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.

Transaction #19 of 52 in 2011: We Borrow Private Funds

Private financing creates wins:

1. We win by having someone we can work with. Not a bank, but a real person that we can talk to about our project, show them our property and work out terms.

2. The private lender wins from much higher interest rates than banks are offering and the securing of a first position trust dead.

We Borrow $45,000 Against a $90,000 House

That right, a 50% loan to value. We borrowed it from a financial friend that we new for over two years before we did our first transaction.

Now that we've done our first transaction, we expect to pay him back soon. When that happens, he said he'd be happy to re-lend it to us for another project!

Does anyone you know what to lend money secured by rental real estate? Let me know!

Transaction #4 of 52 in 2011: Success! Contract Buyers Refinance with the Bank

All too often, people who "rent to own" or "lease option" or "buy with owner financing" never complete the transaction- they never own the house.

At Clear Day, our goal is for every person who inters into a "creative financing" purchase with us to complete the purchase so they can enjoy the benefits of ownership that they desire. With Clear Day, the buyer has all of the control- it is up to them to complete the purchase, yet at the same time we are willing to do what it takes to help them complete the purchase, if it is reasonable and legal and a win-win solution.

A Couple Purchases a House FIVE Years Sooner than Planned!

So transaction #4 (yes, this is out of order!) revolved around a couple that purchased a house from us in July of 2010. She had mid-500's credit scores and he had NO credit score! They had been through bankruptcy and he never applied for new credit.

The couple and Clear Day met with a credit repair specialist and he gave us the opinion that they were only six months from having the needed credit to get bank financing. They were stunned! They had been told that it took seven years to qualify for a bank loan and here they were looking at year three and qualifying.

We moved ahead with the sale and they purchased it for about $2,000 more than it later appraised for. The couple immediately started to repair their credit.

Eighth Short Months Later

It did not take six months, it took eight months to get a bank loan. That is still almost 4 1/2 years sooner than they anticipated. The refinancing lowered their interest rate significantly and their monthly payment went down almost $200 per month.

There was one challenge when they refinanced: Their credit scores were about 20 points to low because their debt was about $500 too high. The credit repair coach / mortgage broker said it would take another 1-2 years to get their credit up if they just made monthly payments. Solution? Clear Day lent them another $500 that they used to pay their credit card. Result: Their credit scores went up and they qualified for the loan.

They are happy in their new home. They are happy to have a low-interest, fixed-rate 30-year loan. They are happy with Clear Day to make their purchase and refinance happen.

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.

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.

Transaction 17 of 52 in 2011: I "Broker" a Loan

More transactions! More deals! More fun!

I help Shawn Watkins of Investors Workshops find some short-term money when a buyer was delayed coming in with funds. So I called a financial friend who had never lent money short-term and asked him if he was interested.

His first reaction was "no," not interested at all.

Second reaction was, "maybe depending on the numbers, please send them to me."

Third reaction was, "this sounds good. I'll probably do it after I review the numbers."

The numbers looked good. $20,000 short-term that would come from an equity line at a low-interest cost to the lender secured by a second dead of trust against the subject property.

The money came in two days later. Shawn closed the transaction. Funds paid back as promised. Our financial friend is ready to do the next one.

Transaction #2 of 52 in 2011: We Do a Simple Loan, With a Surprise Ending

Clear Day Capital started business in 2006 as a lender to real estate investors. As the investment real estate environment changed, so did Clear Day Capital's business. Over the last two years we significantly increased the qualifications of our borrowers.

When a repeat borrower called in early January and told us he needed a loan for $20,000 that could be leaned in first position against three separate single family homes, we said yes. He was reliable, the properties needed repairs but he had a plan for rehab, and the land for one property alone was worth the total amount of the loan.

THE FIRST SURPRISE

The borrower contact us a couple of weeks later. The contractor who was scheduled to bring in the fix-up funds and do the work was no where to be found. Did we have additional funds to loan?

Sometimes we say "yes" to lending more money. In this case, there were several challenges that made us think twice about about lending more money. First, these houses are in locations where we wouldn't normally invest. Second, the two of the three houses where in much worse shape than we normally rehabilitate. Last, the quality of the houses were much lower than we normally invest in (less than three bedrooms, and really small lots.)

So... the answer was "no" to fix-up funds.

THE SECOND SURPRISE

About a week later, the investor came back to us with an update: All three houses were scheduled for destruction by Ogden City. They had been vacant for over four years and destruction was imminent. Without new funds, the best we could hope for was three vacant lots with liens from the city to pay for destruction and scrap removal. Our money would be stuck. Lots aren't selling. Lot's don't bring in rent. Lot's cost money. The liens would be equal to the value of the lots. Lots of problems with lots!

THE SURPRISE ENDING

We decided to take the properties back from the client. We did it as a purchase, without paying cash to the borrower. We took over the note and added additional cash.

To stop the destruction of the properties, Mayor Matthew Godfrey of Ogden Cityrequired us to put funds into an escrow account for each property. We then pulled permits and went to work with our general contractor, Bryan Kawa.

Do you want to read what happened to the properties? Check out my blog posts on Transactions #12-13.

Dead Raccoon- Don't Watch This If You Have a Weak Stomach

You know it's a tough rehab when dead animals start showing up. Take a look if you want to see one of the interesting places an animal can curl up and die.

By the way, this is transaction #13 of 52 in 2011.

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.

Transactions #12-14 of 52 in 2011

Transactions #12-14 are actually directly related to the first transaction of the year. How? Let me explain...

For the first transaction of the year, we lent $25,000 to a real estate investor that we had done business with before. He used the funds to put a down payment onto three properties and the owner carried the balance. One needed light rehab, the other two significant rehab. He told us that he had a contractor lined up and that the contractor would bring in fix-up funds.

Two weeks later he called back. His contractor disappeared. No one to do the work and no fix-up money. What did we want to do? Could we bring in the additional funds? He didn't have the resources. Oh yea, by the way, the city has a demolition order on all three properties and we need to convince Mayor Godfrey to stop the destruction order!

Clear Day Capital was not in a bad position, we had only $25,000 into the project. Worst case, we would have 3 vacant lots. The problem? Demolition is not free and the lots would have liens from the city for the cost of demolition and garbage removal. Lots cost money each year- taxes and insurance. New construction is not something we want to do- rehabs are much easier and less expensive and less time consuming.

We needed to make this a safer, more secure transaction and protect our investment. We wanted to make lemon-aid out of lemons. If we funded our current borrower the LTV would not be good and we would not have control. On the other hand, we didn't want to take the properties back- they did not fit our typical property profile and we didn't want to manage them.

Our original borrower went to our good friends and business associates (Shawn, Angel, and Sarah) at The Equity Growth Group (TEGG.) The borrower knew that they specialize in this type of house. What did they do? They called us since they know that we have capital!

We decided that we would work on this together. To make it safer, Clear Day Holdings purchased the three houses after we got approval from the mayor to delay destruction by 120 days. He required that we put rehab funds into escrow and have a firm bid from a licensed contractor, which we did.

Clear Day Capital provided the additional rehab funds, TEGG provides rehab supervision and property management when the houses are ready to be occupied.

We will be into the three houses about $150,000 total. This is low enough that we will be able to have good cash flow. The key for long-term benefit will be finding private money investors who want to lend us long-term (5-10 years) money and terms that we both win.

Want more details? Send me an e-mail, leave a comment, or give me a call!

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 #10 of 52 in 2011

We closed transaction #10 of 52 on the 16th of March. It was a simple cash purchase of a duplex which was already rented and completely rehabilitated about 4 years ago.

We are selling it this week to an investor who likes the terms we can offer. We take our equity over time, he gets cash flow, tax benefits, growth, and amortization.

This was a quick transaction. The keys were our cash and our purchasers ability to use his credit for partial take-out financing. He will give us our cash back in about 2-3 months and then we'll use it to buy another and do this all over again! Let me know if you want to learn more about how we do this.

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.

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!

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!