The Castle Keep – Asset Protection Strategies

By Garrett Sutton, Esq.

Throughout history, kings and nobles have sought to protect and defend their valuable real estate. Castles were once the preferred method of keeping marauders at bay. In today’s world, with lawyers and governments now leading the attacks, protection is no less important. In my latest book, Loopholes of Real Estate, we compare castle fortifications and asset protection, as they are quite similar in history and purpose.

But for today, without the expense and zoning issues of actually building a castle, what is the best way for you to hold real estate? There are several scenarios for real estate investors with varying asset protection options, so let’s look at a new client of mine who uses a few of the different options himself.

Sammy is an astute real estate investor. He had started out as a carpenter working for a company that both built homes and filled in their time with remodeling jobs. He soon realized that the clients who spent $10,000 with the company to remodel a property were turning around and making $50,000 when they later sold the property.

Sammy liked his job, but even more so, he liked to make money. So he started by buying a run-down property at a discount that he could fix in his spare time. While he experienced a few setbacks and some learning pains, when the remodeling and painting was completed, Sammy had a $20,000 profit after the sale.

That was enough to launch Sammy into his new career. Since then, Sammy has been buying distressed properties, fixing them up and selling them. In the last six years, Sammy has also been fixing up duplexes and 4 plexes and keeping them for his own portfolio. To further his real estate options Sammy has also started building spec houses for sale and profit.

Sammy has assembled a good team of professionals. He has learned from his CPA and attorney that each of his three real estate activities – remodeling for quick sales, holding and keeping, and building homes for speculation, or spec home sales – require a different legal strategy and a different means of taking title. His strategy is as follows:

Remodel for quick sales. This is the strategy Sammy had first started with and it continues to constitute a significant portion of his profits. Still, as more new investors are getting into “fixing and flipping,” the sale prices for distressed real estate are increasing. Sammy knows what his margins are and won’t bid on dilapidated yet overpriced properties as others have done. Nevertheless, there have been plenty of good fixer-uppers in his area to acquire.

Because Sammy has been flipping several properties a year, he is subject to ordinary income taxation. Since flipping properties is his business, it is how he earns his salary. This means he has to pay a 39.6% tax (the highest federal income tax rate) on all his flips instead of only a 20% capital gain tax rate for his long term holds (with a 3.8% Obamacare surtax on income above $250,000 for married couples). Sammy definitely needs a CPA on his team for all the new rules.

This brings us to the best way to take title for Sammy’s (and for your) flipping activities.

While in a large majority of cases, you will want to take title to your real estate in an LLC, for flipping you will consider using an LLC taxed as an S corporation. The reason for this, as with so many other things in life, has to do with taxes. Because flipping constitutes ordinary income, with the S corporation tax rules we can minimize payroll taxes (that darn 15.3% extra tax we’ll never get back as it falls into the dark hole of Social Security promises). Pay yourself a reasonable salary (and pay payroll taxes on that amount) and flow the rest through to you as a distribution (without payroll taxes). Be sure to work with your CPA on this to make sure you are taxed appropriately on your real estate endeavors.

Hold and keep. As Sammy analyzes each new property, he always asks himself whether it was one to flip or keep.

While he knows how to accelerate the return on his money by quickly flipping properties, he also knows that his long-term retirement needs would be in part satisfied by rental real estate income. Typically, his ideal candidate is a duplex or 4-plex that needs some repair. In such cases he can buy below market and perform improvements over time at his convenience. When he doesn’t have a quick flip to work on, he keeps his crew busy on his hold and keep properties.

Sammy always holds his hold and keep properties in separate LLCs. He values the asset protection benefits of keeping his properties in separate entities, especially after suffering two lawsuits early in his career. The first lawsuit arose when he operated his construction business as a sole proprietor and held his first investment property, a duplex, in his individual name. A client had sued Sammy over some very careless work a subcontractor had performed. The plumber had gone out of business and left the state, leaving Sammy holding the bag. A judgment was rendered whereby Sammy’s sole proprietorship was held liable for the significant damages. Since the sole proprietorship offered no asset protection whatsoever, all of Sammy’s personal assets were fair game for collection. And because Sammy hadn’t used a protective entity to hold title to his duplex, the property was completely exposed to the claims of the judgment creditor.

As a result, Sammy lost all of his sole proprietorship assets, his trucks and equipment, as well as the duplex. All lost to satisfy the claims for damages he did not cause. It was a bitter experience Sammy vowed would never happen again.

Sammy immediately started operating his construction business for flipping properties through an LLC taxed as an S corporation. He began acquiring hold properties with a vengeance, putting them all into one LLC. Before long, he had three 4-plexes and one triplex in his one LLC.

Then the second lawsuit was filed.

A tenant had fallen at the triplex. Sammy’s insurance company used a loophole to avoid paying the claim. As the chart below indicates, the tenant prevailed in a lawsuit brought against the LLC that owned the triplex.

The good news was that Sammy’s construction business and personal assets were not exposed to the claim. The bad news was that the judgment allowed the tenant to proceed against all of the assets in Sammy’s Real Estate LLC. Two of the 4-plexes were owned free and clear. The tenant’s attorney was able to easily attach the 4-plexes and sell them to satisfy the claim.

It was after this experience that Sammy came to appreciate that one did not want to own too many properties in one LLC or LP. By holding four properties in one LLC, a tenant with a claim involving one of the properties can reach the equity in all four properties.

Sammy decided that in the future, only one property would be held in each LLC. Putting too many properties in one LLC created an attractive target for the professional litigants of the world.

Spec home sales. Whether building one home for speculative sale purposes or building a subdivision full of identical tract homes, Sammy knew that a unique protection strategy was needed when he started in spec home sales. This was because more and more lawyers across the country were bringing lawsuits alleging damage from mistakes during construction, known as construction defect litigation. Plaintiff’s lawyers were filing lawsuits on behalf of homeowners alleging monetary damages due to settling, cracks, improper construction practices, and the like. These suits were especially prevalent in California and Nevada, where a ten year statute of limitations allowed suits to be brought a decade after a house was built.

Each time Sammy builds a spec home he uses a new entity. Again, because of its asset protection benefits and efficient flow-through taxation of income, Sammy uses a separate LLC for each custom home he builds. In California, because of the extra state taxes on LLCs, he uses an LP with a corporate general partner as his developer entity.

The key to Sammy’s strategy is to keep each entity active after the house had been sold. This is to thwart the aggrieved homeowners and their lawyers who have ten years to bring a construction defect claim. Too many builders believe that by having tail insurance they can dissolve the construction entity. But insurance doesn’t cover every claim, and dissolving the entity leaves you personally responsible. By keeping the entity alive during the ten-year statute of limitations period, any claim would be brought against the LLC or LP, not personally against the owners.

But isn’t it expensive to keep an entity alive for ten years? What about all the filing fees and tax returns? As Sammy knows, it isn’t a burden if done the right way.

As far as tax returns are concerned, once each house is sold a final tax return for the entity is prepared. The LLC or LP stays alive but has no activity and thus does not have to file an ongoing return. In terms of annual filing fees, some states are more expensive than others. In California it is $800 per year per entity. Including a $125 annual resident agent fee, the ten-year cost per entity is $9,250.

But what if your California entity was originally formed in a low-cost state such as Wyoming? That is Sammy’s money-saving strategy. The developer entity is formed in Wyoming and qualified to do business in California. Qualifying in California is required since the house is being constructed in California. But once the house is sold, the entity no longer conducts any California business. It is free to stop paying California fees and only has to pay the minimal Wyoming fees of $50 per year. Assuming the same $125 annual resident agent fee, the cost of maintaining a Wyoming entity for 10 years is only $1,750 versus $9,250 for California. By forming the entity in Wyoming, qualifying in California for only as long as necessary and then keeping the entity alive in Wyoming until the ten-year statute of limitations runs out, Sammy is able to affordably protect himself and his other assets.

Sammy’s three strategies for remodels, holdings, and spec home developments serve him well and he has prospered without any further devastating litigation. His modern day castle keep are properly formed and properly maintained LLCs and LPs.

For more information on this and other title matters, please read my book Loopholes of Real Estate or visit CorporateDirect.com

Links:

Loopholes of Real Estate: http://www.corporatedirect.com/loopholes-of-real-estate/

Corporate Direct: http://www.corporatedirect.com/

Garrett Sutton

Garrett Sutton is an attorney, speaker and best selling author. As part of Robert Kiyosaki’s Rich Dad’s Advisor group he has written six books which have been translated into 11 languages. Garrett focuses on corporate and asset protection law and speaks to audiences on the importance of asset protection. His advice is pertinent, timely and valuable.

Garrett received his Juris Doctor Law Degree in 1978 from Hastings College of the Law, the University of California’s law school in San Francisco. He received a B.S. in Business Administration from the University of California, Berkeley, in 1975. He is licensed to practice in Nevada and California.

Fire Your Real Estate Banker!

By Mark Willis, CFP^Ⓡ
Lake Growth Financial Services

“A banker is a fellow who will lend you his umbrella when the sun is shining, but wants it back the minute it begins to rain.” — Mark Twain

Ain’t that the truth? As we look ten years back on the Great Recession, we can see how much has changed, and how much more has stayed pretty much the same. Home values are up again to 2007 levels. Unemployment is down to pre-crisis levels. The stock market is hitting record highs as I write these words. And yet, not much has changed since 2008 or since Mr. Twain wrote those humorous words – bankers control the money supply, and just when you need the money most, they are there holding all the umbrellas.

I have no problem with bankers, personally. Some of my best friends are bankers!

In fact, as investors we’ve been taught to use “other people’s money” (also known as OPM) as leverage to help us gain traction in real estate or to get ahead in our business. Other solutions include getting a business line of credit to buy new equipment, or securing a mortgage on an investment property to renovate and flip a property. These are the standby solutions used by many Americans.

But ask yourself – who are the “other people” when OPM is your strategy for leverage? (Remember, leverage can work both ways – for andagainst you!) And what do other people want so badly that they’re willing to part with their money and hand it to you? Were you just handed an umbrella on a sunny day?

When banks control the environment where your money lives, they win every time. When you control the financial environment in which your money lives, you win.

34% of all American income goes to servicing debt. If time is money, as the old saying goes, that means a full one-third of the day is spent working as slaves to a bank! Think of how many folks you know who are in debt up to their eyeballs and working 60+ hours a week, or stressing over non-paying tenants, or feverishly rushing from property to property, hoping they can sell a property before the balloon payment comes due.

For many real estate investors, the road to becoming a wealthy landlord turned south toward the highway of serfdom, with their banker holding the upper hand.

Is there any other way? How can someone who has skill and passion for real estate or their business keep control and a sense of sanity amidst a world gone insane? Is there a way to break free of financial slavery to the banks?

Yes, it’s simple.

Fire your banker!

Where is it written that you have to service your debts and pay off a banker before you can enjoy the fruits of your investment? Who says you have to pay interest on your properties, effectively turning all your real estate assets into liabilities? Where did we get the idea that banks were the only ones who could provide the function of banking in our society?

You can be your own source of financing – you can rid your financial portfolio of your banker and provide the function of banking yourself.

How? The answer may shock you. I’m talking about a modernized form of dividend-paying whole life insurance. It works like a source of capital, a bank, to provide a guaranteed pool of money liquid and available for whatever you need. The funds you accumulate in your life insurance grow safely and predictably every year, guaranteed – no matter what’s happening in the stock market. You can use the equity in your policy like a line of credit to yourself – and you have complete control over how, when and if you pay your money back to your policy. You are in complete control of the entire process.

When most people see the words: whole life insurance, their mind turns off. Mine sure did! I was taught to avoid whole life insurance even in my earliest days as a financial planner. Since then, I’ve come to see how useful and valuable a properly structured, dividend-payingwhole life policy can be, when issued from a mutual life insurance company that offers non-direct recognition loans. This vehicle helps my clients overcome the inertia of opportunity cost, accumulate a powerful warchest of capital, and deploy liquid capital for their real estate ventures.

It matters where your money lives. As a CERTIFIED FINANCIAL PLANNER™ I have investigated nearly every financial strategy available to investors. Well over 400+ products are available and tens of thousands of uses of those products have been hocked and sold to folks looking for that golden goose that will just help them sleep better at night. Financial pundits and Wall Street advisors will tell you that whole life insurance is the devil, and while I’m sure I’ll be ostracized by mainstream financial advisors for saying this, I think every person should at least KNOW that becoming your own source of financing through a properly structured whole life policy is an option worth investigating for yourself. Besides, if mainstream financial advice got us into the mess we are in, maybe it’s time for a new way of thinking!

We’ve had two major market crashes since the year 2000. Do you think another one will happen in your lifetime? Do you want your reaction to the next market crash to be the same as the last one? If you’d like to not only protect yourself from the next recession, but actually anticipate and take advantage of it, prepare for it now by doing what the banks do, not doing what they tell you to do. Banks purchase a huge amount of life insurance to run their businesses. Prepare by becoming the banker by using a form of capital that banks themselves take advantage of (Google “Bank Owned Life Insurance” to see what I mean).

Imagine we’re in the middle of another financial calamity. Everyone is seeing their 401(k) values drop and real estate prices are plummeting. Your friends are nervous about losing their jobs.

But instead of fear and instead of begging a banker to lend you his umbrella, you’ve established yourself as your own source of capital, using the cash value in your properly designed life insurance policy. You’re in control. When you see the real estate values crashing, instead of fear, you see opportunity. You borrow from your own policy’s cash, and within 3-5 days your policy’s cash value is direct deposited into your bank account and you’ve got cash at closing. No tax obligations, no government red tape. You are in control.

With this kind of leverage, the kind of leverage you own, you can borrow from your policy and still have it earning interest as if you did not take the loan. You read that right. That’s a rare feature often misunderstood and overlooked by most insurance agents. And when it’s properly implemented into a policy, you overcome the biggest hurdle in the financial universe – opportunity cost, and giving you uninterrupted compound growth – what has been referred to as the 8th Wonder of the World. You can pay your policy back on your own terms, when and if you choose. Do you think that will make you more or less competitive as an investor? Could this help you with more than just investing? How about buying the stuff of life – cars, medical expenses, paying off debt… which financial situation would it NOT make sense to be the banker?

The only thing better than being debt free is to be the banker. Then you’re the one lending the umbrellas!

There’s more to this than just picking up the phone to call your local insurance guy. Most insurance agents (and certainly most Wall Street brokers) have neverheard of this strategy, and you don’t want to put your money with an “I’ll just Google it” advisor. If you’d like to talk to someone who has been specially trained and authorized to specifically design a Bank on Yourself policy as described above, please contact us at [email protected]or call us at 1-800-962-9141.

So Many Ways to Buy

By Bruce Kellogg

#1 – Cash Purchase

This is the simplest method: write a check, wire the funds, etc. But more needs to be known etc. a) The investor needs to calculate their percent cash return on their cash invested in order to compare with other investment opportunities in front of them. b) When buying with cash, try for a price discount. Don’t pay “retail” unless you have to. c) After buying with cash, take out a credit line on the property for security if times get tough. Credit unions are good for this. In tough times, banks often reduce or cancel credit lines, which makes banks unreliable when you need them.

#2 – Assume an Existing Loan

This involves applying to the existing lender to replace the existing borrower. You will have to qualify as a new borrower, and pay fees. In this low interest rate environment, it can be preferable to simply assume the loan. Some commercial and private loans are assumable as well as institutional loans on 1-4 residential units.

#3 – “Subject to” an Existing Loan

Unlike formally assuming an existing loan, this method involves taking title to the property without disturbing the loan, and just start paying on it. Conceptually, it is simple, but in practice it is not. Most loans nowadays are “due on sale”, so if the lender finds out the property was transferred, they can “accelerate” the loan and call it “due and payable”. They have the right to foreclose if they are not paid, or a satisfactory arrangement made.

#4 – Create Financing

When a property is purchased, the numbers have to add up. If the down payment and the existing or new loans do not equal the purchase price, then financing has to be created. Often, the seller will agree to “carry back” a created loan for the buyer to complete the purchase. This “note” can be sold, often at a discount, or borrowed against by the seller, so they are not stuck with it. Or, they might like it and keep it in their pension fund, for example. The terms of the loan are whatever the parties agree, as long as the terms are legal.

#5 – Create a “Wraparound” Loan

One really useful created loan is called a “Wraparound” or “All-Inclusive” loan. This is where a loan is created that “wraps” or “Includes,” the existing loan(s), which the buyer executes in favor of the seller. Usually , the “wrap” includes the part of the purchase price that is unpaid by the down payment. It’s basically the “carryback” amount due to the seller over time.

There are a couple of benefits to the “wrap”. First, it is a useful way to work with a “subject to” transaction, described above as being somewhat complicated.

Second, if the “wrap” is written at a higher interest rate than the loan(s) enclosed in it, the seller will receive excess interest above what he is paying out. Yields can be high with a “wrap” this way.

#6 – “Creative” Financing

This is where real estate gets “creative”. By legal definition, personal property is any property that is not real property. Examples of personal property are cash, corporate stock, gemstones, art, vehicles, promissory notes, and so on. How about, instead of cash, use other personal property for the down payment? A 4 carat diamond was used to purchase the Mt. Diablo Hotel in Contra Costa County. A mid – 1930’s 40 foot wooden motor boat (gorgeous woods) was used to acquire a triplex in Redwood City. How about a travel trailer for a down payment? Anything goes, sometimes!

#7 – Funds From a Whole Life Policy

In most cases, it is possible to borrow from a “Whole Life” insurance policy and use the funds to buy real estate. This can be investigated by reading the terms of the policy, and then discussing this with the company. Repayment will be required, and reasonable interest will be charged, but it’s a good source of funds.

#8 – Invest Using Your IRA

Now that interest yields have been low for so long, people are moving to invest in real estate using their Individual Retirement Account (IRA). Investments can be made in real property or personal property such as notes, coins, paintings, securities, and so on. Basically, the method is to move your IRA account to a “custodian” and have them buy, manage, and sell your properties at your direction. Custodians are plentiful on the internet, and they have literature galore. Leverage by borrowing from banks can be used to enhance the return in your IRA. Your custodian can steer you to banks that offer to do this.

#9 – Cash to New Loan

The most common method of purchasing real estate involves the buyer putting up a cash down payment, then qualifying for a new, long-term “purchase money” loan from a bank, credit union, or mortgage broker. Sometimes, the seller will make (i.e., “carry back”) the loan. Usually an institution will fund the loan and either keep it in their portfolio, or, more often, they will bundle it with others and sell it as a security on Wall Street. This replenishes their lendable funds.

Down payments vary. Commercial loans are usually 20 – 40% down, depending upon the lender’s guidelines and risk assessment. Owner-occupied, residential loans can be as low as 0 – 3.5% with mortgage insurance usually required. 1 – 4 unit investment properties typically require 20 – 25% cash down, but no mortgage insurance. Lenders’ programs vary widely, including rates and fees, so comparison shopping is recommended.

#10 – Gifting

Purchasing as described in #9, above, many times offers the opportunity for the borrower(s) to receive a gift of money toward some, or all, of the required down payment. Acceptable donors include “a relative”, defined as a spouse, child, or other dependent, or any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship. A fiancé, fiancée, or domestic partner can also donate.

Lenders will want a “gift letter” signed by the donor stating that repayment of the gifts is not required. Many lenders will require proof of the funds being transferred, so it is important to learn the lender’s requirements prior to transferring funds around.

#11 – Buy Defaulting Note, Then Foreclose

This method involves buying notes or mortgages that are in default at a substantial discount, then foreclosing to acquire the property. Notes can be purchased through advertising on Craigslist, newspaper ads, direct mail to purchased lists, or websites dealing with note transactions. Searching on the internet will provide organizations with courses on notes. This method can be highly profitable, but is quite sophisticated. Additionally, foreclosing on a note usually does not afford the opportunity to conduct inspections, and a title search is essential. Some states provide a “right of redemption” for the foreclosed borrower to recover ownership, adding further complexity and risk.

#12 – Tax Liens and Tax Deeds

In order to stay solvent, when owners fail to pay property taxes, countries will issue tax liens or tax certificates which are sold to investors at a certain yield. Depending upon the state, yields run from 6% to 36%, with 8 -18% being most common. Under some circumstances, investors can foreclose and obtain ownership of the property. Searching the internet under “tax liens” will produce teachings and organizations offering to help investors get involved. Be advised, however, that this axquisition method is also sophisticated and has the same warnings as #11, above.

#13 – “Trade” or 1031 Exchange

A “trade” of real estate involves swapping one property for another. An example would be if the owner of a vacant lot traded it with the owner of a mountain cabin, probably with some cash changing hands to even out the values. One party might obtain financing, or one trader might carry back some “owner financing”. Noteworthy here is that the trade is not a tax-deferred exchange, but just a swap. These transactions are advertised on real estate and barter websites from time to time, saying “For Sale or Trade”, or similar.

A tax-deferred exchange is a transaction governed by Section 1031 of the Internal Revenue Code and is designed to defer long-term capital gains taxes for the “exchangor”, the one moving up in property. The properties have to be “like kind”, such as real estate for real estate. They do not have to be identical types of real estate. For example, an airport hangar could be exchanged for a duplex. However, they do both have to be either an investment property, or a property “used in a trade or business”. So, a plumber who is retiring could exchange his shop building into a fourplex for retirement income. However, an investment property CANNOT be exchanged into a property that is promptly turned into a residence after the close. Capital gains taxes will be due. The Internal Revenue Service (IRS) has issued “safe harbor” guidelines for a successful exchange, so real estate, accounting, and possibly legal experts need to be used.

#14 – Syndication

When investors get together to buy a property, it is commonly called a “group investment”, which is legally termed a “syndication”. This is usually done to allow the purchase of a larger property and provide “passive” ownership benefits for the investors. The common types of syndications are: 1) Limited Partnership 2) Limited-Liability Corporation (LLC), and 3) Tenancy-in-Common (TIC). Each one has an organizer who usually becomes the manager of the project. An “offering circular” is prepared describing the project, including financial projections, organizations, management, and risks. Investors sign a “subscription agreement” and contribute their “share” of the project. Syndicatiions are a “security” under federal and state laws, so there are regulations to be followed concerning marketing, disclosure, handling of investor funds, management, and reporting. Larger projects typically require the investors to be “accredited”, which necessitates a substantial income and net worth. Syndications are easy investments, but investigation of the project and the organizer is essential due to the potential for the promoter to take advantage of the investors through slick marketing. Additionally, if the organizer is honest yet inexperienced, the project could fail. Don’t be afraid, but be careful with syndications.

#15 – Equity-Sharing

Another method of investing with lots of potential is “Equity-Sharing”. This is when an investor and a potential homeowner buy a single-family residence together, and the aspiring homeowner occupies it. They are called the “resident co-owner” (RCO), and the investor is called the “investor co-owner” (ICO). Percentage shares are negotiable with the RCO paying the property taxes, insurance, loan payment, and routine repairs, while the ICO puts up the down payment. There is a “Shared Equity Agreement” or “Joint Ownership Agreement”, which sets the term, allocates the income-tax benefits, and specifies how the arrangement is to be wound-up. One party could buy out the other, or the property could be sold and the net proceeds divided.

Equity-Sharing works well between relatives. One Lockheed engineer has seven of these going to help his children, nieces, and nephews become homeowners. College housing is another application where the son or daughter owns part of the house with the parents then rents bedrooms to other students.

#16 – Joint Venture

A “joint venture” is where two parties undertake a project together, such as a “fix and flip” of a property. One party usually supplies the funds, while the other supplies the expertise and management. This is often called a “rich man, poor man partnership” and is a great way to get started. A “Joint-Venture Agreement” describes the arrangement. These can be found on the internet.

#17 – Contract-of-Sale

The “Contract-of-Sale”, also called “Contract for Deed”, “Land Sales Contract”, or “Land Contract” is a method of acquisition that defers the buyer’s receipt of the deed (fee ownership) until all of the contract’s terms have been fulfilled. Meantime, the purchaserhas what is known as an “equitable interest”, an interest under the contract. It is a security device for the seller who is financing the transaction. It’s a good method for selling to a buyer with a low down payment or weak credit that can be improved over time. Since it is a contract, foreclosure requires an action in court. Additionally, most states have a “right of redemption” where the foreclosed party has a certain period of time to pay the arrearage plus costs and recover the property. For a purchaser, it is an easy way to begin ownership of a property. A good practice is to obtain a quitclaim deed and record it if the contract in not fulfilled. This cleans up the title.

#18 – Shared-Appreciation Mortgage

When the market is appreciating rapidly it is sometimes difficult to convince a seller to sell on reasonable terms, or to carry back owner-financing. One approach to this is to create a “Shared-Appreciation Mortgage” which the seller carries back. Usually, it involves a low interest rate, but then gives the seller a percentage of the profit at the end of the loan term. This approach also works well in a high interest rate environment because it helps the buyer achieve a reasonable cash flow to sustain the property. A “standard form” for this type loan is not normally available, so it’s best to have an attorney draw one up, or customize an existing one.

#19 – Option to Purchase

An option confers the right, but not the obligation, to do something. Real estate examples include the option to purchase, option to lease, option to renew, option to extend, and so on. Usually, a prospective buyer negotiates an option to purchase when they want the property, but sometime later. They give the owner some agreed “option consideration” for the right to purchase the property on mutually-agreed terms on or before a specified future date. Option consideration is frequently cash, but it could be personal property, like a used tractor, or even “personal service” where the future buyer fixes up the property before buying it. If the option is not exercised, the owner is entitled to keep the consideration. A good practice is to obtain a quitclaim deed and record it if the option expires without being exercised. This clean up the title.

Options are particularly useful for reserving properties without appearing on the public record until the options are exercised. Developers do this to accumulate parcels without “tipping off” other players in the market that they are buying. An individual can negotiate an option in an appreciating market and exercise the option later without the costs of ownership in the meantime. It’s an excellent way to speculate, and fortunes have been made this way.

#20 – Lease-Option

A lease-option involves leasing and taking possession of the property being optioned. Prior to exercising the option, the property can be occupied as a residence, or leased to a subtenant. This is a way to “tie up” a property to take advantage of an appreciating market.

Another possibility is to enter into a contract-of-sale with an owner, then lease-option the property to a tenant. If/when the tenant exercises the option, pay off the contract-of-sale, and realize a profit. Option consideration from the tenant can be used for the down payment on the contract-of-sale, resulting in a (nearly) cashless transaction. This can be done repeatedly as a business model.

Two cautionary remarks: 1) ALWAYS make sure the option and lease agreements are separate documents so a judge cannot order the refund of the option consideration to the tenant by characterizing it as a rental deposit. 2) Obtain a quitclaim deed any time an option is not exercised in order to maintain a clean title.

#21 – Master Lease-Option

This method applies primarily to commercial rehabilitation projects. The idea is to find a building that has “gotten away from” its owner and become run-down with vacancies that are not being filled. A “Master Lease” is negotiated with the owner to take over rehabbing and re-tenanting the building, along with an option to purchase the building before an agreed future date when financing the purchase is more likely to succeed. Since the present owner is obviously short of funds, the purchaser will have to fund the project and receive a lower price or credit toward the purchase, or both. It is best to have a real estate attorney draw up these agreements.

#22 – Adverse Possession

An interesting way to acquire a property is through what is called, legally, “Adverse Possession”. It involves taking possession of a property and continuously possessing it for a number of years specified by state law. The years vary by state from six to thirty, with California being just seven. Possession has to be “open”, which means coming and going at will. It has to be “notorious”, which means it can be readily observed. It has to be continuous, so a break disrupts the timeline. It also has to be “hostile to the interests of the owner”, which means overstaying an invitation by the owner does not qualify. California also requires the possessor to pay the property taxes, as well. If all conditions are met, the possessor will sue the owner in a “quiet title action” to obtain title in their name. This situation occurs more with rural property, and is not common, but is fun to think about! See wikipedia to learn more.

#23 – Involuntary Methods

The other acquisition methods in this series are all voluntary, except two, which are involuntary. These are: a) Inheriting a property and, b) receiving a property as a gift. These are mentioned for completeness, but are too simple to warrant discussion.

#24 – “Leftovers”

There are three additional ways to acquire real estate which are more like techniques that can require no cash down payment. Here they are:

“P-Note” iivolves giving the seller an unsecured promissory note for the down payment. This works best if the parties know and trust each-other. But it’s a viable approach.

“Sweat Equity” involves the purchaser convincing the seller to allow them to fix up the property in lieu of a down payment while the seller carries back the financing. Doing the repairs prepares the property to obtain a new loan and, at the same time, it secures the seller’s loan more as the repairs are accomplished.

“Personal Service Contract” Involves a purchaser providing some service to the seller in lieu of a cash down payment. Examples include a plumber re-piping the seller’s residence, or a dentist providing dental implants to the seller.

These three techniques should probably be used with the help of a real estate attorney.

Conclusion

In many parts of the country, markets are tightening, and inventory is dropping. Investors are finding it harder to make a deal. While the 24 acquisition techniques presented here cannot increase the supply of properties, they can open up alternative ways to capture more properties that are available.

Bruce Kellogg

Bruce Kellogg has been a Realtor® and investor for 36 years. He has transacted about 500 properties for clients, and about 300 properties for himself in 12 California counties. These include 1-4 units, 5+ apartments, offices, mixed-use buildings, land, lots, mobile homes, cabins, and churches. He is available for listing, selling, consulting, mentoring, and partnering. Reach him at [email protected], or (408) 489-0131.

What is Your Why?

By Grant Trevithick

Are you interested in becoming a real estate investor? Do you want to be your own boss? Keep all the fruits of your labor for yourself, instead of making some company or someone else rich? Do you want the freedom of owning your company, working whenever you desire?

Most of us have watched the TV shows of other people buying and flipping houses. It is amazing to see that someone can search an entire city, find the property they want, do the research to determine what the offer should be, negotiate the deal to purchase the property, secure the financing, close on the purchase, prepare the repair budget, do all the repairs, market the property, find the buyer, negotiate with the buyer, and negotiate all the requirements to finally get to the closing table. It is amazing that each of these investors do all this in only 50 minutes, with 3 to 4 commercial breaks, and always seem to make allot of money out of each house.

Wow, if it were that easy, I would want to jump into the game as well. It surely would beat having to get up each day and head into an office, attend meeting after meeting, make nice with an incompetent boss, do all my work, and then go home and do the same thing every day for the rest of my life. That does not sound like fun… so perhaps we can escape this trap by being a real estate investor. After all, I can make as much money as I make in a year doing 3 to 4 houses, at least according to the television shows.

WRONG!

Virtually every real estate investor that I have ever met only talks about the glamorous part of the business. They only talk about how much money they make and how much fun they are having. First off, most of the ones that do the talking are the ones that have never bought or sold a house (at least according to my experience).

The reality is there are two types of real estate investors: the normal real estate investor and the successful real estate investor.

The normal investor attends allot of classes and reads allot of books or online. They may even sign up with one of the local or one of the traveling mentors / gurus. They attend allot of the networking groups for investors. They may look at several properties, but have never pulled the trigger to actually buy one. They talk a good game, but are more of the posers than the doers.

Then you have the 1%. Yes, only 1%. The statistic that I heard many times is that the top 1% of all real estate investors make 98% of the money. My experience proves this out. We have trained thousands of people, while we have one of the industry highest success rates for those that have attended our training (allot of our students ended up buying houses), yet very few of them have the dedication that is required to truly be successful.

To be a successful investor, you must know What Is Your Why? Why do you want to become an investor? Are you doing this to escape a boring and a mundane life? Are you doing this just to become rich? Why do you think that you want to be an investor?

Are you willing to work hard? Are you willing to work 6 days a week, and sometimes 7? Are you willing to work on the holidays? Are you going to be available to do business whenever your clients are ready? (My definition of an entrepreneur is someone that is willing to work 100 hours a week so you do not have to work 40.)

Are you willing to fail more times than you succeed? Are you willing to be discouraged and disappointed?

Are you willing to spend hours and hours in your car each day? Leaving early in the morning and get home late in the evening? Are you willing to put 30,000+ miles on your car / truck each year?

Are you willing to work when it is 105 degrees in the summer? When it is thundering and raining? How about when it is 5 degrees and snowing? Or icing?

Are you willing to clean out dirty nasty houses? Dealing with flea and bed bug infested houses? Drug houses? Are you willing to clean dirty kitchens, with food left over for weeks or even months? Scrub toilets that just plain nasty and disgusting?

Are you willing to listen to the most heartbreaking excuses and still ask someone to get out of the house? Are you willing to spend thousands of dollars on lawyers taking houses back when the seller uses the law to avoid paying their mortgage payments and yet do not want to move out?

Are you willing to be discouraged, wonder if you will ever buy and or sell another house again, feel like a total failure? And still get out of bed each morning and do what has to be done?

Funny, they do not show that part of the business on television, do they?

If you cannot answer, “absolutely, sounds like fun” to each one of these, then real estate investing is not right for you.

If you can think of anything else to do that would allow you to reach your goals, then my best advice is forget being a real estate investor and pursue that other avenue. If, on the other hand, you cannot imagine doing anything else, then perhaps you might have what it takes to be successful.

Real estate investing is a marathon, not a sprint. If you do investing right, it is not a get rich quick scheme. Working our model, you can become a millionaire in a short period of time, if you are willing to work hard enough and run the business in an honest manner.

But only if you know your Why. And only if your Why is strong enough.

For me, I love helping people. In our company, our first and primary goal is to always put our clients first and do whatever we can to help them. We buy houses that people are trapped in, giving them the financial freedom move on without the burden of their mortgage. We then sell those houses to good families that desire to have a part of the American Dream, owning their own home, but cannot get a mortgage from a bank (for whatever reason). We help investors by realizing their dreams of becoming a successful investor. And last but not least, we donate the first ten percent of all our profits to charity to help those less fortunate.

That is my why. That is what yanks me out of bed every morning, excites me to make each day as full as I possibly can, with me ready to contribute and help as many people as possible. Of course, along the way we make enough money to become financially comfortable, but our Company never makes money our number one priority. And I think that is what makes us successful.

What is Your Why?

Grant Trevithick, after a successful career in EDS and AT&T, is now the owner of Owner Finance Homes LLC and Owner Finance Academy LLC. Owner Finance Homes LLC operates throughout the Dallas-Fort Worth area in Texas, buying houses and selling with owner financing. Owner Finance Academy trains people to become real estate investors using owner financing. The Company is accredited by the Better Business Bureau with an “A+” rating.

TIPS FOR SUCCESS

BY: MICHAEL POGGI, PRESIDENT OF THE MILLIONAIRES REAL ESTATE INVESTMENT GROUP

The Millionaires Real Estate Investment Group is a private investment group made up of 10,000 members and 2500 active investors. The focus of the Millionaires Real Estate Investment group is to invest in several areas of Real Estate and Businesses ranging from purchasing apartment buildings, building new construction homes, purchasing vacant land in fast growing areas as well as investing in businesses.

I have had decades of experience in Real Estate Investing. Throughout the years, I have had several ups and downs. I will share with you some of the tips that have allowed me to be successful in Real Estate and Businesses. I would like to save you from some of the mistakes that I have made and thus allow you to succeed early on in your career.

Take control over your Mind and Your Attitude – We all know that there are many things in life that you cannot control, but you can control your mind and your attitude. External forces have very little to do with success. Those who program themselves for success find a way to succeed even in the most difficult of circumstances.

Live life to the Fullest – Living life to the fullest is a lot like shooting the rapids in a rubber raft. Once you have made the commitment it’s difficult to change your mind, turn around and paddle upstream to placid waters. But it’s the excitement and adventure that make it all worthwhile. If you never make the attempt, you may never know the depths of despair, but neither will you experience the exhilaration of success.

I strive to live my life personally and professionally to the fullest. I do not allow mistakes or challenges to stop progress, when a challenge arises; I determine a solution and move forward. Do not let challenges stand in the way of your progress in beginning Real Estate or continuing in Real Estate, if you do you will be cutting yourself off from the huge success that you could achieve.

Leverage Your Money to Get Deals Done- Do not wait until you have all of the money for a deal in order to make that deal happen. There are so many ways to structure a deal. You can partner with someone else that has the money, and you do all of the work, Or you can put in half of the money and the partner puts in half of the money, or you can put down a down payment and let the seller hold the note etc.. Do not let lack of money stop you from getting deals done.

Don’t be Afraid to Change Directions When Necessary -It is imperative that we are not afraid to change directions when conditions change. I have been a Real Estate Investor for many years, and have seen the ups and downs of the market. I have always watched the market conditions to determine what strategies make sense.

It is not wise to hold on to a strategy when the numbers and the market conditions no longer align. Sometimes it is tempting to jump into a real estate investing strategy that no longer yields great returns due to the market when in reality the time for that strategy has already passed. For example, at the top of the market is not the best time to purchase rental properties.

There are strategies that fit every type of market. Our team researches and determines the best strategies to invest in and changes directions when market conditions deem necessary.

Grow Your Wealth Tax Free By Investing in Real Estate using a Self-Directed IRA- One strategy that has allowed me to gain tremendous wealth has been investing in Real Estate using a Self -Directed IRA.

An IRA, An Individual Retirement Account is a personal savings plan that allows you to set aside funds for your retirement. Investments made within these plans grow in either a tax-deferred or tax-free environment.

A tax-deferred account is one that is funded with pre-tax dollars which means in most cases that you get a deduction for your contributions. When distributions are taken from the account those funds are taxed. Traditional, SEP, and SIMPLE plans are referred to as tax-deferred accounts.

By contrast a tax-free account is one that is funded with after tax dollars, which means that you do not receive a deduction for contributions. When distributions are taken, there are no taxes incurred in a tax-free account. The Roth IRA and the Coverdell Education Plan are referred to as tax-free accounts.

The Self-directed IRA is a well-kept secret. You might not be aware that it is possible to invest in non-traditional investments such as real estate, mortgages, tax liens, mobile homes and other investments in an IRA. A truly self-directed IRA will enable you to use your investment knowledge and expertise to prepare for your retirement. A self-directed IRA allows one to make their own investment decisions from a wide range of acceptable investments.

I was able to grow my wealth from $500.00 to $1,200,000 by investing in Real Estate using a Self-Directed IRA. Imagine the difference this strategy will make in your life by allowing you to grow your wealth tax-free. You can learn additional strategies that have allowed me to be a successful Real Estate Investor in my book “Build Wealth Tax Free Profit Formula” that is featured on Amazon.

I have taught and mentored thousands of students over the years at my educational seminars and webinars. Please email our office to be added to our database to receive invitations to these events. We often partner on real estate and business projects when the numbers make sense whether it is your project or our projects.

Feel free to contact our office for additional information about the Millionaires Real Estate Investment Group. We look forward to getting to know you and finding out more about you and your business and how we can possibly work together moving forward. [email protected] 954-306-3586

Michael Poggi

Michael Poggi is a nationally recognized public speaker, established author, and professional investor, with nearly two decades of experience. Michael speaks on advanced wealth strategies and how to invest in Real Estate and Businesses the right way .He presents topics such as: house flipping, purchasing apartment buildings, and building new construction homes, development projects, purchasing vacant lots in fast growing areas and buying businesses in your IRA or your old 401K plan. He teaches people how to make their IRA self-directed in the true sense, so you can use it for real estate. He also teaches people and mentors students on how to make their IRA cash flow monthly tax-free as well as how to invest properly.

In addition, Michael is the president and founder of The Millionaires Investment Group, based in Ft. Lauderdale, Florida. There are 10,000 members of the Millionaires Investment Group and 2500 Active Investors. The Millionaires Investment Group holds a meeting on a monthly basis to network and partner on real estate ventures, and businesses. Michael’s company specializes in many aspects of commercial real estate, vacant land, development projects, new construction home projects and businesses. The group attracts top notch speakers from all around the country, who are featured monthly to provide additional education.

Michael is often a featured guest on the Money Talk radio show. His company, Build Wealth with Land, LLC, is one of the largest land providers in the U.S., providing hundreds of vacant lots to investors and builders yearly. Michael has bought and sold over 1000 vacant lots and houses in the last 10 years, tax free.

How to Purchase and Manage an Investment Property in Japan

By Priti Donnelly

Real estate investments in Japan continue to attract foreign buyers from around the world for high yield, affordable prices and cash flowing rental income. But, in a foreigner-shy country that speaks mostly Japanese, conducting due diligence, negotiating and making an offer can be almost impossible. To complicate matters further, properties in the Japanese real estate market are sold within days, sometimes hours, making it more difficult to compete against local buyers. So, how then do foreign buyers successfully manage to invest in the market?

Find a Local Proxy/Agent

The first step is to find a local bilingual (Japanese-English) proxy/agent who will help you familiarize yourself with the property market. Look for someone who is available to you, communicates well and who can provide you with information in a timely fashion. Consider your proxy as an extension of yourself. Expect transparency about their services, keeping you informed at all stages of the purchase process and clearly explaining the management process. Don’t hesitate to ask for client references.

Familiarize Yourself with the Market

There is no need to travel to Japan to scout the area, unless you want to. Your experienced and trusted proxy will work with you to familiarize yourself with the market. They should have strong knowledge of locations, in particular, areas with population growth to ensure tenant demand. Ask about properties close to shopping districts, schools and hospitals where tenant demand would be higher. Another factor to consider is the age of buildings. In 1981, the building standards act changed their policies to ensure earthquake resistant construction methods. This is the turning point that some buyers look to when purchasing an apartment, although many older buildings built prior to 1981, have been retrofitted to bring them up to code. Next, you may have a certain size and features in mind – one room with a living room, kitchen and dining room, close to a train station is ideal for a student, single or elderly person. Two or more rooms could suit a family. Of course, your budget and yield are naturally of significance.

Analyze the Numbers

Once you have a good idea of the features you have in mind, your proxy will send you analyses of properties to suit your criteria and break down the numbers (price, costs, yield, etc.) For example, with the exception of Tokyo, investment properties across Japan range from $40K to $60K at 6% to 12% yield. In the center of big cities, or first tier cities such as Fukuoka and Nagoya you can expect a yield of 6% to 8%. In second tier cities such as metropolitan Sapporo, you will find properties with a yield of 9% to 10%. In the third tier are smaller townships, albeit with good profiles, 10% to 12%, all net pre-tax. With an occupancy rate of 93% to 94% in these areas, you will generate immediate income of $250 to $400 a month, on average.

Submit an Offer

It’s easy to see why properties are sold within hours or days at the most in this market. As soon as you see something you like, notify your proxy to submit an offer on your behalf. It’s a good idea to have your agreements with your proxy signed in advance to save valuable time. Because properties are sold so quickly, you won’t likely have time to perform thorough due diligence on any particular deal before submitting your offer, but you should have enough information on your deal analysis to determine whether or not you want to submit your offer.

Conduct Due Diligence

If your offer is accepted, you will receive due diligence information from the real estate agent. One of the key items to look for is the accumulated fund, also known in some countries as a sinking fund. This fund goes toward a renovation/repair pool. Due diligence should be able to determine if the size of the funds pool is sufficient for building repairs. If lacking in funds, then the building report should show substantial renovations to the building to justify the shortage. If not, an experienced proxy will advise you to forego this deal. If you do submit an offer and then discover that you are not satisfied with the due diligence including tenancy history, building renovations or accumulated funds, you should be able to pull back your offer.

Seal the Deal

Once you are satisfied with the due diligence, your proxy is there to help you with the contract and deposit, required documents, deposit and settlement. On the day of settlement, your proxy will pay the rest of the funds on your behalf and the scrivener will perform the ownership transfer from the seller to your name. Within a month you will receive the equivalent of a Title Deed. Congratulations! You just purchased property in Japan from around the globe.

Manage Your Property

You have successfully invested in Japanese property. Now it needs to be managed. Most foreigners do not have a local bank account, physical address or local phone number and therefore, the two challenges are communication and banking. Do not worry. On your behalf, your experienced proxy communicates with the property/rent manager, building management company, tax authorities, and insurance company. The right proxy can also act as your bank account to pay the bills, receive rental income, and provide you with a monthly balance sheet and remittance/acceptance of any funds from overseas.

Finally, what you may not know is that unlike many other countries, there are currently no laws or regulations in Japan prohibiting the purchase of real estate by foreigners. This allows 100% ownership of deeded, freehold property, registered to a foreign address. Currently Japan is the second largest real estate investment market in the world, only behind the U.S.

Priti Donnelly, Sales and Marketing Manager, Nippon Tradings International

Priti Donnelly – Manager, Sales and Marketing

Nippon Tradings International (NTI)

http://www.nippontradings.com

Luxury Portfolio – Million Dollar Houses are the Shortest Way to Riches

By Laura Alamery

Luxury portfolio is definitely the quickest way to real estate riches. Have you ever heard the statement, “the surest way to make $1-Million in real estate is to invest in a $10-Million home?” There is definitely some truth to that. The great news about it is that you do not need to have one million or 10 millions to invest in a luxury portfolio – like most of the strategies I teach about real estate investing, it is a matter of knowing how to control real estate.

Luxury Portfolio:

Many real estate investors have been engaged in luxury real estate investing for decades, keeping this as the best kept secret from the masses of real estate investors dealing mainly with “regular” real estate properties, unaware of the gold mine sitting right in front of them.

Mansions follow the same wholesaling principle as smaller homes: you can flip a mansion the same way as you flip a regular home, the only difference is the profit potential. Basically add a zero to your take home check.

There has been a surge in high-end and luxury flipping nationwide. Between 2011 and today, flips of homes valued at $1 million or more have risen almost 40 percent across the United States, according to RealtyTrac, the housing data company. Two main factors have contributed to this increase in interest on accumulating a luxury portfolio: the first one, with the real estate market collapse, Wall Street investors saw an opportunity in luxury portfolio investing and moved into the mid-market with so much money that they bought nearly every foreclosure in sight, mostly to rent out. The second factor has been the exponential increase of foreign investors in the US real estate market. Last year, Chinese investors spent $12 billion on U.S. real estate, making the country the second-biggest foreign investor, just behind Canada, according to the National Association of Realtors.

With so much money circulating in real estate investing from Wall Street to international investors, some areas are a sure bet for attracting high-end buyers either as owner occupants or investors looking to increase their luxury portfolio. These are some of the most popular cities for luxury real estate investing:

Beverly Hills, California
Manhattan, New York
Bel Air, California
San Francisco, California
Palm Beach, Florida
East Hampton, New York
Martha’s Vineyard, Massachusetts
Miami, Florida
Malibu, California
Denver, Colorado

However all metropolitan areas offer luxury portfolio opportunities – from major cities like Chicago, Dallas, Atlanta, to smaller up and coming cities like St Louis, Pittsburgh and Indianapolis, all have mansions and expensive homes flipping or investing opportunities.

Now the question is “how do I find luxury homes and buyers wanting these homes?” Like I stated earlier, the concept is the same: you can flip or own and rent out a luxury home the same way as you can flip or own a “regular” home. Motivated sellers are present in every type of real estate. However you have to be aware of a very important principle – motivated sellers of luxury homes do not place their houses in the newspaper, nor do they have “For Sale” signs posted in their yards, as do traditional sellers. The target audience of motivated sellers will most likely be experiencing one or more of what I call the “Five Major Motivators”: Death, Divorce, Loss of Job, Job Transfer and Illness.

Dealing with luxury homes involves a little of a shift in strategy thinking, although the concept of investing and flipping stay the same. Once you understand how to locate motivated sellers and high-end buyers, how to negotiate with them and structure the deals, even just one closing a year can yield more than most people can make on a regular job.

Would you like to learn more about Luxury Portfolio and Real Estate Investing? Check out my exclusive training at a very special price for a limited time only!

Laura Alamery

Laura Alamery has been a real estate investor and mentor for almost 30 years. She has been a pioneer of several real estate investing strategies before they became mainstream, from wholesaling to raising private money. Everything she teaches has been developed from personal experience.

She runs real estate clubs in several cities from Chicago to Atlanta and South Florida.

Her focus today is to streamline the real estate investing business by simplifying the process while exponentially growing the financial results. In other words, how to truly live a financially and active lifestyle, without trading time for dollars. Her signature program is Rapid REI Riches.

Read more about Laura and connect at Lauraalamery.com

Seller-Carryback Note Terms

By Bruce Kellogg

Introduction

It is well known among real estate investors that some of the best deals occur when the seller is persuaded to carry some, or all, of the financing. This article introduces the seller-carryback note, and provides a menu of terms that can be negotiated into the note. So far as drawing up the note is concerned, most closing agents ( i.e., escrow offices and attorneys) have what they call a “cookbook” of legally-correct note terms, so buyers and sellers need not be concerned with such details.

For reference, a sample installment note is attached. Additional terms can be added off the menu as desired.

1) “Request for Notice of Delinquency” – This is actually not a term in the note. It is prepared in escrow and recorded, instead. Its purpose is for the senior lienholder(s) to notify the carryback seller in the event the owner is not paying them. It protects the seller by allowing them to jump in early to protect their interest.

2) “Unsecured” – This also is not a term of the note. It should be inserted at the top of the note to indicate that there is no security instrument (i.e., mortgage or deed-of-trust) securing the note to the property. Its use is not recommended!

3) “Late Charge” – Most notes have a “late charge”, such as 3% of the payment after 10 days past due. Some states have regulations for owner-occupied properties. Most investment transactions are not regulated in this way.

4) “Due on Sale or Transfer” (“Alienation”) Clause

This term is included to protect the seller from the property being sold or transferred to a party other than the original buyer. After all, the secondary buyer might not be creditworthy.

This term has an enforcement feature wherein the seller can force a payoff or foreclose to recover the property. However, in order to be enforceable, this term must also be included in the security instrument (mortgage or deed-of-trust). Other note terms do not need to be included in the security instrument, but this one does.

5) “Assumption” – If the parties desire for the note to be assumable, this can be included in the note. Usually, some criteria are included to protect the seller. Often, the note says that the seller’s approval “cannot be unreasonably with-held” when there are protections included.

6) “Balloon Payment” – When a note is not “fully-amortized” such that a balance remains at maturity, this is called a “balloon payment”. If this applies, the note should be written to clearly include this feature to protect both parties from misunderstanding.

7) “Option to Extend” – If a “balloon payment” is involved, writing an “option to extend” into the note could prevent a rough ending if refinancing or selling conditions are unfavorable. It could extend for a year or two with a fee paid to the seller, or a “partial-paydown” made.

8) “Interest-Only” – describes the arrangement where the payments consist only of interest, and a “balloon payment” occurs at maturity.

9) “Zero Interest” – involves payments of principal only, with no interest being charged. This term is a sweetie for buyers!

10) “Deferred Interest” – involves interest accruing to maturity, when both principal and interest are due. Although this helps cash flow, unlike zero interest it is very risky. Rapid appreciation will be essential for this to succeed, and losing the property is a realistic possibility!

11) “Skip a Payment” – Sometimes, if the parties are relating well, it is possible to include a term allowing the borrower to skip a payment in the event of job loss, rental vacancy, or other misfortune. This can be made part of the note, or dealt with at the time. Including it ahead of time is preferable for a more stable transaction.

12) “Substitution of Collateral” – Sometimes, an enterprising buyer will negotiate with the seller the right to move the note and secure it to a different property. This is usually done to sell, exchange, or refinance the property. There should be criteria stated to protect the note-holder, but approval “should not be unreasonably with-held” if the criteria are met.

13) “Right of First Refusal” –Sometimes, an enterprising buyer will realize that the seller might decide to sell the note at a discount to raise cash in the future. Including this term gives the buyer first shot at buying their own debt back at a discount, effectively lowering the purchase price.

14) “Graduated Payment Mortgage (GPM)” – is a note engineered such that interest and/or payments start low, then increase gradually over the years. It makes for easier ownership but can become a trap in the later years. For this reason, the Dodd-Frank legislation prohibits this type of loan on 1-4 unit owner-occupied properties, but it is still legal for investment property transactions of all kinds.

15) “Shared Appreciation Mortgage (SAM)” – is a popular note term when prices are high and still rapidly rising, or when interest rates are high. The note is written so that the seller receives payments that are “sub-market”, but also receives a percentage of the property’s appreciation upon sale or maturation of the note. It is useful, but not very common.

Conclusion

Clearly, these note terms are not appropriate for every transaction, nor would sellers agree to all of them. The objective is for buyers to negotiate as many that are advantageous as they can!

Good luck!

Bruce Kellogg

The Housing Choice Voucher Program

By Reggie Brooks

The Housing Choice Voucher Program, aka “Section 8” is a Housing and Urban Development Program that helps to insure that low income families, the disables and the elderly have access to safe and sanitary housing. These private market rentals would ordinarily be out of their financial reach but with assistance, these families can have access to housing where they can live with dignity.

Here’s How It Works…

In order to qualify for a Section 8 voucher, an applicant must apply to the program at a local public housing agency (PHA) that is an extension of the federal Housing and Urban Development (HUD) agency. The PHA will determine eligibility based on the applicant’s annual gross income and family size. Once the PHA has verified the applicant’s information with other families and approved the applicant for a voucher, the applicant becomes eligible for a voucher. In most cases, the need for assistance is greater than the resources provided to HUD and the family is placed on a waiting list until funds become available.

The voucher operates as a rent subsidy. Individuals and families who are approved for a Section 8 voucher may select a rental from the private market including an apartment, a townhome, or a single-family home. While the PHA uses the amount necessary to rent a moderately priced home in the local market, recipients can choose to rent a home above or below that cost. They must make up the difference between the subsidy and the home’s rent. The subsidy does not cover the entire rent; recipients must pay 30 percent of their income toward their own rent.

What Does Section 8 Mean to You as a Landlord?

As a landlord, you may question whether or not you should accept a tenant with a Section 8 voucher. The program requires that the landlord must provide safe and sanitary housing for the tenant and adhere to the terms of the lease that both parties agree on. As a landlord, these should be criteria you are already meeting. Additionally, Section 8 requires that rentals pass a housing inspection to be eligible for the program. The landlord is expected to maintain the property throughout the duration of participation in the program.

Participation in Section 8 has numerous benefits to a landlord:

Pre-screened tenants with verified income. The PHA verifies your tenant’s income and employment to ensure they can pay their portion of the rent. Some PHAs will turn away applicants with criminal histories. Combined with your own tenant screening process, you should be able to find excellent tenants for your rental.
High demand for properties. Due to a shortage of properties and an overwhelming number of applicants, demand for Section 8 housing is high. Your property will also be listed on the Section 8 website for your area, providing free marketing to your target audience.
Guaranteed income. Getting rent paid on time is one of the biggest hassles that a landlord faces, but in the Section 8 program, the rent subsidy is paid directly to you. Additionally, most voucher recipients will pay their portion on time as non-payment can risk their continuation in the program.

While there are some drawbacks for landlords, such as continuing with routine inspections to ensure the property is being maintained and some restrictions on how much rent can be charged, the benefits for a landlord are significant.

Reggie Brooks, is an international speaker, author and educator, dedicated to inspiring others to achieve personal success through real estate investment. He is also the #1 Vacant, Abandoned & Distressed Property Specialist in North America.

Having risen above a life of poverty, he has achieved what many people consider to be impossible. He went from making $36,000 per year at the local telephone company, to making over $40,000 per month in his real estate business. Today, Reggie delivers his personal philosophies for success at major business venues and expositions throughout the United States. Reggie attributes his success to faith, dedication to success, and to the invaluable coaches he has had along the way.

Benefits of Diversified Portfolio Benefits in International Real Estate

By Matt Malouf

When it comes to investing in real estate, people tend to be vigilant about their investments options. What they seem to ignore is how the profit and growth ratio investing in real estate abroad can provide them with great success.

The world is a global village now and so it makes sense that people have started investing in international real estate. There’s a certain charm to this move but more than charm, this smart move can help strengthen your capital flows. We understand the importance of global investment strategy and it’s time that you too understand what this option can offer to you.

Most people hesitate to invest in international real estate because of geography. Real estate is generally a long-hold investment strategy and it’s the long distance that generally makes people uncomfortable while investing in international real estate. But there are certain benefits for global diversification on a real estate portfolio. Let’s look at a few.

Investment Diversity

Being a secure and hard asset, real estate has always been a preferred investment choice for people all over the world. With many fast-growing international real estate markets, this investment opportunity is too good to miss. Investors can enjoy low interest rates and avail a variety of lending options. And with a professional team to back you up, these investment opportunities can be the perfect addition to your diversified portfolio.

With this new financial step, you can have another stream of income. That’s the best part about this investment. It can generate income and even appreciate in value over time. The exchange rate can help you make a hefty promise every time. If you are investing in countries with a higher currency rate than the USA, your investment portfolio is surely going to enjoy the benefits. The change in interest rate also has a significant impact on making international real estate investments a lucrative financial move. Since each property has an intrinsic value, your investment would never go to waste. This is just one of the properties that set international real estate apart from other investment options such as stocks.

Risk Management

So what makes investing in international real estate such a glorious option? The best part of this move is the diversification of risk. When you put all your eggs in one basket, there’s a higher risk of losing it all at once. By spreading your investment over several international real estate properties, you can significantly reduce the risk. The real estate market is dynamic and always in transition. Even the slightest economic change can have a drastic effect on your investment choices. These effects can either be extremely beneficial for you or leave you at the brink of bankruptcy.

By investing in international real estate, you can easily diversify your portfolio and give it a global edge. Since the international housing market tends to operate differently, a decline in one market can cause a significant increase in the other one. With this contrasting nature of the international real estate market, you are bound to gain great benefits.

Ancestral Roots

When you are looking for some international real estate investment opportunities, why not try and connect to your roots? For many of our clients, the first option for investment is mostly their ancestral country. Their way of paying tribute to their heritage is by investing in their ancestral country. This way, they can always have a place to go back to when they want to experience the life that their ancestors lived.

For many people, this is a lucrative option because it gives their children a chance to know their heritage. People whose ancestors immigrated to the USA often go for international real estate investments in their home country. This is a great reason for choosing the right international real estate. As long as the real estate market in your home country isn’t in a steady decline and is showing great potential, including it in your investment portfolio would be a good call.

Recreational Value

Investing in international real estate doesn’t just create new income streams but also provides you with the perfect vacation home. So when you are looking for opportunities to diversify your portfolio, make sure you go for an option that can serve well as a vacation spot. Even though the main reason behind this investment is purely financial, buying the right property can also add a recreational value to your investment.

If you love the great scenery of ice-capped mountains of a vacation spot, you can turn this passion into a great investment opportunity. There are some countries that allow foreigners to own property and you must be prepared to take full advantage of this prospect. Contact MyLifeWorldWide.com and let our professionals help you get a diversified portfolio for international real estate.

Cultural Diversity

This is a great opportunity to experience other cultures. Become a local at the place and you’d be able to explore the region to your heart’s content. Your overseas property can provide you with new experiences, enabling you to explore some other parts of the world. If you have the desire to experience cultural diversity, your international real estate portfolio can help you with that.

Residency Eligibility

Owning a property in a country can often make you eligible for residency and/or assist you in a naturalization application. With this change of status, many doors in the country also open up for you. You can get access to the country’s banking and financial services industry. You can use this opportunity to divide up your fortune and taking advantage of the profitable banking prospects.

Investment Security

Unfortunately, retirement funds in the USA are subject to some strict laws and many people have already bore the cost of these policies. Your retirement fund can come under the threat of lawsuits and creditors, hence leaving you vulnerable at the later stage of life. For availing the ultimate retirement fun with security, it’s imperative that you invest abroad. Your diversified portfolio of international real estate can’t be subjected to the laws of USA and even the IRA can’t attack them in any way.

Your properties in the USA might be at risk of lawsuits but your international real estate is insulated from this risk. This is one of the best reasons for you to consider investing in international real estate.

Your international real estate investment would never go to waste if you work with a professional. With their expertise in the industry and years of experience, MyLifeWorldWide.com can help you make some sound financial moves. With a diversified international real estate portfolio, you can yield great profits, without the usual risk that other investment options pose.

So make the best of this opportunity and make some sound investments overseas. Contact us at MyLifeWorldWide.com for more information and custom solutions tailored to your unique situation.

Matt Malouf, International Real Estate Consultant

MyLifeWorldWide.com

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