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Jun15No CommentsFree and Clear Seller FinancingThe average homeowner in America already holds the secret to perpetual income and endless cash flows in their hands and they don’t even realize it. There are some real estate investors who grasp the concept of cash flow and will spend large amounts of money to purchase these income producing properties. The fact is that anyone one who owns a piece of real estate is already in possession of the most important ingredient in the cash flow formula. Now they just need a little education.According to the 2005 census nearly 33% of homes in the United States were owned free and clear, meaning that they no longer have a mortgage that encumbers the property. These homeowners certainly have achieved a certainly level of financial maturity. But how are these great investments benefiting these owners?Consider this hypothetical example. John Homeowner bought his home for $100,000 at 7% interest which gave him a monthly payment of approximately $700/month (PITI). By the time John paid off his home mortgage the value of the home has gone up to $200,000. Now John has an asset (his home) worth $200,000 but that investment isn’t a great performing asset because he is making $0 return annually on this investment.Now consider this cost/benefit analysis for John’s situation. By doing nothing but living in his home John is saving $8,400 each year (12 months x $700/mo mortgage payment) because he has no mortgage payment. But if John were to make the same $200,000 (the current value of his home) and invest it into an investment that had a return of just 4.5% he would make $9,000/year (better than his savings by over $600). And if he were to make a smart and safe investment of that same $200,000 at 6% ($12,000/year), 8% ($16,000/year) or 10% ($20,000/year) his return would be far better than the $8,400 savings that he has by owning his property free and clear.Here is how this scenario relates to seller financing. Let’s say that John has to move to another city and he is forced to sell his home. John understands the power of seller financing and he decides to sells his home to a buyer using “free and clear seller financing”. Because John offers seller financing he is able to sell his home quickly and for slightly more than average market value. Imagine that John sells his home with the following terms: 1.) 5% down payment ($10,000), 2.) $200,000 principle balance, and 3.) 8% interest only payments ($1,450/mo, $16,000/year).John can now move to a new city and find himself a home for about $200,000. He is able to purchase the property with 5% down payment and can borrow the balance of the purchase price at a 6% interest rate. So John now has a principle balance of $190,000 at 6% which gives him a payment of about $1,140/mo. John now has a positive cash flow of over $300/month (the difference between his investment payment and his current mortgage payment). Not only does he have a positive cash flow but the principle value of his asset stays at $200,000 but the principle value of his new home will amortize and eventually go away giving John additional value (a second asset of significant value). Now his original house is actually paying for his new house with additional cash flows.What happens if John doesn’t want to move? Because John is savvy he knows that he can do this same process without leaving his home. Imagine that John pulls the equity out of his home through a traditional refinance at 6%. He now has roughly $200,000 to invest in another house. John pays cash for the next house and then he sell that house to a buyer using “free and clear seller financing.” The buyer pays 5% down with a $200,000 principle balance and 8% interest only payments. Without leaving his home John and just created his $300/month cash flow and the monthly income is now paying off the refinanced mortgage.What happens when the buyer eventually refinances or sells the property and John’s seller financed mortgage is paid off? John will find another home to buy with the cash and sell it using seller financing. This is how John can create perpetual income through seller financing. In fact, any home owner can create perpetual income through seller financing following this cited example.Let’s consider the risks to “free and clear seller financing”:Risk 1 – What happens if the buyer stops making payments? When the buyer purchased the property they gave a $10,000 down payment. In addition, the seller was saving $8,400/year because the property was owned free and clear. If any of this money was saved then there should be more than enough money to hire an attorney to foreclose on the property. The owner takes the property back and sells it again. The new buyer will give a new $10,000 down payment and if property values have gone up then the owner will be able to increase the principle balance and possibly the interest rate which will increase the cash flow. In most typical situations the original owner is actually in a better situation after the foreclosure and 2nd sale.Risk 2 – What if the buyer destroys the property? The purpose of home insurance is to protect the lender (the owner) in case of property destruction. So if the buyer destroys the home the owner will make an insurance claim and have the home professional restored (paid for by the buyer’s insurance premiums).Risk 3 – What if the property values go down? It doesn’t matter. The buyer is still obligated to make the mortgage payments regardless of market conditions.Risk 4 – What if the buyer defaults in a down market? Then the owner can foreclose using the buyer’s down payment money (or personal savings) and then resell the property. The owner may end up sell it for less because of the market conditions. Or, the owner can invest the positive cash flow into private mortgage to protect the investment (principle balance). Or, the owner could take the property back and then rent it until the market recovers and at which point the property will sell at the market higher values. Or, the owner could invest their money in a partnership with a trusted real estate investor who will buy the property and assume most or all of the risk for a slightly lower return on the invested money but with a guarantee on the investment (principle).Risk 5 – How will I know if the buyer’s payments are being made? A good practice is to use a third party escrow company to receive the mortgage payments from the buyer. The third party escrow company will then send the owner a receipt of payments along with the payment money. This way all the money is being tracked for financial and legal reasons.
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Jun10No Comments
Seller financing is extremely powerful because the buyer and the seller have control over all the terms of the transaction. That means that there are virtually unlimited applications for seller financing. However, all of the options for seller financing fall into just a 2 major categories: financing after the closing and financing before the closing.
The following 4 types of financing occur after the closing:
1. Free and Clear Financing – When a seller owns a property “free and clear” there are no liens or encumbrances on the property. In this situation the seller and the buyer are free to make any terms they want to in order to make a deal successful.
2. Equity Only Financing – This type of financing means that the seller only finances their equity in a property. The buyer is responsible for getting new financing to pay-off all of the seller’s encumbrances and liens. The seller is then free to finance the equity in the property.
3. Wrap Financing – This is also known as “subject to” or “blanket” financing. In this situation the buyer takes the property “subject to” the existing mortgage. The buyer is responsible for making mortgage payments to the seller and the seller is responsible for making mortgage payments to the original lender.
4. Combo Seller Financing – This type of financing is a combination of the financing options #2 & #3. The buyer can “wrap” the underlying mortgage and finance the seller’s equity.
The next 4 types of seller financing occur before the closing:
5. Purchase Option – Any time the buyer gives money to the seller (option payment) for the right to purchase the property at a given price (option price) and within a given timeframe (option period) the buyer has a “purchase option”. This is a form of seller financing because the seller still is responsible for the property and any payments until the buyer purchases the property (exercises their option to purchase) or the option expires.
6. Extended Closing – An extended closing is similar to a purchase option except that the extended closing is done with a Real Estate Purchase Contract (REPC). In the extended close the closing deadline is extended or put into the future significantly further than a typical real estate purchase.
7. Open-ended Closing –The open-ended close is also done with the REPC except the closing deadline is tied to a future event (such as the completion of an addition or remodel). The closing only occurs after the future event has occurred or has been completed.
8. Seller Partnerships- In this situation the seller may sell the property or may retain ownership. In either case, the seller contributes the property (and possibly some capital) as their contribution. The buyer would contribute the work and knowledge (and possibly some capital) to create or enhance the property value. The property would then be refinanced by the buyer or sold to a third party. The seller would get his equity and capital contribution plus an agreed partnership split of the additional profits on the transaction.
The great thing about these 8 types of seller financing is that every option can be used to benefit both the buyer and the seller. Using these seller financing options a seller can actually get a buyer to come in and improve their property, do all the fix-up and repair work at the buyer’s expense, and the buyer is excited about doing the work! I’ll explain how this can be in my next article…
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Jun81 Comment
One of the most misunderstood topics in real estate is “Seller Financing”. This is probably because the topic of seller financing is usually discussed from the perspective of the buyer. And in most cases the buyer is a beginning investor who is trying to get a “good deal” or they are starting to buy property with “no money down”. But all too frequently the deal falls apart and the stories explode about the problems of seller financing.
It is time to unfold the power of seller financing and the simple secrets and techniques to keeping the transaction a positive experience for everyone. While most people can explain the benefits of seller financing for a buyer what most people don’t understand is that seller financing is actually better for the seller than it is for the buyer. Here are several ways that the seller can benefit from offering seller financing on their property:
1. Timing – The seller has complete control over the timing of the sale when they are offering the financing. The seller can determine just how long it will be before the sale closes. The seller can determine how long they can stay in the house after the sale closes. The seller can determine exactly how long the buyer must pay on the mortgage and when they have to refinance and pay off the loan. And by offering seller financing they can get their home sold more quickly because of the appeal of seller financing to the market in general.
2. Higher Sales Price – Market value is based upon “supply and demand.” Most sellers are not offering seller financing so there is a limited supply but there is a huge demand. As a result, the price of the home in higher than the other comparable homes in the neighborhood. Also, because the traditional costs of mortgages are no longer in the equation you can collect that money too (as much as 3-5% of the value of the home) as part of the sales price.
3. Cash at Closing – There is nothing that says a seller must finance the entire purchase price of the property. The seller can require a down payment which will provide some cash at closing. (There are more advanced way to collect cash at closing which go way beyond a down payment but can still result in a “zero-down” for the buyer.)
4. Payments over Time – When the seller finances the equity in their property, those payments become a steady stream of income for the seller. This becomes a fantastic income stream for someone who may be down-sizing or who does not want their property for any reason (this is especially great on investment properties).
5. High Return on Investment – Considering the equity as an investment, the payments received from seller financing are better than one can expect from a savings account, CD or mutual fund. Even if the interest rate on the seller finance mortgage is small, the principle balance of the investment is larger than the seller could have received through a traditional sale.
6. Difficult Properties Sell Easily – Sellers who have properties that are difficult to sell can sell them with seller financing. Again, the demand for any property increases as more people are qualified to buy them.
7. Collateralization – The seller controls the terms of the mortgage and can require additional collateral to secure the loan. This additional collateral can come in many ways. Of course the seller can require a large down payment. However, some other options include additional co-signers on the loan or equity in a 2nd property. If the buyer owns another home or an investor own additional property, the seller can attach their seller finance note to the other property. This will make it more painful for the buyer to default because the seller can claim the additional property in the event of a foreclosure.
In selling a property it is the owner who has control over the entire transaction when they offer seller financing. The seller controls all the aspects of the sell including the timing, the price, the terms, their return on investment, and security and protection of their equity. Since the seller has the flexibility to craft a sell the meet all of their needs, why would you sell it any other way?
How would you like to offer seller financing but remove all personal liability for the property after the sale? How would you like to increase your income from your rental property and get rid of ALL property management? How would you like to get paid twice what your property is worth? How would you like to sell your investment property and never pay capital gains taxes? Stay tuned for some practical examples of seller financing tips and techniques that will keep you out of trouble when you sell your property.
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Jun3No Comments
“A Las Vegas bankruptcy judge has dealt a blow to an obscure but critical piece of the mortgage enforement machinery that could slow foreclosures.
“After a rare hearing in front of three judges last year that initially encompassed 27 cases, U.S. Bankruptcy Judge Linda Riegle has ruled that the Mortgage Electronic Registration System (MERS) could not represent lenders seeking to foreclose on delinquent homeowners already in bankruptcy unless it could produce the actual loan note. This goes to the heart of how home lending has evolved over the past two decades, with a loan rarely staying on the books of the originator but often being sold several times to other institutions or investment groups. As a result, producing a loan document is far more complex than opening a drawer in a filing cabinet.” (Tim O’Reiley)
Essentially the court ruling means that a lender must be able to produce the actual mortgage note in order to foreclose. While this case has been appealed, it awaits to be seen what the ultimate ramifications are for all the mortgage notes being serviced by someone other than the lender and what rights they maintain through the foreclosure process.
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Feb272 Comments
I think that just about everyone knows intuitively that you can get a great deal by purchasing a short sale property. But just how much of a good deal can you really expect to get after all of the negotiating, lost paperwork, apparently lack of progress, angry customer service people, extra time, etc. And where do you start. Let’s consider the purchase price.
How much do you offer on a short sale purchase? How much of a discount is the lender actually willing to take? And what offer will the seller accept in the first place?
There are a few numbers that you need to be aware of when purchasing a short sale. The first and most important number is current market value! When considering what the current market value is today we do not take into consideration what the property sold for last or what the current owner owes on the property. We need to look at the value from the bank’s perspective…if the property is listed as an REO (bank owned) property, what price would most likely cause it to sell in 60 days? The answer to that question in current market value.
Why does this method work to determine value? Because the bank has to answer one simple question, “if we take the property back through foreclosure, how much can we realistically sell the property for?” The bank will determine this value with a BPO (Broker Price Opinion).
When we consider the market comparables we only look at property that has sold within the past 60 days; anything longer than this is old data. We also need to take into consideration the other active listings (the competition) in the area and how that will affect the sales price so that the property could sell in 60 days. If the property has been on the market for more than 30 days without an offer then the list price is too high for the current market.
Once you can figure out current market value your ready to begin to calculate an offer price. Once again we must look at the property from the perspective of the lender, “how much can we realistically expect to NET if we take this property back at foreclosure?” The lender will incur quite a few expenses through the foreclosure process (such as legal fees, holding costs, insurance fees, repair expenses, closing costs, realtor fees, etc.). The lenders are doing so many foreclosures now that they know these expenses very well for every area of the country. If you know what these expenses are you can figure out the lender’s bottom line. Your offer just has to be higher than their bottom line and they will accept your offer!
Experience has shown that the foreclosure costs for the lender are between 15-20% of market value. With this in mind let me share a quick example:
I have a property that was purchased for $300,000 about 18 months ago. Today the CMA (Comparative Market Analysis or Realtor Price) value of the home is about $250,000. Considering the market factors a current market value of $220,000 is more realistic. So the investor offer price on this property would start be between $176,000-187,000.
Now just because the lenders will accept this lower value doesn’t mean they won’t kick and scream about wanting more money. There is more to a short sale than just price. However, if done correctly most lenders will accept these lower values because they actually net more money through the short sale than they will net if they go through the entire foreclosure process. And since the lender will get less than they are owed they will require that the owner receive nothing, so any offer to the seller should be acceptable as long as the investor can perform.
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Jan6
Negotiating with the Lender for Reduction in Mortgage Balance
Filed under: Loan Modification, Negotiating With Bank, Real Estate, Right of Rescission, Truth in Lending;No CommentsPicture this…you bought a property in the past 3 years and now you’re wondering if you made the best choice. Prices are dropping and mortgage rates are very low. What do you do? How do you take advantage of this bust economy but keep the house you’ve grown to love? Exercise your Extended Right of Rescission!
Because of the Federal Truth in Lending Act you have the Right of Rescission regarding your home loans. This Right of Rescission last for 3 days under normal circumstances! However, the recent boom in the real estate economy wouldn’t be considered normal circumstances. With the frenzy of lenders originating loans there were a lot of mistakes made. Chances are very good that there were some mistakes made regarding your loan! If that is the case, you have an Extended Right of Rescission regarding your current home loan.
If you indeed qualify for the Extended Right of Rescission you can simply notify your lender that they have violated your rights under the Truth in Lending act and that you want to rescind your loan(s). The lender then must cancel their loan, repay all the money they have received in connection with the loan (and its origination) and then you give them back the house. You also have the option to pay the lender a reasonable amount (possibly through a refinance) and keep the house. It’s that simple!
That is what is entitled by law but here is where the fun begins! The lenders can’t afford to take back any more homes. They already have more property than they are allowed by federal regulations (in many cases!). Rather than give up the property or fight a major legal battle, it is time to negotiate with the lender. If you’re successful in litigating your position the lender will have to pay you to get the property back that they will most likely sell for less than market value (because it is bank owned). Rather than go through this you can offer to maintain the current mortgage with some modifications! These should include a reduction in the principle balance owed, a reduction in the interest rate, allowing a mortgage assumption or removing the “due on sale” clause, a reduced amortization period, etc. At this point the lenders are almost always willing to discuss options!
Take a moment to estimate how many mortgage payments have been made and how much was spent on closing costs. This is approximately the amount the lender must repay to you for the right to claim your house. Since this money is owed to you anyway, this is the amount that you should negotiate through the above listed terms. Finally, get a good opinion (or two) about the current market value of your property either through an appraisal or a CMA (Comparitive Market Analysis).
For example…
let’s say you owed $200,000 on your home with a mortgage payment of $1,500/month and an interest rate of 7%. You’ve owned this home for 2 year (24 months) and paid about $4,000 in related closing costs. If you rescinded this loan the lender would owe you $1,500 x 24 months = $36,000 plus closing costs of $4,000 = $40,000!
While negotiating with the bank we might offer to keep the loan at 5% for 15 years with a principle balance of $168,250. This would maintain the current mortgage payment of $1,500 but would reduce the pay-off time by 13 years (which works out to be nearly $150,000 in interest savings over the life of the loan).
OR
We leave the loan terms the same but reduce the principle to $160,000 and re-amortize the loan for the original 30 years. This would reduce your payment $300/mo! That is money you can spend anywhere you want and you now owe $40,000 less on your home.
OR
Without changing any terms we negotiate 4 years of 1/2 payments so that for the next 48 months the mortgage payments are only $865/mo! You save the $40,000 over 48 months or you can pay down the principle with the difference in the mortgage payment!
OR
You could point out that the market value of the property is only $175,000 and if the lender takes the property back the could only hope to sell for that amount (at best). This market value actually becomes the starting point of your negotiations and you could still utilize the above options too.
Obviously this owner option is very powerful in creating an optimal mortgage situation for yourself. We’d be happy to discuss your situation with you if you think you may qualify. We’ve been 95% successful in creating this opportunity for our clients!
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Jan6No Comments
Picture this…you bought a property during the boom of the real estate economy and paid top dollar for it. Now the economy isn’t what it used to be and you find yourself owing more than the property is worth. What do you do? Exercise your Extended Right of Rescission!
Because of the Federal Truth in Lending Act you have the Right of Rescission regarding your home loans. This Right of Rescission last for 3 days under normal circumstances! However, the recent boom in the real estate economy wouldn’t be considered normal circumstances. With the frenzy of lenders originating loans there were a lot of mistakes made. Chances are very good that there were some mistakes made regarding your loan! If that is the case, you have an Extended Right of Rescission regarding your current home loan.
If you indeed qualify for the Extended Right of Rescission you can simply notify your lender that they have violated your rights under the Truth in Lending act and that you want to rescind your loan(s). The lender then must cancel their loan, repay all the money they have received in connection with the loan (and its origination) and then you give them back the house. You also have the option to pay the lender a reasonable amount (possibly through a refinance) and keep the house. It’s that simple!
There are 2 significant tricks to this option. Because of these two hurdles I would advise you to seek competent legal assistance before exercising your option and Right of Rescission. The first trick is that you have to find an error relating to the Truth in Lending act in your mortgage and closing documents! The second trick is that you’ll most likely have to defend your position in court as most lenders don’t take too kindly to having their loans rescinded with no consequence to you (the borrower) and generally will file some sort of lawsuit.
Once the court rules in favor of your rights, the lender will pay you to take back the over-priced property, pay all attorney’s fees and the burden of sale is theirs. You are then free to find a new home with no further obligations.
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Jan52 Comments
With the wave of people facing foreclosure there are many who are asking for help. What can be done to stop the foreclosure process. Many of our clients have decided to use the powerful extended Right of Rescission which immediately terminates the foreclosure process permanently. Let me explain.
The US Government passed a law commonly known as the Truth in Lending Act. This act was designed to protect consumers from predatory lending practices. This protection was in the form of various disclosures showing the real cost of various loans and lines of credit. However, with the wave of loans being originated some of these disclosures have become misleading (either accidentally or intentionally) and it has hurt the general population.
Under the Truth in Lending Act each consumer is given a 3 day Right of Rescission, a cooling off period, to determine if the loan or line of credit is what they want, what was advertised and what they can afford. If a consumer changes their mind during the 3 day period they can cancel any loan by signing a Notice of Rescission and they are then free from any and all obligations associated with the loan.
What we have helped 95% of our clients to discover is that their required disclosures, under the Truth in Lending Act, are actually incorrect in some way. These errors actually violated the consumer’s (borrower’s) rights under the Truth in Lending Act and give the consumer an extended Right of Rescission. The extension can last up to 3 years from the date of the loan origination.
What this means is that if someone is in foreclosure and there is an error under the Truth in Lending Act, the borrower can actually sign a Notice of Rescission and send that notice to the lender. This immediate removes all obligations in relation to the loan and, by law, the lender must remove the Trust Deed from the property within 20 days. Without a Trust Deed the lender cannot foreclose on the property.
Not only does this rescission stop the foreclosure process immediately but the law requires that the lender repay all of the money received in connection with the loan. This means that the borrower will receive all of their mortgage payments back in addition to the closing costs directly associated with the loan. Once the borrower has received this rebate from the lender they have the choice to give the lender the property or its reasonable value in cash (usually through a traditional refinance).
Not only is the lender required to return all the money paid but they cannot give any negative reporting to the credit bureaus because the loan and note were rescinded. That means there is no obligation to pay and therefore there can be no late payments and no foreclosure. With renewed credit worthiness the borrower is often able to refinance the property with a new lender and will have the means to repay the original lender or the borrower can move to a new property with their cash rebate and buy a different home all together.
Another variation to this Right of Rescission process is the lengthy amount of time involved in litigation. Most lenders react poorly to losing their Trust Deed and right to foreclose and will usually challenge the process through a lawsuit. With bankruptcies and other issues associated with the down-turn in the economy, most courts are full and there is an extended waiting time for a court appearance.
According to the Truth in Lending Act, once a Notice of Rescission has been sent to the lender all obligation to pay is legally ended. This means that through out the lawsuit time frame, the borrower is allowed to retain possession on the home and no mortgage payments are due to the lender (with no negative reporting to the credit bureaus). A few of our clients have exercised their Right of Rescission simply to stall the process of losing their home so that they have a place to live (rent & mortgage free) for several months and no negative credit reporting (no foreclosure on their credit even though they will eventually lose the house). These clients have used the free housing option in order to pay down other debt and get their finances in order so they can move on with their lives once the litigation has concluded.
And one last kicker…! If the lender doesn’t pay up within the first 20 days after the Notice of Rescission has been filed, they are also required to pay all attorney’s fees accumulated in enforcing the consumer’s Right of Rescission. Nearly ever lender has filed a lawsuit or proceeded with the foreclosure (illegally) rather than pay up in the first 20 days, so our clients haven’t even had to pay for our services!
There is another option for the consumer which hasn’t been utilized by our clients on a high level, yet. Once the Notice of Rescission has been filed (sent to the lender) an opportunity for negotiation exists. The lender has a very sticky predicament: they have to pay the consumer back all of their payments (up to 3 years), pay their corporate lawyers additional money above the foreclosure fees already spent, can’t damage the consumer’s credit by reporting late fees and foreclosure, realize additional lost mortgage payments during litigation and in the end they just get the house back (which may not be worth what they lent on it due to a falling market). Quite frequently the bank will consider a significant loan modification in favor of the borrower including reduced interest rate, reduced mortgage payments, reduced principle balance owed, loan reinstatement, include loan assumption language or waive “due on sale” clause, etc. This way they don’t have to pay additional money for the home and can recapture some of their money through the mortgage interest.
This is a pretty amazing tool for stopping foreclosure and forcing the bank to seriously consider negotiating loan terms. However, not everyone qualifies for the extended Right of Rescission. My real estate team includes two specialists in the area of Truth and Lending violations and litigation. We’re happy to discuss your situation with you if you don’t currently have an attorney who specializes in this area of litigation.
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Jan5No Comments
95% of our clients have found that they are owed a cash rebate from their lender! However, no one told them about this cash rebate. Obviously the lenders are not very active in advertising this rebate, especially during this time of economic turmoil, because these lenders are using the rebate money to offset bad debts on other people’s mortgages. Regardless of the situation that the lenders are in, you may be owed a cash rebate on your mortgage.
In the effort to create loans there has been a lot of misleading information regarding critical aspects of most home loans. As a result most borrowers were charged and have overpaid various fees (and in some cases those fees are continually being paid on a monthly basis). The federal Truth in Lending act requires the lender to honestly disclose all fees to the borrower before the loan is dispersed. Any errors (whether accidental or intentional) must be repaid to the borrower immediately.
In order to qualify for this rebate there are several things that must happen. First, one must catch the error(s) within the first 3 years. Second, there must be an error with the lending disclosures and/or loan fees paid. Third, one must still own the home. Fourth, the appropriate paperwork showing the error(s) must be submitted directly to the current loan servicer(whoever currently holds the mortgage).
Some of our clients have chosen to forgo their cash rebate in exchange for a change in loan terms through a loan modification. Some terms that we’ve seen negotiated include a direct principle reduction in the loan amount, a reduction in interest rate, no mortgage payments (up to 6 months), a change in loan terms allowing for loan assumption (good for when you decide to sell), removing the “Due on Sale” clause (also good when you decide to sell), and lender concession (such as free home insurance or lender subsidized property taxes). The lender is usually quite willing to negotiate special terms because they would rather keep a good customer than pay a large rebate for their errors.
For more information please contact us by email at Khayyam@KhayyamJones.com or by phone at (801) 787-7797.
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Dec19No Comments
I want to start investing but I don’t have any time. What can I do to get started investing in real estate?
Getting started investing in real estate does not require a significant time investment. Time is essential in working in real estate but it doesn’t necessarily require your time. While there are a myriad of ways to invest without investing your time, here are a few ideas to consider.
• Be a Cash Investor
• Be an Equity Partner
• Partner with an Experienced Investor
• Invest utilizing Property Managers
• Invest in Commercial Real EstateLet me summarize each of these options and show how they fit into our real estate investing business model.
Be a Cash Investor
Once we find an investment opportunity there are usually some up-front costs (earnest money deposit, inspections & fees, applications & permits, fix-up & repair, upgrades & construction, buying notes & loans, etc.). The up-front costs are paid by a cash investor. These investments are short-term, generally less than 1 year in length. The interest rates are significantly higher than typical investments and we are usually able to double their investments every 3-5 years. The time commitment involves a brief project review and possibly participating in a single closing.Be an Equity Partner
The equity partners are involved with our long-term investments. Once we’ve established a significant equity position (greater than 20%) we often hold our properties instead of selling them. The equity partner is the investor who will help acquire the long-term financing on the project. The equity partner will get a significant portion of the profit from the deal and the time commitment only includes a brief project review and participation in 2 closings (a refinance closing and a selling closing).Partner with an Experienced Investor
Becoming a partner on an investment project doesn’t necessarily require more time depending on the level of participation. Participation can be as simple as referring cash investors and equity partners to us for our investment projects. It can be as involved as participating in every aspect of the investment. It simply depends on the time you’re willing to invest and the proportional returns you want to qualify for.Invest Utilizing Property Managers
A significant portion of time can be spent in managing an investment property. By hiring a good property manager to deal with the day to day operations can free up a significant amount of your time. The property manager is responsible for finding & keeping tenants, repair & maintenance, yard care, signing contracts, showings properties, collecting rents & fees, etc. The challenge is finding a good property manager because a bad property manager will cost you a lot of money in lost rents & high vacancy, large turn-over costs (in advertising and up-keep), property repairs (due to property damage), etc. But they can become your best friends as your portfolio grows larger.Invest in Commercial Real Estate
Investing in commercial real estate is viewed by many seasoned investors as the pinnacle of real estate investing. Commercial real estate includes any real estate that doesn’t fit the standard 1-4 unit residential property such as residential property (with 5 or more units), mobile home/trailer parks, mixed use property (combination or residential and commercial), retail space, office space and industrial space. These types of properties usually include property management already in place or are self managed (such as the “triple net lease” where the tenant takes care of all property responsibilities). The challenge with the commercial property is that the financing terms differ from the residential loans and usually require more money to get started.This is just a brief summary of a few options available to someone who has the interest and desire to invest in real estate but may not have the time currently available to invest with. We’re looking for people who want to be involved with the amazing industry of real estate investing. If you’re interested and would like to get started investing please contact Khayyam Jones at (801) 787-7797 or email to Khayyam@KhayyamJones.com and we’ll contact you shortly.
