Negotiating the terms of your loan can be as important as negotiating the sales price of your new investment property. Interest rates and closing cost a huge part of cash flow and return on investment, with the proper due diligent and negotiations, investors can be rewarded on every real estate transaction.

What can actually be negotiated?

Closing costs and interest rates are probably the first thing investors try to negotiate, but there are others like, time, appraisal and title, volume discounts and pre-payment penalties.

Some investors have lots of money, but very little time, ask about streamline refinance and purchase transactions. They may require more money down, but less documentation and are very quick loans to complete. In some instances it can take half the time as a normal loan.

Just about everyone in real estate is looking for business. Appraisers and Title Companies are no different. I personally have renegotiated my fees with all the vendors I utilize and in turn passed that saving to my investors. Rates have been so good the last few months I had to reduce the cost of refinancing so my investors can break even quicker on their refinance costs.

I am a firm believer in building your power team, remember a loan officer should be part of your team, and ask for discounts only if you can offset that with volume or multiple transactions. Most investors realize that a good relationship with their loan officer usually saves either time or money, sometimes both.

Those investors that are holding on to the property long term ask if there is a prepayment penalty that will help lower your interest rate. Three year prepayment penalties are common on the right loan and could reduce the interest rate .5%-.75%. This is a situation you should have a clear exit strategy. If you try to sell or refinance before the penalty is expired, it could cost you up to six months interest.

Remember, there more than one way to save money in real estate and there is no reason you should not use all of them.

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Tags: closing, closing costs, escrow, Interest Rates, Investor Loans, loan, mortgage, real estate, title, troy schuricht

If you are averse to paper work, formal agreements and legalese, get over it. You can’t avoid it and it’s vitally important. Think of your contract as a big safe to protect your huge amount of valuables. The subject here will be the contract – I’ll circle back in later posts to cover the specific actions of due diligence leading up to the contract.

I’ll assume you’ve started your due diligence pre-contract. You’ve estimated the value of the property you’ve chosen, you’ve done the groundwork for financing, schmoozing with a lender after the way was cleared through recommendations from connected friends and associates, you’ve settled on an area you’re comfortable with and an investment you can handle, you’ve sent the Letter of Intent to the owner and broad strokes are agreed to, and now you’re ready to put it all in a contract.

Don’t do this alone, especially not your first time. Use a real estate broker or an attorney. Contracts are fairly simple at first glance, but they can get complicated. You want to make sure you have everything covered and two minds are better than one, more so when one of the minds is experienced at this sort of thing.

The attorney or title company will ensure there are no title problems; however there may be hidden liens, so it’s always wise to speak with your attorney about insurance to cover the title. Most of the language will be built into a standard contract. You will have to decide things like time of closing, length of due diligence period, who pays for surveys, what type of financing, and such, and then there are special stipulations. Special stipulations are agreements between the parties not written into the body of the contract or language added to strengthen and clarify what’s in the contract or what’s been verbally agreed upon, such as what is excluded or included with the property. You might have met with the owner and talked about, say, certain equipment remaining with a building that will be used as a restaurant. Don’t rely on verbal agreements, make sure it’s written down and part of the contract.

When deciding on the due diligence period to be established in the contract, try to add time to your estimate to take delays into account, make sure you specify the days of the period are workdays and place a special stipulation that extensions are allowed if you can’t schedule all inspections within the period or if one inspection uncovers something that calls for a special inspection, such as signs of structural damage that would require a structural engineer to inspect an write a structural report.

Read the whole contract and understand it. Too many times people assume something is in the contract that upon further close inspection is not outlined clearly. Make sure if something important to you is not clearly stated in the contract that it’s spelled out clearly in special stipulations.

While most deals run smoothly, there are so many variables that it’s easy to find yourself in a misunderstanding that can kill a deal, waste your money or, worse, wind up in court. Take it from someone who knows, a tight, comprehensive contract is your best investment partner and guardian angel. You may have to amend the contract, so make sure you understand what the contract says about amendments and notices. They need to be in writing but how are they are delivered? By email? By phone? Fax? Hand delivered? By hoseback? Make sure you know what the contract says because you are agreeing to abide by it.

It’s also important to establish in the contract any representation. If you are being represented by an agent, make sure you have a representation agreement between you and the agent and that it’s clear in the contract. A listing agent you may have been dealing with represents the seller, even if they have been helpful to you and are really, really nice – unless you’ve signed a separate agreement where the agent is working as a dual agent (I don’t recommend this). This can get confusing if you’re not familiar with real estate agency representation, so I will explain this further in another post, but remember that the agent involved in the deal, if an agent is involved, is representing the interests of the seller if you have no agreement with the agent. If you are going to go through an agent it is best to have your own agent who is representing your interests.

Tags: agreement, contract, deal, due-diligence, escrow, real estate agent, real estate contract, real estate investing, realtor, title

Upon signing the agreement of sale in most residential real estate transactions, the buyer pays an “earnest money deposit”, which signifies his intention to purchase the property. Typically, the earnest money deposit is held in the escrow account of the listing broker (who represents the seller) and is applied toward the buyer’s down payment and closing costs at settlement.

Know Your Rights!

The parties to any residential transaction, including the brokers, should be aware of the rules and responsibilities that surround any deposit monies that are being held in escrow—the laws vary from state to state, so it is imperative that you familiarize yourself with the laws of the state that govern your particular transaction. Using the Commonwealth of Pennsylvania as an example, a broker receiving money that belongs to another must deposit that money in an escrow account by the end of the next business day following its receipt. This duty can’t be waived and it can’t be altered by agreement between the buyer and seller or by the brokers to the transaction. Although the law is clear as to the course of action a broker must take upon receiving monies belonging to a third party, the law does not dictate who must hold the funds in escrow. Therefore, it is up to the parties to come to an agreement on who will hold the escrow; some examples include the broker for the seller, broker for the buyer, attorney for the buyer, attorney for the seller, builder, or bank. It should be stated either in the agreement of sale or by way of an addendum who will hold the deposit monies. In Pennsylvania, the standard Agreement of Sale contains a default provision, which states that unless agreed upon otherwise the listing broker holds the deposit monies until closing.

The buyer, seller and brokers should be aware of the fact that many third parties, such as a title company or bank, will require the execution of an “Escrow Agreement” as a condition of holding funds. The Escrow Agreement usually states the amount of money being held, the terms and conditions that must be met prior to the release of the funds, and a disclaimer of any liability in the event that the escrow holder releases funds upon a good faith reliance on documentation submitted by an authorized party. Further, both buyer and seller need to understand that just because the deal falls through doesn’t necessarily mean that the deposit money goes to them.

Since the deposit monies are being held in trust, both buyer and seller must agree as to the disposition of the funds before the escrow holder will release it. In most states, the escrow holder can only release funds if there is a written release executed by buyer and seller, if a settlement takes place, or by court order. Therefore, if a dispute has arisen between buyer and seller, the parties would be wise to work out some sort of agreement with respect to the escrowed funds otherwise the monies will remain tied up.

Whether you are the buyer, seller or broker involved in a residential transaction, you need to know what will happen with any deposit monies, so here’s a quick review:

1. Know the laws in your state dealing with escrowed funds- Who is authorized to hold funds in escrow? What are the escrow holder’s responsibilities? If there is a dispute between buyer and seller, what happens to the funds?
2. Identify the escrow holder in your agreement of sale or by way of addendum
3. If there is an escrow agreement, it should be reviewed by all parties. If you don’t agree to its terms, don’t sign it!

Tags: buyer, escrow, real estate, real estate attorney, Real Estate Law, seller, title

I closed on an investment house in February this year. I was scheduled to close at 4:30pm on a Friday. When it reached 8:00pm and I still had not signed, I told the escrow agent to call me when she “got it right.” The following Monday, I went in after the mess had been cleared up and signed.
The purpose of this article is to show how valuable real estate attorney’s are to investors.

A wholesaler friend called me in January and told me he had a house that I should look at. I looked at it and told him I wanted it. He had it under contract so we decided to just have him assign it to me. I did what I had to on my side by pulling the comps, securing the hard money and was ready to close when the seller was.

The terms with the hard money lender was up to 18 months, 14% annual interest and 4 points. As long as the total LTV is under 70%, the points can be rolled into the note (meaning I didn’t have to pay 4% of the loan up front).

So why was I at the closing table nearly 3 and a half hours and end up not signing?
In my opinion, it was a poor escrow agent.

I was there with a friend of mine, my wholesaler friend, his partner and the escrow agent.
I kept looking over the HUD-1 and kept telling everyone that the numbers were wrong. Just about everyone there took a turn with trying to explain it and all of us ended up more confused.

You see, the escrow agent had it on the HUD-1 that the loan was for $78,500 and I was supposed to bring $3,500 to the table. The $3,500 was the 4 points for the hard money loan. “No, the purchase price is $75,000 and the $3,500 was for the 4 points plus a few fee’s.” The total amount of the loan was $78,500 and that included.

“No” the escrow agent said again. “You need to have $3,500.”
I finally called the hard money lender and he explained it to the escrow agent. She said she understood but once she got off the phone, she told all of us that he was wrong.

With a disgusted tone, she said, “Look, I am only going to explain this ONE LAST TIME!”
I started to laugh and turned to the others and said, “Okay guys, listen up… This is where she explains legalized theft.”

Everyone except the escrow agent laughed and she went on to go over the HUD-1 again. I got up and that is when I said to call me when she “got it right” and went home.

I called the hard money lender Monday morning and he told me that he had called the title company and everything was cleared up. I went back in to sign and the escrow agent was very quiet and never once looked me in the eyes.

The end result was I signed a HUD-1 with the total loan amount being $78,500 and I did not have to bring the $3,500 as I was told on Friday.

The escrow agent was trying to double-dip me on the points. Don’t get me wrong, I am not saying she did it on purpose. I am saying that she thought that was the way it was supposed to be and everyone else was wrong.

After that mess, I called a real estate lawyer friend of mine and told him what had happened. He got a laugh out of it and said that sort of thing is so easy to avoid. He suggested I bring him along the next time I go to the closing table.

Recently I went to a closing (with a different title company) and took my lawyer with me.
It was amusing because he approached it as though he was a defense attorney and I was his client. I was to sit and not say anything unless he said to.

I didn’t say anything but I have to admit that I had a huge smirk on my face during the time I was there. Why shouldn’t I have had a smirk? It was amusing to watch. He was all over the escrow agent. I kind of felt bad for her because I thought she was doing her job fairly well but the lawyer kept at her, having her explain how she came up with the figures she was showing. The closing didn’t last that long and the lawyer ended up catching several errors that would have cost me around a thousand dollars.

The point I am trying to make is just because someone is a professional (escrow agent), it doesn’t mean that they are a “good” professional. In fact, what makes someone a professional is they make money at what they do.

There is a difference between the NFL’s MVP and the worst player on the worst team in the league. They are both professionals in the NFL but the difference in talent is not comparable. The same is true in real estate. I consider myself good at what I do but I can’t say that I am talented enough to tell everyone else how to do their job.

So protect yourself when it counts and have a good real estate attorney review your deals, documents and go with you to your closings. It’s worth it.

As I say in my classes, “You never realize how much you love lawyers… Until you need one.”

Tags: closing, escrow, hard money, law, loan, real estate, real estate lawyer