Warning to All Renters: Renting a House Could Cost You A Million Dollars

By Lex Levinrad

The Distressed Real Estate Institute has a report called “Warning to All Renters: Renting a House Could Cost You a Million Dollars!”

The report was based on the findings of a Distressed Real Estate Institute study that looked at data on thousands of single family homes in South Florida. “We looked at historical price data for these houses and completed a market analysis of how a typical first time home buyer could benefit by purchasing one of these houses today instead of renting the same house” said Lex Levinrad Founder of the Distressed Real Estate Institute.

“What we found is that prices have actually declined so much in South Florida over the past few years that in many cases it could actually be cheaper to purchase the house than to rent it” said Levinrad. “Even after accounting for property taxes and insurance in many instances it could still be cheaper to purchase a home than to rent it”. “This is a great time to buy real estate – especially if you are a first time home buyer and you can qualify for an FHA loan” said Levinrad.

The basis of the study was a comparison of the costs of a typical 3 bedroom 2 bathroom South Florida house which would appraise for approximately $100,000. There are houses in this price point in many South Florida Cities especially in Broward County cities like Fort Lauderdale, Pompano Beach, Margate and Deerfield Beach. These houses would typically rent for approximately $1,100 per month and would cost about the same in monthly mortgage payments if they were purchased with an FHA Mortgage Loan. “Our specialty is low priced single family starter homes which are most attractive for renters and first time home buyers” said Levinrad. “We know this market well because we purchase these houses directly from the bank and we often fix them up and then sell them to first time home buyers or renters that are looking for a rent to own home”.

“Many people that are currently renting in this price point have decent credit and could get approved for an FHA Mortgage” said Levinrad. “They simply do not know that they can afford to own their own home and in most cases there is no one that is marketing to them and informing them of this fact”.

The findings of the study indicate that a typical $100,000 house could be worth as much as $1,000,000 by the year 2041. This is when the 30 year FHA mortgage would be paid off assuming that they purchased in 2011. “Owning real estate always pays off in the long term” said Levinrad. “People have very short term memories and ten or twenty years from now they will wish they had purchased a home.  Making the decision to buy a home versus continuing to rent will result in a substantially better retirement” said Levinrad.

“In many cases this will be the only opportunity in their lifetime to purchase South Florida Real Estate at an affordable price where the monthly payment could be the same amount or even less than the equivalent rent. This market crash and foreclosure crisis has created a unique situation where for the first time in many years housing is actually affordable. It is a great time to buy real estate – especially for first time home buyers” said Levinrad.

 

Choosing the Road to Wealth

By Kathy Kennebrook (The Marketing Magic Lady)

More people are becoming millionaires today than ever before in the real estate business. So what makes these wealthy entrepreneurs so different? They chose the road to wealth and real estate as the vehicle to get there.

When choosing the road to wealth, there are some important distinctions that set the truly successful folks apart from everyone else. Some of those include the ability to visualize a specific outcome, pursuit of a dream, constant motion and a relentless determination to reach the goal. Giving up is not an option. Like the saying goes, “Quitters never win; winners never quit!”

I have found in the real estate business that there are two kinds of people, the “doers” and the “wannabes”.  There are truly focused folks who get up every morning with a clear and defined direction who want to make their business work no matter what it takes. They pursue their dream relentlessly and continue to grow on a daily basis, garnering all the education they can along the way to take them even further along in their business.

Then there are the people who go to seminars or buy books and tapes and do absolutely nothing with them once they get them home. I have personally witnessed this over and over again.  They have one excuse after another why they can’t do this business.  For them, the status quo is the easy way in any situation.

I used to be one of those people who did absolutely nothing. I continued to work day after day at a job I hated, and I had every excuse there was for not getting started in the real estate business.  So I can relate. You could say, “I’ve been there, done that.”

There were three main things that held me back:

  1. Lack of focus.
  2. A true desire.
  3. Abundance of fear.

You can absolutely tame all three. I am living proof that you can. The biggest change that occurred for me finally was the desire to succeed.  An even greater desire was to get back all the money I had spent on courses and seminars.  As I always say, “Whatever it takes to make you move forward!”

I discovered there were some very easy ways to get focused and get on track.  One was to define the specific reason I wanted to succeed.  For me it was to get back the money I had already spent on educational materials and to get rid of a job I hated.  At the time, my job entailed being on the road for long periods each week which resulted in my not being home much, something I very much wanted to change.  I spent many years in a “dead-end job” making a lot of money for other people.

For you, it may be putting money away for your kid’s education, taking a trip you’ve always wanted to take or maybe becoming involved in charities you want to support. Whatever that reason is for you, commit it to paper and out loud to those around you. There is nothing I know that will force you to take action more than committing to a goal out loud. Become persistent in the realization of your dream. Use the knowledge you already have and move forward from that point.

Visualize your success!  Every extraordinary, successful person has visualized their success in their mind and then on paper first.  Their dreams were put into action, resulting in a reality of success.  Bottom line, this is the outline of the road to wealth.  Unfortunately, most people get stuck in the “dreams” part of that road to wealth.

Enlist the help of your local real estate club or a mentor to stay on track. If there isn’t a real estate club where you live, contact other investors in your area and form your own group. This is a great way to network and get the support you need. I had a mentor early on in my business and I attended meetings of our local real estate club on a regular basis. I found this to be a great way to stay focused and excited about the real estate business.  I continued to work with other investors in my area who were already doing the business.

If people around you are telling you it won’t work, don’t let them “steal your dreams”. Only you can make the decision to be financially free. I know that lots of my friends and family members thought I was crazy to want to do this business. I’m glad I didn’t listen! Hang around with like-minded people, wherever you can find them. Learn from people more successful than you.  Hang around with people who make more money than you do. Decide what it is you want to do for your business on a daily basis and implement a plan of attack.

Enlist the help and support of your spouse and children or a partner while growing your real estate business. There are lots of things they can do to help and you’ll achieve a feeling of team work which will keep you moving forward. Write a specific list of goals you want to achieve, no matter how small. Set goals for tomorrow, next week, next month, next year. This is one way to create a road map you can follow toward attaining your goals and growing your real estate business.

Do whatever it is you need to do to keep moving in a positive, forward direction. Don’t let the “naysayers” get you down. They just want to keep you where they are. Don’t take advice from anyone who makes less money than you do. You have a right to live the kind of life you want, so be willing to do what it takes to attain it.

Real estate is one of the best ways I know to grow wealth quickly. If you believe you can’t change your attitude about the opportunity to create wealth through real estate, I assure you that you can. You just have to make the decision to choose the road to wealth.

That road to wealth is to stay focused and to never give up.  Success can be yours…today!

For more information on Kathy Kennebrook’s systems for the Real Estate Investor be sure and visit her website at www.marketingmagiclady.com. While you are there be sure and sign up for Kathy’s FREE monthly newsletter and received $149.00 of real estate tools absolutely FREE!!

Florida Land Trusts

By Randy Hughes

Oftentimes I am asked, “Which state should I form my land trust in?” As a continuation of the subject discusses in my last newsletter, you now understand that you do not have to form your land trust in the same state where you live or where the property is located. In fact, there are many benefits to using an “out-of-state” trust to hold title to your investment property. I have covered these benefits in previous newsletters. This newsletter will concentrate on Florida Land Trust Law. In future issues I will explain other major state land trust statutes.

The Florida Land Trust Act, 689.071 covers real and personal property. “Beneficial Interest” means any interest, vested or contingent and regardless of how small or minimal such interest may be, in a land trust which is held by a beneficiary. “Beneficiary” means any person or entity having a beneficial interest in a land trust. A trustee MAY BE a beneficiary of the land trust for which such trustee serves as trustee.

I have talked before about Florida being the only state that I am aware of that will allow the trustee to also be the sole beneficiary (because of the Merging of Interests Doctrine). Other states allow for the trustee to be one of multiple beneficiaries, but not the trustee if she/he is the ONLY beneficiary. Personally, I would NEVER make the trustee and beneficiary one-in-the-same because it defeats the purpose of anonymity of ownership by exposing the beneficiary to public scrutiny.

Personal Property. The Florida Statute goes on to say, “In all cases in which the recorded instrument or the trust agreement, as hereinabove provided, contains a provision defining and declaring the interests of beneficiaries of a land trust to be personal property only, such provision is controlling for all purposes when such determination becomes an issue under the laws or in the courts of this state. IF NO SUCH PERSONAL PROPERTY DESIGNATION APPEARS IN THE RECORDED INSTRUMENT OR IN THE TRUST AGREEMENT, (emphasis added) the interests of the land trust beneficiaries are REAL PROPERTY (emphasis added).

This section of the Florida Statue stresses the fact the if you do not state either in the Deed to Trustee OR the Trust Agreement that the Beneficial Interest is “personal property,” it will be deemed as “real property.” Which is exactly what you do NOT want. I think to make it unmistakably clear, you should put in BOTH the Deed to Trustee AND the Trust Agreement that the Beneficial Interest is personal property!

Land Trust laws are not changed very often for any State, but three years ago Florida amended their Land Trust Statute which effectively made it not possible to sue the Trustee or Beneficiary of a Land Trust. This was a powerful change that made Florida’s Land Trusts even more popular to use. You might consider using a Florida land trust.

I encourage you to learn more by going to my FREE online training at: www.landtrustwebinar.com/411  or text “reasons” to 206-203-2005 for my free booklet, “Reasons to Use a Land Trust.” You can also reach me the old fashion way by calling me at 866-696-7347 (I actually answer my own phone unlike most other businesses in America).

How To Sell A House In A Difficult Market

By Lex Levinrad

Are you having a hard time selling your house in today’s market? As prices have declined and as sellers have become more desperate to sell it has become increasingly difficult to sell a house for fair market value.

More than 50% of the properties that are listed on the MLS are either bank owned properties or short sales. These properties are already substantially discounted for cash buyers. This fact can make selling your property for fair market value extremely challenging.

So what do you do in this type of environment if you want to sell a house? The first thing you need to do is to think outside of the box. If you are doing what everyone else is doing then you are probably going to find it very difficult to sell your house. Why? The reason is because the strategies that worked in a good real estate market will not work in a difficult market.

If you want to learn how to sell a house quickly then the first thing you need to do is review what everyone is doing and why that is not working. So what is everyone else doing? Most sellers are listing their properties with a realtor on the MLS (Multiple Listing Service) and are waiting for a buyer. Why does this strategy not work? This doesn’t work because listings at fair market value do not seem like a great deal to buyers and because it is very difficult for buyers to qualify for conventional financing.

The key to selling a house in a slow market is to do something differently. What you need to do is make your listing so unique, so different to all the other listings that it immediately grabs buyer’s attention. How do you do this? Do the following:

  • Price your property very aggressively i.e. way below all other retail sellers
  • Create an instant buying frenzy for your property by listing aggressively
  • Hold an open house on a Saturday and Sunday
  • Hold an auction for your property the following Saturday at 2 p.m.
  • Advertise your auction online and offline and spend some money marketing
  • Stage your property and make it nicer than all of your competitors
  • Offer to pay all closing costs for the buyers
  • Offer to pay 6% commission to buyers agents even if you are a realtor
  • Offer an incentive such as new appliances to buyers
  • Have a mortgage broker ready to pre qualify buyers on all open house days
  • Be prepared to help contribute towards the down payment for FHA buyers
  • Take a video of the property and post your video on You Tube
  • Make a postlet of your property and place the video into your postlet
  • Create a blog and syndicate your video of your property on your blog
  • Syndicate your video on Facebook, Twitter, Linked in etc.
  • Let the world know that there is going to be an auction for this property
  • Create a buying frenzy even before the auction has begun

If you do all of the above steps then you should be able to easily sell your house quickly. If you purchased a house at a good price from the bank and are selling it for a profit then your goal should be to sell it quickly and move on to the next property. Don’t let greed get in the way of common sense. Book a profit and move on to the next deal.

To your success

Lex

Should I buy my own home first, or rent and buy investment homes?

By Adiel Gorel

A classic question I get when talking to a would-be real estate investor is: “Shouldn’t we buy a home to live in first before buying investment homes?”

The answer, of course, depends on where you live.

When considering owning your own residence, there are various layers of reasoning. Some are logic and numbers-based. Some are emotional, traditional and familial.

Owning your own home can be associated with safety, security, having “arrived”, satisfying family members’ aspirations, the stability of having a (hopefully) permanent place to live, and so on.

Of course, everyone has a different set of emotional considerations when it comes to owning a home.

These vary from person to person and, needless to say, are hard to quantify.

In this article I will address the logical, numbers-based approach to the question of whether to buy your own home as your first real estate move, or rent and buy investment homes instead.

The numbers tell the story

If you are considering buying your own home, the price of the home matters, the rent required to rent that same home matters, the local property taxes matter, the mortgage interest rates matter, dwelling insurance rates matter, and even the new 2018 tax law weighs in.

If you live in a market where property taxes are relatively low (say, between 1 and 1.7 percent of the home price per year), and insurance rates are reasonable, then if you are considering buying a home under about $400,000, that should be a “no brainer” as your first step. Between $400,000 and $500,000 would still be a reasonable range to consider buying the home. In such a market, once you step up to the $500,000 range and above, the math may well start to turn as you climb higher in price, in favor of renting a home in the area in which you live, and owning rental homes in more optimal places.

In markets where the property taxes are high (like in Texas and Oregon), and insurance rates are high (Texas again, for example), the “no brainer” number may shrink to $300,000 or so, while the range above which you may consider renting your own home while buying affordable investment homes in other markets, will likely be $400,000 or above. This is because with high expenses for property tax and insurance, (which as a homeowner you would be paying) the overall numbers and logic “turn the corner” faster.

Certainly, in expensive areas like the San Francisco Bay Area, Los Angeles, San Diego, New York City and others such markets, it is usually far more logical to be a renter, while owning rental properties in affordable markets, where rents are actually quite high as a percentage of the home purchase prices.

Buying homes in expensive markets may not make sense

If you are thinking of buying a home in the San Francisco Bay Area for $1,400,000, for example, and if that same home can be rented for about $4,700 per month (quite typical in 2018), the math is in favor of being a renter living in that house. While $4,700 per month appears to be very high (in absolute terms it is), it is actually very low compared to the purchase price of $1,400,000. While renting the house for $4,700 (and not being responsible for property taxes, dwelling insurance or repairs as a tenant), you might, (in this example) use a similar amount as a 20% down payment on the $1,400,000 home (plus closing and loan costs), to buy about SEVEN rental homes in an affordable market, using 20% down on each – all brand new in good areas, for, say, $180,000 each, in a market with low property taxes and low insurance rates.

Each one of these $180,000 homes will fetch a rent of $1,500 per month. Now that is high rent! (as a percentage of $180,000). Seven such rental homes, requiring a similar total down payment as the $1,400,000 which is rented and not bought, will fetch a gross rent of 7*$1,500 per month = $10,500 per month. That is indeed high rent. And these will be brand new homes which are fully under warranty to boot. In addition, the seven new investment homes can be diversified over a larger geographic area or even over more than one metropolitan area.

Sense of accomplishment and satisfaction in purchasing rental homes

Another example could be a potential home purchase of a residence costing $725,000. That property could most likely be rented for about $3,200 per month. For the amount used to put a 20% down payment (plus closing costs), you can rent this home, and buy four brand new rental homes for $180,000 each rented at $1,500 each. Total gross rent: $6,000 per month for the 4 houses, and they can be new, under warranty, in good locations, and paradoxically each may likely be bigger in size and bedrooms than that one $725,000 home, which is also likely substantially older. Again, the four rental homes can also be geographically diversified.

Even the sense of accomplishment and satisfaction of home ownership, may be fulfilled by owning four brand new, good sized and well-rented homes in an appropriate market, while paying a relatively low rent in an expensive market. In fact, the higher the home prices in the expensive market, the lower (relatively) the rent gets as a fraction of the home price. Thus, the savvy investor can pay a bit more in rent and get a bigger, more expensive home to live in, while investing in more optimally-priced markets and choosing areas that have not yet boomed, and which can yield higher rental rates.

The 2018 tax plan

Under the new 2018 tax plan, taxpayers who itemize will be able to deduct their state individual income, sales and property taxes up to a limit of $10,000 in total starting in 2018. For expensive homes in states like California, New York, and others, the $10,000 limit will diminish deductions which could be used before, making home ownership even less logical beyond a certain home price. In states with very high property taxes, even less expensive homes will reach that limit and become less attractive tax-wise. I am seeing many smart Silicon Valley high-tech people, and others interested in living in expensive areas, opting to rent their residence, and buy several (or many) investment properties in affordable markets where the rent numbers are good.

The deductions available for rental properties have not been affected by the 2018 tax law, and in fact a new deduction, the “pass through deduction” was added, which could benefit many real estate investors. The logic behind renting your own residence while buying affordable investment homes has been taken further by the new tax law.

People do not have to buy rental homes in the areas in which they happen to live. I myself own rental homes all over the United States, as do thousands of our investors. Since we have a solid support infrastructure in many appropriate real estate markets, investing in another state becomes easier, since the local teams in that market will handle the rentals, maintenance and support for the investor.

Local infrastructure makes it doable

The local infrastructure in the various markets is comprised of property managers, local savvy real estate brokers, maintenance crews, insurance agents, and any other function needed to support the busy investor, who may live far away. We have many foreign investors, who live across the ocean, invest in multiple rental homes in appropriate markets in the United States.

Different colorful houses suit house shape holes of wooden board, 3D illustration.

Our company, ICG, has been holding 1-Day Expos for over 20 years every quarter with market teams, expert speakers, extensive Q&A and networking etc. near the San Francisco airport. During these events I always cover many subjects in detail, including the subject of this article.

You can attend for free by mentioning this article in an email to [email protected], register online (icgre.com/events) using the code FREEREALTY411, or call us at 800-324-3983.

Looking forward to seeing you.

About ICG and Adiel Gorel:

ICG (International Capital Group) Real Estate Investments was established in the 1980’s. Adiel Gorel, founder and CEO, has been helping people achieve financial security for over three decades, and in that time worked with investors to purchase over 10,000 homes. Gorel is a real estate broker in several states in the U.S., an international keynote speaker, and notable author of three books: Remote Controlled Retirement Riches – The Busy Person’s Guild to Real Estate Investing, Invest Then Rest – How to Buy Single-Family Rental Properties and Remote Control Retirement Riches – How to Change Your Future with Rental Homes. He has been featured on major television and radio networks across the country and in Fortune Magazine. He has also been featured on Public Television with his show, “Remote Control Retirement Riches with Adiel Gorel.” To invite Adiel Gorel to speak for your group, email [email protected] and visit AdielSpeaks.com. For more information on ICG Real Estate Investments visit icgre.com.

Helping Others while Making Money in Real Estate

By Leon McKenzie, CEO, US Probate Leads

Are you looking for ways to do something meaningful with your life? Studies have shown that all of us, not just millennials, want a job that does good in the world. Helping someone who has recently lost a loved one is one way to do that.

Imagine this: Someone you loved has died suddenly. You find yourself the executor of their estate, and you are thrust into a situation where you must not only grieve the loss of your loved one, plan a funeral, but also take care of numerous legal and financial details to settle their estate. This on top of your already busy everyday life. Wouldn’t you want someone to be able to help you handle some of this work?

Now you, an expert in the real estate industry, are constantly looking for leads. Without a steady stream of properties to look at, it can be nearly impossible to meet your investment goals.  That said, there is an ongoing challenge in finding investment properties in the real estate market due to ongoing tightening on the supply side. You are also looking to do good in the world.

Probates Are a Meaningful Option

While no real estate investor should eliminate a lead source from their business as each of them can yield a gem, whether the traditional, new construction or foreclosure market, there is always room to add another option. Seasoned real estate investors, motivated by a desire to make money while helping others, are turning to probate leads.

While many people aren’t familiar with probate leads, they have been and will continue to be an ongoing source for leads. Probate leads are generated when probates are filed in a local courthouse and can be a great way to add to your options for your buying area. Included in probates can be a wide variety of investments. Having access to these leads is a great way to diversify your lead strategy and give yourself some additional options when looking for properties to add to your portfolio.

What probate leads offer is a way to diversify your lead strategy and include more than just one type of real estate listing. This option can give you ways to find lower priced properties that may have more flexibility in their terms.

What are Probate Leads?

Probates leads include information on property that is part of a legal filing after the death of a loved one. These cases include many types of property that may have been owned by someone who has passed on. This can include homes, vacation homes, cars, RVs, businesses, commercial property, rental property, artwork and other personal property. These cases are listed in each county after the death of a loved one where a probate needs to be filed and are controlled by the local court.

Generally, this property has to be sold in order to pay for medical, tax, legal, and funeral expenses. The court will assign an Executor to handle the sale of the property so that these obligations can be met and the heirs can receive any remaining funds.

By Purchasing Properties in Probate You Can Help an Executor

As part of an overall investment strategy, probate leads are valuable because they often come with very motivated sellers. Executors need to deal with the property that is in the probate filing in order to meet the court requirements. Many times, they need cash in order to pay bills that have been left after the passing of their loved one. Often they find themselves with a lot on their plate in order to settle their loved ones estate while going about their every day life.

Executors may feel lost and overwhelmed and do not have the time, energy, or desire to go through all the usual steps of getting a property ready to sell. They are likely to have just inherited a property that they do not want and that needs updates in order to sell for full price. Typically, the property has a lot of equity because the owner has been making payments for years, or the property may be fully paid off.  This creates a situation where the Executor may be willing to sell the property for a discount in exchange for being able to unload the property with as little work as possible and knowing that any profit is a gift they did not expect.

Finding property at a discounted rate in today’s market is a real challenge, and that is what makes probate leads such an important part of an overall lead strategy.  These properties may be available for thirty to fifty percent off of the market price and are generally available for a quick closing.

Probate Leads are Viable for Quite a While

New users of probate leads may think that the leads would have a short time on the market.  That is not the case. Generally it take some time for Executors to get all of the paperwork filed and to go through their loved one’s things before they are ready to sell. There is also the process of grieving, which can cause Executors to hold onto a property for a time before they are willing to sell it. With these parameters in mind, real estate investors who are looking at probate leads will find that Executors who are selling property may not be ready to sell for twelve months after the filing.  In many cases, the leads are still viable eighteen months after the passing of a loved one.  This allows for plenty of time for real estate investors to make contact with the Executor.

Probate Leads Include More than Residential Real Estate

For real estate investors who are looking to diversify their property portfolio, probate leads can be an excellent source of alternative investments.  While many people start looking at probate leads for discounts on residential real estate, what they soon realize is that probates can include a wide variety of other types of investments.  These can include businesses that are up and running, artwork, jewelry, personal property, furniture, antiques, cars, vintage cars, boats, RVs, commercial property, vacation homes, and rental properties.  It is important to ask each Executor what types of property they have for sale in their portfolio rather than just assuming that it is only residential property.

Get Access to Probate Leads Today

Using probate leads is a great way to find more leads in your area as a real estate investor.  With long term viability and Executors that are motivated to sell, and your desire to be helpful, you will see that probates are a way to quickly find discounted properties.  If you are looking for diversity in your lead package, then you can get access to probate leads easily and quickly by vising US Probate Leads.  We offer county by county listings of the probate leads in your area delivered directly to your inbox.  Each county in the United States is covered by our trained team of lead specialists.  Our team makes sure that you have the leads that you need in order to make your business grow.

Want more information?  You can visit us at www.usprobateleads.com today and get more information on our lead services or sign up.  In addition to our lead service, we also offer seminars, webinars, eBooks, software, and individualized mentoring for dedicated investors.  Contact us today for more information and learn how we can help you to meet your real estate goals.  Call now!

Personal Property vs. Real Property

By Randy Hughes

It is fascinating to me that real estate starts out as personal property (boxes of ceiling tile, carpet, lumber, etc.) and once it is assembled it becomes real estate. Then, when we place the property into a Land Trust, it again becomes personal property to the beneficiary of the trust. Why is this important? Real estate laws and personal property laws are different. As all of my students know by now, the beneficial interest in a land trust is personal property and there are significant advantages to this truth.

When a piece of real estate is held in a Land Trust and the beneficiary sells the beneficial interest this is a non-recorded transaction. It is completely private and off the radar screen of tax assessors, lenders, transfer tax revenuers and in some states (i.e. CA) sales tax withholding requirements. You even by-pass the Form 1099 requirement (you still must pay any taxes due eventually).

Once transferring property into a Land Trust, the Deed in Trust must include language that makes it clear that the beneficial interest in the trust is personal property. Likewise, the Land Trust Agreement should state that the beneficiary shall have no rights or interest in either the legal or equitable title to the property. The beneficiary’s sole interests are to the rights of management, control, operation and to the receipt of proceeds from rents, mortgage financing, sales and exchanges.

Most rental real estate investors make the beneficiary of their Land Trusts an LLC or corporation (for additional asset protection). When an entity holds a beneficial interest, it should make sure not to lose its legal standing in the state it was formed. Not keeping the LLC or corporate up-to-date (e.g, paying the annual franchise fees and state taxes), effectively causes the beneficiary to lose the rights to the beneficial interest. This is another good reason to designate Successor Beneficiaries even if your initial beneficiary is an entity.

After 46 years of investing in real estate and being a landlord, I can attest to the many benefits of using a trust to hold title instead your name personally. There are only risks and no rewards to owning real estate in your name. Crazy things happen in the real estate business and if you intend to succeed long term you must learn how to protect your hard-earned assets. The least expensive and easiest way to begin your asset protection plan is by using a trust to hold title. Be a smart investor, use a trust!

I encourage you to learn more by going to my FREE online training at: www.landtrustwebinar.com/411  or text “reasons” to 206-203-2005 for my free booklet, “Reasons to Use a Land Trust.” You can also reach me the old fashion way by calling me at 866-696-7347 (I actually answer my own phone unlike most other businesses in America).

 

 

Risk Associated with Selecting Third Party Vendors

By Dan Harkey

Where does risks begin in commercial real estate lending business?  It begins with your process of hiring highly competent third-party vendors.  Your job is to assemble the most qualified real estate support professionals to eliminate costly mistakes and to ensure the best quality closing.

This includes service providers who originate new loans, process, underwrite, appraise, and eventually close the transaction. This sounds like a broad statement since the process also requires your participation in marketing, to procure the transaction.   Your competency is displayed throughout the process by understanding the borrower’s wants and needs, the loan programs and requirements, property types and characteristics, underwriting skills, geographic locational differences, government regulations, and then hiring professional service providers to match.

  1. Appraiser(s)

It is your responsibility is to identify a well-qualified, licensed, and insured appraiser who is familiar with the geographic location and property type, and various methods of valuation. Hire someone who follows the requirements of Uniform Standards of Professional Appraisal Practice (USPAP). USPAP can be considered to be the quality control standards applicable for analysis and reports for appraisal of real property, personal property, intangible assets and business valuations in the United States and its territories.  A state licensed appraiser must adhere to USPAP standards.  USPAP provides the body of knowledge and performance standards for the appraisal process as authorized by the US Congress (this was part of FIRREA in the early 1990’s and arose from the Bernard Amendment). As noted above, this legislation contains standards for all types of appraisal services, including real and personal property, business enterprises.  It is reviewed annually and revised and updated every two years.  The Real Estate Broker/Mortgage Loan Broker must establish that the appraiser is qualified by license and specific certification to accept the assignment and must be sure the appraiser is state licensed for the type of required appraisal.   This is a mandate by the Bureau of Real Estate Appraisers in California and their equivalent in all states and required in California pursuant to Business and Professions Code Section 10232.6.  In most cases the appraiser must also be approved by or acceptable to the lending source.

The first document you will use is an “order form”, which will document the type of appraisal, by whom and when the appraisal will be paid and “what parties rely on the appraisal”.  If you, as a mortgage broker/lender, are acting as an agent on behalf of private investors/lenders who intend to fund the loan, or you intend to sell or assign the loan following funding the loan with our own capital, then the appraiser needs to be informed that the private investors/lenders have a right to rely on the appraisal report.

You must identify all intended users of the appraisal report or you need to specifically direct the appraiser as to whom the report should be addressed.  To comply with appraisal standards and requirements, and depending on property type, the appraiser will typically conduct a rent survey and an absorption study and will additionally research various market rates for additional indicators such as capitalization rates and discount rates to establish market conditions applicable to a subject property.  In appraising the property, the appraiser typically will research market rents for the property type, research market rent trends in general and analyze historical lease-up or absorption rates for the subject property type.  Depending on the type of subject being appraised the appraiser may also need to include personal property value or may find that the appraisal requires a going concern valuation for an operating business wherein there may be additional value elements such as FF&E, good will or intellectual property.

Choosing an appraiser for a federally insured home loan differs.  It is important to note that neither mortgage brokers, loan officers nor homeowners may select the appraiser for the property on which they want to lend/borrow such funds.  At the current time all such appraiser selections and appraisal orders are handled by Appraisal Management Companies (AMC’s).

“Assumptions and Limiting Conditions” are sometimes thought of as the “legalese” or “boilerplate” of appraisal reports. The “assumptions” relate to the concept of scope of work identified in the appraisal process. The appraiser will lay out in writing assumptions such as the correct legal description, that the zoning is correct for the property use and that the information furnished is true and correct. A “limiting condition” is one that limits the use of the appraisal, primarily by specifying the use and intended users of the appraisal report. That is, who may rely on the contents of the report. However, each assumption or condition must be reasonable and supportable in the context of the appraisal, and not conflict with the “Extraordinary Assumptions or Hypothetical Conditions.”

It is important to review the appraisal section, “Extraordinary Assumptions and Hypothetical Conditions”. This means the appraiser has taken some action or used a method that departs from USPAP standards. The appraiser may have made assumptions that could render the appraisal of little or no value by following outside standards. You may find this when the property is zoned incorrectly for the neighborhood or the property’s intended use, or when comparable are extremely difficult to locate. Some examples of extraordinary assumptions may be: whether all entitlements are complete for a construction project, there is adequate absorption for lease up, that the building conforms to zoning and usage ordinances, that the property construction will be completed timely and on budget, and that there are no environmental concerns.  The appraiser may need to invoke certain hypothetical conditions under some directives by the client.

Extraordinary Assumptions are specific assumptions made and utilized in the development of the estimate of value and which, if found to be false, could alter the resulting opinion or conclusion.  Hypothetical Conditions are assumptions made which are known to be contrary to fact, but which are assumed for discussion, analysis or formulation of opinions.

As a final comment, it is important that you read the entire appraisal. There are issues such as the amount of area vacancy, the applicable capitalization rate, and a discussion regarding verification of zoning or permits that you may want to personally verify. These are not always clear in the first reading. For example, the area vacancy and the application of a capitalization approach may be different in Riverside, CA. than in Newport Beach, CA.

  1. Documentation/ Legal Counsel

I have combined these two together for this reason, some lenders farm out their legal documentation preparation to a third party. Since it is the lender who is responsible for state and federally required documentation, a third party legal counsel or knowledgeable consultant is advised.

Commercial lending is sometimes characterized by loaning to entities such as trusts, corporations, limited partnerships, and limited liability companies. There is a required technical understanding of the laws relating to these entity types, and the documentation differences that each will require. There is another matter of the issue of lien priority. Documentation complexity can be compounded when the issues of lien priority and tenancy are added to the mix. Your borrower may own a property in a family limited partnership, occupy the same property as an operating business which is a corporation, and have other unrelated tenants, who may also own their businesses in different forms of entities.

  1. Escrow Companies

All escrow officers are not alike. A competent, experienced, and highly technical escrow officer is a must. Escrow acts as an intermediary and dual agent, between the principal parties to ensure that instructions and agreements are carried out correctly. The lender’s final closing instructions to the escrow officer should summarize all the conditions that have been met and under what conditions he/she may close the transaction, using the correct title insurance policy and endorsements in place at the recording to ensure lien priority.

  1. Commercial Real Estate Broker(s)

In metropolitan areas, finding a real estate professional who has the background, knowledge and experience of the product type and geographic area is a matter a good referral or inquiry. If the subject property is in a sub market or a rural market, the time should be taken to locate a broker on the front end while the loan transaction is being processed. Brokers in these areas tend to be generalists who list and sell whatever kind of real estate is available. Your job is to locate that one broker who has the specialized skills you may need.

  1. Environmental Engineer

As a lender you have the option of a quick public records search to identify any properties around the subject that may have used contaminants which could affect the property or that would call attention to the need for further inquiry. An example, a data base in California is the State Water Resource Control Board is known as a “Geotracker”. The lender also has an option for a limited phase I, or full phase I to determine whether the property contains or has ever contained identifiable contaminants. The environmental engineer will report that information and will comment on how it may affect the desirability and salability of the property. For properties built before 1978 the issue of asbestos arises. Also lead based paints were commonly used in construction before 1978. Today, the common approach is to do nothing about asbestos or lead based paint if it appears that they are contained or sealed. Adverse findings by the environmental engineer may lead to the need for soils borings, a phase II, or a phase III. Some properties are purchased with the knowledge there is known environmental issues, and that the purpose of the loan may be for mitigation.

  1. Credit report and credit reporting agency

Very little needs to be said about credit reporting agencies. They all use the same data bases to accumulate the historical credit background of a borrower. However, Real Estate Brokers who make or arrange loan transactions in California are subject to 10232.5 of the Business and Professions Code which consists of a summary of disclosures and requirements to investors who may purchase a portion or all the trust deed investment. Section 10232.5 subsection (4) states that the Real Estate Broker must provide the “identity, occupation, employment, income, and credit data about the prospective borrower or borrowers as represented to the broker by the prospective borrower or borrowers”. This is easy to comply with when the borrower is either an individual or a seasoned entity with years of financials, history, and credit. A standard credit report should provide all the information you need. However, loaning to an entity newly formed for the sole purpose of purchasing or holding a property creates an additional question. Do you need to run a credit report on the entity knowing that nothing will show up? The answer is “yes”, and as an abundance of caution, you should also run a credit report on the individuals who created the entity.

  1. Property Inspection/Property Condition Assessment

Some lenders will require a property inspection by a third party who is trained in that field. The Property Condition Report (PCR) is used by purchasers and lenders who take property back in foreclosure, as part of the assessment of value for resale and limiting liability on resale. These reports tend to be very detailed and may require several specialists to evaluate the various components of the property, both real and personal. The process can be expensive costing from $20,000 to $100,000. This form of third party assessment is rarely used in private money loan transactions because of the nature and purpose of the loan request. Limited condition assessments may be available for much less expense.

There are many risks associated with commercial real estate lending, many of which will be written about in subsequent articles. None, however, quite rise to the level of the need to use highly competent and highly skilled third-party vendors. You are the one who has the option to search and hire the most professional vendors. You, your company, and of course your investors, will also be stuck with the results if substandard vendors are used.

Say Cheese! One Reason Your Brand Isn’t a Thing (Yet)

By Sharon Vornholt

A lot of people would rather have a root canal than actually have a professional photoshoot, but it is one of the top reasons your brand isn’t a thing (yet).  It’s time to schedule that professional photoshoot.

Remember that your brand is the way people feel about you. Pictures tell a story.

Good or bad, they tell a story.  Pictures are one of the most powerful things of all when it comes to telling your story and building your brand. People get to experience how it would feel to work with you through those images.

Before someone makes the decision to work with you, they first want to get to know you.  Great photos on your website and other marketing materials give these folks some insight into who you are. They also help set you apart from your competition.

Quality branding photos are essential for building your brand and the market perception that you are the authority in your marketplace. Perception is almost 100% responsible for how people view you, and it’s up to you to create your brand and that perception.

Remember that your brand is the way people feel about you.

Be Authentic When Creating your Brand

Pictures should always be authentic and show the real you when it comes your brand.  You’ve heard the saying, “You need to be yourself; everyone else is already taken”.

Here’s an example.

Let’s imagine for just a minute you are a laid back, jeans and boots type of guy (or gal).  You might put a jacket on for a meeting or event, but your “MO” is casual 100% of the time. You might put your “dress boots” on for the Christmas party, but that’s about as dressed up as you’re going to get.  Let’s call this person Jordan.

Jordan always shows up as this laid back, casual, very approachable person.  Imagine if Jordan suddenly shows with branding photographs in a suit and tie (or suit and heels). Can you imagine the reaction of everyone that sees those photographs?

They would be saying, “Who the heck is that”?

So just be yourself in all of your branding efforts.

Why Hire a Pro?

This one is easy.  Because you’ll look so much better than if you try to do it yourself.

You’re not just hiring someone with a better camera, but you’re hiring someone that can make you look awesome.  A good branding photographer also has the ability to take your version of you and mold it into something that speaks to your brand.  They will edit and retouch your photos and in most cases, they will be able to shoot you so your flaws are less obvious.  (We all worry about our flaws don’t we?)

Your New Look

Once you have your new photos, it time for a “makeover” of all your sites.  Add your new photos to your website and your social media sites as well as any marketing materials. When done properly, these new branding photo’s will help show people what it feels like to work with you.

Great branding photos will help you be seen.  

Here are Some Tips for the Photoshoot

Wear clothes that you feel comfortable in. This is really important.  You just can’t be relaxed for your photoshoot if you’re wearing something that doesn’t feel good.

Wear solid colors.  Black works well on the bottom. They style of your clothes should your brand personality.

You might want to use an interesting backdrop.  I love brick walls. (Go figure)

This one is for the gals.  Always show up in “daytime” hair and make-up.   (Think back to those old glamour shots). Yuck! No one really looks like that.

Do you have a prop that would make people say “Yes, that’s him or her”?

Think coffee cup, wine glass, golf club, or maybe your signature book.

What about your dog you talk about all the time on social media and always take with you?  Grab a shot with your pooch.

You get the idea.  Props are great for building a solid brand when they are part of who you are.  The most important thing is just to get it done.

 

 

Don’t Leave Thousands on the Table at Closing

By Kathy Kennebrook (The Marketing Magic Lady)

One of the things that never ceases to amaze me in the real estate business is how many investors leave hundreds or thousands of dollars on the table at closing due to errors in the closing documents. This is an area where many investors need to be educated. Many times investors get excited about the bottom line and forget to check the figures on the documents.

It is a mistake to assume that the HUD or closing statement is correct or that the closing documents are correct. The person preparing the closing statement can make mistakes. In addition, the person preparing the closing statement and documents is using figures that they have acquired from other people who could also make mistakes, such as the insurance company, the Realtors, the lender, home inspection service, or the surveyor.

You need to take the time to read all the documents carefully before closing on any deal. I have personally seen errors on the HUD at almost every closing I have ever been part of. Many investors only look at the bottom line and think “yes that’s enough money” but they fail to look at the whole closing statement, and in doing so possibly leave thousands at the table. I just had a closing take place recently where there was a mistake of a thousand dollars on the HUD. They put one of the buyer’s expenses on my side of the closing statement. I don’t know about you, but I think a thousand dollars is a lot of money to leave behind when you are entitled to it.

If you are looking at a closing statement and you aren’t sure why a figure is there, ASK the closing agent or attorney what it is and why it’s on the closing statement. It’s their job to make sure things are done correctly and all the figures are on the right side of the statements at a closing. Until I thoroughly learned the real estate business, I questioned every closing statement I looked at to make sure there were no mistakes.

There are some areas in particular that should be checked thoroughly. If there is a Realtor fee, make sure the percentages are correct and the payment amount to each Realtor is correct if more than one Realtor was involved in the deal.

Make sure you check the per diem interest to make sure this figure is calculated correctly. There are programs online that can help you with these calculations. I recently had a deal where I was the lender and my borrower was paying me off with the sale of the property to a buyer. When I received my check for the payoff on my note, I had been overpaid by $750.00. The per diem interest and pre-payment penalty had been calculated incorrectly. Had I not caught the error and written a check to my borrower, he would never have known there was an error. His mind was on nothing but the bottom line and he left at least $750.00 at the closing table. Compared to big checks, these may seem like small amounts, but multiply these amounts by how many closings you will do over a period of just a year and it adds up quickly! If it’s your money, you are entitled to it.

Make sure that the figures on the HUD from the insurance company, termite inspection, home inspection, survey, realtors or any other fee that should be carried to the HUD are correct. There have been many times when these figures were either incorrect or there were fees on the HUD that I had already paid out of pocket before the closing. If there are home owner association fees, make sure the pro-rated amounts on these are correct. If there is a home warranty to be paid for the buyer, make sure it shows up on the closing statement. These are all errors I have personally experienced on closing statements.

Check to make sure that the pro-rated property tax figures are correct on the HUD and appear on the correct side of the HUD. If you are due pro-rated taxes from your seller, make sure they show up as a credit on your side of the HUD. If you owe pro-rated taxes to a buyer, make sure these show up as a credit on the buyer’s side of the HUD. If there is a new loan amount or a payoff figure from a lender make sure these figures are correct. Make sure that any pre-payment penalties have been properly credited or charged. If you are paying off a mortgage, also make sure you are not charged a pre-payment penalty when none is due. This is another error I recently encountered on a closing statement.

There are other areas where I have frequently found errors so make sure you check your documents carefully before the closing. It’s much easier to deal with problems at the closing table than have them show up later and have to be corrected. If you are assisting a buyer with closing costs, make sure they don’t charge you more money in closing costs than they are entitled to. If you are assisting a buyer with closing costs and you see a big pay day on their side of the HUD, you need to open your mouth and protest it. Most lenders will not allow a buyer to take any more than 500.00 away from the closing table, especially when it is your money. If there is money left over from seller assisted closing costs, it should be credited to the seller who assisted with closing costs. It shouldn’t result in a big payday for the buyer.

Make sure you also check loan documents carefully. Check the interest rate, the balloon date and amount, and the amount of the note. I had a note and mortgage just recently where I was funding the deal for the buyer and the payee of the note and mortgage was the seller instead of me. They also had the balloon date wrong on the note. It showed a ten year balloon instead of a one year balloon because someone accidentally added a zero.

If there is an interest only payment to be made each month, make sure this is clearly stated in the note and mortgage. Also make sure that terms for late fees are clearly stated if you are the person holding a note for your buyer. Make sure names and addresses are correct and spelled correctly. Make sure you get an amortization schedule whether you are the mortgagor or the mortgagee. This is the best way to track a loan.

All of these are important points to check before any closing occurs. Don’t assume the title agent or attorney will catch the errors. They do many closings each day and they usually are unable to catch every mistake. In addition, very often the title agent or attorney is transferring figures they got from other people such as the Realtor, the lender or the insurance agent so they my not be aware that these figures are incorrect. It’s your deal and your closing, make sure the documents are correct so you don’t leave thousands at the closing table or create title problems later that could have been solved at the time of the closing of the deal.

Make sure all the documents that are to be signed and notarized are done properly. Make sure social security numbers or Tax ID numbers are correct on the 1099 so you are taxed correctly. I just recently had a closing where they put my social security number on the 1099 instead of the corporation that was supposed to absorb the income from the sale of the property. These are all real errors that occur all the time. Make sure you protect your interests when closing on properties whether you are buying or selling or simply holding a note so you don’t leave thousands on the table at the closing.

For more information on all the tools you need to find deals and automate your real estate investing business, visit my website at www.marketingmagiclady.com. While you are there be sure and sign up for my free monthly newsletter.