It is safe to say that real estate is hot once again. Unfortunately this new hot market is only available to professional real estate investors and very savvy borrowers.   Foreclosures have become the latest and greatest in most market places. Deals on homes can be as low as fifty cents on the dollar, but most come with some form of time restraint and quick decisions need to be made.

There are number of ways to finance your fix and flip, short term hold or long term rental, and when it comes to purchasing a foreclosure it is good to know your options.

If you are buying a foreclosure that needs minimum repairs there are only really two good options, self finance or hard money. Generally the trustee sale or auction wants their money quick. Because of this conventional financing becomes nearly impossible. Depending on where you buy, there is usually just a few days to deliver a check for the full amount on your foreclosure. This is where hard money or private money is best utilized. It can be difficult to find these lenders, but if you work with the right Realtor they should be able to give you a couple of names. And please call at least two different hard money lenders to compare COST, interest rate and terms.

If you have a foreclosure that need major repairs there are a number of options to look at. If you can determined the scale of repairs most hard money lenders will lend you the money to include the cost of the repairs. Depending on the situation, one may be able to use conventional financing and cash out on the property to make the property more attractive for a renter or long term hold. Generally refinancing any foreclosure out of hard money should mean that you intend to hold the property 6-12 months or more. The cost of refinancing can out way the benefits, so pay close attentions to the closing cost.

Get in Foreclosure Shape:

1. Know how your local foreclosure process works.
2. Know the Realtors, wholesalers and hard money lender that work with foreclosures every day.
3. Line up Financing – both hard money and conventional.
4. Try to buy a foreclosure in an area you know.
5. Know the rental market ahead of time, prepare for worst case.

Do not be afraid to invest in real estate during one of the lowest price points of the last 10 years. There are a number of deals out there, but time is not on your side when you’re buying foreclosures.

Troy Schuricht

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Tags: buying foreclosure, Financing Real Estate, foreclosure, hard money, hard money lender, hard money loan, HML, real estate investing, real estate investor, rehab

Why use a Construction Loan?

Building your dream home or rehabbing your investment properties, though exciting, may present many challenges. Although you may be familiar with the traditional mortgage process, a construction loan includes additional elements of risk. In a typical construction project, the contractor will request funds when work is completed. Many times a homeowner will build their dream home without the use of financial institution funds. There are various ways to pay your contractor, many people feel they should pay cash, use a home equity line of credit from another property or cash out an investment.

This presents unique challenges for the homeowner. The homeowner must manage the additional responsibility of ensuring all subcontractors and suppliers are paid in a timely fashion. The homeowner must also understand the statutory documentation requirements in their state. If the draw process is not properly managed and the contractor does not pay the subcontractors and suppliers, the homeowner may be subject to mechanics liens. To mitigate your risk throughout the fund control process, consider the benefits of a construction loan and the process. The construction process is a complicated one and the construction draw process will ensure all subcontractors and suppliers are paid so that you don’t have to pay the bill twice.

A construction loan is a check and balance of the funds that are dispersed throughout the build of a new home. With the help of the lender(s), inspectors and draw processing staff your funds are reasonable protected.

Understanding the Costs Involved
As you begin the process of building a new home, you’ll want to understand the costs associated with your construction and permanent loans. You’ll also need to know when the expenses occur so that you can prepare an accurate budget.

• You can begin construction with as little as a 10% down payment or 10% equity in the total cost to acquire your lot and build your new home. If you don’t own your lot, the first draw of your construction loan may be used to pay off your lot. There are instances that a borrower will not be required to have any money down.
• The interest rate on your construction loan is typically tied to the Prime Rate. You will be billed monthly for interest only, and your payments will be based on the current balance of it at the current interest rate for the previous 30 days. Borrowers can build in an interest reserve account to pay the interest payment during construction.
• When you finish building your new home, we will modify your construction loan to a permanent loan of your choice. Various options for locking in your rate are available depending on the product selected.

Total Project Costs
This is the cost to complete the home and consists of soft costs, hard costs, land value, closing costs, contingency and interest reserves.

• Soft costs: Permit fees, engineering fees, architectural fees and other costs associated with building the home but not directly a part of the actual construction costs. Many times the borrower has already paid some of these costs. To consider these paid items as “equity,” the borrower must document the cost with a bill and a canceled check or a paid receipt.
• Hard costs: The actual cost of construction covering all materials and labor associated with the building of the home. Typically the borrower will enter into a contract with a contractor to build the property. Like a purchase contract for an existing home, this contract will set forth the work to be done and the costs associated with that work. All contracts must be for a fixed price; “Cost Plus” contracts are not acceptable. To support this cost, we require a signed and dated copy of the contract along with a detailed Line Item Cost Breakdown prepared by the contractor. All contracts and budgets must be reviewed by, and contain terms acceptable, to standard lending guidelines.
• Closing Costs: Costs associated with the closing of the loan (e.g., title costs, loan fees, discount fees, inspection fees, appraisals, etc.)
• Contingency: In certain circumstances a reserve account will be needed to cover unforeseen cost overruns in the construction of the home. A required 5% of the hard costs will be established in the Contingency Account (Contractors may hold a reserve other than what usually required by the Lender.)
• Interest Reserve: At loan closing, an account is established to pay the estimated interest costs during the construction of the home. Since the borrower is only charged interest on the amount of funds disbursed, an estimate of the average disbursed amount is made. Our construction specialists will estimate that, on average, 60% of the loan amount will be disbursed during the term of the construction period. This interest reserve account is paid up front and is held to pay the interest during the time of construction.

Tags: construction loan, Flipping Houses, hard money, HML, loan, mortgage, real estate, real estate investing, rehab loan

If I could just take a few moments and vent about my frustrations with real estate investors who do not follow formulas and do not stick with systems. Sheesh! If it isn’t one bad deal working it’s three bad deals working. Are times that bad that you have to reach for a good deal? NO! Are times that bad that you need to cut corners to make the deal favorable? It is never that bad. Have real estate investors forgotten their original high standards? Maybe so. I know one thing though, Investorino has lost its mind this month.

For those that don’t know me very well, I like free and clear investment structuring. My mentor has given me more than enough incite on how to creatively purchase free and clear real estate. So I have a very hard time seeing and believing the types of deals that are pieced together as though no rod of measurement is being used at all. Well, the name of the game in free and clear is that if the seller has time you have money and if the seller doesn’t have any time you don’t have any money (or much even) to give them. You can certainly pay upwards of 100% of a property’s value today, but the only catch is that price is going to be paid in one lump sum way later or paid over the course of time with agreeable terms.

So Investorino is strapped for cash. NO PROBLEM, because he’s got a great relationships with private lenders. He sees a killer free and clear property that is worth maybe $145,000.00, and it is time to do something a little creative. The subject property needed about $30,000.00 in repairs, so Investorino came up with a special big money down, monthly payment, schematic that the seller seemed to be fond of. The terms of the purchase were $40,000.00 to the seller at the transfer of title and 95 monthly payments of $1000.00. Target rent on houses within the subdivision with the same specs was approximately $1400.00 per month.

Does everyone see the cash flow?
Yes. Now let me show you a magic trick. I can show you how to make cash flow disappear (not that you really wanted to learn anyway). Investorino is going to solicit private funds for $85,000.00 to be disbursed as follows: $55,000.00 is to be made available for the jumbo pay at the title transfer for $40,000.00, to take care of any of the closing costs, and undoubtedly put some aside as a small reserve for the $1000.00 per month payments. $30,000.00 was to be used for the repairs.

Now if you think the bank was tough; check out these terms.
12% interest only on a year term with 5 points upfront and a 2 point renewal after each 365 days. Because Investorino didn’t want guarantee the deal with a partner or personally, the private lender decided that he wouldn’t provide the $30,000.00 in cash for the repairs and would like to see the finished project prior to submitting those additional monies. Uh-oh.

So now Investorino has to pay an additional $550.00 per month on a non-occupied property that needs $30,000.00 in work. Did you see it disappear…the cash flow? I did. Oh wait! Where is the $30,000.00 going to come from? Remember the property was free and clear of all mortgages and liens. The sellers will be in first position with the outstanding balance of $95,000.00, the private lender will then be in 2nd position with the $55,000.00 loan, and now there may be a 3rd mortgage needed to see this deal to the end. So this transaction is yielding about $5,700.00 to Investorino at the transfer of title. That amount is certainly not enough to get the ball rolling a the repairs.

Ending A: $30,000.00 magically appears in his account from an anonymous donor and the work is completed. Now the private lender will pay $30,000.00 to Investorino on which he will then pay an additional $300.00 per month for the adjustment in the loan amount. BOO! So now we are at $1850.00 in outward payments. Keep in mind that the market rent is based on those properties in rental condition and we can assume that this one is not. So now instead of losing $150.00 if he would have put a person in the property in its condition, he loses $450.00 per month because of the post-rehab disbursement. I told you it was magic.

Please be careful. This is about staying on the course and sticking to the formulas. Private lenders throw the formulas off all day long. Account for it and make a true adjustment in your purchase activity.

Blessings to your Real Estate Investing Success,

Milton B. Yates

Tags: creative real estate, hard money, learn real estate investing, private lenders, private money, real estate, real estate investing, real-estate-deals

You’ve been hunting for that perfect rehab deal like a Neanderthal stalking a mighty Mastodon. You’re sure you’ve found it. The after repair value and renovation costs will allow for a hefty profit. You should even be able to set a price that will result in a quick sale when the rehab is complete. There is only one teensy-weenie thing left to do – find the money to make the purchase of the property.

Back in the ancient, olden times (early 2007) it was fairly easy. You would seek out a hard-money rehab lender. Sure, the terms were steep, but the financing cost was built into the equation. As long as the numbers penciled out you could get funded. It was even pretty common to include the cost of purchase and repairs and have the interest financed right into the deal. If you did it right you didn’t need much, if any, of your own money.

Things Ain’t What They Used To Be

Here we are a short time later and the easy money is gone. Rehab loans can still be had, but things sure are different. A novice rehabber has little hope of obtaining financing at all. The experienced rehabber is facing a lending environment that has changed dramatically. No money down? Forget it. All costs rolled in? Fat chance. All repair costs included? In your dreams. These days the lenders want you to have significant skin in the game.

It’s hard to blame the lenders. They have been burned so often in the recent past that they had to change the rules. While it is easy to say that they had no one to blame but themselves, you can’t fault them for adjusting to the realities of a changing market. The rehabber has to adjust as well, unless he is going to pack up his tent and go home until things change.

What’s a Rehabber To Do?

It’s more important than ever to seek creative ways to fund a deal. If you have equity in your own home, try using a Home Equity Line of Credit, or HELOC. Lately many banks have been reducing the credit limits on existing HELOCs, so be careful there. The advantage of HELOCs are that you are a cash buyer, you can use the money as needed for the deal and repairs, and when you pay it back it is there to use again.

Can’t use a HELOC? Look for owners who are willing to hold a short-term note while you complete the rehab. A friend of mine made an offer on a house with no money down, the owner holding a note for two years and payments deferred for six months while he completed the rehab. The seller accepted the terms without a fight. It can be done.

Learn about “subject to” deals where the existing financing remains in place. This allows you to buy a property without have to obtain financing. If the seller still has equity in the property, ask him to defer taking his share until you complete the rehab and sell the property. When people are in desperate need of selling a property, they will agree to all sorts of crazy terms. Try it, you’ll like it.

Creativity Is Key

The point is to look for alternative ways of making deals happen. Instead of thinking, “it can’t be done”, ask yourself, “how can I do it?” In a nutshell, think outside the box. These are challenging times. Those who rise to the challenge will succeed.

Tags: creative finacing, financing, hard money, heloc, home, lender, property, real estate, real estate investing, rehab, Rehabbing

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