How To Avoid The Pitfalls Of Hiring A Bad Contractor

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By Gary Massari 

One of the biggest pitfalls you can make is to hire a contractor without a check-off list.  If you fail to interview, prescreen, and check the contractor’s references, or set up the proper working relationship through the six critical documents needed to protect you and your investors when rehabbing, you could be facing serious problems.

I will share with you one of my most trying experiences when doing a rehab out of state in Atlanta, Georgia.  I hired a contractor on the recommendation of a new project manager without properly doing my research and homework. As a result, the job turned into a disaster with a 9 month time over-run.  This contractor under-bid all the other contractors we were interviewing, and we awarded them the job.  We put together a contract, scope of work, Insurance indemnification, and payment schedule.  Sounds good so far. Well, here is what happened.

The contractor kept asking for more money than what was on the agreed payment schedule, and after 3 months I had paid the contractor 80% of the entire budget with only 25% of the work done.  The contractor started falling behind with one excuse after another, claiming problem after problem. After each inspection, they would ask for more money to fix the new problems.  After I asked for all the paid receipts, the contractor ignored me.  They wouldn’t return my phone calls, or emails, I knew the contractor was going to skip out on the job with the money!

The contractor was gone with over $63,000 of rehab money with only 25% of the work done!  I was screwed!  So let’s go over the pitfalls so you don’t make these mistakes. All the signs were there. I should have known!

There are six critical documents you need to have the contractor sign immediately, before any payments are made:

  1. Independent Contractor Agreement (Make sure it is reviewed by an attorney.)
  2. Final Scope of Work (Line-item by line-item, with part numbers)
  3. Payment Schedule with 25% hold-back for last payment
  4. W-9 IRS Form
  5. Insurance Indemnification Form, with you as a loss payee, and Workers’ Compensation Insurance
  6. Final and Unconditional Lien Waiver

Let’s avoid pitfalls:

  1. All changes must be in writing and signed by both parties.
  2. Before any payments are made require copies of receipts.
  3. Make sure you have a Release-of-Lien signed before making the final payment.
  4. DO NOT get involved running errands for the contractor.
  5. If the contractor runs into problems and asks for more money, make them turn in change orders listing materials and labor.
  6. If the contractor takes on another job, and your project starts slowing down, make sure you put in a penalty on a per diem
  7. Make sure the contractor shows up daily to the job site.

Unfortunately, no matter how experienced you are, and how many rehabs you have done,  even a contractor you have been using can turn on you and make you and your project miserable.

Use the 6 critical documents I have listed, and make sure you use written Change Orders. Sign off on everything.

Hope this article helps you to avoid the pitfalls that can be very costly.

Gary Massari CEO of REI Fortunes, https://reifortunes.com

Bruce Kellogg, Real Estate Consultant

IS IT POSSIBLE TO INVEST IN REAL ESTATE PART TIME?

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By Glenn Mananeng

Real estate investing is a great way to build wealth. This is an opportunity to invest your savings while working, studying or just enjoying life with family and friends as a passive investor and spending minimal or spending more time on projects as an active investor. This surely is a big decision; therefore, you need all the pros and cons from experienced individuals in the real estate industry.

New investors often find themselves lacking in time or resources to commit 100% in the business, leading them to ponder if it’s possible to do it part time. But is it possible though? Short answer, of course it is! Allow us here at Unique Wealth Education to show you the pros and cons of real estate investing.

PROS

Supplementary income – If you have another job on the side, you basically have two sources of income. This gives part time investors the advantage of having steady cash coming in while your real estate investment is generating cash flow or appreciation.

Fallback career – Part time investing lets you test out the waters. As good as it may seem, no industry is perfect and some have more risks involved compared to others, especially if you don’t have a mentor guiding you. Your investment properties will generate the income by itself and you can continue your current job. A win-win situation if you ask us!

Brand new network – Since you’re doing this part time, you probably have someone working with you. This gives you the opportunity to meet up with clients and fellow investors who can share valuable experiences. You might even pick up life lessons that will help you in other aspects along the way.

Flexibility – If you decide to have your investment driven by a reputable property management company with a reputable track record, you can go on your with your daily routine and agree on a convenient time to address any questions/issues. This is the case with many investors and it works out great.

CONS

Time-consuming – If you are a landlord, handling two jobs isn’t easy, especially if you decide to oversee your investments, such a rental homes (depending on the # of properties/units) without the expertise of a property management company. Dealing with the issues of getting a qualified tenant, maintenance issues that arise, and bottom line keeping your property rented continuously is a job.

Avoiding bad deals – If you are flipping, it is crucially important to be able to locate and asses properties in the right location, that has either a high rental demand or saleability. This is something that you can learn by being around experts that can help you assess the property by using current and future projected market data, a proforma and specific strategies. You will lose a lot of money if you buy in the wrong location and use the wrong (highest or wrong comparables) comps.

Not having a reliable construction contractor that can give you an accurate bid for the renovations prior to the purchase, can really hurt you if your budget is off. This is why investors (wholesaler or fix and flipper) should learn how to roughly budget the cost of renovations, as you never want to have the fate of my investment put into 1 contractors hands.

Lastly, weather your renting or flipping, have the right finishes. Take great pictures (before and after) when the project is completed, try to time the listing between school years which is the hottest selling and rental season.

By now, you probably realized that doing this part time or not, you need guidance from experienced real estate investors. Real estate investing can demand a lot of work part time or full time and this is particularly true when you have multiple properties already. Here are a few tips to do it effectively:

Find the right niche

You’re going to have to look into a strategy that has a more hands-free approach. It can get hard to choose from a vast array of real estate strategies out there. You only have a limited amount of time to commit therefore try looking into one what works for you and stick to it. The more you familiarize and master that particular niche, you’d be surprised how much less time you’re able to spend to produce results.

Generate leads

Focusing on lead generation can score you with the best deal in the real estate industry. Setting at least an hour or two a day (preferably at least 20 hours a week) marketing your business to generate leads can be a good start. Just a reminder, you have to understand that not all goods leads convert into successful deals prompting you to work even harder. You can ask around for suggestions to an effective lead generation program that can help you have a source of qualified leads and help yourself to a lot of data that meets your business criteria.

Expand your network

You need to have a network of professionals in real estate. Investing in this industry is a “people” business. You need to work with different types of people such as buyers, sellers, loan officer, mortgage brokers, appraisers, and the list goes on. Each person can provide a link for you to build a strong network.

Find a reputable mentor

Even the best investors were under the tutelage of a mentor. Joining a real estate team or finding a partner who does investments full time can provide insight and many benefits. These professionals are experienced, they know amazing deals. Factors like the right time to buy or sell, managing any risks that may come along the way, and increasing your chances to close the deal is a daily routine for them.

MORE INFORMATION:

Unique Wealth Education has a broad network of individuals who share the same passion in the real estate business. To help you expand your knowledge about the industry and be involved with professionals who are already active in the business, we invite you to our monthly meetup every first Thursday of each month. To learn more, call (734) 224-5454 or email us at [email protected]

Why Choose Probate Investing?

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By Sharon Vornholt

Probates have been my #1 source of leads for more than a decade.  I love working with probates, however that’s not true for all investors.  The reason this niche is so good is because you will never run out of leads, and the heirs almost always need to sell the property.  It’s usually just a question of whether it’s a “pretty house” that will be listed (listen up Realtors), or it’s an ugly house needing repairs and updates that will be sold to an investor.  It’s a pretty straight forward choice in most cases.  Whether it’s a pretty house or an ugly house, there is so much opportunity here.

Why Do Investors Shy Away from Probates?

I think there are 2 main reasons investors are reluctant to work in the niche of probates.

1. First of all, they just don’t understand how the probate process works.

Investors think that they have to know a lot of legal stuff which just isn’t true. Since probate is a legal process, you do need to have a basic understanding of the probate process and the steps involved. Specifically, you need to know when the house can be sold.  One other thing that will help you tremendously is being familiar with the terminology used in probate.  Knowing these two things will allow you to show up as the “expert” to help them with their problem which is an unwanted house.

2. The second reason is that their mindset holds them back.

Probate investing isn’t that much different than other niches in real estate, particularly when it comes to off-market deals. There will be things you need to learn that are unique to that particular niche.

Because the property is part of an estate, it makes a difference in the way people feel about it.  Investors often feel like it’s creepy working with probates. Or they feel like they are taking advantage of someone at what is undeniably one of the worst times of their life when they make a low-ball offer.  They feel guilty even when it’s a fixer-upper that needs a lot of work.

It’s important to understand that it couldn’t be further from the truth.  In almost every case, the property must be sold before the estate can be closed.  That means that the heirs have to take care of the business of settling the estate, before the they can collect what they have inherited.

Here is the main thing to remember about probate; this is a great niche for investors because the heirs almost never want the house.  They just want the cash sitting in that property. This is also a very profitable and untapped source of leads for Realtors. In a seller’s market like we’re in now, a large percentage of those properties will likely be listed on the MLS. I’ve been doing this a long time, but I don’t know of a single Realtor in my area that specializes in probate property. As I said before, there is so much opportunity for both real estate investors and agents.

Showing Up as the Expert

Remember that marketing is how you get leads, and branding is why they choose YOU.

When you are able to show up as the expert to talk to a motivated seller, they will choose you over the other investors every single time because of your knowledge about probate.  The seller will be able to identify with you. They will also be confident they’ve made the right decision because they view you a trusted expert.

Armed with your knowledge about probate, all your marketing will get better results because you will have built a rock-solid brand around your expert status.  You begin this whole process by changing your mindset.  That’s the first step. Then once you have learned the terminology, you know the steps in the probate process, and you understand how to market to these folks, I can promise that you will be light years ahead of your competition.

 

Sharon Vornholt

Sharon Vornholt is the owner of Innovative Property Solutions, LLC in Louisville, KY.

Sharon owned and operated a successful home inspection company for 17 years. She began investing in real estate in 1998 and became a full time real estate investor in January of 2008.

Sharon specializes in wholesaling, and is also an experienced landlord and rehabber.

In addition, Sharon is an internet marketer and also writes articles for several national real estate sites. Sharon is the author of a popular real estate blog called the “Louisville Gals Real Estate Blog”. For your FREE REPORT “Probates and Absentee Owners: Your Fast Track to Real Estate Riches”, stop by her blog at: http://LouisvilleGalsRealEstateBlog.com.

To find learn how you can become the probate expert in your area, check out my course, Probate Investing Simplified

 

How Much Of A Threat Are Zillow & The New iBuyers?

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By Fuquan Bilal

A new breed of iBuyers have their sites on transforming and taking over the real estate industry. How much of a threat are they really?

Hundreds of millions of dollars are being thrown into this new real estate strategy, and some of the most powerful companies are behind it. Should smaller real estate investors be worried?

The Rise of the iBuyer

‘iBuyers’ are the new name given to online home buyers who promise owners and sellers a quick transaction. The pitch is generally a cash offer and fast closing. While there are many small wholesalers across the country which may fall into this category, most notable are the big giants.

Zillow has moved into this space with its Zillow Offers program. Opendoor has attracted hundreds of millions of dollars in investment capital from funds like Softbank. Opendoor has also partnered with brokerage Redfin to buy up homes. Offerpad has partnered up with Keller Williams. Opendoor has also partnered up with home builder Lennar to promise a seamless transaction to cash in your old home and upgrade to one of Lennar’s newly built homes.

Buying the Business & Manipulating the Market

Zillow is notorious for losing billions of dollars in attempts to buy up different segments of the market. Their plans call for very slim margins and fast house flips. Opendoor smells a lot like other Silicon Valley startups which may be happy to lose a lot of money to push their competition out of the market.

Zillow is particularly worrisome due to how much influence they have over perceptions of home values. It’s easy for them to manipulate prices down when they want to buy, and up when they want to sell.

When you have a billion dollars to blow, it is pretty easy to artificially influence market prices in a given area and drown out the competition.

It’s something to watch.

Threat to the Economy

Perhaps the biggest threat these giant iBuyers present is to the housing and financial markets and the economy in general. While they may not yet be buying more than a few thousand properties each year, if they fail, they could leave many properties in foreclosure, cause huge losses for their investors, Wall Street and stockholders, and help vaporize billions of dollars from the economy.

These companies do not yet seem to have the experience to do this well. Their margins are slim. They could get stuck with a lot of inventory. Of course, this could be a great thing for those looking to buy up real estate in bulk.

Are iBuyers a Threat to Smaller Investors?

These giants may be of more help to smaller investment firms and individual investors than most realize.

It is true that they have a lot of advertising power and they may be happy to overpay for properties and can afford to outbid you. Yet, there is still a lot of room for everyone else.

To start, they are normalizing this form of buying and selling houses, which is great for everyone else.

So far the data shows that around 50% of offers they make are turned down by sellers. Plus, they charge hefty fees for the privilege of selling to them. Often 7% of the sales price or more. They still haven’t fully automated, meaning the process is much more traditional, involving inspections and Realtors, than they let on. Many sellers are going to be resistant to the fact that companies like Zillow are going to low ball them, and then put the listing on their own site for a profit the next day.

More significantly, these giants are moving slow. They are only in certain cities. Their buying criteria is pretty narrow. That leaves a lot of units for others to buy up. They may be generating a massive amount of Realtor leads in this way, but smart investors can leverage this noise to their own benefit.

Lastly, these iBuyers could become major buyers of your own real estate product too. Find the deals at the right prices and instantly flip them to Zillow and Opendoor.

It’s all about knowing who is in your market, what they are buying and for how much, and how you can use that to your own advantage.

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund

Fuquan Bilal

Fuquan Bilal founded NNG in 2012 with the principal mission of capitalizing on the growing supply of mortgage notes in the interbank marketplace. Mr .Bilal utilizes his 17 years of residential and commercial real estate success to identify real estate opportunities and capitalize on them. To date, he has successfully managed three private mortgage note funds that primarily invest in singlefamily performing and non­performing mortgage notes. His financial acumen and proprietary set of investment criteria enable him to purchase underperforming real estate assets at a deep discount of face and market values, thereby increasing the value of the assets. This, coupled with his ability to maximize the use of leverage, enables him to build strong, secured portfolios with solid passive income flows.

Generational Opportunities For Creating Cash & Wealth In Real Estate

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Featuring Gerry Guterman 

The real estate market cycle appears to have come full circle again. This is one of those moments in which many will go broke, while others achieve substantial leaps in their wealth and incomes. It’s all about knowing how to take advantage of the market and the negligent moves of others.

While there are plenty of real estate investors still blindly and bullishly thrashing away in the market, and many uneasily eyeing where things are headed from the sidelines, the truly experienced are stepping in with predictable investment strategies. They see the same careless blunders being made by many of the same characters. They know where the market is going. They see the big opportunities to buy smart and convert assets into cash.

Where We Are in the Real Estate Cycle Now

It’s not rocket science. It’s no longer a closely guarded secret that only a few have the data on. All real estate professionals really need to do is look back at what was happening in 2005 to 2010. Then compare that to what’s happening around them today. You’ll see the same glaring mistakes.

Interest rates are going up, lending is tightening, oversupply is becoming an epidemic and too many people are paying too much for units that aren’t really a good fit for the market.

There are really only one of three choices to make in this phase of the market:

  1. Keep blindly investing and hold on as the sinking ships go down
  2. Do nothing and miss out on the best asset prices
  3. Replicate the successes of the biggest winners in similar historical cycles

Gerald (Gerry) Guterman and his firm sold out all of their real estate assets in 2006. They did it again in 2016. Since 1978 they’ve delivered 58.3% returns to their investors. Now Guterman Partners is in acquisition mode again.

Experience is Everything

Guterman Partners has managed almost 100M rentable square feet of real estate since 1969.

Among the buildings and locations they’ve been involved in that you may recognize are:

  • Galt Towers, Fort Lauderdale
  • Gramercy House, New York
  • Sutton Tower, New York
  • Ibis Club Apartment, Naples
  • Memorial Building, Houston
  • The Stanhope, New York

Gerry who is Senior Principal Partner and Chief Investment Officer at Guterman Partners has what is probably one of the strongest resumes in the business when it comes to being a sought out industry expert as well.

This includes being a guest lecturer at Cornell University. Being the founding benefactor of several charitable organizations and medical research facilities. Plus trusteeships and directorships with the Metropolitan Museum of Art in New York, New York City Opera and Dallas Opera, as well as The Rent Stabilization Association of New York.

On an international level Gerry has been Chairman of the Committee on Banking and Finance at the United States Center for Strategic and International Studies in Washington, DC. He has been an advisor to the governments of Romania and Austria.

So, if anyone has the depth and breadth of experience to really understand what’s going on in the market, and the track record of knowing how to manage real estate assets during these times, Gerry is definitely up there at the top of the list. We were hugely blessed with the opportunity to catch up with him for an exclusive interview and his take on what’s happening now.

Once Again, Generational Real Estate Opportunities

Gerry recently published the latest of his white papers covering the state of the market, and where he sees the opportunities now.

Among the current challenges he tackles in his report are:

  • The increasing number of rental to condo conversions
  • Reducing value of condominium units
  • Cash flow problems due to rising costs and rates
  • Difficulty in refinance for developers
  • Over-leverage by builders
  • Lack of product to market fit
  • Reluctance of lenders to provide more debt
  • Oversupply of luxury condo units

What this all leads to is that many of these developers are sitting on a huge amount of inventory. Inventory on which they can’t really reduce retail prices on themselves. While they are facing more cash flow crunches and challenges in restructuring debt. In some cases individual developers in NYC are sitting on 1,000 or more unsold units. They need out.

It’s a repeat of 2004 to 2008 all over again.

Though when the same problems show up, the same opportunities for creating great cash and leaps in wealth arise too.

Strategies for Taking Advantage of the Current Market

Gerry told us his firm currently sees opportunities in:

  • Medical offices
  • Retail strip plazas
  • Family sized apartments

This is of course restricted to certain states and markets. Most notably outside of some of those facing some of the most fierce political and regulatory uncertainty at the moment.

Among Gerry’s favorite strategies in this phase of the market is bulk buying of condo units. For example, 80 or so units at a time. Those units are converted or resold. Typically within 19 months.

3 Big Differentiators

Three things that Gerry tells us have really helped the firm continue to excel include:

  1. Making your money on the day you buy
  2. Focus on demographics and market fit
  3. Focus on the wife as the decision maker

Gerry says you don’t make a dollar on the day you sell. It’s all about what you are buying at. Guterman Partners targets prices of 45 to 55 cents on the dollar. That gives them plenty of room to absorb market fluctuations and to move units fast at a discount from the original list price, while still enjoying hefty profit margins.

However, not any product will do. It has to be desirable to the consumer. He says many speculators, converters and developers have had no interest in doing any homework on what consumers really want. They may put up stylish buildings. Yet, there aren’t many families who are really trying to move into micro-apartments in some of the better neighborhoods of Manhattan. He adds that you also have to consider who the real decision maker will be and what is most important for them. That often includes size of the unit and security features.

Guterman Partners is now raising capital for its 47th year. The current fund is a 506c offering for accredited investors, which pays out a cumulative preferred return of 7% to 12% and 50/50 split of profits.

Find out more about the new fund, the firm’s track record and Gerry’s white papers on the outrageous pricing of real estate, the tricks funds are using to try to get investors to accept lower returns, and the rules to successfully investing in real estate at GutermanPartners.com.

Where The Mortgage Notes Are Now

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By Fuquan Bilal

Where are the mortgage notes for investors now?

The last few years saw some compression of yields and increased challenges in finding profitable notes and attractive returns for investors. There are deals out there, and there could be many more coming up, if you know where to look.

Biggest Multifamily Servicers

Multifamily loan originations have been setting new records over the past few years. For those seeking to tap into bulk pools of notes, these are the largest commercial loan services in the multifamily space now.

  1. Wells Fargo $682B
  2. PNC $655B
  3. Keybank $273B
  4. Berkadia $268B
  5. CBRE $208B

New York

Every real estate market in America is unique. Each is at its own phase in the larger cycle and has its own dynamics. New York unfortunately, appears to have fallen over a cliff into a new mess.

In the long run people from all over the world will always want to live in NY. Yet, whether it is crazy new mansion taxes, transfer taxes, sky high and rising property taxes, and taking away tax breaks, or overbuilding and lack of fit for the market, certain segments of the Empire State’s real estate market seem to be in free fall mode.

Retail vacancies are turning once popular shopping strips into apocalyptic looking ghost towns. 25% or more of new condos built since 2013 still aren’t sold. Median residential sales prices have fallen 17% year over year.

Some very big dealmakers have recently lost properties worth tens of millions of dollars to foreclosure. There may be more individuals who decide it is easier to walk away than to stomach owing far more on their homes than they are worth. So, from commercial mortgage notes to residential ones, there is plenty of opportunity to grab assets and debt at a discount.

Hot Flipping Cities

Watch the cities which have been among the hottest for flipping houses over the past few years. In some cases property prices tripled since 2008, with modest homes going from $50k to being flipped for $150k. There may be some substantial roll back in those prices coming. Those stuck with inventory may present prime opportunities for acquiring the property or debt at a discount.

Many new investors have tried to jump on the house flipping bandwagon inspired by ‘reality’ TV shows. Most new investors struggle with the big learning curve, and make way less than expected. They don’t have the expertise, teams, and systems to do it efficiently and are getting stuck. There will be plenty of private money loans up for sale that are backed by these properties.

The economy we live in is changing rapidly too. We are going through one of the most massive shifts in history. 80% of jobs are changing. Many property owners and buyers have over leveraged themselves in the past few years, and have been relying on outdated industries and jobs to pay the bills. Those who don’t adapt fast enough will lose their homes, unless they are fortunate enough for a new note holder to come along and provide a reasonable and attractive workout.

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund

Fuquan Bilal

Fuquan Bilal founded NNG in 2012 with the principal mission of capitalizing on the growing supply of mortgage notes in the interbank marketplace. Mr .Bilal utilizes his 17 years of residential and commercial real estate success to identify real estate opportunities and capitalize on them. To date, he has successfully managed three private mortgage note funds that primarily invest in singlefamily performing and non­performing mortgage notes. His financial acumen and proprietary set of investment criteria enable him to purchase underperforming real estate assets at a deep discount of face and market values, thereby increasing the value of the assets. This, coupled with his ability to maximize the use of leverage, enables him to build strong, secured portfolios with solid passive income flows.

CARING FOR TENANTS WITH DISABILITIES

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By Glenn Mananeng

All tenants have rights to housing and those with disabilities are no exception, additionally, those with disabilities have unique rights under state and federal law. We often hear about people being evicted from the rental property and many of these people are people with disabilities who cannot afford rent or fall behind due to medical bills or low pay from Social Security benefits.

Millions of Americans are affected by disabilities struggle to find a place to rent. In fact, 1 out of 5 people in the U.S. have a high chance of acquiring some type of disability according to the Census Bureau. It is of utmost importance to understand their rights in order to provide a proper place for them to live comfortably.

QUALIFYING DISABILITIES

The Federal Housing Act (FHA) has set a very broad description as to what qualifies as a disability. Under federal law, these disabilities have certain qualities such as:

Must limit one’s major life activities
This covers anything as simple as walking, talking, breathing, manually performing tasks, or caring for oneself. If it significantly affects at least one or more of these activities or something similar, the disability should be considered.

It doesn’t have to be obvious
The disability does not have to be noticeable to other people regardless of how much time they see or spend time with you. For example, a person suffering from asthma may seem normal to anyone unless there is an obvious breathing issue due to an emergent attack. A landlord is not legally permitted to ask a resident or prospective applicant about a disability.

Doesn’t require the use of an assistive device
People with mobility disabilities can still qualify under FHA rules even without the need of assistive devices such as wheelchairs, canes, or walkers. The same also applies for those with hearing impairments where there wouldn’t be a need for a hearing aid.

Physical disabilities aren’t the only ones included
Mental illness, chronic fatigue, and learning disabilities are included as part of the FHA’s definition.

Addictions are included as well
Individuals suffering from drug or alcohol addiction can qualify as long as they are currently part of a rehabilitation program.

EMOTIONAL SUPPORT ANIMALS (ESA)

As the name implies, they provide support and comfort especially for those suffering from mental health issues. They help their owners cope with daily life and alleviates their condition a little bit better. There is a clear difference between a service animal and an emotional support animal.

The former is well-trained to perform specific tasks to support a physically disabled person. One of the most common service animals are guide dogs for the visually impaired. ESAs on the other hand provides support and companionship to people with mental health problems.

If you’re in need of such a companion, you need to request an ESA letter from a licensed mental health professional (therapist, psychologist, or psychiatrist). The letter should confirm your mental condition, explain how limiting the disability is when it comes to day-today activities, elaborate how an ESA helps improve your well-being, and should be signed by the medical professional.

As long as one has an ESA letter, the landlord can’t deny housing to that individual. This means that the landlord cannot charge a pet fee even if the rental property follows a NO PET POLICY.

WHAT IS REASONABLE ACCOMMODATION?

This refers to modifications in the rental property which will enable the tenant with a disability to fully use amenities and features of the home as easy as possible. Some of these may include adding a ramp for wheelchair use, widening of doorways, adding grab bars in the bathroom, and even lowering kitchen countertops.

In the event that the landlord receives government funding to maintain housing, there is a chance that they have to cover the renovation costs. However, if a landlord accepts Section 8 tenants, they would not have to pay for the modification.

If a tenant needs the modification to the property but can’t afford the cost, there are a few resources to help fund it. Local fair housing centers are available in almost every community. In Michigan, most of them are divided into different areas throughout the state from Metropolitan Detroit, Southeast and Mid, Southwest, and West Michigan.

A landlord cannot deny or refuse reasonable accommodation to their rental property not unless it would somehow change the layout of the whole building, be unreasonably expensive or impossible to do so, or would pose a physical hazard to other tenants.

Regardless of one’s situation, no one shouldn’t be denied housing. Landlords should always treat tenants equally despite disabilities. There’s nothing more important than working with professionals who have a deep understanding of Fair Housing Laws, especially people with disabilities.

For additional information about Michigan Fair Housing Laws, you can check out our Tenant Section here. To learn more about property management services that we provide, you can call us at (734) 744-5080 or send us an email at [email protected].

Can You Micro Flip Mortgage Notes?

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By Fuquan Bilal

There’s a lot of talk about micro-flipping real estate out there. But can you micro-flip mortgage notes?

The Micro-Flipping Craze

If you’ve Googled anything to do with real estate lately, you’ve probably been inundated with ads for micro-flipping. Almost every podcast, email and social post out there is talking about the same micro-flipping stories.

It’s a great twist of phrase on a very old strategy. Some people have been doing extremely well at it for years. So, what is it? What are the pros and cons? Can you apply it to notes instead? If so, why should you?

What Is Micro-Flipping?

Micro-flipping is the new term for wholesaling real estate. Wholesaling means buying or contracting to buy a property, and then assigning your contract or flipping it as-is, without doing any rehab work. If you have a good buyers list and connections, or can do this effectively online, you can be in, out and paid fast. It’s a high volume sport.

This has been made a lot easier thanks to all the access to data and software and online platforms we have today.

This form of real estate investing is made to sound super easy. That may be luring in a lot of people who think it is a lot easier than it really is. Not everyone is going to get the results they were sold on. Some will find it the easiest and fastest money they’ve ever made.

The real con of this strategy is that everyone is being sold on trying it. At least tens of thousands of people are sold on using the same software, data and marketing to do this. So, what you get is a lot of people bidding on the same deals, trying to sell them to the same buyers, and engaging in long broker chains. You don’t make money when you are running with the herd.

How To Flip Mortgage Notes

So, what if you could apply the same benefits of micro-flipping houses to the less crowded mortgage note space?

There are at least four ways to try this:

  1. Acquire individual mortgage notes and flip them as-is for a reasonable markup
  2. Buy pools of mortgage notes at deeper discounts than others can, and sell the individuals notes for more
  3. Acquire non-performing loan notes, work them out, resell them as more valuable reperforming notes
  4. Use non-performing notes as an avenue to acquire the collateral property and wholesale that to all of these new micro-flippers

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund

Fuquan Bilal

Fuquan Bilal founded NNG in 2012 with the principal mission of capitalizing on the growing supply of mortgage notes in the interbank marketplace. Mr .Bilal utilizes his 17 years of residential and commercial real estate success to identify real estate opportunities and capitalize on them. To date, he has successfully managed three private mortgage note funds that primarily invest in singlefamily performing and non­performing mortgage notes. His financial acumen and proprietary set of investment criteria enable him to purchase underperforming real estate assets at a deep discount of face and market values, thereby increasing the value of the assets. This, coupled with his ability to maximize the use of leverage, enables him to build strong, secured portfolios with solid passive income flows.

Allowing a Lender to Cross Collateralize Against Additional Property

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By Edward Brown

There are times when a lender is going to ask for additional [real estate] collateral in order to make a borrower a loan. The most likely scenario for this is when there is not enough equity in the target property. Other scenarios include a borrower with less than stellar credit, or the type or quality of the target property may not be enough to satisfy the lender to make the loan, as most lenders are more interested in making loans that will pay them back instead of facing foreclosures. For this reason, the lender may ask the borrower to put up additional collateral satisfactory to the lender so as to give the borrower an incentive to avoid defaulting on the loan.

In many cases, this cross collateralization may not be something the borrower worries about, as the borrower intends to pay the lender in full. The general plan is for the borrower to refinance the target property at a point where a new lender does not require cross collateralization, pay off the existing lender, and the existing lender releases both properties; however, what happens when the borrower sells the crossed property, or has the opportunity to refinance the target property, and there is not enough to pay off the current lender who crossed?

The danger here is that the lender may hold up the sale because it does not want to release their lien until they are paid in full. For example, let’s say the borrower owns a rental house that is worth $500,000 and there is a first mortgage in place for $200,000. The borrower wants to buy another rental for $800,000 and has $250,000 to put as a down payment. The borrower asks a lender to loan the remaining needed $550,000, but the lender is not comfortable with the LTV [68.75%], so the lender asks what other real estate the borrower owns, so it can cross collateralize its $550,000 loan. The borrower mentions the other rental, and the lender decides to ask for crossing on the first rental. Thus, the lender has lowered its risk because of the equity in the first rental.

Now, let’s say that the borrower receives an unsolicited offer for the first rental of $525,000, and he wishes to accept it. If there was no cross collateral against this property, the borrower could accept the offer, pay off the existing first of $200,000, and pocket the $325,000 remainder. However, because the rental has been crossed, the lender has $550,000 against the property in second position. That means that there is technically $750,000 of liens showing up against the property. The borrower cannot accept the $525,000 offer without having the second [the crossed loan] release its lien.

For this reason, it is imperative for there to be an agreed upon release price in which the lender agrees ahead of time to release its interest in either properties for a specific sum. It does not necessarily have to be just the remaining equity in the first sale [$325,000 in our example]. The release price could be a smaller amount. It could also be a larger amount [up to what the lender is owed]. If the lender desires more than the $325,000, the borrower would have to come up with additional cash in order to transact the sale. This may not be all bad, as the crossed lender’s loan has then been reduced.

For example, if the crossed rental was sold at a 5 CAP rate, and the crossed lender’s interest rate was 7%, the borrower may choose to sell the rental and come up with money to satisfy the lender should the lender want more than the $325,000 net proceeds from the sale. In other words, there are times when it makes economic sense to come up with money in order to sell property. Another similar scenario like this occurs when there is a blanket loan covering multiple properties, as is the case when an apartment building has been converted to condos and the owner of the building desires to sell off one condo at a time. A typical lender on the building will usually have release prices [agreed ahead of time] under which the lender will allow each unit to be sold and the lender takes a specific amount [or percentage of each sale] as a pay-down of its loan.

The release price can be negotiated between borrower and lender. Because the lender did not take the new property alone due to the high LTV, many times the lender will reduce its pay-down to where it feels comfortable with a specific amount of its loan on the remaining property. To make this point clear, let’s say that the lender usually makes loans for rental properties at an LTV of no more than 55%. Since the new rental was purchased for $800,000, the lender would be fine with a loan balance of $440,000. Thus, in order for the lender’s exposure to be reduced from its original loan of $550,000, it may be willing to accept $110,000 from the sale of the first rental in order for the lender to release its crossed lien. In this case, the borrower would sell the first rental for $525,000, pay off the first mortgage of $200,000, and pay the lender in second position $110,000 [to release its crossed lien of $550,000], and pocket the rest of the proceeds from the sale [$215,000]. The borrower would keep $215,000 from the sale, and the only debt on the second rental would be the lender [who crossed] of $440,000.

Borrowers who overlook release prices [a specific clause in the loan documents] risk having to ask the crossed lender after the fact under what circumstances the lender would be willing to release the first property. If there is no agreement ahead of time, the borrower runs the risk of being at the mercy of the lender, as the lender does not have an obligation to release its lien for less than what it is owed.

Many lenders may be willing to work out a reasonable amount for releasing either property, as it is in the lenders best interest to reduce the borrower’s default risk. Having more than one property as collateral sounds good in principle, but the added exposure of having a loan spread out amongst more than one property may not be worth the risk. Each situation will be different, but, as a general rule, it is more conservative from the lender’s viewpoint to have a low LTV on one property compared to having crossed on one or more additional properties that have a higher LTV. Additional costs of foreclosure, if needed on more than one property, as well as having to deal with an existing first mortgage [keeping them current, so that lender does not foreclose] may not be a desirable solution to protecting the lender’s interest.

This is the primary reason why typical banks do not usually cross collateralize their loans. Most banks do not like a lot of moving parts. They want to focus on one property and the risk associated with it.

Borrowers should make sure that the lender does not hold any of the borrower’s properties hostage and that release prices are set at a point where the borrower feel comfortable.

Edward Brown

Edward Brown currently hosts two radio shows, The Best of Investing and Sports Econ 101. He is also in the Investor Relations department for Pacific Private Money, a private real estate lending company. Edward has published many articles in various financial magazines as well as been an expert on CNN, in addition to appearing as an expert witness and consultant in cases involving investments and analysis of financial statements and tax returns.

5 Ways of Getting $10M to Invest in Real Estate

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By Fuquan Bilal

Need more money to invest in real estate? Where can you get another $10M in capital from?

The ironic thing about money for real estate is that you rarely have too much of it. You can for a little while, especially if you’ve raised a lot and have your latest deal oversubscribed to. It’s happened to many funds recently. Though sooner or later, the reason for not doing more always comes back to “If only I had a little more money I could…”

Maybe you want to take down a big commercial building, or need to have millions to earn a seat at the table and ability to bid on the note pools and bulk REO deals with the most profit. Or perhaps $10M is just the next milestone you’ve set for yourself. Where do you get it?

Commercial Real Estate Loans

$10M is a very small number in commercial real estate. In fact, there are many, many lenders who don’t want to touch small balance deals for less than that. It’s their minimum loan amount.

You may have to find a great deal with lots of equity, or raise $1M for down payment, but this kind of money is out there to borrow.

Real Estate Crowdfunding

This can be done publicly or privately, and for debt or equity or even donations. If a prototype for an off brand smart watch (not even Apple) can raise $10M in a few hours on a crowdfunding platform like Kickstarter, shouldn’t you be able to raise a lot more than that for some prime real estate with great yield or value add potential?

Here’s the thing. Most crowdfunding campaigns fail. Either because there was no strategic roll out, or the organizers didn’t have the marketing budget designated to invest in it. It might cost you $100k or $1M to raise $10M, but that may still be worth it.

Partnerships & Syndicates

Partnerships are probably the most obvious way to raise capital to invest in real estate. At least after loans. Depending on who your contacts are, that may come in $50k or $1M or $5M increments.

If just being involved in a deal of this size is what you want, then maybe you don’t even need the $10M. Maybe you can put your $1M into an existing syndication with the right connections, management and systems in place – and benefit from big deals like this, without having to raise money at all. You might even be the one getting the preferred return, without any of the work.

Launch a Startup

As crazy as it may seem, there are still billions of dollars being plowed into startups. It may make little sense given the risk of volatility and how poor and low value you think the ideas that are being funded are. So, why not do better than them? If you can make contacts that want to invest in startups instead of just real estate, give them a startup to put their money into. You can call it a tech company in the real estate space, or a real estate or finance or fintech startup. Put a nice appealing twist on it, get help with a great pitch deck and float the opportunity.

Make $100M for Someone Else

If you make $100M for someone else, they shouldn’t have a problem cutting you a check for 10% of that, right?

Maybe you don’t want to do all the work involved in acquiring, managing and disposing of $100M worth of real estate. Yet, it may be far easier to help someone else raise that kind of money, sell that much real estate or buy that much property. Then get some reasonable compensation for that. Or you can leverage arbitrage and invest that money into another fund and keep your slice. Then you can invest your $10M in whatever you like.

It’s not that much when you really start looking at the numbers. That much property can change hands in a day in Manhattan alone. These days $1B seems to be the new minimum property price tag for Google and Apple. $100M is loose change for them.

How will you raise your next $10M?

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund

Fuquan Bilal

Fuquan Bilal founded NNG in 2012 with the principal mission of capitalizing on the growing supply of mortgage notes in the interbank marketplace. Mr .Bilal utilizes his 17 years of residential and commercial real estate success to identify real estate opportunities and capitalize on them. To date, he has successfully managed three private mortgage note funds that primarily invest in singlefamily performing and non­performing mortgage notes. His financial acumen and proprietary set of investment criteria enable him to purchase underperforming real estate assets at a deep discount of face and market values, thereby increasing the value of the assets. This, coupled with his ability to maximize the use of leverage, enables him to build strong, secured portfolios with solid passive income flows.