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All-Inclusive Trust Deed or Mortgage

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By Al Lowry

An all-inclusive trust deed or mortgage is also sometimes referred to as a wraparound or overriding trust deed or mortgage. This is a trust deed or mortgage that is subordinate to, yet includes all the encumbrances to which it is subordinated. But sometimes in connection with refinancing. It is easier to illustrate than to explain.

A few years ago, I knew an owner who wanted to sell a property on which he was paying off a twenty-five year loan. The unpaid balance was $30,000. He was paying 6% interest. He found a would-be buyer, and the two of them agreed on a price of $60,000, with the buyer to put up $10,000 in cash, leaving $50,000 to be financed somehow.

One possibility was for the buyer to try to refinance the $30,000 first mortgage with a new, larger loan. However, the money market was tight at the time. Any new loan he might get probably would not be for more than $42,000 and would cost him 10 percent interest plus at least two points. In addition, there would be a prepayment fee on the existing loan equal to six months’ unearned interest, or another $900.

A second possibility is that the buyer might assume the $30,000 existing loan and have the seller carry back a purchase money second trust deed or mortgage for the remaining $20,000 of the sales price. The interest rate could be whatever the buyer and seller agreed on up to the maximum legal rate, which in their state was 10 percent at the time.

A third possibility (and the one they finally decided on) was to use an all-inclusive deed of trust. The buyer gave the seller a promissory note in the amount of $50,000 with interest at 8 ½ percent. The note contained a clause to the effect that it’s face amount included the unpaid balance of the first mortgage, and that the seller would still be responsible for making payments on that underlying obligation as it stood. So the seller was in the comfortable position of receiving interest at an annual rate of $4,250 (8 ½ percent of $50,000) while paying out interest at an annual rate of $1,800 (six percent of $30,000), thereby netting $2,450, or 12.25 percent on the $20,000 difference between the two notes. This is 2.25 percentage points higher than could legally have been charged if he had carried back a $20,000 purchase-money second. The arrangement put an extra $450 per year into his pocket.

The buyer made more money too. He avoided completely the $900 prepayment penalty and some $1,000 in loan-origination costs he would have incurred if he had taken out the new 10 percent $42,000 mortgage. Furthermore, he ended up paying 1 ½ percentage points ($750) less annual interest than he would have paid on a new first and second totaling $50,00 fortunately, the option to use an all-inclusive note is limited to cases where there is no acceleration or other alienation clause in any of the notes or mortgages against the property, or if there is such a clause, the lender agrees to waive it. He will seldom waive it unless he has little to lose by doing so. In that case, the borrower may also have little to gain from the lender’s willingness to allow the loan to stand intact. When there is no clause in the existing loans that blocks them, all-inclusive loans can be good to use when:

1. There is a locked-in loan that cannot be paid off – at least without severe penalties.

2. The buyer is a poor risk and is making a small down payment.

3. A property is overpriced and the seller sticks to the price but not to the terms of sale.

4. The existing loans are at lower interest rates than you could get on new financing.

5. There is little time to shop for new loans and little chance of the buyer’s qualifying for them.

6. The down payment offered is so low that the only practical alternative would be for the seller to carry back a large purchase-money mortgage.

There are so many ways to make money with real estate.

Albert Lowry is an authority on real estate investing and a nationally recognized lecturer. One of his 20 books, “How You Can Become Financially Independent In Real Estate”, was on the New York Times Best Seller List for three consecutive years. He has a Doctorate in Business Administration, and taught the first Masters Degree Program in Real Estate.

Albert has bought and sold hundreds of properties, run multiple corporations and started many of the investors associations throughout America. He has taught over 350,000 students worldwide and is in the Academy of American Exchangers “Hall of Fame”.

How To Get Paid Big Dollars And Work Where You Want And When You Want AND RETIRE EARLY

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By Ted Thomas

This Will Knock Your Socks Off!

 2 Distinct Investment Opportunities

#1 Tax Lien Certificates – One of the Safest Investments In America Today!

When it comes to real estate investing, there is much to be learned and a lot of money to be made. The prudent investor knows that it is impossible to learn about all facets of real estate investing at once and instead focuses on a certain kind of purchase or investment, works to make the investment profitable, before moving on.  One of the most unknown but highly profitable types of real estate investments is investing in tax lien certificates.

Purchasing a tax lien certificate is a fantastic way to build wealth and generate revenue.  This investment vehicle is a very real way in today’s economy to work towards financial independence.  However, you must know what happens when you purchase a tax lien certificate and how it works in order to be successful. Never jump into a real estate investment opportunity without proper education.

A tax lien certificate is offered by a local county government who is looking to collect on delinquent property taxes.  The certificate, when it is offered, becomes the first lien on the property and gives you, the investor, the opportunity to collect on the tax payments that are owed.

First, it is good to work in tax lien certificates if you do not have a lot of working capital to invest.  This is also a great investment tool if you are looking for a guaranteed return on your initial investment. The returns on tax lien certificates can be up to 16%, 18%, even 36%.  A tax lien certificate is typically a solid addition to any investment portfolio. Tax lien investments are one of the safest investments found in America today.

In order to purchase a tax lien certificate, as an investor you must find out the terms and conditions of the public tax auction in the county where you are interested in doing business.  Keep in mind, tax lien terms and conditions vary widely by county and state, so in order for you to be properly educated over bids, interest rates, terms, collection, and other matters, you must know what the county government requires. This may sound tricky but with the proper training it’s actually quite easy and extremely profitable. This business can be done online from anywhere including your kitchen table or home office.

This is a passive investment, perfect for the newcomers to real estate investing. Once you get a tax lien certificate you just sit back and wait for the profit check to come in the mail.

#2 Properties for Pennies – Mortgage Free

Tax deeds or tax defaulted properties are sold in about half the states in the US. Many times you can buy these properties for low prices because a great value because you are bidding on the property at a tax deed auction.

Here’s the simplified version of how tax deed sales work. Each homeowner must pay their real estate tax to the local government jurisdictions.  When a homeowner does not pay their county mandated taxes on their property, the county will confiscate the property and offer it for sale at a government tax defaulted property auction for only back delinquent taxes.  The county must do this because the county must pay for important services like local police, fire, schools and infrastructure, without the tax money they cannot do this and the local government would be in a world of trouble.

During a tax deed auction, property is usually sold for starting bid back tax plus any fees, interest charges, and court costs. Property taxes are only a small percentage of the market value and because of this investors who purchase a tax deed buy the full property rights for just pennies on the dollar.

A tax deed sale must be announced publicly and by law and in most instances are sold to the highest bidder.  When you are the winner at a tax deed auction you actually own the property and you own full legal rights to the property that very same day without any mortgages, liens or deeds of trust.

Of course this is a real estate investment and with any investment there can be risks.  It is important to become educated and always do your own due diligence before purchasing at the tax deed sale to minimize your risk.

You’ll want to make sure you research the property values before bidding on any tax deed property.

There are many ways to locate tax lien certificate auctions and tax defaulted property auctions. You can search Google, go directly to the local county government websites or call local county government offices. Having experience on your side can make a big difference in the amount of time it takes to get off and running in this investment opportunity. Ted Thomas and his team have been teaching investors how to do this business for over twenty-five years. Ted Thomas has helped thousands of students become successful tax lien and deed investors.

 

Ted Thomas

Ted Thomas is a Florida-based author and publisher who specializes in tax lien certificate and tax defaulted property investments. Visitors to his website www.tedthomas.com will find 3 must see FREE instructional videos. No credit card required. The video lessons will give you information about government tax defaulted real estate which is sold at public auctions starting bid back taxes which could be 10 cents to 20 cents on the dollar. You’ll also learn the secrets of tax lien certificates which generate returns of 16%, 18%, up to 36%. Go to www.tedthomas.com for more information.

The TOP FIVE Reasons to Consider COMMERCIAL REAL ESTATE for Your Portfolio

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By Tom K. Wilson

While many investors see single-family homes as their “bread-and-butter” investment, investing in commercial properties is an option that can also help you achieve your financial goals.

“Commercial” in its broadest lay vernacular includes multifamily apartments, however, the true industry definition separates multifamily properties (over five residential units) from true commercial, such as retail, office space, industrial, self-storage or medical centers.

I’m often asked what kinds of properties I recommend. There is, of course, no one size that fits all investors or markets. While in a normal market multifamily properties are a natural progression from single family homes, this is anything but a normal market and currently there are too many multifamily buyers chasing too few deals, so it currently has lower CAP* rates or returns than pure commercial.

Here are five reasons to consider commercial properties for your portfolio.

#1 HIGHER ROI

Commercial properties often have higher and more predictable return-oninvestment than single-family homes, in part due to the economies of scale from investing in a larger property not usually available to the small investor.

For example, a current commercial retail center that we are acquiring has an 8.2 CAP rate and a four-year internal rate of return* of 12.0%. When you can borrow money at 4.25% and invest it in something yielding 12.0%, that’s worth considering!

#2 FEWER HEADACHES

It’s generally easier to manage one large property through a professional property management firm than to manage scattered single-family homes. Also the business tenants you get in retail or office space are usually of higher quality than most residential tenants. Business tenants have higher credit/risk scores, have pride of ownership in their businesses and want to protect their livelihoods. As a result, they have an interest in taking care of the property.

Many commercial properties are NNN* (triple net), so the tenant pays most of the expenses including taxes, insurance, and maintenance making the owner’s expenses very predictable and consistent.

#3 STABLE CASH FLOW

Commercial leases are typically 5-10 years in length vs. annually for single-family homes. Additionally, commercial leases include annual bumps in rent and options to-renew. As a result of all these factors, cash flows are more predictable.

#4 NO 10-MORTGAGE FANNIE MAE LIMIT

Any loans taken by the owner or syndicate do not count against your 10-mortgage limit because they are in the name of the owning entity and not on your personal credit. This enables you to put more of your capital to work.

#5 APPRECIATION MULTIPLIERS

Unlike single-family homes, which are strictly valued based on market demand, or ‘sales comps’, commercial properties are valued as a multiple of their Net Operating Income (NOI),* which can be driven up by a good property manager’s addition of value. At a Cap Rate* of 8.0,everyone-dollar increase in annual NOI can result in $12.50 of appreciation!

Steps you can take to actively improve NOI include:

  • Upgrading the existing buildings
  • Increasing TI (tenant improvement)
  • Adding leasable square footage
  • Raising rents
  • Reducing operating expenses
  • Adding amenities
  • Adding additional revenue generating resources (ATM kiosk), and many more

Rather than wait for market forces to raise real estate prices organically, you can create appreciation using levers like the ones listed above.

ADDITIONAL BENEFITS

Of course, the five advantages of commercial real estate listed above are in addition to the usual benefits of any real estate investment:

  • Tax Benefits
  • Hedge against inflation
  • A hard asset with intrinsic value

Caveats of Commercial Investing

No discussion of commercial investing would be complete without noting a few issues that investors should be aware of.

Financing can be more challenging

Typically, the investor(s) must put down 25-30% of the sales price and finance the loan amount over a 5-10 year term with a balloon payment at the end of the term. Selling or refinancing options at that time will vary depending on market conditions. And there can be stiff prepayment penalties.

Not as Liquid

If you own 10% of a Commercial building and want to sell your interest, you can sell to your fellow investors (who usually get first right of refusal) but if none are interested, it may be difficult to get out of the investment. That is why long-term funds, like IRA money, are ideal for commercial properties.

Sale of a Commercial Property can take longer

While just about everyone wants a home, only a small percentage of the population is capable of purchasing a retail center or office building. The smaller market of potential buyers coupled with a detailed due diligence process means that the sale of the property can take longer than for a single-family home.

Syndications

Many of the challenges outlined above can be mitigated by investing with an experienced syndicator. Their knowledge, track record, and ability to qualify for the loan and manage the property, allows the small investor to participate in a high quality commercial property or to invest in multiple projects to distribute their risks.

SUMMARY

The benefits, economies of scale, opportunities for forced appreciation and higher returns make commercial properties an attractive addition to most investors’ portfolio, and one worthy of serious consideration.

For your free copy of Wilson Investment Properties article “Are Real Estate Syndications for You?” and a guide to “Commercial Real Estate Terms” please go to our website, www.TomWilsonProperties.com .

Tom K. Wilson has utilized his experience and skills acquired in 30 years of managing some of Silicon Valley’s pioneering high tech companies to buy and sell more than 2,500 units and over $130 million of real estate, including three condo conversion projects, eight syndications, and seven multifamily properties. He founded and owns Wilson Investment Properties, Inc., a company that has provided over 500 high cash flow, high-quality, rehabbed and leased residential properties to investors. Active in real estate associations, Mr. Wilson is a frequent speaker on real estate investing where his expertise and experience makes him an audience favorite. He is the weekly host of the Wed 2pm edition of KDOW’s RE Radio Live in San Francisco, the Wall Street Business Network (1220am).

*A GLOSSARY OF COMMERCIAL TERMS

CAP RATE (Capitalization Rate)

A measure of return calculated by dividing the property’s net operating income by its purchase price.

CONC (Cash on Cash Return)

A measure of return calculated by dividing pre-tax cash flow from a property by the total cash invested (e.g., down payment plus closing costs).

GRM (Gross Rent Multiplier)

The Gross Rent Multiplier is a measure of how expensive a commercial property is relative to the gross rents it brings in, calculated as: GRM = Purchase price of the property / Gross monthly rents.

NOI (Net Operating Income)

The total income from a property minus vacancy, credit losses, and operating expenses.

NNN (Triple Net)

A commercial lease in which the tenant pays three operating expenses (in addition to rent): Property taxes, insurance, and maintenance.

ROI (Return on Investment)

ROI measures the amount of return on an investment relative to the investment’s cost and is calculated as: ROI % = (Gain from the investment – Cost of the investment) / Cost of the investment.

Bruce Norris and the Norris Group

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By Bruce Kellogg

Who is Bruce Norris?

Bruce is a longtime real estate investor, builder, “hard money” lender, and real estate educator with over 35 years of experience. His history includes over 2,000 real estate transactions as buyer, seller, builder, or money lender.

He was married at 17, and had two children by age 18. He has lived on food stamps, and was fired from five consecutive jobs before entering his present business. He started by flipping houses, and he opened The Norris Group in 1997 as a “hard money” lender.

What Has He Done?

Renowned for his ability to forecast long-term real estate trends and timing, the release of The California Comeback report in 1997 gained him much notoriety. The accuracy of the extensive report led many California investors to financial freedom. His January 2006 release, The California Crash, was an in-depth look into the California market correction and the statistics behind Bruce’s predictions.

Bruce speaks and debates nationally, and has been a guest speaker at the Mortgage Bankers Association, REOMAC, Inman, HousingWire, California Association of Realtors, California Builders Industry Association, California Mortgage Association, the Real Estate Research Council, and several local and national investment clubs, associations, and service clubs. Bruce has met with local and national government officials, including FHA and Fannie Mae, to discuss market solutions and insights.

Bruce has contributed articles to many real estate magazines and newsletters, including The Business Press, Scotsman Guide, Creative Real Estate Magazine, The Orange County Register, RealtyTrac’s Foreclosure Newsletter, AOA Magazine, and The Daily Commerce. He has also been featured in: The Wall Street Journal, Fox Business News, Nightline ABC, The New York Times, Time Magazine, Good Morning America, The Los Angeles Times, Fortune, Mortgage Banker Magazine, Money Magazine, Reuters, The Associated Press, The Tribune, and numerous others.

What is Bruce Doing Now?

Bruce is also the host of the award-winning series, I Survived Real Estate. The events bring together leaders from numerous real estate sectors to discuss legal regulations, stimulus-related issues, and solutions to the current market. The events have also helped raise over $860,000 for charity since they began in 2008.

Bruce hosts the award-winning Norris Group Real Estate Radio Show and Podcast, where he interviews real estate industry leaders, authors, government officials, local experts, and economists. Guests have included representatives from the FBI, the MBA, Freddie Mac, the Appraisal Institute, HUD, Fannie Mae, PropertyRadar, Auction.com, PIMCO, PMI Group, REDC, the National Auctioneers Association, and the Center for Responsible Lending, as well as Peter Schiff of Euro-Pacific Capital, and John Maudlin, to name a few. There are almost 600 shows and 250 hours of free education in the real estate radio archives.

Bruce currently serves on the Executive Board for the Real Estate Research Council of Southern California. He was awarded Educator of the Year by Think Realty in 2018.

What About the Norris Group?

Besides making “hard money” loans in California and Florida, The Norris Group educates investors. Their training is unique in that they created the Quadrant System, which takes a lot of their market timing research and layers buying and selling strategies to the market. Their learning management system has over 60 hours of content, but an investor won’t use all of it at one time. In addition, they consider the investor’s skillset and personality, and can do one-on-one strategy sessions that consider who the person is, where the market is, and how they will most likely best succeed in the business. The Norris Group recommends exploring their free content, like their radio show and weekly real estate news videos, and then explore their VIP Subscription.

What About Bruce’s Market Predictions

Bruce is worried that markets have become hot in California. Affordability numbers suggest we could still experience price increases in many areas of California. We have never had “full employment” and a great economy while experiencing a decline. However, Bruce is concerned about a number of issues including interest rates, and in some markets how hot prices have become. His long-term and short-term outlooks for California differ. He wants investors to really think about protecting themselves in the next few years, and avoid buying into the hype.

The Norris Group in Florida

Bruce has been investing in Florida since Hurricane Andrew. Over 20 years, he and the Norris Group have built houses, done “flips”, and acquired rentals, along with establishing a “hard money” lending business. Bruce exchanged some California properties into new construction rentals over the last four years and expects to see many California investors diversify by using Internal Revenue Code (IRC) Section 1031 to exchange into Florida properties.

The Norris Group offers readers to visit their website, www:TheNorrisGroup, to take advantage of the free items available there.