. The Commercial Mortgage-Backed Securities (CMBS) market which has traditionally produced many lenders eager to compete for loans has been stalled since the 4'th quarter of 2007. For example: In the first 3 quarters of 2008 only $12 to $13 billion worth of commercial loans were securitized. Already, 2009 is on its way to having the lowest production of securitized commercial loans in 10 years as stated by Commercial Real Estate Direct. Some banks, in order to finace a new project, are requiring developers to pre-lease roughly 70 percent of office/retail units and housing. Shorter amortization periods and higher interest rates added to the mix creates the perfect storm for an even more hostile lending environment.
Commercial real estate can lead to just about any lifestyle you can dream up, but if you're not careful how you play your cards, you can find yourself living through some expensive lessons. Fortunately, even in today's housing crunch, crossing the line from multiple homeowner to one who invests in commercial real estate isn't all that difficult, as long as you plan out a realistic strategy and game plan.
Some people start out by buying a rental property, others rent out their own home, and move on from there. After acquiring a few homes this way, they branch out with a duplex or a small apartment. If this continues eventually the bank is going to put on the brakes by telling you that your portfolio is beyond their lending protocol for multiple residential properties.
If you've grown too big for your britches but want to continue expanding your mini-empire you'll have to learn the "how-to's" of commercial real estate. Possibly you acquired one commercial property and everything went off without a hitch. But the next one didn't. Suddenly you find you "hit the wall" - you're in property owners no man's land.
Posted by: Investors Lounge Online in Sub Prime Lending, Seller Finance, Recession, Real Estate Investment, Over Leveraged, Over Financed, Market Prediction, Market Bubble, Investment, Getting Started, Flipping, Financing, Equity, Economy on
Aug 28, 2008
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 Many people do not understand the liquidity of real estate transactions and are often lead to believe that the transaction hinges on the accessibility of cash money. In this day and age of a troubled economy, few have such means. The reality is there are other benefits to explore when embarking upon a real estate transaction that has less to do with cash funds and more to do with the existing loan situation. Many homeowners do not see their existing loan as equity building over the years or that their home could work favorably on their behalf. So many people think with lack of cash, real estate transactions don't get done but there is flexibility in creative thinking.
This is where the know-how and knowledge of real estate professionals and investors must apply creative thinking to the every day challenges of doing business in such a slow market. While there is creativity thinking and finance involved, there is also the ability to have a tough skin that sets these professionals apart from others.
Many real estate investors and seasoned realtors will tell you that access to cash is not always the deciding factor in all real estate conveyances. In fact many layman do not see the notion of converting liquidity into part of the equation as being the talent for translating assets into working for the customer as an added benefit.
These professionals look at the positive aspects of the deal, which starts with ownership of property and these highlights remain beneficial to the success of the real estate transaction. |
One important aspect of due diligence is to know your documents but specifically understanding the details of the lease, insurance policy, and title policy. The lease, out of all of these is of utmost importance because it remains the roadmap for future events concerning the property. Part of the issue with the lease is language. There is a lot of strange stuff, interesting jargon presented in the terms of a lease. Really I wonder when legal ease will be common enough for an ordinary person to understand. Such examples of strange amendments to a generic lease include: First options on purchase, the right to take over adjacent space, tenant ownership of plumbing fixtures (really!), agreements for new carpet every year. Really anything is possible.
One would think that there is a cookie cutter answer to the common lease agreement. It seems very few properties have what is commonly termed as a "standardized lease template" mainly because over the lifetime of the property management, the owner is faced with signing new leases and making concessions for each individual tenant. Some tenants will be more nit picky than others. Some tenant may agree to paint the living room or include other repairs that will amount to a profit for the owner in the long run but mainly benefits the existing tenant. A lot of the time, much goes unnoticed by property managers and it is at the owner's discretion to know the lease backward and forwards.
Every word of the lease is crucial. It is important that everything remain clear for both the owner and the tenant. It is a good idea to have an outside party review the lease and compare notes. If there are questions, please ask them and be straightforward about any concerns. This process is usually so important that I do not let anyone else handle it.
It is in my best interest that I understand every detail of every lease. Otherwise I am just setting myself up for failure with these tenants and sometimes even the owners. Sometimes the owners don't even know the specifics of each lease. That is why you need to ask questions and understand each situation. It is the nature of the job that sometimes people tell me too much and I must remain objective. Still this creates a level of honesty I have come to respect of my clients.
Well as it happens with more and more questions come up things that the client remembers about the leases and something I may not have been aware of from the get go. So I cannot stress enough how important to ask lots of questions in the process. The way I see it is, this is a chance to find out about information that may not have already been discussed.
Remember to get a payment history from tenants. This does not lead to many surprises. For instance, if there is a problem tenant, someone who is consistently late with the rent, then I want to beware of that issue upfront. If it is chronic problem, I may see the need to discount the cash flow, which in turn leads to a lower price offer.
There is also the situation where the owner or property manager does not have a system to tracking the cash flow, or documentation of the rental payments, or even a way of verifying with their bank, this proves to become a much more risky situation for me and everyone involved. Here too, the risk translates to a lower bargaining price. It has been my experience that in these cases, the paperwork magically appears.
One can always tell a lot of vital information from the insurance policy, especially in the case of a building with some age. Mind you, a lot of times insurance inspectors know all the tricks of the trade and if you are able to get a hold of the last risk assessment you will be ahead in the long run. You can request this from your client usually the insured is the owner but a copy is a must. If it is at all possible, get a claims history as well. This can be a grey area because lot of times, you will have to jolt the owner's memory and this can become issue if they changed carriers every year. Here there is no real worry, people change insurance providers all the time shopping the best rate is so common but be cautious if they have failed to pay a policy. What is best in this situation is to make sure the owner can get an affidavit discussing the truth of the claims represented as being complete to the extent of his knowledge. This can be important for future possible litigation because many sellers want the warranties to survive closing.
When in doubt look to the existing title policy. This will inform you the obvious information regarding easements, rights of way, etc. Be on the lookout for any special exceptions to title. It is best to have a General Warranty deed if you can get one. A smart seller will offer a Special Warranty deed as incentive, which will only guarantee title for the time they owned the property.
To further the argument, it is also important to keep in mind the amount of resources and the type of property when completing a due diligence process because some steps may not be warranted. Really when it comes down to it, there is no other proper substitute for due diligence, but this does not stop people from not understanding its importance. No property is perfect and unfortunately there is no way of preventing this without further investigation. In the long run it protects all parties. Depending on one's needs, it is fair to say that each transaction will decide what level of due diligence is needed. There are companies out there that all they do is specializing in this practice.
The phrase "product research" strikes fear in the heart of real estate buyers and investors everywhere, especially ring with horror in boom times like now when we are in the thick of foreclosures.
The popular misconception of doing property research is that hours upon hours needed to be spent at the local recorder's office, sifting through countless pages of real estate documents, which do not have much entertainment value. However, despite the tedious affair of collecting this important information, it is of vital importance to do so, especially for determining Comparable Sales and the Lien & Loan History.
When considering a real estate investment, several questions surely come to mind: What are my goals with this property? How will I purchase it? What improvements will I make? How will I sell it? And to whom?
Answering these questions will form your "Exit Strategy" for completing the deal. "Exit Strategy" is a term used by real estate investors to describe how they plan to sell a property and make a profit. A solid Exit Strategy will stand on three legs: knowing your needs as a buyer, knowing the seller's needs and knowing the property.
A well thought out Exit Strategy will guide all of your decisions regarding the deal. The first consideration should always be your overall goals and objectives with the particular investment. Put some thought into what you are ultimately going to do with the property. For instance, if your goal is to make some quick cash, then consider turning the deal over to another investor for a finder's fee. If you are looking at a longer term investment to build you portfolio, then you could spend some time, effort and money in fixing up the property for sale through retail channels. Remember to factor the upfront fix-up costs into your consideration of the deal in this case. Another option is hanging onto the property as-is for its future potential, or even living there yourself and moving it later. If your goal is to build a monthly residual income, then you might consider Lease Options or rentals.
The key here is having a solid plan for what you want to do going into the deal. Always know what you want to do with a property before you buy it, but keep your plan flexible enough to deal with changing needs in a changing market.
In developing your Exit Strategy, you should also consider the seller's needs. Knowing their needs and being able to consider them as part of your Exit Strategy can also affect the deal significantly. Is the seller a bank that needs cash or is the seller a private individual simply looking for debt relief. For instance, if you are looking to lease a property with an option to buy, bank owned properties are not good prospects because most banks are looking to sell for cash, especially when the property needs work.
