Monday, November 23, 2009

Contract Sales- Make a Good Deal

You have a house. You want to sell it on contract to a good buyer- fast and full priced. How do you make a good deal and protect yourself.

Let's Make a Deal!
How do you structure your deal to make the most of your willingness to sell on contract? Let's cover the selling price first:
  • 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.
The interest rate will have a significant impact on the month payment from your buyer. Too high and you put them at risk of defaulting on the loan. Too low and you are missing out on a significant amount of profit. Of course the payment will need to cover taxes, insurance and any underlying mortgage.

Next- you need an amortization term. Possibilities? Interest-only, 30-year, 25-year, 20-year, 15-year. (Actually, any number of years would be fine.) Again, this will impact the monthly payment. The longer the term, the lower the payment. It will also impact your taxable income. Shorter terms have more principal paid each month. The principal paid back to you is not taxable.

The term of the loan depends on how long you want the capital to be out. Some people will need 1-2 year balloon payments because they need the cash back fast. Others want a long-term cash income stream that would last for their lifetime. The buyer may have refinancing constraints, such as a bankruptcy or short sale. Common balloon periods are 3-10 years, unless the seller is looking for long-term income.

Protect Yourself
First, get to know your buyer. Sit with them. Understand their story. Then, verify it. Get a background check. Not just a credit score- their credit may be really bad but they could be a great buyer! (See my last blog to read why.) See if they have a criminal background or any other issues other than their credit scores.

Next, make sure that they have a down payment. At least 5%, but 10-20% is even better. You are selling them an expensive asset so they should have "skin in the game." Contract home buyers qualify for the $8,000 first-time home buyer tax credit offered by the federal government. They should also qualify for any state or local tax incentives.

Use an experienced title company to close the transaction. They will protect you through ensuring the transaction is recorded correctly. You will also need a seller's title insurance policy. Your buyer's title insurance is only good until you sell the house.

Set up the monthly payments to go through an escrow company and ensure that taxes and insurance are collected each month. They will also pay any underlying mortgages to protect the buyer.

Need More Information?
This is just a minimal outline of how to do a contract sale. There are tax and legal ramifications of selling a house on contract. You should contract professionals. Expect to pay fees- title company, legal, or even a real estate agent's commission, to close this transaction. Another source of advice would be professional real estate investors.

Don't know any real estate investors? Go to a local real estate investor's club meeting. There are people at the meetings who can help you.

Contract sales are a GREAT way for both parties to get what they want. The more open and honest people are, the more likely a good deal can be struck.

Tell me about your last contract sell, or e-mail with any quesitons!

Tuesday, November 17, 2009

Contract Home Buyers- Where Are They?

A couple of weeks ago I wrote about contract sales- the future of real estate. I wrote that the number of contract sales are going up as the number of qualified buyers who can't get traditional bank financing increase, even as more and more home owners are willing to sell on contract.

Questions: Where do you find qualified borrowers who can't get traditional bank financing? Isn't that an oxymoron? By definition, isn't the person who is not qualified to go to a bank or credit union to get a loan an un-qualified borrower? Or is there something special about how a bank works that eliminates a lot of people who would be good people to sell a home to on contract?

Why are the banks automatically disqualifying people?
Two reasons:

#1. There are internal guidelines written by loan policy committees. Underwriters need to follow these guidelines. To get an exception they need approval from higher up in the bank. Who wants to stick their neck out to get an exception to the rules?

#2. There are FHA guidelines. The federal government now buys 90%+ of all loans. The federal agencies will only buy the loans that follow their own guidelines.

Let's take a look at some of the conditions that automatically disqualify some borrowers at a bank that may not disqualify them from buying a house from you on contract.

Those Pesky Bank & FHA Rules
Let's start out with an obvious disqualification- Bankruptcy. This is an easy one. It takes about 3 years for someone who has declared bankruptcy to get a mortgage. Remember, not 2 years and 364 days- 3 years.

Foreclosure- If the buyer is trying to purchase there home back, then the three year rule applies again. We just sold a home back to the original owner of a home that we had purchased 3 years earlier. They tried to apply at about 2 years and nine months and they were told that they had to wait a FULL 3 years.

No Credit- There are people in this world who have always paid with cash who earn a lot of money, but how do you purchase a home without a credit score?

Bad Credit- Have you heard about the 24 year olds working the oil fields and making $40/hr with 20 hours of overtime a week, but can't pay their bills on time? Lot's of cash, really bad credit.

Self-Employed- Even business owners with six-figure incomes and W-2 wages find it harder to get a loan than their employees. This includes doctors, dentists, engineers, accountants, and many other professionals.

Finding Low-Risk, Unqualified Borrowers
So where do you find people to purchase properties on contract? Here are some ideas:

Bankruptcy Attorneys: Many people who just went through bankruptcy now have a lot MORE cash to spend than before. Some of them just lost their homes and need to find a new one. With a clean slate, they could be good purchasers.

Foreclosures & Short Sales: When someone loses a house, they need a new one. The biggest question is: WHY did they lose the house? Was it due to unrealistic financing? Did they pay regularly for 3-5 years and then get killed when the rate adjusted? Good candidates.

People Renting Homes: Often times renters want to own, but the bank is holding them back. Look for single family homes owned by companies or someone who lives out of state.

Human Resources Departments: Employers want a stable workforce. Homeowners are more stable. Companies look for "perks" that cost them nothing. Have a special offer for the employees i.e. $500 RC Willey or Home Depot gift card at closing. Don't forget the military. For example, Hill AirForce base is the biggest employer in Utah.

"Bird-dogs"- Beginning real estate investors often start by finding deals for other people. Get them looking for you.

WAIT- Aren't These People High Risk???!!!
That's why the bank and federal government disqualifies them. Let me ask you something- did the banks do a good job of making good loans? Do you really trust the government to come up with guidelines of who YOU should sell a house to? Besides- there are was to protect yourself when selling on contract that I'll cover in my next blog.

Have you sold a property on contract? Was it a successful sale?

Thursday, November 12, 2009

Commercial Real Estate Crisis 2010

Do you think that the residential real estate crisis is bad? It is. The culprit: financing. First easy money, then no money for buyers.

Along comes commercial real estate, right behind residential. The predictions are that it will be worse. Much worse.

Commercial Real Estate Loan Cycles
Residential real estate loans are generally for 30 years, paid down over the entire time span. Commercial loans can have 20 or 30 year amortization schedules, but they generally have 5-10 year calls. The balance is due in 5-10 years. Generally this means refinancing the property every 5-10 years.

What Happens if You Can't Refinance a Commercial Loan?
It's an interesting thing- a borrower pays year after year on their loan, and then they can't refinance. Do they stop paying? No! Many times payments continue. Does that mean it's a performing loan? Absolutely not. The loan is outside the terms of the agreement and since it hasn't been repaid, it is in default. Yes, in default even though it is being paid each month. From a bank's financial perspective it means the exact same thing as if the loan wasn't being paid.

When a Bank Has a Loan in Default
There are two ways to be in default: 1. Stop paying on the loan each month. 2. Don't pay your balloon payment. Either way the bank bank has to set-up reserves and takes a massive loss.

Welcome 2010- From Bad to Worse
When did the easy financing start? In the early 2000's. So what time is it? Time to refinance all of those easy-money commercial loans! Guess what? Not possible. There is no money for commercial refinancing. The banks have today, and will have many more tomorrow, a massive amount of defaulting commercial loans.

The Opportunity
There will be opportunities to purchase loans that are "performing" from a monthly payment viewpoint but in default because they haven't been repaid. Who will purchase these loans or properties? People with cash. Individuals. Partnerships. REIT's. Hedge Funds. Wan't to get into commercial real estate? Start learning now how to put people together to raise cash and purchase performing assets in default for a fraction of market value as determined by the rents collected and net income on the property.

Agree? Disagree? Interested in putting a commercial real estate investment group together? Let me know. I'd love to talk.

Saturday, October 31, 2009

Contract Sales- The Past and Future of Investment Real Estate

Once upon a time, people owned real estate. They lived there, farmed it, and paid it off if they had a mortgage. When they wanted to sell the property, they often sold it using a contract that they negotiated directly with the buyer. The buyer would bring in down-payment money and then pay the seller over time.

There was no bank qualifying.
The government did not dictate terms of qualifying and condition of the property.
There was no real estate agent.
There was no appraiser.
There was no home inspector.
The county recorder recorded the transaction.
The cost of the transaction was minimal.

People did business with people.

Over the year, the trappings of the real estate industry became ingrained into the American way of life. More and more government intervention over who can borrow and under what conditions. Banks drove most home purchases through lending practices. The 30-year mortgage became the standard way of life. Appraisers drive prices. Real estate agents block sellers and buyers from talking with each other.

Transaction fees climb higher and higher. Sellers pay 10% or more to sell a house- 6% to real estate agents, 3% towards mandated FHA buyer selling costs, 1% to title and closing fees, hundreds for home warranties, and the list goes on...

Fast Forward to 2009
Bank credit is tighter. Fewer people can qualify due to lost jobs and lower credit scores.
During the years of loose credit and easy qualifying, the art of one person selling a property to another was lost.Only a few "old-timer" real estate investors kept the skill alive- contract sales from one person to the next. Peter Fortunato and Jack Miller are two of the best and they never stopped teaching this art. Even as "no money down", "short sales", and "REO's" come and go as fads, they taught seller financing decade after decade. (By the way, the funny thing is, they charge hundreds of dollars, not thousands or tens of thousands like the infomercial "gurus.")

Where Did All the Bank Loans Go?
The banks are tightening credit standards. At the same time, people are losing jobs and losing points on their credit scores. The government backs almost 98% of all residential housing loans, imposing rules and regulations that add cost and time to transactions. Appraisers are afraid of overstating prices and over-compensate by comparing fully renovated homes to uninhabitable bank-owned properties when establishing market value. They completely disregard valid arms-length contracts between willing buyers and sellers.

So if it's so hard to get an owner-financed loan, what chance does an investor have? Oh, no problem. Just own the property for at least a year, put down 25% cash on the property, have great credit and W-2 wages (as an employee, it can't be your own company) and the loan is all yours!

Contract Sales: Coming Soon to a House Near You
Enter the revival of the contract sale. People want to sell properties. Their buyers can't get a bank loan. Solution? Buyers put down 10% or more and sellers carry the contract. They record the transaction with the county. They decide the market price, and the interest rate, and other terms and conditions of the transaction.

Think you need to drop your asking price to sell your home? Think again. Get flexible on terms. Carry a contract. Name your asking price. Seller financing financing is worth a LOT to buyers who can't get a bank loan. And there are MILLIONS of people who want to own their own home, but can't get a home loan.

Learning How to Do a Seller-Financed Transaction
Want to learn how to do seller contracts? Find an investor who's been around for a while. Go to an investor club meeting and ask. Looking for a meeting? Shaw Watkins has picked up these skills and is passing them on to a new generation of investors. Click on his name and learn more on his web site.

Tell me about your seller-financed deals.

Thursday, October 29, 2009

Welcome to Clear Day Capital

Clear Day Capital provides bridge-loan financing (hard money loans) for professional real estate investors with projects in northern Utah. We listen to our clients, understand their projects, and help them make the project a reality.

New Clients
We work with a limited number of repeat clients that usually have multiple loans outstanding. We carefully screen new clients for experience, capital resources, credit worthiness, and their business plan. If you are interested in becoming a Clear Day Capital client, here is the process:
  1. Call David Safeer at 801.747.6343 and set-up a time to meet
  2. 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.
  3. 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
  4. 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.
  5. 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.
We want to make the process as easy as possible and at the same time set the foundation for a long-term working relationship.

Contact Information
Clear Day Capital can be contacted at:

801.747.6343 Phone
801.401.7267 Fax

Monday, October 26, 2009

Investor's Workshops- Social Networking For Northern Utah Real Estate Investors

If you invest in real estate, one of your key success factors will be your ability to network with your peers. They will bring you your next deal, provide you with references for resources you need, and perhaps be your clients.

How Do You Stay in Touch?
Using the phone, in person meetings, mastermind groups, and real estate investment club meetings are all still valid ways of building and maintaining your network. You can add to that your Facebook or Twitter networks if you want to. Even better, join an on-line social network built just for what you are trying to do- invest in real estate.

One example is . It has a national footprint and over 40,000 members. I belong to it and I find good general information that I could also read in a book. It is very good for general information and, if you dig hard enough, you can make contacts with Utah investors.

Social Network for Northern Utah Real Estate Investors
If you want to resources for Northern Utah (Davis County and north) then you should join . You can find dozens of real estate investors who focus on northern Utah. You can ask them about resources ranging from general contractors and handymen, to title officers and real estate agents who know how to work with investors.

Set-Up Your Own Social Network
If you have a niche market that you want to have a social network with, try setting it up using as a platform. Starting at $7.95 per month (less than mailing list software) you can establish your own social network. (Yes, I am an affiliate and we will make some money if you join. You can make money as well off of your network.)

What is your best social networking tool?

Thursday, October 8, 2009

Afraid to Foreclose or Evict? Don't Be!

Sometimes real estate investors are afraid to take action to evict a renter or foreclose on a house they sold on contract. Where does the fear come from? Ignorance of the facts.

Fear that Your Renter/Buyer Will Become Your Enemy
A renter or buyer should neither be your enemy, nor your friend. They should only be viewed as the custodian of your hard-earned asset. They agreed to pay your for the use of the asset while they care for it.

Taking legal action doesn't mean creating an adversarial relationship. Legal action is an extension of the business relationship. Here is an example of how to communicate and maintain a good relationship:
"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."
Fear that Legal Action Will Delay Your Payment
I've talked to landlords who say, "They promised to pay and I am afraid that if I start eviction they'll decide to leave and I won't get paid. So, I will do nothing and if they don't pay me next Friday I'll take action then."

The opposite is true. For people who are concerned about paying the rent, they will find the money from friends, relatives, selling something, etc. The legal action becomes a fire that lights them into action.

The other tenants are never going to pay, so the faster they are out, the sooner you have good tenants that will pay you.

Fear That Eviction or Foreclosure Costs Too Much
Not taking action costs more. If your rent is $800/month and you wait for two weeks to take action, you just lost $400. In the state of Utah an eviction takes 3 weeks. Late on the first? Have them out and re-rent the house by the first of the next month. Need help? Attorney Ron Dunn will evict for $450. Tell him I sent you and he may give you a discount. Same fee for a foreclosure. You pay filing costs, he does the rest.

What are your issues with foreclosure or eviction? Share a success story.

Friday, October 2, 2009

There Is Shift From Owning to Renting, Census Data Shows

Here is an article recently published by MHN Online. I am reproducing it exactly and giving them all the credit. This is important for all real estate investors to know. Even though this article talks about multi-unit housing, there will be a similar effect in the single-family home market, duplex, etc. When apartment prices go up, people start looking at single family homes.

Special thanks to David Svikhart of Sperry VonNess for providing the article.

There Is a Shift From Owning to Renting, Census Data Shows
September 30, 2009
By Anuradha Kher, Online News Editor, MHN Online

Washington, D.C.--More families at every income level are facing housing cost burdens, while households with the lowest incomes continue to be disproportionately affected by the shortage of affordable rental housing across the country, according to an analysis conducted by The National Low Income Housing Coalition (NLIHC) on newly released data from the 2008 American Community Survey (ACS).

The data show that renters are paying an increasing percentage of their incomes toward rent. The number of renters with unaffordable housing cost burdens—those spending more than 30 percent of their income on rent and utilities—increased from 16.8 million to 17.4 million from 2006 to 2008. The lowest income renters are the hardest hit: 87.6 percent of renter families earning $20,000 or less are experiencing an unaffordable housing cost burden, compared to 15.3 percent of those earning $50,000 or more. In addition, median gross rents increased from $763 to $824 between 2006 and 2008. The share of units renting for under $500 fell from 16.9 percent to 16.3 percent, as the share renting for $1500 or more rose from 10 percent to 11.2

The good news for the multi-housing market is that there has been a shift from owning to renting since 2006, as households lost homes to foreclosure or put off the decision to buy in the declining for-sale home market. However, this shift has led to more crowded living conditions for renters, likely as a result of some families doubling up or taking in tenants and larger families moving into smaller, more affordable units. The average household size of renter-occupied units increased from 2.41 in 2006 to 2.44 in 2008. The percentage of occupied housing units with 1.51 or more occupants per room increased from 1.52 percent to 2.35 percent.

“The new ACS data validates the reports we are getting from across the country, National Low Income Housing Coalition President Sheila Crowley says. “More families are renting, rents are going up and the lowest income households are struggling to pay for the most basic necessities. This data was collected before the rapid rise in unemployment, which means the situation today is even worse. As Congress considers giving even more tax breaks to support homeownership, equal attention must go to the diminishing housing choices of low income renters.”

The U.S. Census Bureau recently released the ACS estimates.

Saturday, September 26, 2009

Return on $100,000 in a First Position Trust Deed

My partners Michael and Steven have been talking with me a lot lately about finding people who want to invest in first position trust deeds. We think that there are a lot of people who are in retirement that are looking for income and want a reasonably secure place for their capital. Wall Street is no longer seen as safe, regardless of its short-term comeback during mid-2009.

Where Does the Monthly Income Come From?
For many retirees that is the main question. Their stock portfolio is half of what it was, so they can't spend capital. Michael talks to people all the time that are putting their money into CD's at 1-2% interest, which isn't even keeping up with inflation. Even if inflation is being matched, $1,000,000 in CD's at 2% only pays $20,000 per year! What if you only had $100,000? Is $2,000 a year (about $167/month) really enough to supplement an income?

What if that same $100,000 was lent against a single family, income-producing rental home at 6% annual interest? That would be a $6,000 per year income stream, or $500 per month, 3 times the amount of the CD interest payment.

But What About Security?
After the income stream the question comes up about the current state of the banks and all of the bad loans that have been done and how does someone know that the loan is secured? There are different parts to that answer:
  • 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.
The Investment That Keeps on Paying
What about comparing a $100,000 cash gift to to heirs vs. leaving a private mortgage behind? How many recipients of that kind of gift would have the good sense and wisdom to invest it? How many would spend it on a depreciating luxury item like a car, boat, or ATV's for the whole family, or an outright expense like a grand vacation?

If a private mortgage of 10, 20, or 30 years survives the lender, the loan and monthly payments goes to the heirs. It is an inheritance that keeps on giving.

What Are Your Thoughts
Have you used a private mortgage? Do you know anyone who has ever lent on a private mortgage? Do you think that they are safe and secure? Any helpful hints for using private mortgages? Let me know.

Friday, September 18, 2009

Preservation of Capital

Have you talked to a stock market investor lately? Are they a "half" or a "third"? Depending on who you are talking to, they are down either 50% or 66%.

Have you talked to a home owner in a luxury neighborhood lately? How much are they down? 10%, 20%, 50%?

Both investments are risk-based, so what about low-risk investments?

Bank accounts are paying 1%, less than the rate of inflation- which means your investment is going backwards each year.

Fixed annuities have a reasonable rate of return, maybe 3-5%, but it's a retirement product and it puts you in bed with the government. Want to cash it out before age 55 1/2? Take a penalty from the IRS- it's an early withdrawal.

You see the issue? Where do you put capital?

The Moderately-Priced, Single Family Rental House
Let's look at a single family house investment on a cash basis only. If you invest cash $100,000 in a single family home and the rent is $1,000, that's $12,000 per year. With no expenses, you have a 12% annual return on your investment. With vacancies, taxes, insurance and repairs, you might have 50% expenses. Your cash flow is now $6,000 per year. That's a 6% return on your investment. Year after year, with the return going up as rents go up.

Can the house go away? Disappear from a rumor about the economy? Be stolen? The answer is no. It can burn down, but then it will be replaced by insurance. Of course, a chunk of the value is the land, and that's not going anywhere.

So, the moderately priced single family home's value is supported by the rent and cash flow from the property. There is an intrinsic value to the property from the rent. What is that intrinsic value? It all depends on the economic times and the return an investor is looking for.

Additional Investment Value
When you add to the equation the tax benefits of a rental property, the investment is even higher. If you leverage your capital and borrow some of the investment, the return on your cash continues to grow.

But this is not about capital growth or astronomical returns. This is about preserving your capital. An investment that pays year after year, while the value stays in place.

Wednesday, September 9, 2009

The Hidden Profits in Real Estate

I read a great post at from a good friend and great investor, Spencer Erickson. Spencer is a CPA with creativity, personality, and knows creative real estate. His wife, Brittney is also a CPA and runs an accounting firm that specializes in working with real estate investors. Check out to find a great service for a price real estate investors can afford.

Spencer's article was so good that I asked for permission to post it. Here it is:

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

7.5 Reasons Cash is Power in Real Estate

OPM- Other people's money. One of the first things you learn about real estate- use Other People's Money. That's all fine and good, but have you every learned that Cash is King? And that when you are the King (or Queen), then you have power? So, Cash = King = POWER. How?

Let me tell you how CASH is POWER:

1. Cash Buys You TIme- Want to do more transactions? Use cash. Instead of waiting 2, 3, 4 weeks or more to wait for a bank to approve you for a loan, pay with cash today. How many more deals can you do if you are not waiting an extra 2-4 weeks per deal?

2. Cash Gives You Influence- Send out an e-mail (or tweet) letting your bird dogs and business associates know that you have $250,000 in the bank and that you are looking for great deals. Be ready to take action as the offers roll in.

3. Cash- Private Sellers Love It! Do you think a seller would prefer an offer contingent on financing, or cash? Duh. Will they take less for cash tomorrow than financing in a month or more that may or may not come through? YES!

4. Cash Towards Hard Money Loans- Hard money is expensive, right? Try coming in with a chunk of your own cash and negotiate terms. Clear Day Capital borrowers who drop from 75% LTV to 60% LTV reduce their costs of a loan by 1/3!

5. Cash Discounts from Vendors: EVERYONE takes cash discounts. Don't want to pay up front for incomplete work? Work with the title company that closes your transactions and have them hold the funds so the vendor knows that they're available. When the work is done, have the title company cut the check and have the vendor sign a lien waver.

6. Cash- Banks Want It! You'd think that banks would have enough cash, but they will cut deals for REO properties and short sales if they know there is cash to close immediately. Good luck trying to time a conventional loan with a short sale.

7. Cash Keeps You Out of Trouble: There will ALWAYS be unexpected expenses and unexpected delays in income. When you have cash reserves, your business can "whether the storm." Author Charles Givens, who wrote "Wealth Without Risk" put it simply: "A prolbem that you can solve by writing a check isn't a problem."

7.5 Cash Makes You Feel Good: Don't believe me? Try a couple of experiments:
Experiment 1. You have and extra $25,000 in your bank account. Close your eyes and think about how it makes you feel.
Experiment 2. Go to the bank and cash a check for $1,000 in $20 bills. Hold them, count them, feel them in your hands. How does it make you fell?

What If You Don't Have Cash?
Go find someone who does. Get a cash partner. Work with a hard money lender who can provide money fast. Set aside reserves from profits of each project. Keep building reserves until you get all the benefits of a cash buyer.

Do you have an expample of when cash got you a great deal? Post it and share.

Thursday, September 3, 2009

Real Estate Social Networks- Preview the Next Wave

Want to see the next wave in social networking? Take at preview look at Clear Day Connect, the social network for people who are investing in Northern Utah real estate. Even if you are not targeting Utah, you need to take a look! Why? Here's 7.5 reasons:

1. Social Networking is here to stay and this is a new twist- target social networks.

2. Clear Day Connect is built on the platform. Starting at $7.95 a month, anyone can start a social network.

3. The platform allows you to monetize (get payed for!) social networking!

4. Clear Day Connect will have professional real estate investors, property managers, attorneys, and accountants ready to answer questions when in launches in the next 1-2 weeks.

5. You can provide valuable feedback about what you wouuld want to see in a real estate social network from the ground floor up.

6. Don't you wish you had been at the ground floor with Facebook or Twiiter? Here is the next potential platform.

7. There are at least two good articles to download for free right now and a half a dozen proffesionals to meet. YOU could even lead a forum if you ask nicely!

7.5 Visit Clear Day Connect because I'm asking nicely!! You can do me that favor, right???

Friday, August 28, 2009

5.5 Reasons That Auguts 2009 is a Bad Time to Invest in Real Estate

I have been avoiding this topic for a long time. After all, this is a blog that supports a company that provides bridge loans to real estate investors and it's in Clear Day Capital's best interest to make sure that people keep investing. But the truth of the matter is that this is a bad time to invest in real estate. Here are the facts:

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

Long Term Real Estate Profits Through Property Management

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

Maximize Revenues

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.

Minimize Costs

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.

Information Systems

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

Real Estate is for Patient People

Peter Fortunato, a renown national real estate investor and trainer, teaches that investing is "a thinking man's game, not a running man's." As I thought of that statement it occurred to me that patience is needed as well. Here are some examples:

Looking for Diamonds
A real estate investor who specializes in fixing and flipping real estate is looking for a diamond in the rough, that is REAL diamond, not a fake. Robert Allen, the author of "Nothing Down", talks about how difficult it is to the untrained eye to find one diamond in a group of cubic zirconium. However, he can teach how to spot the diamond with one simple trick: Turn the stones upside down onto its face. Then the difference between the stones becomes obvious and the real diamond reveals itself.

In real estate there are a lot of properties that report themselves to be diamonds, but only you can make that determination. Does the property meet YOUR requirements to make a profit? You may need to go through dozens of offers before finding the diamond and deciding to execute the transaction.

Once you do purchase the property it typically takes 3-6 months to fix, resell, and get paid. How many people working for a paycheck a willing to wait 3 months to get paid?

The 30 Year Bamboo
Another way to invest is to buy and hold real estate. In that case, even more patience is needed. This is a lot like a species of bamboo that lives along the shore of the Bay of Bengal. It blossoms once every 30-35 years! Think about owning real estate by paying down a 30 year mortgage. You may have cash flow along the way, along with depreciation benefits to reduce your taxes. This is truly a get rich slowly scheme that requires time.

Why Proceed with Patience?
There are millions of people in the United States that are running away from investment real estate right now. They got involved at the top of the market and have lost a lot. Many were looking to get rich quick, did not examine the risks, look at downstream consequences, or did not educate themselves.

The most successful investors I work with have 1-3 transactions at a time and always finish what they start. There are a lot of details that need to be taken care of, a lot to learn, and a lot to do. The successful investors identify what they want and then patiently proceed to get it.

Be Prepared
Once you know that you have found what you are looking for, you need to respond quickly. There are a lot of people looking for the diamonds. Are you ready to:
  • 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.?

Work with a Partner
One recommendation that I always have, especially to beginning real estate investors, is to try working with a professional real estate investor who has experience doing what you are trying to do. This lowers your risk tremendously and you can learn how to work on your own by participating and gaining experience over time.

Are you a patient person? Have you always been? Can you think of someone who has rushed into real estate and been burned?

Friday, August 14, 2009

Book Review- "Blog Schmog"

Check out this book review. How does it relate to real estate? A lot of people are using social networking and the internet to market their real estate business. This book will give great insite to what you can get out of a blog. CLICK HERE TO READ REVIEW

Thursday, August 13, 2009

Utah Credit Union Equity Lines for Investment Real Estate

Investment Real Estate Financing Alert!

Utah real estate investors have been searching for over a year for how to get fast, effective financing in place for their investment properties. I won't go into the obstacles in detail, but they have included:
  • 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
There is now a great opportunity for the right properties and the right borrowers. Some Utah credit unions have developed a loan product with the following general guidelines:
  • 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%
Clear Day Capital had two borrowers use this program at Golden West Credit Untion, working with Nate Cox at 801.786.8452. The first purchased a rehab, did the fix-up and paid us back using his equity line from Golden West in about 5 weeks.

The second was completed in under 3 weeks, the property was already in live-in condition.

I understand that other Utah Credit unions offer similar programs. When I get confirmation of which ones I'll let you know. Can you confirm similar programs? Does anyone have any other good investment financing to share?

Thursday, August 6, 2009

Life Insurance for Real Estate Investors

Chris, a southernn California real estate investor and friend of mine, passed away in his sleep earlier this week. He was 44 years old and from outward appearances in good health. He leaves behind a wife and 3 grown children.

Chris invested in California and in northern Utah. I had interactions with him in both markets. He was creative, knowedgable, and enjoyed working with people. I will miss him.

Chris left behind a legacy of single and multi-family residential real estate investments. Most have reasonable cash flow and can stand on their own. Unfortunately, he did not have any life insurance to provide cash to his spouse to let her wait for a year or so and not have to make decisions of what to do with his real estate investments.

This is a personal opinion- if you have a family of any kind you owe it to them to cary life insurance, even if it is just enough to carry them for 6-12 months. A policy for $100,000 for a non-smoking male can be purchased for as little as $15-20 per month. If you need a recomendation for an agent to talk to, let me know and I'll put you in touch with people that I trust.

Don't take my word for it. Talk to your spouse and see what they think. Let me hear your opinion about this important topic.

Monday, August 3, 2009

Equity Loans from Banks- Work With the Current Banking System

Clear Day Capital's client's have really struggled with traditional lending institutions over the last 18 months. Borrowers with great credit suddenly denied traditional financing simply because they do not have a W-2 income. They can document the income that they receive, but because it is not a W-2 wage, it is unacceptable for today's lending standards. Everyone is working hard to make adjustments.

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

Isn't it All Creative Real Estate?

Two days ago a Twitter follower asked asked, "Have you done any creative real estate deals lately?" As far as I'm concerned, Clear Day Capital ONLY does creative deals, but I responded with a deal that we are working on that will close on today (July 29, 2009.)

A borrower is purchasing a property to rehab and is concerned about a personal guarantee. At the some time, the officers of Clear Day Capital have a goal to control our own destiny more in case a loan goes bad (refusal to repay or cooperate) or gets "stuck" (unable to sell or refinance, but cooperating and wanting to do the right thing.)

We have come up with this model:
1. A company controlled by Clear Day Capital's owners purchases the property through an assignment of the purchase contract and acts as a holding company.
2. The holding company sells an option to the client to purchase the property by a future date at a pre-determined price equal equal to the holding company's loan payoff amount.
3. Option extensions can be purchased if needed.

Fairly simple and provides these benefits:
To the Client: They don't personally guarantee the loan, but still get to complete their project.
To Clear Day Capital: We control the property and do not have to forclose if the clients don't perform.

Some interesting notes:
1. The solution was inspired by our client, who was making a general suggestion about how Clear Day Capital can secure itself better, not realizing that he would be the beneficiary of the suggestion.

2. The deal was dead two weeks ago, but we had done successful deals before, we wanted to do more together, and we made a mutual commitment to figure out how to do more. We just needed to get more creative.

What do you think? What was your last created real estate deal?

They Are ALL Creative Real Estate Deals

Two days ago a Twitter follower asked me (@cleardaydavid), "Have you done any creative real estate deals lately?" As far as I'm concerned, Clear Day Capital ONLY does creative deals, but I responded with a deal that we are working on that will close on today (July 29, 2009.)

A borrower is purchasing a property to rehab and is concerned about a personal guarantee. At the some time, the officers of Clear Day Capital have a goal to control our own destiny more in case a loan goes bad (refusal to repay or cooperate) or gets "stuck" (unable to sell or refinance, but cooperating and wanting to do the right thing.)

We have come up with this model:
1. A company controlled by Clear Day Capital's owners purchases the property through an assignment of the purchase contract and acts as a holding company.
2. The holding company sells an option to the client to purchase the property by a future date at a pre-determined price equal equal to the holding company's loan payoff amount.
3. Option extensions can be purchased if needed.

Fairly simple and provides these benefits:
To the Client: They don't personally guarantee the loan, but still get to complete their project.
To Clear Day Capital: We control the property and do not have to forclose if the clients don't perform.

Some interesting notes:
1. The solution was inspired by our client, who was making a general suggestion about how Clear Day Capital can secure itself better, not realizing that he would be the beneficiary of the suggestion.

2. The deal was dead two weeks ago, but we had done successful deals before, we wanted to do more together, and we made a mutual commitment to figure out how to do more. We just needed to get more creative.

What do you think? What was your last created real estate deal?

Tuesday, July 28, 2009

Warning: A Joint Venture Disguised as a Loan

First I want to disclose that I am not an attorney and that you should consult an attorney when you form a business entity, sell shares, enter partnerships, etc. With that out of the way, I here are some observations about an opportunity I received to "borrow" money that turned out to be a joint venture with a business partner and that needed to be bought-out five years down the road.

The Offer

I received an e-mail about three weeks ago with the following offer to borrow money:

  • $300 application fee, refundable if loan did not go through
  • 100% LTV using a CMA or BPO, no appraisal needed
  • 3% interest-only, 5 year term
  • Letter documenting cash equal to 20% of loan is available in a financial institution
  • Loan to be paid back in 5 years, with an option to convert to a conventional 30-year loan at 5% interest
  • 30 days to underwrite and fund

Sounds to good to be true, right? As usual, there was a lot more to this than initially presented.

The Reality

The reality is that the “loan” became a four page “Joint Venture Agreement.” The exit strategy to the “loan” was paying-off the joint venture partner or taking him on as a permanent partner with a 50/50 split.

I talked to two attorneys, one a real estate attorney the other a securities attorney. Both told me that a “Joint Venture” is a general partnership, which means that both parties become liable for actions of the other party.

When I questioned becoming a general partner with a “lender” the response was “This is not a general partnership, just look at paragraph 5.” Well, paragraph 5 says:

“Neither the Joint Venture nor any of the Parties shall have authority to create any obligation for one or more of the other Joint Venture partners.Neither the Joint Venture nor any of the Parties shall be responsible or liable for any indebtedness or obligation of the other Parties, individually or collectively, incurred either before or after the execution of this Agreement.

In other words, forget hundreds of years of statutory and common law, we are going to agree that we are not liable for each other. Sorry, but you cannot make your bad breath go away by simply stating that it doesn’t exist!

The Bottom Line

Is this a "scam?" I don't know if it is a way to take your money, your property, or both. It could be totally legitimate. What I do know is that it was very poorly executed and that it is a securities transaction regulated by the State of Utah and the SEC. As my lawyer, Kevin Timken has taught me, be very careful of business transactions involving entities and borrowing or lending money. They are very highly regulated and occur even when you are not aware of them.

I signed a confidentiality agreement so I won’t disclose who these people are.

Two lessons learned:

  1. If it sounds too good to be true, it probably is. (Not a new lesson, but definitely reinforced.)
  2. By very cautious with any money making scheme coming out of Provo orOrem, Utah.

Have you heard about a loan program like this? Do you know of any other incredible “business opportunities” circulating right now that others should stay away from?

Wednesday, July 22, 2009

5 More Questions to Ask Before Investing With a Hard Money Lender

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.
1. What happens if a loan goes “bad?
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.
2. Can I call references before I invest?
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.
3. How does a loan close and does the property have a proper lien?
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.
4. How does the hard money lender make money?
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?
5. Does the lender have a private placement that discloses your company’s financial statements and business plan, and what are the licensing requirements for the business?
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.
Bonus Question
10.5 What is your reputation with your clients?
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

Paying Mortgages to Pretender Lenders

I just finished a three-day journey paying 22 mortgages for properties in which I have partial ownership.  No big deal, right?  It shouldn't be, but let me describe what happens when pretender-lenders get involved....

First of all, let me say that paying 15 of them worked just great.  We use USBank, an almost-national bank with sound financials.  They never got into the sub-prime mortgage business so they didn't need (nor want) a bail out.  The have great on-line banking and I used the free bill-pay service to pay 15 of the mortgages as I do every month.

First delay to deal with- Homecomings Financial, a subsidiary of GMAC Mortgage, has sold its portfolio of loan serving to GMAC Mortgage and we now need to pay GMAC Mortgage.  This means setting up 6 new bill pays at USBank.  No fees for this, but it ads time to the process.  We also need to change tracking on our spreadsheets for the mortgages, and I felt the need to call to verify what we need to do to make sure the payments are made before the 15-day grace period expired.  (Note: We are late with the payments each month (after the first), but we have never had a 30-day late.)

So, I missed four mortgages out of the 22 and they needed to be paid today.  The first was with Bank A.  Their telephone touchpad system did not work well so I had to call in 5 times to just input the SS # and account number.  Then they needed the bank routing and account number! So, I went to the operator who then repeated the request for my personal information.  Not a big deal, but why can't they pick that up when the call is transfered by the computer?

Loan servicing company B (not a bank) was ok.  The system worked and I was grateful.

The last two were with loan servicing company C and I needed to talk directly to a human being again.  Again with the repeated SS # and account number.  This time they needed the full address so they waited while I looked up the zip code on Google.

OK, this is a rant, but here is my point:  Part of the problem that the country is facing right now is loans being sold to servicing companies.  Most people cannot go back to where they originated the mortgage and talk to the loan officer or a bank officer to discuss their mortgage with a human being instead of an institution.

As for me, I am going start looking for human beings to work with- banks that keep their loan portfolio instead of selling them.  Do you know any real banks?  Let me know which ones so I can work with people again.

Thursday, July 9, 2009

Pete Fortunato Real Estate Wisdom

Peter Fortunato is a real estate legend. He teaches only five times a year. His passion is real estate and he never uses bank financing.

Go to the Real Resources for Real Estate Investors blog to read some pearls of wisdom.

Saturday, July 4, 2009

10 Things New Real Estate Investors Must Know

1. Don’t believe everything you read or hear. Most real estate investors do not earn $1,000,000 or even $100,000 in their first year. Good luck trying, but don’t give up if you don’t.
2. Make offers. You can’t invest in real estate if you don’t make offers.
3. Not all mentors are created equal. Most fee-based “mentors” have a little to no experience mentoring and may have very little real estate investing experience.
4. Join a real estate club. A local real estate club can provide you with an instant network of other investors, contractors, real estate agents, and anything else you need to invest.
5. Develop a strong local network. It can make your investments soar and save you from making big mistakes.
6. It’s OK to spend money on your first property. It will probably be a better investment than a mentor or expensive class.
7. Don’t quit your day job. It is much easier to invest if you have capital, a job, and good credit.
8. Partner with an experienced investor. It is much easier to make money on first investments if you do.
9. You must know how to “run the numbers.” If you don’t know which numbers, then don’t invest.
10. Start today. The sooner you start, the sooner you will really learn how to invest. Reading books doesn’t count as investing.
10.5 Find capital sources. As many as you can- long term loan brokers, hard money brokers, friends and relatives with self-directed IRA’s.

Tuesday, June 30, 2009

HVCC- Bad Appraisals Are Hurting Real Estate

Did you know that appraisers are supposed to provide a service that accurately estimates the value of a piece of real property? Usually they are reasonable accurate, but the new HVCC system is creating a mess.

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:

The HVCC system has got to go, for the good of homeowners, investors, and the residential real estate industry.

Monday, June 29, 2009

Utah Real Estate- Don't Wait!

My biggest complaint about the real estate market in Utah is that the general public is listening to the news instead of doing research for themselves. This is leading to waiting for...what?

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

10 Questions to Ask Before Investing with a Hard Money Lender

There are at least ten questions that you should consider before investing with a hard money lender. Any investment should be made carefully. Passive real estate investments can become a non-passive investment, depending on how you invest. We'll answer five questions this month and five advanced questions next month.

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

Tuesday, June 16, 2009

Keep Your Tenants, Keep Your Profits!

Finding great people to live in your house or apartments is critical for on-time payments, someone who takes care of your asset instead of destroying it, and having peace of mind as a landlord. So how do you keep these people, year after year after year? We know of one property manager whose average tenant stays 4.5 years!

Wow! How Much Can You Save?
Can you imagine the cost savings? If your average tenant stays 1.5 years, let’s look at the turnover cost over 4.5 years on a unit that rents for $1,000 per month.
Lost Rent 1 Month @ $1,000 Rent-ready costs (not covered by deposit) 250 Advertising, signage, etc. 50 Total Cost every 1.5 years $1,500 x 3 Total 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.
Basic Tenant Retention Strategies
Treat Your Tenants Like Clients. They are your customers and should be treated as such. Your goal should be that your tenant feels good about your property and their relationship with you as a landlord. Good customer service includes:
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?
Advanced Tenant Retention Strategies
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 to reward your tenants. The cost to you is minimal and your tenants win big.
“That’s it! I’ve had it! Let’s sell this place!”
It takes time, people skills, market knowledge and patience to be a good landlord. Sometimes it makes sense to own real estate, but you don’t want the hassle of being a landlord.
If that sounds like you, don’t call your real estate agent. Contact Clear Day Property Management instead. With a 94% occupancy rate for single family homes and an average turnover rate of 2.5 years (and climbing), they can take all of the hassle out of managing your property. Call them at 801.725.9044 and ask them how they can take the weight of property management off of your shoulders and put it onto theirs.