- Since you are willing to carry the contract, you should ask for full price. What's full price? First, find 2-3 Pay an appraiser. It will cost you $200-400 and make sure that it's an appraiser that is recommended to you. There are too many appraisers who are afraid to give an accurate appraisal.
- You don't not need to pay any closing costs. Don't let anyone tell you that you need to pay 3%- that's only for a government loan. You are not the government. You are not constrained by government rules on seller assistance. Get the full price.
Monday, November 23, 2009
Tuesday, November 17, 2009
Thursday, November 12, 2009
Saturday, October 31, 2009
Thursday, October 29, 2009
- Call David Safeer at 801.747.6343 and set-up a time to meet
- Meet with David for about 1-2 hours for a new client orientation. Please be prepared to discuss who you are, your experience, at what you are trying to accomplish. If you have partners, they should attend the meeting as well.
- David will clearly explain Clear Day Capital's underwriting standards, loan documentation, past-due loan policies, origination fees and interest rates, and how to make a formal application to become a client
- If there is a mutual agreement that we want to work together, you will make a formal application to become a client by submitting a 1003 (uniform residential loan application) and a current credit report. Click here to get the 1003 form.
- Plan that the first project will take 1-2 weeks to underwrite and fund. Subsequent projects should take about 3-5 business days to underwrite and fund.
Monday, October 26, 2009
Thursday, October 8, 2009
"Mrs. Jones, I understand that you intend to pay the rent on the 15th day of the month, instead of the 1st, when it was due. We'll look forward to receiving the rent on the 15th. In the mean time, you'll understand that we are giving you a 3 day pay or vacant and moving forward with the eviction process. As you as you have paid the rent, we'll be able to stop the process. We look forward to having you live in this home for a long time."
Friday, October 2, 2009
Saturday, September 26, 2009
- The property is an INCOME PRODUCING property. Make sure that the real estate investor who borrows the money has a good track record and tenants' rent pays the mortgage. If the tenants stop paying, the real estate investor finds new ones. It is part of the business plan for single family homes.
- The loan is secured by a first-position trust deed. If needed, you can foreclose on the real estate investor. You will then own the property or you can collect the rents yourself.
- You can use a third party escrow service receive the payment from the tenant(s) The escrow service will then send you your payment first, and then the balance to the real estate investor.
- Local real estate investors know property values. The values are based on rents, not on arbitrary market demand. When demand to purchase houses goes down, rent demands go up. Your loan is protected by rents much more than by the property value at any given point in time.
- This is not something new. Do a Google search on private mortgages and see all of the resources on the web. Web sites, books, companies that broker private mortgages.
Friday, September 18, 2009
Wednesday, September 9, 2009
I’ve been doing some thinking about the hidden profits to be enjoyed by the brave-soled real estate investor. Often it feels like I’ll have a month where something goes wrong (one of my tenants abandons the house and leaves all there worthless crap without paying rent). At times like these the cash flow might not work out for the month, but I find peace in hidden profits. Let me explain:
There are at least three common ways that real estate investors enjoy profits that don’t show up immediately in cash flow: amortization, appreciation, and tax benefit.
Amortization is my personal favorite of the hidden profits, because it is guaranteed to make the long-term real estate investor very wealthy. True, it might take 30 years, but start early and avoid the temptation to take out those second mortgages when you get a little equity. If you are tempted, stop, think, and use your creativity to make even more money while preserving your equity.
Appreciation is a fun one, but don’t bet the farm on it. I’m well aware that many people made their millions based on real estate appreciation, and I’m hoping that our friend appreciation kicks in a little for me too. Remember that appreciation is a double edged sword; if you never plan to leave the real estate industry, over the long run it might hurt you on purchases as much as it helps you sales. I know that all of us feel like we have a good idea about what prices are going to do, and we are probably right, but there is a chance that that feeling is nothing but indigestion.
Now the boring one: the tax benefit associated with owning real estate can be the best of all the hidden profits. I’m not sure why Uncle Sam is letting us take depreciation on assets that typically appreciate, but we might as well take advantage of it. In my book Heaven is that wonderful place where you realize a positive cash flow and have negative taxable income. If you are doing it right, depreciation will provide this heaven on earth. If you are not phased out (and if you are phased out, I don’t feel sorry for you) you can take up to $25,000/year of rental real estate loss against other ordinary income. At current rates, under that scenario, not only is all of your rental income tax deferred, but you may be able to put a nice check in your pocket each year at tax time (and if you have the discipline to put that money back into real estate, you actually deserve to be rich).
Now before I hear the criticism, let me tell you all that I know that cash flow is king. These are just a few ideas to lift your spirits when king cash flow is visiting someone else.
Thanks ya’ll for reading. I’d love to see some discussion/examples go back and forth on any of these topics. Investors Workshops has been great to provide the site, but much of the content is only what we make of it.
Tell me what you think about Spencer post and the hidden profits.
Monday, September 7, 2009
Thursday, September 3, 2009
Friday, August 28, 2009
1. Everyone is getting out of real estate, so you should too. That's right, in a democracy where every vote counts, the majority rules. So as realtors, loan officers, title officers, investors, and everyone else is dropping like flys, you should get out or stay out!
2. Real estate prices are down. You need to wait until prices are up a lot to make sure that you are following the upward trend. Even though property values are low and on sale, wait until prices go up quite a bit. Real estate isn't like stocks or cars or other things that you buy. Buying high is what most people do, so you should follow the majority (see reason #1.)
3. Real estate volume is down even further. Again, if no one is buying, why should you? Whait until volume goes up and it becomes more of a seller's market and then you can feel good about making offers near the asking price. Better yet, you'll be able to make lot's of low-ball offers that get rejected because people have more confidence that they'll be able to sell their house.
4. Unemployment is up. This means that everone has stopped buying houses and no one can afford to pay rent. After all, going from 3.0% unemployment to 5.7% unemployment (in Utah) means that everyone is out of work and no one has a paycheck coming in. We know that the government lies and unemployment MUST be so high that the American way of life has ceased to exist. I am not sure where people are living, but it must not be in houses or apartments. Has anyone checked on RV park occupancy rates lately?
5.5 Home foreclosures are ready for the "second wave." Home prices are going down even further. Forget about buying for cash flow long term, forget about negotiating a good deal now, forget about amortization, forget about owner financing that will allow you to own dozens of houses without qualifying at the bank. Just focus on equity and remember housing prices never bounce back.
5.5 Leave more for me & my friends! This is the best reason of all to stay out of the real estate market. We are having too much fun and I don't want competition for houses to go back up to were it was two years ago!
My suggestion is that you wait for the nightly news to tell you that it's a good time to invest in real estate. They allways seem to have their pulse on the market. Look at the great job of investigative reporting they did to warn us about the housing bubble.
There are lots of other other good reasons to not invest. Can you think of some and share them?
Monday, August 24, 2009
Someone once said, "If you don't manage properties well, then you are just a custodian for the properties until you sell them at rock-bottom prices to the next guy."
The goal of a good property management company is to maximize property profitability through maximizing revenue and keeping costs as low as possible. The company also gives property owners complete access to property and tenant information. This can be done through on-line software that is available 24/7.
Whether you pay someone to manage your property or do it yourself, if you are going to keep properties long-term, you need to understand what it takes to manage a property.
Each property is an asset that needs to be maintained and improved on over the lifetime of the property. The cost of maintaining and improving the property can vary greatly, depending on the tenants.
Screening for great tenants can take time and energy, but experienced landlords say its worth it to avoid evictions and property damage. Some owners look at tenants as employees that safeguard, maintain, and utilize the property
Revenue maximization is a function of keeping rents high and occupancy rates high. Occupancy rates are a function of keeping tenants, attracting new renters when properties become available and minimizing the amount of time between move-out and move-in.
Revenues also come from collecting late fees and enforcing lease contracts.
Costs are impacted by tenant turnover, repairs, ongoing property maintenance and tenant delinquencies and/or evictions. Turnover costs (the cost to get a house rent-ready) are significant, even when the tenants are clean and take care of the property.
Repairs paid by property owners can be kept down through good lease contracts and proper tenant screening. Ongoing property maintenance is unavoidable and strong relationships with service providers keeps costs down.
Obviously keeping delinquencies and evictions to a minimum and preventing these costs is best, controlling the costs when needed is critical.
When using a property manager, you should have access to all of the information that pertains to each property you own: property ownership documents, tenant lease information, revenue owed and collected, and costs. Reports can be scheduled to be sent automatically by e-mail. They can also be generated on an “as needed” basis.
If you are managing the properties yourself, the need is the same- you need to know if you are making or losing money on each property.
What about your properties? Any "tricks of the trade" that you can share?
Thursday, August 20, 2009
- Write offers the day a property goes on the market?
- Close quickly- 1-2 weeks, better yet in 1-2 days
- Have professional resources that can help you structure and fund a deal?
- Deal with the property AFTER you acquire it? Fix up, rent it, sell it, etc.?
Friday, August 14, 2009
Thursday, August 13, 2009
- Property seasoning of 1+ years
- Unreasonabley high standard for credit scores and W-2 income
- Bad appraisales
- Unknowledgable loan officers
- Very high interest rates
- etc, etc, etc
- Home equity line of credit
- Up to 65% LTV of appraised value for investment properties
- In-house appraiser who will talk with owner and understand the property
- NO SEASONING- apply the day after you purchase the property
- Interest rate at prime+1.5% (currently at 4.5%)
- Property must be in live-in condition (no pre-rehab junkers)
- Borrow must have W-2 income and 700+ credit score
- Borrower must be a member of the credit union (generally $25 in a savings account)
- Origination fee about 1%
Thursday, August 6, 2009
Monday, August 3, 2009
One of Clear Day Capital's client's recently borrowed funds in mid-June, rehabbed a house for a couple of weeks, and paid us back in late July using funds from a credit union. About a 5 week turn-around on our loan and a payback a couple of weeks early!! This had not happened for over a year- a quick loan turn around using funds from a traditional financial institution.
Introducing: Equity Lines Based on Appraised Value
Here is how it worked (details might be a little off, but generally this is how he was able to make it happen.) Our client used a loan from Golden West Credit Union to pull out up to 65% of his appraised value. No property ownership seasoning, the application could go in the next day. The rate was prime + a low fixed percentage, but the rate will adjust over time based on prime. There is a (5 year?) balloon payment due. It took about 3 weeks to complete the loan.
We have heard of two other banks and credit unions doing this type of a loan- Zions and Weber Credit Union. They still will not lend you money to purchase an uninhabitable house, but that's where a lender like Clear Day Capital comes into the picture. Here's the scenario:
You find a property with a great LTV.
Borrow your purchase funds from Clear Day Capital.
If needed, borrow fix up funds from Clear Day Capital.
Do the rehab.
Get a loan based on appraised value and pay off Clear Day Capital.
Turn around time to go from expensive money to cheap money: 4-8 weeks.
Once you have cheap money, you can afford to hold in on the market for a higher price offer. You can rent it with great cash flow and wait for a better offer. Sell it on contract or with a lease option with a balloon payment or option time frame that coincides with your balloon payment. Imagine the possibilities again...
What's the next project that you can use a loan program like this for? Post a comment and share it with me!
Wednesday, July 29, 2009
Tuesday, July 28, 2009
Wednesday, July 22, 2009
Last month I wrote about five questions that should be asked before investing with a hard money lender. (June 2009.) This month we look at five more questions with more depth. They should be asked after the first five questions are answered adequately.
Most people think that business will always be smooth. Experience tells us that at some point a loan will go bad. When this happens, who is responsible for collecting interest, loan extension fees, or foreclose on the property owner? Is this your responsibility, or will the hard money lender take care of this?
What about the cost of collecting? Who pays for legal fees, registered mail, court filings, etc. if a loan goes into foreclosure? Will the lender who arranged the loan pay in full, in part, or not at all? Will the lender take the time and energy, and make the effort necessary, to go after the capital, interest, and penalties or do you need to do that yourself? Do they have a process in place, including a lawyer who can foreclose at a reasonable cost?There is a huge difference between collecting a loan on your own and having a responsive, knowledgeable company do it for you.
A reputable company takes pride in its professional reference list. For a hard money lender this list could include accountants, bankers, escrow agents, real estate agents, and lawyers.If the lender does not have a list, ask "Why not?” The answer should be, “Because we haven’t put one together yet. Give us a day and you'll have it.” If not, then ask yourself if someone without professional references is someone you want to do business with.When you have the list, call the references and ask more questions to make sure the lender is a professional & trustworthy organization.
Does the loan close with a title and escrow company (or with an attorney, depending on local laws?) Is title insurance purchased so if title problems occur the title company pays to have them fixed? Was a title search done and all other title issues identified and paid off, or resolved during the closing process?Once the loan closes the lien needs to be recorded to ensure that the loan is in first position, ahead of any other liens to ensure that it is paid off first in the event of a foreclosure.
Is the hard money lender a broker, making money regardless of the quality of the loan and a successful outcome of you being paid back? Or does the hard money lender act as a principle in the transaction, making money with a successful outcome and potentially losing money if there is a problem with the loan. Does the lender give you a fixed of return regardless of the loan outcome?
How the hard money lender makes money will have a tremendous influence on the manner they conduct business: loan quality, borrower quality, risk, recovery systems in place, and who they borrow from. What is your risk vs. their risk in the loan?
It is possible that not all hard money lenders will be required by state or federal governments to have a private placement to raise or broker capital. However, if they have a private placement it should explain their business and disclose risks. It means that they take their business seriously enough to put together a plan and pay to register with the proper government regulatory agencies.The licensing requirements discussion should disclose if they are even aware that requirements exist or not. If they don’t know, it means that they don’t take their business seriously enough to make inquiries. If they do know and they need to be licensed, they should be able to provide documentation to confirm their license.
Their reputation should be good, with clients coming back for repeat business. They should offer clients as references, including clients whose loans did not go smoothly, and a workout had to be arranged. How was it worked out, is the relationship in tact, and would they do business with the hard money lender again?
A lender’s relationship with its clients says a lot about the lender.Tell Me What You Think about investing your money with hard money lenders. I know that there are HORROR STORIES out there!! Sthare the best one you know.
Wednesday, July 15, 2009
Thursday, July 9, 2009
Saturday, July 4, 2009
Tuesday, June 30, 2009
The Home Valuation Code of Conduct (HVCC) is creating a mess for all involved- lenders, appraisers, and most of all, home buyers. Why? Because it restricts the free flow of information by disallowing an appraiser any contact with anyone involved with originating the loan.
Here is a "bottom line" story: We have a client we just had an appraisal done. The appraiser was selected randomly, according to the new guidelines. An appraisal done less than a year ago put the property at $110,000. We agreed with the appraisal, as did two separate Realtors that Clear Day Capital works with in the Ogden area.
The appraisal came back at $68,000!!! Why? Because he compared an occupied house with renters paying $950.00/mo for the last 8 month to uninhabitable, bank-owned properties!! He made prejudicial statements about what he felt the values should be in Ogden and indicated that a $17,000 rehab done a year ago was simply "deferred maintenance" and did not add value to the property!!! It appeared that he was looking for the LOWEST POSSIBLE VALUE! Not accurate value, lowest possible.
Was he afraid to "speak his mind?" We don't know, but it has been reviewed by an experienced loan officer, a Realtor who is an Ogden expert, and by Clear Day Capital. We ALL agreed: BAD appraisal.
Now that the lender has the appraisal (which cost $450 and took 3 weeks to complete), it is impossible for that lender to go out and get a new one! Our borrower needs to start from scratch with a different lender and hope that the new one is reasonably accurate. The minimum cost:
- 2 appraisals at $450 each = $900
- 1 month loan extension = $2,000
Total = $2,900
That doesn't include opportunity cost, time spent, and aggravation!
Here is a link to a website about what is happening today with HVCC: http://bit.ly/jZaIO
The HVCC system has got to go, for the good of homeowners, investors, and the residential real estate industry.
Monday, June 29, 2009
Interest rates to do down? They did and they are going back up.
Prices to drop? They did (a little) and they are now flat.
Waiting for a short-sale/foreclosure/bank owned property? They are much fewer and far between than you would think.
Take a look at this posting to get even more insight.
Utah Dave- Why People are losing today!
Tuesday, June 23, 2009
1. “Are you going to broker or borrow my money?”
When your money is brokered on a loan, you invest in a single property. The loan broker is paid a percentage of the deal by the borrower, and then you have the responsibility for the loan and a direct relationship with the borrow.
In most cases if the loan goes bad, you will have to pressure the borrower, go through the foreclosure process with an attorney, and liquidate the property. Even if the loan broker is willing and able to help, your money is tied up in that single property and you have the ultimate responsibility for collecting. You will not earn any interest while you are recovering your capital.
When you loan your money to a reputable company, they will pool it with other investors. If a single loan goes bad, they will recover the pooled capital while you continue to receive interest for your investment. Since they have a portfolio, your money is spread throughout the portfolio and good loans will continue to be made. In this case you will continue to receive interest regardless of the performance of an individual loan.
2. “What types of properties to you lend on?”
Why is this important? It will help you understand the level of risk, the relative liquidity of the investment, the size of the market, and how much real equity is in a property and how that equity is determined. Types include: Single family homes, raw ground, commercial properties, multi-family residential, etc.
There is not enough space to explain all of the implications in investing in each type of property, but here are follow-up questions:
A. Is there “fundamental” demand for this type of real estate i.e. a mansion vs. a 3 BR / 2 BA house in a blue collar neighborhood?
B. What income will the property produce if it needs to be rented? Raw land may not produce any, other properties will depend on location, demand, proper management, etc.
3. “How well do you know the market(s) that you lend in?”
If a hard money lender is an expert in a specific area they will understand property values better, have contacts in the area to help them evaluate an opportunity, know the “rules of the road” (local laws covering everything from foreclosure to building ordinances), and know the trends in the local market.
Do you want to lend money in Chicago when you live in California? What about Knob Lick, Kentucky? Distance creates time and expense for any type of recovery process.
4. “Do you have the proper licensing for the types of loans that you do?”
Commercial loans have no licensing requirements in many states. Residential loans that place a lien against a residential real estate (single family home, condo, townhome up to a four-plex) are considered mortgages. Mortgage lenders in most states require a mortgage broker’s license for their company and a personal license for the employees who originate mortgages. Federal licensing goes into effect in late 2009.
Many hard money lenders casually state, “It’s just a hard money loan, it’s not a mortgage so I don’t need a license.” Wrong. Why does this matter to you, if you invest with an unlicensed hard money lender? Simple answer: Your money is connected to an individual or company that is wide open to lawsuit from the borrowers, and to investigation and prosecution by the state Division of Real Estate. How will a company that shows a disregard for the law ,regard you and your investment?
5. “What position do you lend in?"
The first position lien holder gets paid first, then the second, third, etc. If everything goes well, it doesn’t matter and everyone gets paid. If there is a problem with the loan and the first position lien holder takes it to foreclosure, the first position lien holder gets paid their capital, legal fees, interest, penalties and everything that is owed them before other lien holders receive any money.
Unless there is a tremendous amount of equity, this often means that only the first position lien holder gets paid. So, do you want your money lent in second position?
Coming Soon: 5 Advanced Questions
Thursday, June 18, 2009
Tuesday, June 16, 2009
Wow! How Much Can You Save?
Lost Rent 1 Month @ $1,000Rent-ready costs (not covered by deposit) 250 Advertising, signage, etc. 50Total Cost every 1.5 years $1,500x 3Total Cost Over 4.5 years $4,500
If you can get your turnover rate from 1.5 years to 4.5 years, you save $3,000 or $1,000 every year! If your cash flow is $200 per month, you just saved almost half of your cash!So, how do you keep these great tenants that you found and put into your properties? Let’s look at a few simple ideas.
Polite communications. Even for late fees, 3 day pay or vacates, etc. Most tenants will pay what they owe, so communicate politely and professionally.Accurate billing and statements. A confused tenant will not feel good about paying anything. Would you?Rewards for Good Behaviors- Provide a discount for on-time payments instead of a late fee for late payments, give a rent rebate for referrals to other properties you own, and provide positive feedback on good property inspections. Why dwell on the 2-3 things that may need to be improved when there are 50 things that are well maintained and in great condition?Reduced Rent Increases- The next time contract renewals come around, bring the tenant’s on-time payment record with you. Talk to them about the “regular” rent increase rate and then reduce it based on their on-time record. Even consider NOT raising rents. Remember, it costs about 1.5x monthly rent if someone moves out! Is a 5% rent increase always worth the risk of a good tenant moving out?
Thank you gifts. Say “thank you” with a gift at the holidays or a birthday (you have their birthday from your application, right?) for your best tenants. Let them know that you appreciate them and they are one of your best tenants.Tenant Rewards. Sign up for a tenant rewards service like blackledger.com to reward your tenants. The cost to you is minimal and your tenants win big.