Well, pretty much everybody raised their hands at my club meeting last week when I asked this question.   Boy you can’t swing a dead cat around without hitting an investor who is looking for private money these days huh?  To be frank - I’m getting kind of bored hearing so many investors tell me this same problem over and over again.  The scariest part is that some of these investors are brand newbies or they don’t have any deals what-so-ever to offer a private lender.   Come again?

Now I don’t mean to sound so grouchy about this subject, but raising private money is no different than finding deals and finding buyers.  It’s work work work!  When I ask investors what they are doing to “raise private money” I am getting pretty much the same answers… which is not much.   Now call me crazy, but if we aren’t marketing to folks who may have money to lend us - then how do we expect to Raise Private Money?  Or if our only form of “advertising” is going to be real estate meetings where other investors are looking for money too - good luck.  No my friends, this simply won’t do.

The only way that I know of to raise money successfully is to advertise for it.  And by advertising I mean YOU are the advertisement!  Marketing non-stop, all the time, telling everyone you know (outside of your investor world) in some form or another.  Just like you would be doing to buy houses and to find buyers. 

In a nut shell:

1.   Tell everyone you know that you are a real estate investor and tell them about your real estate investing business.  Tell your neighbors, your friends, your family, your Doctors, dentists, lawyers, plumber, every new person you meet… everyone!   When you start with this -people inevitably are going to want to know more about what you do.

When you get to the point when you have a deal or two or five under your belt - then move on to a whole marketing campaign on Raising Private Money.  This is what I do now.  I send out direct marketing to folks ( I bought a list from a list broker) letting them know that I can teach them how to earn 8 - 12% on their money by being a Private Lender.  Just like I do to find sellers of homes.  I send out direct mail saying that I can buy their home.  Just like I am about to do to find buyers - market to them!

2.  Have deals to tell people about!  Duh… this is a no-brainer right?  Well I am surprised when I ask investors if they have deals already in place to offer a private investor and they say No. (Or worse, they are not even currently marketing for deals.)  Wowee Kazowee.   

It is a two fold operation that must be happening at all times.   Talking to everyone you know who might have money - either in the bank, in a 401K, in a pension, stuffed in their mattresses - and getting deals all the time. 

3.  How do you have deals all the time?  Market, market, market.  How can an investor be worried about raising private money if you don’t have deals to talk about?  I hear it all the time… “well I don’t want to find deals if I don’t have the money to buy them”.  This is the wrong attitude all together.  When you have really good deals - you will find the money or the money will find you -period.  Notice that I said - “good deals”.   I have had my own experience of having a hard time finding money for deal or two.  I recognize it was because they weren’t good deals after all!  Just because we know of a property that is for sale - doesn’t mean it’s a deal.  Oy - I get shivers down my spine at the hard lessons learned there…  Rule #1 - know your business!

Now - Raising Private Money is a whole workshop in itself.   But the bottom line is that we must work our real estate investing business all the time.  Finding private money is a lot of work.  But this whole business is a lot of work.  If you want deals - you must work hard to get them.  If you need private money, you must work hard to find the people who might be interested.  If you need buyers - you must work hard to find them.  It’s not brain surgery - but it is hard work.  (Did I mention it is work?)

If we don’t do all of this, all the time, then forgetta ’bout it.   Find another hobby. This business is not for you.

(Again - sorry for being Ms. Grouchy pants right now.  I think that after hearing about 30-40 investors tell me in the last week that they were not really doing any of the above to accomplish their goals for raising private money - I had a moment of OH -SNAP!)

Photo Credit: Refracted Moments™

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Tags: money, private money, real estate, real estate investing, real-estate-finance

All serious real estate investors understand the importance of having a hefty HELOC in their back pocket. At least I think they do or I wouldn’t make that kind of bold statement.

I am in no way intimating having or using a HELOC is the only way to buy property. I’m simply saying it is a very comfortable feeling to have a six figure backdrop you can rely on when that oh so nice property becomes visible on the real estate radar screen.

Unfortunately for me, my hefty HELOC has been reduced to a mere shadow of its former self. It seems my bank decided the value of my home has decreased to the point the equity could no longer support the numbers.

They unilaterally cut it by two-thirds and unfortunately for me, there isn’t a darned thing I can do about it. It seems the original contract gives all the control to the bank and one of those controls is the ability to lower it when they so decide.

I received their letter in the mail earlier this week and its tone was very polite but very harsh. I think you know what I mean without me saying another word.

A Life Raft Full of Passengers…

I would also say I’m not the only one in this boat. You may have had your home equity line of credit downgraded by two-thirds or more as well. The resulting sinking feeling just adds to the frustration, right?

It isn’t the end of the world that is for sure. It only looks like it. Here’s why.

One of the “FAQs” on page 2 of their letter says:

Q. How did you determine the value for my home?
A. We used an automated valuation method commonly used to evaluate the worth of real property. It uses both historical data and projected property values. We believe the valuation of your property is accurate.

On the surface, the answer appears to be vague gibberish. However, I believe their answer is really saying, we think your property is going to continue to slide in value so we limited our risk exposure by downgrading your limit. Taking my thinking one step further, their Q&A is telling me that the so called real estate recovery is farther out then any of us may have imagined/guessed.

I don’t know that for sure. I’m simply reading between the lines of their 2 page letter. I also am factoring in the absolute truth of their ranking in the industry. They always receive the highest marks from their policy holders and investment analysts.

When I encounter a person insured with this company, I never try to move them into another company. They are that good.

Again, I don’t believe I am the only one in this boat. For all I know everyone with a HELOC received the same type of letter from their bank.

By the way, they never bothered to inquire about the balance on my first loan. That also tells me their real message is the market has some stumble still left in it.

Insurance companies shouldn’t be the risk takers in the market…

I won’t fault the bank for lowering my HELOC because they are a subsidiary of the insurance company that insures my cars and my home. I want them to be as solvent as possible with as little risk exposure as possible.

As some of you know, I co-own an insurance agency with my son and AIG is one of the companies we have in our stable. Fortunately for us we only have the life side of their operation.

I say fortunately because if what I’ve read about their risk/leverage exposure is true, they were the highest in the industry. While every other insurance company had a 4 to 1 or 2 to 1 exposure or thereabouts, AIG had an 11 to 1 exposure. This information is directly from The Motley Fool weekly newsletter. The Fool usually doesn’t print bad info so I have to believe their analysis.

I would ask that you please don’t take any of my babblings as me being a cheerleader for the insurance industry as a whole. I see first hand some of the nonsense they can pull on customers so I would never be the insurance industry chamber of commerce (so to speak).

What I am saying is I applaud those companies that actually run a tight a ship as possible in this tumultuous environment. Let’s face facts. All of us have insurance on our cars, homes and investment properties. We want to feel secure that they will actually perform, read pay their claims, should we get hit by an Ike or a Gustav type of event.

Regardless of what kind of financial institution gave you your HELOC be prepared to see it shrink if it hasn’t already. And, if you are like me, and have a HELOC from a bank that is a subsidiary of an insurance company, you may have just been told you have a good insurance company regardless of what I believe is the “hidden” message.

Tags: heloc, real estate, real estate investing, real-estate-finance

With the credit crunch in full swing, investors should start to pay attention the the lending options available to their buyers. 
 Most investors and individuals in the real estate profession already know that it has become difficult to finance properties and with daily changing guidelines it is very hard to predict the future, but lets look into the 2009 crystal ball and see what is coming.

With FHA seller down payment assistance disappearing on Oct. 1 many builders, investors and sellers are faced with fewer clients to buy their home.   This is only big news because a majority of Americans do not like to save and would rather spend.   Now the next generation of home buyers are not prepared to buy a home with a down payment.  While this is not a bad thing long term it certainly is not good for sellers come October.

Suprisingly there are a number of loans that still offer low down payment solutions.

While FHA is the grand daddy starting in 1934 and lending to 34 million homeowners. Since the 70’s the USDA Rural Home Loan Program has been an alternative solution for those that buying and selling homes in the outer lying areas of metro cities.  This program is still funding loans to 100% and if the property and borrower is eligible it is a better program than the old FHA program when comparing interest rate, final payment and closing cost.

Another solution is Portfolio lenders.  This is not the first time I have spoke about these banks.  While nearly impossible to locate by the average person or mortgage broker, these banks go by their own set of rules.  I still see 98% programs that allow the 2% down payment to be gifted by employer or family member.   

The come back kid.  Over the last year and a half the combo loans have became nearly extinct and are now seeing some signs of life.  This could be a major indicator that we are truly at the bottom of the housing cycle.   Combo loans usually have a first mortgage at 80% and then 5-15% in  second loan.  While these loans can not currently go to 100%, having them as a option the avoid the Private Mortgage Insurance companies is a good thing.  Mortgage insurance companies have tighter guidelines than most banks and generally require a mid credit score of 680 to finance above 90%.

While the crystal ball can change its out look tomorrow one thing is for certain.  This is the United States of America, it is a country of individuals that can over come adversity.  Its made up of smart business entrepreneurs that know how to not only be creative, but are willing to except risk.  If you know where to look there are always financing options for your buyers.

Tags: lenders, loan, mortgage, mortgage insurance, portfolio lenders, real-estate-finance

Last week I spoke about why Portfolio Lenders are important to investors, but the bigger question may be how to find them.   

Tracking down a financing source is never an easy task.  Many individuals have no idea where to start so they usually talk to there personal bank first.  While the likes of Wells Fargo, Chase, Bank of America and more are large institution’s and have mortgage services, they generally are not competitive or creative when it comes to investment properties.

So how do you find a local or regional portfolio lender/bank?  

The yellow pages cant help you.  If you called every local bank the employees might not even know the meaning of portfolio lending and you could spend a better part of your day trying to get help.  For those in need of help there are a couple of solutions.

The first one is networking.  If you want to become an investor you must join them.  Find local clubs and associations that support and host networking events for investors.  These events will give you a chance to find out how others are finding outside the box financing solutions.

The second one is your sales team.  If your sales team consists of a Realtor, ask for a referral.   If you are working with a wholesaler, they could have a name, number or source for your needs.

An other good option is a mortgage broker.  Then whole concept for a mortgage broker is to seek out financing options.  There are many mortgage broker that are tremendously successful, not because they have the lowest rates and fees, but because they understand how to carve out a niche and network between several banks, sometimes 100’s of them, to find the financing solution that an investor may need.

A recap:  To find the next best Portfolio Lender you need to network.  Talk to Realtors, wholesalers, mortgage brokers and even other investors. 

Tags: banks, lenders, lending, loans, mortgage, portfolio lenders, real estate, real estate investing, real-estate-finance

Just as a review, buying property “subject to” means buying a property subject to the existing financing.
The seller’s original financing stays in place until either refinanced or sold to a third party. The investor/buyer takes title to the property while leaving the loan in the seller’s name. If we were to take over payments on a property worth $100K and the mortgage payoff is roughly $50K; our offer should be in the $80K range. That leaves a $30K equity payout to the seller. In the perfect world we would love for the seller to agree to accept that $30K when the property is refinanced or sold to a third party.

Assuming that the seller accepted these terms, the seller always is concerned about how they are protected. In these types of transactions we immediately notice that there really isn’t any way to force the investor to make on time payments on a seller’s loan. The seller generally has to trust that the investor/buyer is not going to let the payments go after a few months and leave their credit jacked. The seller realizes that if that happens then their equity payout due is in jeopardy.

So the question is: “How can the seller protect themselves from these types of situations?” The answer on the investor is “we don’t have to take title immediately.”

You may have heard of a Land Installment Contract. There is a pro-seller contract and a pro-buyer contract. In this case you would use a hybrid of the two to give the seller the most amount of comfort possible. In a gist, this agreement transfers the title of the property from the seller into escrow instead of it being transferred to the investor/buyer. Without title to the property the investor/buyer lacks the power of an actual owner and the only way to reap the full benefits of property ownership is to give the seller the equity payout in full via refinance or sale. Sellers love this. And the Land Installment Contract can totally be tailored to the situation. This will definitely help you close some of those home runs that turned sour.

Blessings to Your Real Estate Investing Successes,
Milton B. Yates

Tags: buying property subject to, creative real estate, financing, real estate investing, real-estate-finance, subject to

A great question came up today on the forums, inquiring what the difference was between Return on Investment (ROI) and Cash on Cash Return (CCR). I think the question was answered perfectly here, but I’ll elaborate a bit.

EXAMPLE:
Suppose you buy a house for $100,000 and sell it later for $110,000.

Your return on investment is 10%.
- The 10% is the increase that you see in your TOTAL INVESTMENT (Loan + Down Payment)

If you only put 10% ($10,000) down (we’ll ignore losing costs and commissions here) then your cash on cash return is 100%.
- The return you made on the ACTUAL CASH that you invested in the property is 100% ($10,000 increase on $10,000 cash invested).

If you paid cash in this situation, then CCR and ROI are equal.

If we use a similar example — suppose you buy a house for $100,000 and sell it later for $110,000 but this time you put 20% down on the property. Your return on investment is still 10%, but your CCR is now only 50%.

Tags: cash-on-cash-return, CCR, real estate, real estate investing, Real Estate Investing, real-estate-finance, return-on-investment, ROI