Are You a Candidate for a NO-DOC Loan?

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Image from Pixabay

By Stratton Equities

You might be a candidate for a NO-DOC loan, or No documentation mortgage loan, if you do not meet the strict Consumer Financial Protection Bureau’s (CFPB) mortgage loan conditions. This type of loan is a NON-QM loan and is designed for some rental property investors, borrowers that are self-employed, and those who do not meet conventional loan standards. private lenders can also fit self-employed borrowers into the QM space.

It is also an option for borrowers who have had challenges qualifying for a NO-DOC loan due to credit issues (such as bankruptcy, foreclosures, late payments, or other isolated credit issues) in the past or have an unconventional source of income.

Unlike the traditional income verification mandated for most loans, this type of mortgage loan allows you to be eligible based on alternative methods. NO-DOC loans create real estate investment opportunities for a wider array of people due to their more versatile qualification criteria.

A qualified mortgage loan is an “agency” mortgage-backed security. On the other hand, a No documentation mortgage loan is considered “non-agency” or “private-label”–is suitable for borrowers with exceptional circumstances or those whose incomes differ from month to month.

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Many individuals, including hospitality employees, self-employed business owners, and retirees have fluctuating earnings. This is where NO-DOC loans fill the void by offering dynamic underwriting measures for prudent borrowers with special income conditions.

A prevalent belief is that NO-DOC loans are “bad loans” in disguise, and therefore not recommended. The reality is that these kinds of loans have their own set of rules related to QM loans to ensure that private money lenders and borrowers are protected from a high-risk loan. The process of lending NO-DOC and NON-QM loans are very similar to that of QM loans, only with a different collection of documents during application.

What is the Difference between a QM and NON-QM Mortgage?

The biggest difference between a QM (Qualified mortgage) and NON-QM Mortgage, is that a QM Mortgage loan tends to be traditional government-backed loans and conventional loans.

Because a conventional loan (QM) is usually processed through a bank or traditional financial institution on an owner occupied property, a NON-QM with a private lender is the best solution for a real estate entrepreneur looking to purchase an investment property.

A NON-QM or NON-Qualified mortgage loan is typically portfolio loans for real estate investors that do not conform to the strict government or conventional mortgage guidelines.

Why Should Borrowers Choose NON-QM Loans on their Real Estate Investment?

Unlike conventional investment property loans that max out at 70% LTV, a NON-QM Mortgage Program maxes at 85% LTV and with no PMI with rates starting at 4.375%. This allows the borrower to put less money down on their purchase, typically loan amounts range between $100,000 and $5,000,000.

How can a Real Estate Investor Qualify for a NON-QM Loan?

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If you are a real estate investor that has an investment property and are looking for a quick turnaround without stringent guidelines, NON-QM loans may be better for you — NON-QM loans do not need to abide by these strict guidelines! Bottom line = This means that NON-QM lenders can provide faster service and approval to more types of real estate investment opportunities.

Private lenders who utilize QM loans must first qualify a mortgage borrower’s income, liabilities, and monthly debt payments to determine whether the borrower can successfully pay back the loan in the future. To successfully qualify for a QM loan, real estate investors must fit the strict requirements set by the Consumer Financial Protection Bureau. This approval process requires borrowers to submit extensive documentation concerning their credit history, income, assets, and monthly debt payments, which usually takes well over a month to complete.

NON-QM and Private Money lenders understand that everyone’s situation is different and that to a traditional financial institution (like a bank) some borrowers may not present like a qualified candidate for a loan. This restriction could be due to the borrower’s employment status, income, credit history, and liquid asset requirements – however with a non-qualified mortgage, private lenders focus on; high credit score, investing experience, and liquid assets.

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As a result, NON-QM loans’ lax restrictions make them ideal for these types of real estate investors:

Self-Employed Investors: Especially in light of the unprecedented year, with COVID-19, we completely understand how difficult it is to find steady income. These type of loan programs are based on the value of the property itself or the borrower’s credit score and liquid assets.

Foreign Nationals: Government backed loans typically require proof of a US Social Security number or a W2 (which is a US tax form). Because NON-QM loans don’t have such requirements, they are ideal for foreign nationals who are in the States on a visa and are looking to invest.

NON-QM Loans: The Benefits For Borrowers

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The key benefit of NON-QM loans is that they offer opportunities to borrowers who would not otherwise meet the mortgage requirement. Non-Qualified Mortgage Loans provide much-needed loan financing for millions of hard-working Americans, including self-employed people and small-business owners who have worked hard to achieve success but are not eligible for QM loans.

Below are some of the benefits NON-QM loans for borrowers:

  • Looser, more versatile underwriting and guidelines
  • Ability to close faster than a QM loan
  • Ideal for 1-4 family investment properties
  • NO-DOC Mortgage Loan: Does not require income verification or tax returns
  • Self-employed people are top candidates for NON-QM loans

For specific borrowers with unique income sources or a high DTI, a NON-QM loan will enable them to obtain the money they need. NON-QM lenders also set standards for Non-Qualified Mortgage Loan borrowers and need to determine their potential to repay.

This type of mortgage loan is ideal for a wide variety of potential borrowers and can be used to buy commercial and investment assets. It is advisable to contact a certified loan officer to determine your qualification for a NON-QM loan, so they can review your profile to ascertain if this product is perfect for you.

Leaving Nothing to Chance with Your Property

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Image from Pixabay

Experts share tips for drafting effective real estate succession plan

By Brad Nelson, Senior Real Estate Asset Manager, BOK Financial & Dan Bartell, president of Bartell and Company Real Estate Wealth Management

Ensuring those who inherit your real estate property don’t inherit a headache means having a plan in place.  A real estate succession plan is one piece of a bigger estate planning strategy, as it helps protect assets, maintains or increases cash-flow for future generations, and yields more effective and flexible tax strategies. A real estate succession plan plays an important part in helping you achieve your goals and investment objectives.

If someone passes away without a succession blueprint in place, things like what to do with inherited real estate are left to chance.

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Many times, family members who inherit real estate want to sell it before they even know what they have.  They typically don’t have the expertise to take on the role of a real estate professional who can help them evaluate the assets. Without the real estate expertise, the beneficiaries default into selling the assets without knowing the potential value of what they have inherited.  In many cases real estate property may be re-developed into something bigger or more valuable than the original zoning, all of which would/could make it a more favorable investment.  Having a plan in place can also help eliminate unnecessary and unexpected family conflict that arises from an under-qualified individual being left to manage the asset.

When it comes to the creation of a real estate succession plan, we suggest keeping a few things in mind.

Analyze family conditions

This analysis involves taking a thorough look at family dynamics and the individual relationships. It also takes into account stages of life of stakeholders, which can have an impact on the members’ needs and how the plan moves forward.  This step involves determining to whom, and how, the asset will be transferred, and who will be managing the real estate assets, and establishing goals and objectives.

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In each case it’s important to consider if those being named as inheritors or managers are qualified to manage this type of asset.  Do they have the appropriate licenses, maturity and experiences?  Could this cause additional contention or division amongst other family members? These are important questions to ask at this phase.

The ages of everyone involved also matters. Their season of life will affect the lens they use to view things like assets and income, so these are important considerations to keep in mind.  As an analogy, an aging parent who has a long history of successful real estate experience may want to keep their feet in the investment world without too much personal involvement, and without subjecting his/her children to undue risk.  However, the children who view growing market conditions in their area might want to push the envelope and do more within an established strategy.

The parent and the children are seeing the situation from different walks of life, with different goals and experiences. There are ways to help the two generations find common ground and share in appropriate risk and potential reward, rather than investing and developing simply because they can.

Have frank discussions

Having frank discussions is where people tend to struggle the most.  Sometimes people are reluctant, but it is important to have honest and open conversations with your estate attorney and wealth management advisor regarding the future of the family.  It’s best to be open about goals and obstacles that could arise down the road.

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Knee-jerk responses to dramatic life events can yield irrational investment behavior.  Making assumptions about an individual’s intrinsic motivation and perception of the situation can yield drastically negative results.  Asking the parties not only what they need out of the real estate, but also why having the real estate itself is meaningful, is sometimes difficult—but often cathartic. Asking this type of question smooths the course, maintains positive relationships, and often has a positive impact on the health of the investment.

Evaluate the asset’s performance

People don’t always take the time to look closely at a real estate asset and evaluate if it’s performing as well as it can and how it reacts to different circumstances.  Partnerwith a real estate professional to have an analytics report completed on the asset to understand past, present and future forecasting performance.

The performance analysis should include the following:

  • Investment objectives
  • Historical performance as compared to the market/submarket
  • Debt service coverage analysis
  • Asset basis
  • Cash on cash returns
  • Current condition of property
  • Internal rate of return
  • Cash flow
  • Cash reserve analysis

The analysis should focus on the strategies that can be implemented to maximize cash flow while adding value, as well determining if the asset is underutilized or underperforming.

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Understand the risk

It’s important to get a full understanding of the different elements that make up your real estate and how they might perform in the context of today’s world, while considering future uncertainties and risks.

In working to understand the risk, there are some additional key questions to consider:

  • Are there any environmental issues?
  • How is the asset currently titled?
  • Has an insurance valuation been performed to ensure adequate coverage?
  • Are the returns acceptable as it relates to the overall risk?

When it comes to a real estate succession plan, or an estate plan, it isn’t one and done.  Family dynamics, situations and values change, and will need to be re-visited along with those ongoing conversations.

Brandon Cobb Leads Investors To High Performing Recession Resistant Assets

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By Tim Houghten

Founder of The House Buyin’ Guys and HBG Capital, Brandon Cobb is leading investors to new forms of high performing and recession resistant assets this year.

We recently caught up with him to find out what he is investing in now, why, his take on the markets, and how to make great investment choices among uncertainty.

Expanding & Diversifying

We last caught up with Brandon in the midst of the pandemic in 2020. His company was thriving through COVID, with double digit growth, great spreads on deals and lots of volume in the single family space. It was their best year up until that point.

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Their building, rehabbing, flipping and wholesaling ventures in the Middle TN market were exploding, especially as many investors had chosen to sit on the sidelines afraid of the market. Single family inventory was plentiful, deeper discounts were widely available, competition was low, and on the flip side deals ended up selling for incredible profits as house prices boomed.

Of course, as others watched this success and wanted a piece of it, everyone wanted to jump back into the market at the same time and mimic it. Inventory disappeared and green investors have bid up home prices to wild highs in many parts of the country.

Brandon and his Middle Tennessee business are still doing very well there. Yet, he has also evolved his strategies and opened up new opportunities for investors.

Although deeply tragic on a personal level, the pandemic has been very good to many financially as well. Brandon has found many investors with plentiful capital looking to deploy it in the right assets, and especially in the real estate space.

The truth is that no one knows what the medium term holds for the economy, country and real estate. There are many wildcard factors that could be played. For now, it seems like the outlook remains incredibly strong through the end of the year. In the long run we all know that real estate has proven to be invaluable.

While it looks like the worst may be over, many analysts still see the potential for a recession in the near future as the impacts of recent policies add up and become evident.

After a long and insane run, analysts, including the Chief Investment Strategist of Bank Of America are predicting the global economy and public stock market are headed for at least a ‘flash recession’ in the second half of 2021. In fact, with the exception of a few categories like real estate, healthcare, and utilities which have covered up losses elsewhere, behind the scenes many commodities have fallen by over 20%. Even Peter Theil’s big tech company has reportedly been making big moves into tangible assets. Jeff Bezos has hit the news headlines for a few times for selling off his Amazon stock and bolstering his personal real estate portfolio instead.

All this together prompted Brandon to start giving investors access to more high quality and bigger deals in new places.

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He’s been flying around the country, and even the world to source and vet the best opportunities. Including a 384 unit, $42M apartment building with 97% occupancy that they helped close on in Daytona Beach, FL.

There Are Great Performing, Solid Deals Out There

Despite some misinformation and over exaggeration in the media, and the real competition and compressed returns in the single family market there are high performing assets to buy into. There are acquisition opportunities which have not only proven to thrive through COVID (and hence should through any other crises), but are ideally situated to survive and even see improved performance in a potential recession.

Brandon sees opportunities lying in the multifamily and commercial real estate space.

You have to look a little further for them, dig a little deeper, have better connections and a stronger network and do more investigation, but they are out there.

What Brandon Is Investing In Now

With the launch of HBG Capital, Brandon has created a new platform enabling other investors to participate in the deals he is engaging in, and to learn how he is doing it.

While he makes no guarantees of performance, and past performance isn’t always an indicator of future performance, he has produced stable double digit returns for investors throughout the years and at least up until now.

Today he is helping those with capital to invest, those who want to smooth out their returns and avoid the extreme volatility of the public stock market, and desire hard asset backed investments. As well as busy high income earners who simply know that they need to diversify their asset allocation into real estate, but don’t have the time to do it all themselves.

In the multifamily space HBG Capital is mainly focused on 100 unit plus acquisitions to benefit from all of the economies of scale that they offer.

On the commercial real estate front he says they are again looking at recession resistant properties like self-storage and assisted living complexes.

It’s All About The Due Diligence: Integrity & Equity

Success in real estate investing, and especially in times like these all comes down to the due diligence. Doing your homework and screening opportunities.

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In fact he says his firm only pursues 2% to 3% of deals they are presented with, after they’ve gone through their rigorous vetting process.

He says the two most important factors in this are:

1. The integrity of the person you are dealing with, and their capabilities
2. The amount of equity in the deal and current existing performance

Most deals fail to pass these factors.

Brandon has also just published a new book on the subject, which you can download for free on their website www.HBGcapital.net

‘Due Diligence: 100 Questions Passive Investors Should be Asking Before Investing’ is the book that outlines everything you should ask and know before making an investment, and how he and his firm are qualifying opportunities.

More Ways To Outperform

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Other ways Brandon and his teams have continued to outperform the market no matter what comes along include the following:

  • Keeping the construction in-house to combat asset management, inflation, and other external threats
  • Keeping the map open to invest where the best deals are
  • Adjusting your buying criteria with the market changes and outlook
  • Regularly review your past deals to see what’s working best and where you are leaving money on the table
  • Partner with world class operators with proven track records

Conclusion

Even despite pandemic lockdowns and restrictions real estate investors like Brandon Cobb have proven to survive and thrive. As the market continues to grow, those leading the way are continuously expanding and diversifying into new assets.

To make the best investments in this sector now, be sure you are doing your due diligence, and are aligning with great partners.

Equip yourself for this with Brandon’s new book for free, and check out HBG Capital’s process at HBGCapital.net.

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.

Is Austin The Wrong Place to Invest In 2021?

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Image from Pixabay

By Adiel Gorel

I get many calls from people interested in buying in various cities and want my opinion.
One of the popular markets right now is the Austin metro area (people get excited about the overall thriving of the local high-tech scene, Elon Musk publicly decamping to Austin, and others moving there from California). It is tempting to think of Austin as a good destination to buy in 2021. However, in my opinion, it is not! Austin, in fact, is a good city to be a SELLER in 2021. Austin prices have climbed rapidly in the past six years, while rents went up much more slowly. As a result, the rents are too low to cover all expenses. One expense in Austin (and in the state of Texas overall) is the very high property taxes. The property taxes in the Austin metro can get to almost 3% of the home value per year (depending on county and town). That is over 2.5 TIMES the property tax rate in Oklahoma (or California). Together, the high prices, relatively low rents (relative to the prices, that is), and the high property taxes, as well as high insurance costs, create an untenable cash flow.
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Here is a partial headline of a Business Insider article “Elon Musk and other tech powerhouses are flocking to Texas, pushing an already bonkers real-estate market to new heights”. Just logically, do you want to be a buyer in a market that is “already bonkers” and now is being pushed up even more? They have a name for such a market in the real estate world: “A strong Seller’s’ Market”.
Do you want to be the BUYER in that strong Sellers’ market? You will be the one paying “bonkers” price to the savvy sellers, fending off multiple offers higher than list price.
It is very tempting for a California resident to say, “What? I can buy a new home in Austin for “only” $320,000? That is so cheap! Yes, it is. “Cheap” relative to San Francisco prices. However, it is not cheap to buy as a sound rental home, and has bad cash flow. Austin is a place where many of our savvy investors are now SELLING, as the selling market is strong. It is not uncommon to see an investor selling one Austin home and buying 3 brand new homes in a 1031 tax-deferred exchange in Oklahoma City, or Tulsa, or Baton Rouge, or Central Florida. This move creates much more quality real estate owned, more 30-year fixed loans at todays’ super low rates, and brand-new properties with brand new roofs, ACs and all other parts of the homes.
Similar logic applies to the Dallas Ft Worth metro area (DFW), Houston, Phoenix, Las Vegas, Nashville, Denver, Salt Lake City, Boise, and others. I even get some investor talking about Seattle and Portland, which make no sense at all. Some misguided reporters (who in many cases have no actual experience in real estate investing themselves) confuse high prices and growth with an attractive place to invest in. The two are not necessarily linked. An example of another very popular destination for Silicon Valley people leaving to other states, is Miami. Miami is popular, large (much larger than Austin, for example), has an international airport, great weather, beautiful beaches, and proximity to great vacation spots. Miami also has a thriving tech sector. Sounds perfect, right? We should invest in Miami, right? No! Miami prices are way too high to make sense at this time. While the property tax is “only” about 160% of that in Oklahoma or California, the price/rent ratio makes it an unattractive place to invest. Miami has been a magnet for the wealthier set of tech and finance people as of late. The prices reflect it. There is an interesting article in Business Insider written by a tech person who had moved from San Diego to Austin and regrets it. It’s titled: “I moved my family from California to Austin, Texas, and regretted it. Here are 10 key points every person should consider before relocating.” The author mentions the harsh Texas heat, coupled with humidity, which, in the summer keeps you indoors and runs your AC 24/7, while also bringing scorpions and the like, and being hard on the houses. Of course, he mentions the super-high property taxes and high insurance costs. He talks about the very high cost of power and water, much higher than he had in California. Overall, he was surprised by the cost of living being much higher than he had anticipated. He mentions the travel difficulty, as Austin doesn’t have a large airport, requiring an extra “hop”. He laments the relative lack of public parks and spaces, to which he was used in California. While this is only the account of one high tech family who moved to Austin, and may not reflect everyone’s experience, some of the points are absolute.
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We have investors who actually LIVE in Austin. They are absolutely not interested in investing in Austin. They live there. They know how little sense it makes to buy in Austin in 2021. They seek investments in saner markets where the prices, rents, and property taxes, are in much better balance. We also have investor who live in Miami, Phoenix, AND Las Vegas, as well as Portland and Seattle, among many other places. All these investors wouldn’t dream of buying rental homes in the market they live in at this time. They know the insane sellers’ market that exists there, and the way-too-high prices.
This phenomenon is not new. Investors declare they want to “Buy Low, Sell High”. However, in reality, many investors end up “Buying High and Selling Low”. Right now, Austin is the darling market touted for its growth and Elon Musk. The people who are buying super-high in a “bonkers” market, pumped by the media hype, will be the first ones to sell frantically when a recession hits, or even lose those homes to foreclosure. We have seen these scenarios throughout history, time and time again. You see the same phenomena in the stock market. People secretly love to “Buy High”.
The reason is usually “But this market will appreciate a lot!” Really? You mean you know the future? No one else does. Just because a market behaves a certain way, and even booms, it is not necessarily a guarantee of everlasting constant appreciation. We have seen it in many areas of the country.
One other factor that is important to discuss is, again, the heart and soul of single-family home investing in the United States. The reason single family rental homes change futures so effectively and powerfully: The 30-year fixed-rate loan. I talk a lot about the wonder of this loan. A very quick recap for new readers: The monthly PI payment never changes, while everything else in the US economy constantly changes with the cost of living. Same is true for the mortgage balance, which goes down due to amortization, but also never keeps up with the cost of living. This creates incredible futures for people, as inflation constantly erodes the real value of the loan balance and monthly PI payment. No need to wait for 30 years. Typically, after 12, 14, 16 years, the loan balances are very small relative to the home price. The monthly payment is very small relative to the rent. It is not uncommon for a person to find, after 14 years, that the loan balance (even though the loan still has 16 years to go), is merely 20%-25% or so of the home price. Many sell a couple of homes at this point, and use the after-tax proceeds to pay off several other small loans, and leaving several free and clear homes, enabling them to retire. People also see how this can send kids to college (even costly colleges), and achieve many other long-term financial life goals.
The reason I hark back to this point in this article, is to remind you that the most important point is to buy a good new single family rental home, put a down payment, and then get the constant power of inflation and the payments by the tenant, to pay off and erode the loan balance, building equity for your future wealth. With today’s astoundingly low rates, strong results may be seen even sooner, perhaps 10, 11 years.
The single-family home is the VEHICLE to let inflation work its magic on the 30-year fixed-rate loan. The location of where you buy the home (as long as it’s large metro areas in the Sun Belt states, where the numbers make sense), is of secondary importance. It would behoove the smart investor to buy in a market where the prices are not “bonkers” and where the rents measure up to the price well, preferably in an environment where property tax and insurance costs are low. This enables the owner to enjoy cash flow (especially with today’s low rates), which building their wealth for the future with the help of inflation.
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 Single­Family 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.

The Great Exodus Of Our Time

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By Sensei Gilliland

Investors Are Leaving The Golden State & Big Apple In A Stampede. Here’s What’s Driving Them And Where They Are Going…

We’re seeing a macro shift in migration, capital flows and investor relocation at incredible new levels. Keep reading to learn how wise investors are adapting to this incredible event.

The One Thing You Can Count On Is Change

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As much as you might like it to sometimes, nothing ever stays the same forever. Change is the one thing we can bank on. There are mini cycles and economic rotations which go around every 7 to 15 years. Then there are macro shifts. There are evolving eras, which we’ve seen go from hunter gatherer to agricultural societies, to the industrial era, and now the internet. We are currently experiencing one of those mega shifts which only comes around every 100 years or longer. The dinosaurs couldn’t adapt to it. All that is left of the great Egyption civilization is crumbling pyramids. Ancient civilizations that once thrived in Machu Picchu and Tulum have left only ruins. Detroit has literally become an urban waste land since the end of the industrial era too. If you haven’t been lately, there are real ruins, weeds and vines taking over once vibrant neighborhoods, and a few urban farmers trying to stick it out among the remnants of a once economic powerhouse.
According to a new report from the Pacific Research Institute and many others, not only is San Francisco, but also Los Angeles, California is checking off all of the boxes on the way to becoming the next Detroit.
This includes increasing taxes, regulation, harassment of businesses, rising crime and riots, and distrust of leaders are some of these signals that lead up to these massive shifts, and the downfall of once great cities. Perhaps some of these things sound familiar to you?

This Exodus Is Far More Significant Than You Think

This isn’t just a few low wage workers who are teachers or restaurant workers leaving high cost states for somewhere they can afford to live.
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Almost 700,000 people moved out of California in 2019, before COVID hit. A Berkley study reports that half of registered voters in California have been considering moving out of state. 44% of New Yorkers making $100k a year or more (not even a living wage there) say they plan to move out of their state. We are talking about millions and tens of millions of people leaving these states. If you thought it was bad before they left, wait until the remaining few realize they have to pick up the tax bills to cover the void by the other half who left. If many are leaving for safety, then crime rates will also be expected to dramatically rise, with the per capita risk of you being a victim of a crime at least doubling. It’s not just the amount of people leaving either. It is who is leaving that is also making a huge difference. We are talking about the wealthiest and smartest individuals and their companies that employ millions of people. It is a massive wealth and brain drain.
We’re talking about people like Elon Musk and Peter Thiel. Even the New York Stock Exchange has said it will leave NY if newly proposed taxes are implemented.
Those who are left are at least sending their money out of state for safety and better returns.

What’s Driving Them?

There are now many factors driving people and their cash out of coastal states and other major cities, and pulling them to other destinations. These are just some of them.

Affordability

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Sheer lack of affordability is one of the top factors driving out residents and capital. Even in Florida, which seemed cheap in comparison to NY and LA at the beginning of 2020, the massive surge in migration has driven up property prices by at least 1,000% in some areas. In Miami some builders are finding excuses to kick out pre-construction investors to be able to resell those same units at top of the market prices. Even in the most rural and cheap areas it has become so expensive that investors are buying distressed homes, and are renting them out at top of the market rents, while leaving tenants to make the homes livable. It’s not just housing prices either, it is overall cost and quality of living.
When it comes to investing, affordability is the number one factor that analysts look at to gauge where a market is in the cycle, real value, and future potential growth or decline.

Profits & Returns

In addition to these coastal cities, even international investors are looking for smarter places to invest with more value and better returns. Even in Denver investors have been resorting to negative cash flow properties due to such high prices.
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It is true rents and house prices may float down in California and New York as millions leave. Yet, they have long been too high to make sense for investors. You should never invest for negative cash flow. If you are just going to gamble, it is probably a lot more fun to go to Vegas and play the games, than go through all of the work to invest, and in something which may have less odds of going up in the short term. Real estate has taken off in a big way over the last year, not only due to the huge amount of moving activity, but also as people see the stock market and things like Bitcoin just go crazy with no real fundamentals to support them. They are running on vapors and speculation. They offer no downside protection, and rarely reliable passive income.

Anti-Investor & Anti-Business Climate Change

An extremely litigious climate, lack of physical protections for businesses, and a regulatory pattern of trying to crush businesses, entrepreneurship and investors is forcing capital flight and the movement of talent.
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These are beautiful places, dear to our hearts, but just make no sense to live and invest in anymore. At best they just want to bleed us and our children dry financially. Why not go somewhere you are wanted, and that wants you and your family to prosper? You can always go back home on vacation if you can stomach it.

Safety

Personal safety, property protection, and wealth preservation are all compounding this trend.

Freedom

While many have been working from home and running fully remote businesses, even in real estate for at least 16 years, many are just walking up to the fact that they can live in the Midwest, and get a three bedroom house with a yard for a quarter of the cost in California, while still making NYC and San Fran level wages. They also no longer have to put up with lockdowns and restrictions if they choose not to.

Where Are They Going?

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Cleveland, Ohio stands out as one of the top places for people to move and invest in 2021. Here are just some of the reasons it stands out and it drawing savvy investors:
  • Ranked one of the top 2 most affordable cities in America for 2021
  • Ranked one of top 10 markets to watch this year by Forbes
  • $1B in stimulus being invested in infrastructure and attracting new residents
  • Low volatility
  • Rental property investors can still achieve the 1% rule
It just makes sense. There is positive cash flow to be had, with plenty of room for assets to appreciate over the long term, and low downside risk.

How To Do It

One of the best ways to invest in Cleveland, OH today is in turnkey rental properties. Handsfree investments, producing passive income, with professional management and boots on the ground to support your assets.
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In addition to market rate, cash tenants, there are also strong local Section 8 and other housing programs through which the government pays your rent and profits. No worrying about another pandemic.
With prices so cheap, many real estate investors will find they can sell a single unit in California, and buy 7 houses with yards in Cleveland’s suburbs for the same price. Only with a whole lot more cash flow and much better returns and growth prospects. Within an IRA or through a 1031 exchange this can even be done without any tax hit on your capital gains. It’s the chance to exit mature investments, and diversify for consistent returns. Or more importantly, the ability to sleep well at night, knowing you are set financially. You can buy a second home to Airbnb while not there, and start spending some vacation time exploring the city, and acquiring more deals. Or go turnkey and handsfree and spend your time in Mexico, traveling the country in your RV, on your own private ranch, while your rentals put money in the bank.
Black Belt Investors is a real estate firm offering education, coaching and turnkey rentals. Get started now by visiting www.BlackBeltInvestors.com or call us at (951) 280-1900.

Eviction Moratorium

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By Stephanie Mojica

Property owners can now take steps to evict delinquent renters, according to a U.S. Supreme Court decision that blocked President Joe Biden’s recent moratorium on evictions.

Over objections from three sitting Justices, the Supreme Court ruled on August 26th that the Centers for Diseases Control (CDC) did not have the authorization to enact a moratorium on evictions, according to USA Today.
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The court’s majority wrote the following in an eight-page, unsigned opinion:
“It would be one thing if Congress had specifically authorized the action that the CDC has taken. But that has not happened. Instead, the CDC has imposed a nationwide moratorium on evictions in reliance on a decades-old statute that authorizes it to implement measures like fumigation and pest extermination. It strains credulity to believe that this statute grants the CDC the sweeping authority that it asserts.”
The majority further added:
“Congress was on notice that a further extension would almost surely require new legislation, yet it failed to act in the several weeks leading up to the moratorium’s expiration.”
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The CDC’s original moratorium had lasted from September 2020 to the end of July 2021 and was designed to quell the spread of COVID-19, according to CNN Business. On August 3rd, 2021, the CDC issued a new moratorium on evictions that protected about 90% of the country’s renters and drew the ire of many landlords and real estate companies. The new moratorium applied to areas of the country where COVID-19 infection rates are once again spiking due to the Delta variant. Critics of the eviction moratoriums state that these allow unscrupulous renters to spend money on other things while shafting their rent obligations and causing undue financial distress to landlords. Supporters of the moratoriums claim that dissenting landlords are acting on greed and do not care that innocent people will be left homeless.
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According to a recent U.S. Census Bureau survey, more than 3 million renters will become homeless in the next two months if alternative solutions are not offered. Fortunately, there is $46 billion of federal rental relief aid funding available, according to CNN Business. Only about $5 billion had been distributed through the Treasury Department as of July. Another blow to renters with financial struggles is that three unemployment programs — Pandemic Unemployment Assistance (PUA), Federal Pandemic Unemployment Compensation (FPUC), and Pandemic Emergency Unemployment Compensation (PEUC) — end on September 4th, according to 13 WREX.

Hands Off My IRA! Important Legislative Insight Every Investor Should Know

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Special Contribution by Kaaren Hall, CEO | uDirect IRA Services

In this article I’m going to discuss a few reasons why Sections 138312 and 138314 of the House reconciliation bill (released September 13th) threatens the investment choices of an approximate 3 Million Self-Directed IRA investors in America. It’s time to tell your Congressional Representatives, “Hands Off My IRA”!

Firstly, the proposal could make it so that you could no longer purchase private equity or use the IRA-Owned LLC. Secondly, what’s worse is that the proposal offers no “grandfather clause” and says you would have to remove those existing assets from your IRA by 2023. As a result, the implications are wide-reaching and would cause a lot of damage to IRA savers who may be forced to pay taxes on the value of those assets. Thirdly, it could wreak havoc on asset sponsors who could be forced to look for new sources of capital. Specifically, the proposal addresses:
  • Private Placements (e.g. hedge funds, real estate funds, private equity funds, etc.)
  • Checkbook Control IRA LLCs and Trusts
  • Minority interests in LLCs that are 10% owned by the IRA or account-holder
  • Investments requiring the IRA owner to be an accredited investor
Steven Rosenthal, senior fellow at the Tax Policy Center, is quoted in MarketWatch, saying that non-public investments do not belong in retirement accounts. In his view, it’s a matter of fairness, tax compliance and investor protection when it comes to retirement tax rules that for too long, have already favored rich households. What Rosenthal fails to see is how the proposal would impact Self-Directed IRA investors’ choices and prevent them from providing access to working capital for businesses. This then deters job creation. Self-Directed IRA investors as a group hold some $118 Billion is retirement assets. These assets are crucial to our economy because these assets are to be used for expenses in retirement. The proposal could decimate the nest egg of many middle-class savers. Removing the choice to invest in certain assets removes the ability for many to access the same start-up opportunities offered to the uber rich.

What Can You Do To Stop This?

Make your voice heard. Contact your elected officials in the United States House of Representatives and Senate. Tell your story. Let your Representatives and Senators know how this proposal could impact you personally. Not sure how to contact your U.S. Congressional Representative?

Go to: https://www.house.gov/representatives/find-your-representative

Not sure how to contact your U.S. Senators?

Go to: https://www.senate.gov/senators/senators-contact.htm

__________________________________________________________________________

What This Proposal Does Not Affect

  • Brick & Mortar Real Estate
  • Raw Land
  • Precious Metals
  • Lending from IRAs
  • Mobile Home Parks
  • Investing in performing and non-performing debt

When Could This Take Effect?

Congress seems eager to have this and other matters resolved before the session adjourns December 10th. Take action now. Call, write, email or visit the offices of your representatives in the House and Senate.

TEMPLATE LETTER FOUND HERE – https://udirectira.com/template-letter/

How to Benefit from a Private Money Loan

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By Stratton Equities

Banks used to be the only option for real estate investors trying to take out loans. Nowadays, private money lenders are allowing investors to borrow money under more flexible conditions. Banks and traditional financial institutions can reject your loan application for multiple reasons—your credit score, your debt-to-income ratio, employment status, etc.— What private money lenders do is implement a framework that makes it easier and more conducive to be a real estate investor.

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The real estate market moves fast, and it is often crucial to act quickly. But the process of getting a traditional loan through a bank can often be lengthy and complicated. Many of the solutions and loan programs from private money lenders are easier and quicker to get than through banks, which is why private money loans are often better options for real estate investors.

Making investing easier

What private money lenders like Stratton Equities do is accommodate real estate investors.
“Real estate investors, as we all know, don’t have the greatest of tax returns,” Stratton Equities’ CEO Michael Mikhail said. “They move money around, have different trusts, and have different accounts. Banks absolutely frown upon that and they actually hate it. Good luck getting a loan through a bank or mortgage company if you’re a hardcore real estate investor.”
The programs offered by private money lenders are designed for investors, who oftentimes can’t show their income and make a lot of monetary transactions. Companies like Stratton Equities have put in place certain standards that make it easier to take out a real estate investment property mortgage. These include no tax returns, no upfront fees, and no junk fees.
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The closing time for loans from private money lenders is much faster. This element can be crucial for investors, as sometimes the faster you close, the better chance you have at securing a transaction. Also, the LTV (loan to value) ratio is higher with private money lenders. Loans from traditional institutions on investment properties usually max out at 70% LTV, while those from private money lender Stratton Equities can go up to 85%. You’ll likely be spending less through private money lenders too. “If you go to a bank, you’re going to have PMI (private mortgage insurance) with those loans, a few extra hundred dollars per month,” Mikhail explained.

The Loan Process

The first thing you’ll want to do to get a private money or NON-QM loan, for example a hard money loan is to contact a private money lender. As the borrower, you should be ready to provide the lender with information like the location of the property, purchase price, and estimated appraised value. The lender will ask questions to get to know you and your borrowing history. After this, the lender will appraise the property and come up with a loan offer for you. The lender will review the documentation and complete the underwriting process for the loan. This process is usually speedy, but it varies from lender to lender.
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After the loan is completed with underwriting it gets moved to the closing department. As a borrower, you’ll have to sign a variety of documents during this phase, but it is relatively straightforward. The lender will then send the funds to the title company so the deal can be completed. Many real estate investors have found that getting loans from private money lenders is their best option for achieving their investment goals. Be it a hard money or a soft money loan, private money lenders are faster, more understanding, and more lenient than mortgage companies and banks. You have to consider that these companies’ sole purpose is to give loans to real estate investors, so naturally, they’ve found ways to make the process smoother. If you’re thinking of getting into real estate investing, you should definitely take these factors into account.
Contact Stratton Equities, the leading hard money and NON-QM lender, to speak with one of their talented and experienced loan officers at 800-962-6613, email us, or apply for loan pre-qualification today!

Partnering For Profits in High-Priced Markets

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By Bruce Kellogg

The Situation Today

A large number of real estate investors and would-be investors live in high-priced markets. Large cash downpayments are necessary to make a purchase, and even more cash is required to achieve a positive cashflow. This can be discouraging.

One alternative that many in this position consider is “Turnkey Investing”, usually in rental houses in distant locations with local real estate support. This involves locations, companies, persons, and properties that are not well-known or familiar, and which might, or might not, work out. For sure, the investor has only limited control over their investing fate. Then, if a problem arises, the investor has to jump in to right the situation to protect their investment. “Passive investing” this is not.

Investing Locally With Partners

It is not necessary for an investor to send their money thousands of miles to unfamiliar people to invest for them in unfamiliar neighborhoods with properties of uncertain condition and rental prospects. It is definitely possible to invest locally in high-priced properties with a high degree of control by the use of partners.

Three Kinds of Partners

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There are three kinds of partners: 1) a “money partner”, 2) the seller as a partner, and 3) the tenant as a partner. In each case, the approach is to set up the transaction so that the partner contributes in such a way that the investor profits, and the partner receives their benefit from the arrangement.

Partnering With a “Money Partner”

The principle here is for the “money partner” to bring in the funds necessary to make the purchase and set up a reserve to ensure success. There are four investing structures that are attractive based on the interests of the parties: 1) Limited Partnership (LP) 2) Joint Venture (JV) 3) Tenants-in-Common (TIC) 4) Limited Liability Corporation (LLC) The partnership should be designed so that the “money partner” receives about an 8% annual cash return plus an “equity kicker” upon liquidation of the investment. The investor needs to provide for themselves, as well, even if it means profiting only at the end. Obviously, the better the deal, the more the investor will profit and be able to compensate the “money partner”. Investors are encouraged to use a real estate attorney to draw up customized documents for the partnership rather than doing it themselves “on the cheap” with internet “pdf. documents”. This is not a place to economize! (Hint: You can draw up internet documents, then have an attorney review them. That should save some money.)
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As an example, three brothers pooled their funds to purchase a 3-bedroom, 2-bath rental house in Hayward, near Oakland, in March, for an LLC that they had created. They put down $178,750 (25%) on a purchase price of $715,000, with a new 30-year first loan of $536,250 (75%) at 3.1%. They paid “market price”, but the house was being sold by a retiring corporate facilities manager for a national company who had maintained and upgraded it impeccably. They rented it out for $3,500/month in the Bay Area’s ultra-tight housing market. Their overall return is 2.7% on their downpayment, but since all three brothers are in the top federal and California income tax brackets, and “starter homes” in the Bay Area appreciate strongly, and will for the long term, the brothers will see a nice after-tax return.

Partnering With The Seller

There are two major occasions of partnering with sellers. The first is when builder/developers or sophisticated investors enter into a joint venture with the owner of developable land. Typically, the owner contributes the land while the investor obtains the necessary financing, performs the construction, and does the marketing. Then the parties split the profit according to their joint-venture agreement. This is a sophisticated partnering method. The more accessible partnering method with an owner/seller of a property is to use a lease-option. Here, the buyer/”lessee” leases the property on agreed terms and simultaneously negotiates an option to purchase the property in the future at an agreed price and terms. Usually, the buyer/”optionee” pays some “option consideration” for the right to purchase during the term of the lease. This is paid either up-front or on top of the lease payment. It is important to keep the lease and the option separate but attached because judges in disputes have been known to interpret the documentation unfavorably to the investor. Advice from local real estate counsel is important initially when employing your first lease-option. On-line and Realtor® forms can be used, but an attorney should review the first one.
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Another accessible partnering method is to negotiate a “shared-appreciation mortgage” to be carried back by the seller as “owner financing”. The idea here is to structure the note such that positive cashflow to the investor is the result. The seller is usually given some cash flow, but not a lot. Then the seller participates in the profit when the property is eventually sold. This works well with motivated sellers in high-priced areas. Again, legal advice is recommended for the first time.

Partnering With The Tenant

The first method where the tenant is essentially a partner is to use a lease-option, to sell this time, rather than to buy. The idea here is to use the lessee/optionee’s “option consideration” to help pay for the purchase of the property. It can be used as part of the monthly loan payment, or as part of the downpayment. Either way, since it is not a rental security deposit, it will never need to be refunded.
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A second method of partnering with a “tenant” is known as “Equity-Sharing”. Here, the parties purchase the property together on the market. One party, the “resident co-owner”, resides in the property, maintains it, usually makes the entire loan payment, pays taxes and insurance, and might get the income tax benefits. Those are negotiable, as are the percentage of ownership. The IRS allows taxes to be allocated as the parties decide, as long as they are deducted only once. The “investor co-owner” typically makes the downpayment and pays the purchase closing costs. This is all done with extensive documentation, but it is particularly useful for helping first-time buyers get started while allowing investors a high-yield, relatively-passive investment. The author represented one unmarried engineer who set up seven of these to help his relatives get started in homeownership while he grew his retirement plan.

Getting Started

This article presents nine different methods for investing with partners in high-priced markets. It is not necessary to wire funds out-of-state in order to make a profit! Find an expert in the application of these, and get started. Good luck!
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Bruce Kellogg

Bruce Kellogg has been a Realtor® and investor for 40 years. He has transacted about 800 properties in 12 California counties. These include 1-4 units, 5+ apartments, offices, mixed-use buildings, land, lots, mobile homes, cabins, and churches. He writes and edits copy for Realty411 and REI Wealth Monthly magazines. Mr. Kellogg is a recipient of an Albert Nelson Marquis Lifetime Achievement Award, listed in Who’s Who in America – 2019. Mr. Kellogg is available for consulting about syndication, “turnkey” investments, joint-ventures, and other property purchases nationally, and other consulting assignments. Reach him at [email protected], or (408) 489-0131.

Limited Home Inventories & Soaring Prices

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By Rick Tobin

Nationwide during the first quarter of 2021, homeowners with mortgages saw their home equity jump by a staggering 20% as compared to one year earlier. The dollar amount gains for the first quarter (January 1st – March 31st) alone for homeowners across the nation amounted to a whopping $2 trillion in total homeowner value gains, according to CoreLogic.

The average US homeowner gained $26,300 in additional home equity over the past year. According to Experian and CNBC, the average Generation X consumer had $32,878 in non-mortgage related debt such as credit cards, student loans, and car loans. When equity growth exceeds debt in just a few months or within one year, this is usually a positive for homeowners.
In California, the average homeowner gained $11,000 per month in equity during the first quarter of 2021 ($33,000 in three months) as the average statewide home appreciated 39% in just 12 months ending in May 2021 to reach $818,000 per California home. In April 2021, the top three metropolitan regions for year-over-year home price gains were Phoenix, San Diego, and Seattle. The median sales price for the Southern California region in the same April month reportedly appreciated at a pace of $1 every two minutes, according to DQ News/CoreLogic. Each day has 1,440 minutes (24 hours x 60 minutes), so this would be equivalent to a price gain of $720 per day and approximately $21,600 per month over 30 days.

Declining Home Listings and Rising Demand

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Values for products or services usually fluctuate up or down based upon supply and demand. When demand is strong and home listing supplies are low, then home prices rise. Let’s take a look next at some of the primary factors for these suppressed listing supplies and why there’s so much demand in spite of an ongoing pandemic designation: 1. Near record low mortgage rates: Most buyers need mortgages from third-party lenders or mortgage brokers. The lower the interest rate, the more affordable that the monthly mortgage payment is for the borrower. Many younger Generation Z or Millennial buyers or tenants have seen incredibly low mortgage rates for the past 10 years, so they may not remember that mortgage rates in the 2% to 3% rate ranges are shockingly low as compared with previous decades. To better understand how low mortgage rates have become in recent times, let’s review the average 30-year fixed mortgage rate by decade dating back to the 1980s: ● 12.7% in the 1980s ● 8.12% in the 1990s ● 6.29% in the 2000s ● 4.09% in the 2010s ● Near 3% in 2020 and the first half of 2021 2. The CARES Act and foreclosure and tenant eviction moratorium: The CARES (Coronavirus Aid, Relief, and Economic Security) Act was passed on March 27, 2020 by Congress as an attempt to minimize the economic hardship for homeowners and tenants nationwide. These moratoriums or legal postponements included within CARES prevented lenders from foreclosing on delinquent borrowers and stopped landlords from evicting tenants for missed rent payments. In addition, the CDC (Center for Disease Control) also issued their own guidelines which prevented landlords from evicting tenants or landlords would face both significant civil fines and criminal prosecution. As a result, the foreclosure inventory dried up as well because there were so few foreclosure auction sales or tenant evictions which would’ve allowed investors to sell their properties to new buyers and the overall supply of distressed homes for sale plummeted.
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3. Declining home construction numbers: Freddie Mac, one of the largest national secondary market investors along with Fannie Mae, had claimed last year that there was a new home supply shortage of 2.5 million units as compared with the estimated buyer demand. Yet, the US hasn’t surpassed more than 1 million units, or 40% of this 2.5 million unit number, since 2007 when 1.046 million new single-family home units were built. During the depths of the Credit Crisis meltdown, new housing units declined to 430,600 in 2011. The Mortgage Bankers Association (MBA) did forecast that 2021 might finally break 1 million units again nationwide by reaching a projected 1.134 million unit number. California’s new housing start numbers, however, are not as positive as the rest of the nation. Back during the peak of the previous housing market boom in 2005, there were 150,000 new single-family home units built. In 2020, there were only 59,000 new single-family homes developed for a state with a population trending towards 40 million residents.
Some key factors why there are so few new homes being built in California are related to rising and unaffordable prices for land, lumber, steel, appliances, building permits, and environmental-impact or “sustainable living” fees. If a home builder can’t make a profit, they aren’t very likely to take a risk to develop a new housing community.

Multiple Bids and Quick Sales

As per the May 2021 Zillow Market Report, the average time that a listing took to sell, or days on market (DOM), was just six days in spite of home prices reaching all-time record highs in most US regions. The National Association of Realtors defines days on market (DOM) as the number of days the property is listed for sale on the local multiple listing service (MLS) up until the day that the buyer and seller have mutually agreed to the terms signed in the sales contract.
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Because it’s very likely that a listed home for sale will probably have multiple offers, sellers can pick and choose between the best offers that may include all cash offers, 7 to 14 day closings, waiver of all third-party reports such as appraisals and home inspections, and even the option for the seller to remain in the home for another 30 to 60 days rent-free so that the seller has enough time to find a new place.
Most buyers usually need a mortgage to purchase a property. In today’s hot housing market world, buyers and their advising buyer’s agents don’t have much time to get pre-approved from their local bank or mortgage broker. Some lenders may need a few days to a few weeks to formally pre-approve a borrower, depending upon how complete the original loan application package is at time of the loan submission.
Fewer sellers in multiple bid situations will even consider accepting a purchase offer from a buyer who is not formally qualified before the buyer writes up the offer. This is why it’s so important to get pre-approved first before going out with a knowledgeable real estate licensee who understands the local housing trends and searching for properties. If so, you’re much more likely to be successful as a buyer, seller, tenant, landlord, or advising real estate licensee.

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Rick Tobin

Rick Tobin has a diversified background in both the real estate and securities fields for the past 30+ years. He has held seven (7) different real estate and securities brokerage licenses to date, and is a graduate of the University of Southern California. Rick has an extensive background in the financing of residential and commercial properties around the U.S with debt, equity, and mezzanine money. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), equity funds, and foreign money sources. You can visit Rick Tobin at RealLoans.com for more details.