Monday, February 28, 2011

Transactions #6,7, and 8 of 52 in 2011

February started out as a slow month, but it closed with a bang with three similar transactions in just three business days.

All three transactions were private money refinancing of properties that we already own. Here is how it works:

Step 1: We paid cash for all three properties in December or January using our own funds
Step 2: We fixed up the houses with our own funds
Step 3: We rented the houses (2 out of 3, still working on #3)
Step 4: We did two CMA's on each property and averaged the two
Step 5: We borrowed 75% of the property's CMA value
  • Borrowed funds from three different lenders. Two split two houses, one funded the 3rd
  • 5 year term (one has an option to extend 5 more years)
  • Different financing structures for each, but all have yields targeted at 10% or more
  • ALL have positive cash flow even AFTER debt service, management fees, taxes, vacancy reserves, insurance, and maintenance reserves
This is a real win for everyone. Interested? Let me know! We are always looking for new financial friends to work with.

Saturday, February 12, 2011

Transaction #1 of 52 in 2011- Contract Sale with Credit Partner Bank Loan Cash Out, Retaining Ongoing Cash Flow and Equity Participation

I committed in my last blog to go back and write about our first four transaction of 2011. (A transaction is a purchase, sale, refinance, or loan.) A transaction allows Clear Day to make a profit- now or in the future.

We started the year selling a Clear Day Capital property (two houses on one piece of land) on contract to a credit partner who used his credit to get us cash so we could pay off our underlying loan. This was a foreclosure property and we sold it for more than we lent on it. If it had been a traditional sale we would have had a break-even or loss due to price discounting and transaction costs, especially a 6% real estate agent commission.

Here is how it worked:
  1. We spelled everything out in a real estate purchase contract.
  2. Our investor/financial friend went onto title to give us joint interest in the property. He also signed a re-conveyance that went to an escrow company in case everything fell apart or something happened to him we could take him off title.
  3. Since he was on title, he was eligible to get a credit union equity line of credit for 65% of the property value.
  4. The credit union loan paid bought out our interest in the property. It didn't quite pay off the loan, so Clear Day Capital took back a 2nd mortgage, behind the credit union, for the balance owed from the sale.
  5. At close we also established a lien for one half of the cash flow and one half of the equity in the property.
  6. Clear Day Property Management leased the property from our investor/financial friend who has no desire to manage properties. CDPM's management fee is 5%, which is low because this is an "in house" deal.
  7. Money will be set-aside each month for vacancies and repairs (5% for each) to build up reserves.
  8. Clear Day Capital will split the cash flow with our financial friend every quarter (after reserves) and eventually split the equity when the property is sold.
  9. Our financial friend get's a the other half of the cash flow and equity. He also receives the depreciation that offsets the income from the property and may help offset his other income as well.
That's it! Pretty simple when it is laid out in writing. Questions? Comments? Let me know!

Thursday, February 3, 2011

Transaction #5 of 52 in 2011- Contract Sale for Deed

The first four transactions are NOT posted yet and I'll try to put them up soon. I wanted to do #5 now for two reasons:
1. It is still fresh in my mind
2. I am presenting it at NUREIA tonight- so please come if you are reading this on February 3, 2011 (click here for more info)

So here it is:

Indian Camp Road Contract for Deed to Mr. Persistent
SITUATION: Four years ago Chapter Two Realty rescued Mr. & Mrs. Iwanastay by buying their house on a short sale and the leasing it back to them at $1,695 per month and selling them a 3-year option for $10,000 with a sell price of $189,000. Now the house has a market value of $165,000 and the Iwanastays decided to build a new house instead.

THE PROBLEM: Current Market Rents are $1,295 and with management fees and vacancy and repair costs, Chapter Two will lose about $388 a month! Chapter Two owes about $171,000 and selling the house in a traditional sale will mean that they need to bring over $16,000 to closing, which is simply not feasible.

PROPOSED SOLUTION: Chapter Two decided to do a contract sale to get a higher purchase price, reduce transaction fees, and have flexible seller terms to maximize their opportunity. They found Mr. & Mrs. Persistent through a realtor who understands creative financing. The proposed sale price is $179,000 with $11,000 down and a 40 month term with an 8.04% interest only contract sale. The realtor agreed to 1.5% now and 1.5% when the house was refinanced.

BENEFITS: Mr. & Mrs. Persistent are able to buy a house now and fix their credit over the next three years. The receive a mortgage tax deduction and the pride of ownership. The love the house. Chapter Two has a $16,000 swing in cash flow and will end up postive by almost $1,000 when the sale concludes at re-finance. They will have no vacancies, no repairs, and no management concerns for 40 months. They have pre-sign reconveyances in case the buyers don't pay.

REQUIRED DOCUMENTS: Note, Trust Deed, Escrow Agreement, Re-conveyance

52 Transactions in 2011

OK, I know that it has been way too long since I posted. I've just been waiting for something significant to blog about. So here it is...

I have set a personal goal to be a principal in 52 transactions during 2011. That's an average of 1 per week either buying, selling, refinancing, or controlling (i.e. with a master lease) a property.

Each time I complete a transaction I'll post details so you can follow along. Anyone care to join me? My partners and I are looking for:
  • Really inexpensive properties to buy with cash
  • Capital to borrow for a 1st or 2nd mortgage
  • Properties to manage through a master lease
  • Properties to pay full price with terms that work for us
  • More people to network with to create win-win deals
  • We work with residential from SFH to 40 units and with small commercial
Contact me if you want to be part of 1 (or more) of my 52 transactions this year!