Renters Plan to Continue Renting. Blame Uncertainty

Do you own rental properties? If you do, take heart for good vacancy rates for the foreseeable future.

People who are renting plan to continue renting. Why? Here are the reasons that I hear:

1. Difficult to get financing

2. Perceived difficulty to get financing, so qualified people don't even try

3. Fear of real estate prices declining further

4. Change of attitude- people don't want the responsibility of home ownership

5. Perception that it is more expensive to own than to rent

Read more about the trend...

Renters Plan to Continue Renting. Blame Uncertainty

What about you? Are you renting and continuing to rent?

The Australian Subject-To Home Purchase

So I am sitting at the Pizza Factory with an investor friend and he is explaining to his partner how he bought a house last night...

A guy calls from Australia and he needs to sell his house in Layton, Utah NOW! It's been on the market for months with no nibbles an his family is about to leave for Australia to join home for his new job.

The bottom line: The investor is buying the property for $25,000 more than the owner owes on the property, subject to the underlying mortgages staying in place. Included will be some furniture, appliances and a 50" TV!

The buyer is paying closing costs and the monthly mortgage of $1,250 and it should rent for $1,600 or more!

Good deal, huh?

Financing Gets Lower and Lower

Financing rates for home owners is getting lower and lower. Record low interest rates have made headlines for the last few weeks. The Salt Lake Tribune announced that record low interest rates are fueling re-financing.

That's all well and good for home owners, but what about investment property owners? I'll write some blogs about two situations:

1. A new real estate investor who has two properties purchased on contract who has great credit, W-2 income, but put little money down and has an income level that does not support rental properties without the income from rents. He is trying to get financing for the 3rd time, after being rejected twice.

2. A Real Estate Investor who has held properties for at least 4 years and up to 6 years, has very high credit scores, very high W-2 income, and a lot of cash in the bank. His challenge? He has 11 properties in his name and most have high LTV's.

The New Investor

He has applied at a credit union that said "yes" to the pre-application, and then underwriting turned down the file. He then applied with a portfolio lender that doesn't follow federal guidelines. They said "yes" for two months, and then once again the underwriters said "no."

He is now working with a mortgage bank that has local preliminary underwriting. They have a loan officer that is prepping the file in accordance with the structure of the contract sale and the requirements of the lender. We will make adjustments to the structure of the contract sale to conform with the lending requirements.

The Seasoned Investor with 11 Loans

The 11 loans might kill any kind of refinancing, but we are going to try. He got one loan refinanced with HAMP- a federal loan program. CHASE did that loan and they were outstanding to work with. That one loan will reduced the monthly payment over $400 per month! It makes the property go from break-even to profitable.

Four other loans were rejected by Citibank under the same program. They were a nightmare to work with and ultimately came up with what we considered were excuses. They were incompetent at best. I would never work with Citibank again if I could avoid it.

I'll keep you up to date on both investors. Stay tuned....

Low Home Ownership = Good Rental Market???

So if people don't own a house, does that mean rentals will be in more demand?

Probably....

...unless there is a basic over-supply of houses

...unless children move in with their parents

...unless parents move in with their children

... unless young adults stop getting married

So read this article about home ownership...

U.S. home ownership falls to lowest since 1998 | The Salt Lake Tribune

... and then think about why NOW is a good time to buy real estate:

.... housing prices are LOW

.... interest rates are LOW

.... pent-up demand is HIGH

.... rent vs. price is HIGH

So why are you waiting to invest?

Private Mortgage- Money at High Interest Rates, Secured by Real Estate

Private mortgages are as old as real estate itself. People borrowing money from other people and then secure their loan using real estate as collateral.

Banks became popular and the lender of choice for most Americans, especially when the U.S. government starting promoting home ownership in the 1950's with the introduction of the 30-year mortgage.

Most Banks Sell Their Notes to Private Investors

Most banks sell their mortgages soon after they originate the loan. Until recently, most were sold to private investors, either directly or through REIT's and/or mortgage backed securities. These were pools of mortgages, all combined and many times jointly owned by multiple investors.

The quasi-governmental mortgage companies FannieMae and FreddieMac now buy 95% or more of the bank loans.

Where Did the Private Money Go?

Private money is still investing in first-position mortgages. The difference is the money is now backed directly by individual properties.

Want to learn more?

Click Here to for a FREE copy of the Private Mortgage Report. It's easy to read and will answer a lot of questions, including:

• Increasing security of your loan
• Why Private Mortgages are a hedge against taxes
• Long Term Income through Private Mortgages
• Using Balloon Payments to shorten the length of the loan
• Use Private Mortgages for Estate Planning
• How to Document Your Loan for maximum security

Want to learn even more?!? The CALL ME! I'd love to talk with you.

David Safeer 801.510.3566

Beware the Homeowners Association

Did you know that a home owners association can foreclose if you don't pay dues?

They can regulate your lawn? Your garbage?

They can have a "special assessment" that MUST be paid, regardless of how much it is?

Read this, it's a real eye-opener...

Neighbor vs. neighbor as homeowner fights get ugly | The Salt Lake Tribune

Have you ever had a run-in with an association?

Transaction #3 of 52 in 2011: Deep Discount for REO 4-Plex

Small, multi-family properties have been hit hard throughout the country. In Utah the duplex, tri-plex, and four-plex prices have been hit much harder than single-family homes.

Why Multi-Family Has Been Hit Harder than Single-Family in Utah

The answer is quite simple: Supply and Demand. The supply for multi-family residential is growing as investors try to divest and other investors have problems and the banks foreclose.

Demand is down for two reasons:

1. People feel that real estate is not a good investment right now- even when it is on sale.
2. Credit is more difficult for multi-family purchases. Banks are asking for 20% - 25% down. Most banks require this to be cash. Credit needs to be 700+ for most banks. Finally, the new rules limit investors to four properties so active investors that have cash and good credit still won't qualify.

We Make a Bid We Couldn't Refuse

After searching the MLS for properties, we made an offer on a 4-plex. The purchase price plus estimated fix-up was HALF of what the property would have sold for 2-3 years ago.

The bank accepted the offer.

The property will cash flow for years to come.

Bank of America vs. Citizens of Utah: Continued

Once again, the private sector comes through! The Utah attorney general's office threatened to sue Bank of America, but the Salt Lake City law firm of Mumford West & Snow struck the first blow last week.

Learn more from our friends at the Salt Lake Tribune.

Utah law firm sues to halt Bank of America foreclosures | The Salt Lake Tribune

So, who has a mortgage with Bank of America?

Transaction #16 of 52 in 2011: Investor Refinancing Still Lives!

Have you heard that it is impossible for a real estate investor to get a loan on an investment property? It's just an ugly rumor!

One of the strategies that we are using when we sell properties on contract to real estate investors with good credit is that we agree:

1. The investor who buys from us on contract will get an equity line of credit from a financial institution to repay Clear Day Capital as much as possible
2. Clear Day Capital will carry a second for the balance of the purchase price

Pretty simple, right? Yes!

Transaction #16 was the refinance of a duplex we sold on contract. The refinance went smoothly. It was with Golden West Credit Union and was fairly quick. The biggest challenge was the appraisal was much lower than hoped. Duplexes are on sale and it really dragged the price down.

The good news? We found two banks that are offering up to 75% investor loans- fixed rate and 30 year amortization. You'll have to keep reading to learn more about them.

Buy vs. rent: These days, buying wins - May. 13, 2011

We don't look at winning vs. losing when we think about home ownership. We think that everyone can win by dividing the seven benefits of home ownership.

If you want to see a traditional view on winners vs. losers in the housing market, take a look at this story from CNN Money:

Buy vs. rent: These days, buying wins - May. 13, 2011

Either way- buy or rent, contact me if you ever want to learn more about sharing the benefits of real estate.

Transaction #18 of 52 in 2011: We Sell a Property and Take a Long-Term Interest

Clear Day never wants to sell real estate. Our goal is to have long-term real estate holdings that will bring us income for the next 30 years or more.

Once in a while, we decide that the best opportunity is to sell properties- but we STILL want to have a long-term interest even after we sell. Here is the scenario:

We foreclosed on a property that had one (1) lot with two (2) houses. The first house was a 2 bedroom / 1 bath with a 1-car garage. The second house was a 1 bedroom / 1 bath with off-street parking. Based on rents, the house was worth about $120,000. The problem? Banks won't lend on rent-based appraisals anymore. They will only lend on sold comparable properties.

The real estate investor that had repaired the property had tried to sell it for $120,000 unsuccessfully. The problem? People wanted the property, but appraisals were coming in much lower than justified by rents OR the square footage of the two properties combined. Why? Because the appraisers only county the larger property as "regular" square foot value. The second, smaller house was only counted as an "extra" building- like a shed!

Why was it a shed? Because those are the rules! No further explanation given by the appraiser.

So when we were approached by an investor who liked the property because of the great cash flow, we sold it to him at a slight discount to full price. He received what he wanted- growth, profits, income, tax benefits, and amortization.

We sold it at a discount because he was willing to lease the property back to us and share the cash flow, growth, and amortization. We received what we wanted: a long-term position in the property that gives us ongoing cash-flow from rents and property management as well as long-term profits when the house sells at a much higher price than we can sell it right now.

Here are the approximate numbers:

Income-based property value : $120,000

Sale price to investor : $110,000

Monthly rent : $ 1,300

Monthly property management : $ 130

Quarterly Additional Cash Flow : $ 200

Right now we are lining up more properties for more investors to work with us and share growth, equity, and cash flow. Interested? Let me know.

Why You Need a Good System to Screen Tenants

The title of this article says it all. If you own investment real estate, be prepared for knots in you stomach when you read this.

Lesson: Careful screening of tenants is NOT an option! The only thing more expensive than a vacancy is a non-paying tenant.

NJ.com : Carter: Landlords say Newark man refuses to pay rent, trashes apartments, then ties them up in court

What's the longest someone has squatted in one of your properties?

Now is the Time to Use Your Credit to Invest

We are working with several credit partner investors to get them investment property loans for under 6%

Fixed mortgage rates drops for 7th straight week | The Salt Lake Tribune

Talk to other investors, friends and neighbors and then buy or refinance with great long-term loans.

Transaction #15 of 52 in 2011- Duplex Contract Sale

Sometimes we sell properties on contract to people who want to own a home but cannot get credit from a bank. We sell it to them and then give them 2-4 years to get their credit put into shape and re-finance with traditional financing.

For this transaction, we sold a great duplex on contract to a couple new to real estate investing but have no cash or real estate investing experience. What they do have is GREAT credit. So we sold them the property with the agreement that they will take out immediate financing from a local credit union that will do a 50% LTV (loan to value) home equity line of credit (HELOC.) We will carry-back the balance of the sale price as a note.

Since the buyer has no property management experience we brought in The Equity Growth Group, a property management company that has experience with multi-family properties. They will master lease the property and sub-lease it to tenants.

This is a real win-win-win. Clear Day Capital gets a full price sale that gets us cashed out and leaves us with a note that gives us monthly income. The new investor couple gets monthly cash flow, property value growth, amortization of their loan, and deprecation tax benefits. The Equity Growth Groups receives the joy (and compensation) of management.

This type of a transaction really works great for a new real estate investors who have good credit. It protects them from a lot of the pitfalls of finding, rehabilitating, and managing the property. It gives them two experienced real estate investment companies to work with and learn from.

Are you a new investor or thinking about investing? Do you want to learn and reduce your risk? Then give me a call at 801.510.3566 and we'll talk some more about this transaction and what you want to accomplish with real estate investing.

Video Blog of Transaction #14 of 52 in 2011- Before (After in a Month or So)

I asked on Facebook if people prefer video or written blog postings. The answers were mixed so I decided to do both! This is our transaction #14 of 52 in 2011:

We usually don't buy this kind of property, but we needed to salvage a loan that we did so we ended up owning this property at 2053 Adams in Ogden, UT. Drop buy and visit some time if you want to see a rehab in progress (April 5, 2011 until about May 1, 2011.)

It needs a new roof and we need to create a bedroom. Right now it is just a really big studio. We met a next door neighbor today and he had a huge smile on his face when we said "yes" to his question "Are you going to fix-up that place?" It has been vacant for at least four years. How do we know? It didn't have water for the last four years!

You can see why it was condemned for destruction by the city. It's ugly from the outside and there are no bedrooms on the inside! We will spend $18,000 - 20,000 on clean-up, fix-up, and curb appeal. We will have less than $50,000 total investment and a $700 a month rent by the time we are done.

Come back in about 3-4 weeks and I'll have the "after" video ready for viewing.

Transaction #11 of 52 in 2011- Another House

When we purchased our first sub-$40,000 property we were really happy and surprised that we could purchase a house so inexpensively and with so little repairs needed. (This was in November 2010 when we purchased a house for $23,900 put $4,000 in repairs into it and rented it immediately for $695/month.)

Now buying houses for under 50% LTV is common and we are purchasing duplexes for under $50,000! So #11 was the purchase of a single family home for $49,500. It needs about $7,000 in repairs. When we are done it will be worth about $99,000 and we will rent it for about $950 per month.

We are now talking to several investors interested in loaning us money for 5-10 years as a first position mortgage holder. They'll earn 8-10% on their money, maybe more!

Transaction #9 of 52 in 2011

We just completed our 9th transaction of the year. Fairly strait-forward: a single family home in Ogden. Why did we buy it? Cash flow.

The house is a solid, no-frills property in a good neighborhood. It will cash flow:

$900 Rent

- 90 Management

- 45 Vacancy Reserve

- 45 Repair Reserve

- 38 Insurance

- 33 Taxes

$649 Cash Before Mortgage

We will find a private mortgage and pay 7-8% to someone for 10 years or more. They will get a first position lien against the property and a payment of $500 - $550 per month.

Everyone wins! Obviously we win. So does:

• The City of Ogden: A rehabbed property
• The Tenant: They have a great place to live
• The Private Mortgage Holder: Secured, reliable income for a long, long time
• The Local Economy: $7,500 in repair costs for materials and labor and $1,000 in closing fees

Would you like to be a part of one of our transactions this year? Let me know at 801.510.3566. We are always looking for people to participate in our projects. There are lots of ways to win and we enjoy working with new people.

Look for transaction #10 by next week!

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.

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!

Small Commercial Projects

Clear Day Capital has traditionally focused on single family homes in northern Utah. Recently we were approached by a borrower who has done a great job on a couple of projects and he asked us if we wanted to become an equity partner with him on a commercial loan.

It is a fairly small project- under $200,000. The building was a shell that would need to be built-out and tenants put in. Here is the interesting part: projected rents over $3,200 per month. Hmmm..... have you seen the rents on a $100,000 house? Let's be generous and call it $1,000 per month. So two $100,000 houses would bring in $2,000 per month, right?

So if we do the math, this project would bring in 50% more rent for every dollar of capital invested. This sounded so interesting that we decided to fund the project. Sure enough the build-out took less than $200,000 in capital and rents are over $3,200.

Nice....