National REIA – Mid Year – Legislative

As a follow up to my post of July 5th, I wanted to talk about on of the big topics and National REIA’s Mid Year Conferencence and that was the legislative piece. 

Here in the Kansas City market, we don’t get too worked up about things being legislated for the real estate investor because our states seem to be follow states.  The big new things get started in other states, get reviewed, changed, and reworked until they at least function before we see them here in KS and MO.  But we need to stop being complacent.

These regulations that are detrimental to the real estate investor are getting passed very quickly in other states and are now hitting the national level - that means national laws that will affect you in your real estate investing are being discussed.  One in particular is HR1728 and if you are any real estate investing online networking boards, you have probably seen everyone going nuts about how we need to stop this bill.

So what is this bill and what is going on.  First Google “HR 1728” to get the exact page on the government web site.  At that site you can read the bill all the way through, see who the sponsors of the bill were, and how it passed in the US House of Representatives on May 7th with out really anyone in the Real Estate Investor Community knowing what was going on.  Spend some time on those google links to find out what is really going on.

At the heart of the matter is lending reform and while lending reform is not a bad idea, the language in the bill would basically restrict us as the investors from offering homes in a seller financing sitation.  If you sell houses with any kind of owner financing, you would be greatly restricted in what you can do.  This will affect every real estate investor and slow down the sales of homes.  I know in our office, we often turn to owner fiancing for us to buy and often time to sell, more than one or two times a year.  And the law will limit us to once every 3 years, at least as it is currently written.

Right now this bill has been sent to committee to be discussed before it will be voted on, if it gets voted on in the Senante and we as investors can do quite a bit.  The lobbiest from national REIA and National REIA have recommended a grass roots effort from all the member REIAs like MAREI and their members.

So what can you do:

• Make a phone call to the Senators in your state that you voted for and let them know why this is a bad bill and why they need to do their part to make sure it does not pass, or even get to out of committee.
• Write real paper letters and use real use stamps to flood their offices.
• Send emails to them as well.
• And lastly, we need to enlist the help of the lobby from the National Association of Realtors, they will be a powerfull ally if we can get them on our side.  So if you are a realtor and active in your local realtor board, let the local board know what is going on with HR 1728 .  (click here for testamony from NAR on the subject)

So you might be like I was,  great – I am all for contacting my senators, but who are there, how do I get in touch with them and what do I say.

So who are your senators and how can you get in touch with them:

Go to:  http://www.senate.gov/general/contact_information/senators_cfm.cfm

Pick your state and they will list your Senators, their contact information, and their web sites.  I would suggest visting their web sites and if they are internet people you might be able to connect with them on facebook, myspace, twitter, and more.  Then as you post your thoughts on your pages online about HR 1728, they get your post in addition to your letters, calls, and emails.

Ok, what to say.  You can’t really rant and rave, you want to sound professional and state your points clearly.  An example might be: 

Dear

I am writing to voice my concern on HR 1728 and to bring to your attention, why you need to have concerns with the bill as well. 

I am a (insert your real estate profession here) in the state of _________. 

Language of concern:

 

Section 101, 3, (E) does not include, with respect to a residential mortgage loan, a person, estate or trust that provides mortgage financing for the sale of 1 property in any 36 month period, provided that such loan:

 

(i) Is fully amortizing

(ii) Is with respect to a sale for which the seller determines in good faith and documents that the buyer has a reasonable ability to repay

(iii) Has a fixed rate or an adjustable rate that is adjustable after 5 or more years, subject to reasonable annual and life-time limitations on interest rate increases, and meets any other criteria the Federal banking agencies may subscribe

 

While there are many good benefits for the public included in this legislation there are dangerous pitfalls as relates to the consumers this bill is intended to protect.  We are seeking assistance in de-coupling the individual taxpayer from this legislation that is intended for oversight of institutions.

 

1. On its face this legislation appears to bring into merge individual taxpayers who accept installment payments for their equity along with banking institutions, mortgage brokers and originators who sell money for a business.

 

2. When a seller offers to sell their own property to another and accept payment for equity, there is no loan but rather terms of a sale. 

 

3. Banks lend money that the borrower can then spend as they see fit.

 

4. In the current market, if there was no seller financing, there might be no financing at all in many communities.

 

5. Millions Of soon to be retirees who have worked a lifetime and prepared for retirement by purchasing a few rental properties that can be sold with installment payments providing supplementary income will be negatively impacted by this legislation (being limited to only 1 transaction every 36 months.

 

6. Individuals and families who are going through foreclosure may only find the ability to buy a future home for their family by finding a seller amenable to accepting an installment sale

 

7. A homeowner who may have sold their previous home with seller terms has now lost their job and is about to fall behind on payments, however they have a little vacation cabin which in order to sell quickly has to be sold on terms to provide enough income to keep them current on their present homestead would run afoul of this legislation as written.

 

8. While this legislation regulates large organizations with teams of legal people (consider the contract language that is being used in the resale of foreclosed homes being sold by banks) it puts the individual taxpayer at a horrible disadvantage on either the selling side as well as the buying side thereby making homes less accessible by many people.

 

9. Lastly, many people in the US live in manufactured housing for which there are basically no loan products available once the manufactured home reaches a certain age, though there is still remaining useful life.  How will these properties be bought or sold if not with a seller accepting installment payments?

 

Thank you for you consideration of this serious issue.  Please feel free to contact me with any questions.  If you would like to set up a meeting with local real estate professionals from _________________, please let me know and I can facilitate that for you.

 

Kim Tucker

816-523-4400

——————

You may want to tweek it a little so your senator does not get 3000 letters and emails that are identical.  If you can’t facilitate a meeting of investors with the senator in your local area, partner with your local real estate investor group to do so, maybe even the local Realtor Board office.

And remember, the 100 or so local Real Estate Investment Groups, banded together through National REIA can form one professional voice to help change the face of Real Estate and the US economy for the better.  So please do your part, find send your letters, emails, post cards, facebook posts, and twitters.  Then JOIN your local REIA group and get involved.  If you don’t know of a group in your area, contact me at MAREInet.com for the Kansas City market or go through www.NationalREIA.com

 

 

National REIA Mid-Year Conference – fun

River Walk

Don & I  here at Tucker One, just came back from San Antonio this past week.  We went to attend the Mid-Year Conference of National REIA.  This is a once a year event where the owner, managers, and boards of Real Estate Investment groups from across the country get together and discuss the current state of real estate investing in general, the concerns and needs of their fellow investors in their groups, how the groups can work together to assist each other and the industry and to have a little fun.

This is to share with you our reader some of the notes we brought home to Kansas City from this event.

First we will start with the fun.

On the beautiful Riverwalk in San Antonio TX, you will find a beautiful setting full of hotels and places to eat, with a few shops mixed in.  The travel guides stated there were lots of shops, but not in the area where most of our activities took place, and we didn’t have the time or energy to walk to the big mall on the riverwalk where they were.  So mostly when we were not in the conference, we were looking at flowers, trees, odd birds, other people and eating.

We had a few extra house the first day as we arrived a day early.  We took the time to walk the 5 blocks to the Alamo and take the free tour through the old fort.  Everyone I had talked to had discussed how disappointed they had been when they went to the Alamo, but I found it to be about what I expected for an adobe church built in about 1800, used for over 100 years and then probably not maintained very well for the next 50, and then restored as much as possible. 

The mission itself and the story, is a good one for the real estate investor in that all of these people from all over the country came together to fight and while they did not succeed, they did not give up.  Allowing TX to succeed eventually.  And we as investors need to do that in today’s economy, only we are not fighting with musket balls, bowie knives, and cannon.  But with credit, banks, and housing prices and housing price stability.

So hang in there, don’t give up.  If one strategy does not seem to work, try another.  You can succeed in this market with real estate investing, you just have to find the right strategy that works for you and the times.

If you do go to San Antonio, I would recommend a cooler time as it was 105 degrees most of the time and almost too hot to stand.  But was still fun.

We also were able as a group to take a river boat cruise.  A few of the sponsors of the event were able to provide 3 of the little riverboats for us to cruise on.  First let me say the cruise was very interesting, but we really needed a 4 th boat as we were packed in there like sardines, and for a group of investors that can’t seem to stop talking about real estate and the state of things, it was a little tough for the guide to talk over all the networking.  So if you are planning a group outing on one of these riverboats, find out the full capacity, and plan to put about 75% of capacity per boat and make that work in the budget.  Also with the full capacity, the boats were running a little slower so I think it took us an extra 45 mintues.  If you are planning a group outing, you might also have them plan to dump you out in the area where all the places to eat are. 

We have one more high point of fun and this one actually involves you.  You see the main sponsor of National REIA this year is Home Depot – contact your local real estate investment group or our group at MAREInet.com to find out how you can access all the great new benefits at Home Depot.  And the most important topic of the week end was legislation, more legislation and benefits later.  Anyway, Home Depot sponsored a party at one of the local dance clubs from 8pm to 11pm, with all the food and drinks we wanted, a silent action where national trainers had donated a bunch of training materials, that we could bid on, and National REIA was taking donations.  We got to mix, mingle and dance till about 11 for free and National REIA and Home Depot raised about$3,000 for legislation and lobby efforts.

Other than that we spent a lot of time networking with other group leaders from across the country.  We found out how real estate works, what other people do, and that we are all pretty much the same no matter where you are from.  We got to meet with people from Hawaii (yes the REIA group from Hawaii) came in and we are trying to get them to host Mid-Year in 2011, but I doubt it will happen.  We met with people from NY, PA, WA, FL, TX, AZ, OH, WY, CO, IL, KY, GA, MS, and probably about 10 other states that I can’t remember. 

If you belong to a REIA group in your state, we probably met with some of your group leaders and they were there along with Don and I learning ways to help you succeed in your real estate business.

8037 Michigan, Kansas City, MO – $43,500

8037 Michigan, Kansas City, MO 64132
	8037 Michigan
	Kansas City, MO 64132
	4 Bedrooms
	2 Bathrooms
	Full Basement
	Detached Garage
This home has been renovated in the past few years and looks great.  Currently Rented $875 Section 8
		Section 8 Rent:  $875	Section 8 Deposit:  $600
Lease April 09 – March 10
Taxes $1158	Appraised
	Income Approach:  $87,550
	Sales Value Approach:  $90,000
	Available Upon Request
Call Joe Reece	816-507-4203
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Private Money: No Limits

Private Money:  No Limits 

 

A good idea plus capable men cannot fail; it is better than money in the bank. – John Berry

 

Mid-America Association of Real Estate Investors Presents

 

DON DEROSA – PRIVATE LENDING 101

 

90 Minute Starter Presentation Tuesday June 9^th

Overland Park Marriott – 7:30 pm Fee for Non-Members

Meeting starts at 6:30 with Registration and Networking

MAREInet.com – General Meeting

 

All Day Workshop Saturday June 13^th

Johnson County Community College 9:00 to 4:30

Check & Networking starts at 8:30 Fee

MAREInet.com – Workshop

 

 

“The right tool for the right job.”  It’s as true for real-estate investment as it is for construction.   And one of the handiest items in my investment toolbox is a first-rate string of private lenders.  

 

Why are private lenders so important to my business?  For the same reason they should be important to yours:  using private lenders gives me the flexibility and the speed to grab up deals other investors have to pass on. 

 

Here are just some of the good reasons to use private money:

 

n      Having private lenders allows you to close quickly.  If I had to close on a house today I could have a certified check for $25,000 within two hours.  Why?  Because I have private investors ready, waiting, willing and able to send me a check at my call.  If I didn’t do that, I’d have to pass on a lot of deals because I wouldn’t be able to find the money fast enough.  Even if you’ve got bank financing lined up, you can’t close as quickly as you can with a private lender.

 

n      You can buy houses that the banks aren’t willing to finance.  If a house needs a lot of repairs, banks will not lend on it.  Let’s face it, banks are picky!  Recently one of my buyers was rejected for a bank loan on one of my houses because the house didn’t have carpeting.  I had to go put carpet in it so we could close.  A private lender doesn’t have to operate by the same narrow policies.

 

n      You will not survive the cash-flow game if you use your own money.  Like it or not, it takes money to make money.  If you depend on using your own money, sooner or later you’re going to run out.  You never need to run out of private lenders!

 

n      You can make all-cash offers more readily if you have private money.  And that means you can get the houses at a huge discount.  You can say:  “Look, I’ll pay you cash and I’ll close quickly, but here’s my cash price. Take it or leave it.”  And your competitor?  He comes to the same seller, saying:  “I’ll buy your house, but I want you to do owner financing.  And let’s spread it out over five years.  I’ll give you cash some now and some later.”  Which investor do you think is going to get the deal?  I am, because I’ve got cash in hand! 

 

n      Exit strategies will be much quicker and more profitable, because you can make better offers.  If you can buy a house subject to the existing financing and only bring $10,000 to the table, you’ll have your choice of exit strategies.  It’s not your money, so you don’t have to get out of the deal as quickly.  You can hold on to it for a month or for twelve months.  It doesn’t matter, because it’s not your money. 

 

n      You can negotiate more flexible terms with private lenders.  You’ll pay less than you will if you borrow from a bank or other money lender.  You can negotiate simple interest instead of compound interest, or you can make one payment at the end instead of paying every month.  And you can negotiate the amount of time you have the money. 

 

n      You can take on more loans if you borrow from private lenders.  If you use bank financing, at some point you’ll be told you’re maxed out and you can’t take out any more loans.  And that limits your income.  With private lenders, you don’t have that limit. 

 

n      You avoid closing costs by using private lenders.  Have you ever seen a HUD statement from a person that got conventional financing?  The fees on that HUD statement are astronomical. When I do a subject-to loan with a private investor, my average closing costs are about $1,100 regardless of the size of the loan.  All I’m paying for is my attorney, some recording fees, and title insurance.  That’s it! 

 

n      No credit report is required with private loans.  Even better, not one of these loans shows up on your credit.  And that means you can buy higher-priced homes, and more of them.  Meanwhile, your credit becomes squeaky clean, which helps you in other parts of your life.   I buy ten or more pretty houses every month.  None of them are on my credit.  I could buy a hundred a month if I had that many houses coming at me, and if I had the funds available. 

 

What happens if you don’t use private lenders?  Well, then, you’re stuck with the amount of money that you have.  And sooner or later, I promise you, you’ll run out of money.  You’ll have to pass on a lot of good deals, because you don’t have the money.  Ask me how I know!  I know because I struggled with cash flow before I figured out the whole private lending strategy.  

 

If you don’t use private lenders, you’ll probably use cash-out revenues or lease-option down payments to fund your renovations or your new purchases.  That means you’re taking your revenue and funneling it right back out as an expense.  So what’s left in the middle?  Nothing!  Is that why you want to go into this business, to create a hobby?  I don’t think so!  Line up your lenders now, so you can take advantage of those good deals when you find them.

 

###

 

Don DeRosa was recognized as one of the nation’s top 21 real estate investors in the New York Times bestseller The Millionaire Real Estate Investor.  Don, who is a full-time investor, trainer, and mentor, offers a complete system to build and run a thriving real estate business. For more information on Building Wealth with Real Estate, visit www.askdonderosa.com.

 

Summary:  Private lenders are important to successful real-estate investors.  Private lenders allow you to buy more homes for less money.  They reduce your risk, increase your flexibility, and give you a substantial edge over your creditors.  Line up private lenders in advance, so you’ll have the money when you need it.

Facebook is so useful -

Well I heard a while back that some how a person was served papers through facebook for a lawsuit or some such.    That sets the stage.

You see when we buy houses, we try to go directly to the source and by pass the MLS.  So we do a lot of direct mail to different lists of people and we get a lot of mail back.  I have always googled names and basic info that I might have to find the person.  But last night I decided to give ol Facebook a try.

Did a search in the metro area where she supposedly lives and found her.  I requested to be her friend and also sent a message to her about our desire to buy real estate.  She not only agreed to be my friend, but she also replyed back that the property in question had been sold, but she had others, she is also a property manager and had some of her owners who wanted to sell as well.

So the next time you can’t find someone, here’s some places to start:

• google
• facebook
• linked in

these are the best places I have found so far. 

Also if you maintain an email newsletter and all of a sudden and email starts bouncing for what ever reason, it may be you could find them on one of these sites and ivite them to be friends or join your online group.  You can then email them through the networking site and they can keep their emails clear.

Let me know how it works for you.

More on the top 10 Mistakes

Top 10 Mistakes Rehabbers Make:

• Who is Kim Tucker
  q Never swung a hammer
  q Never installed a light switch
  q Never painted a stroke
  q Have selected targeted neighborhoods for rehabbers & other investors
  q Have selected houses
  q Have compared houses to the competition
  q Have marketed finished houses

Been in business for about 10 years with my husband and partner Don Tucker. We have bought and sold over 150 houses, about 50 or so were rehabbed and sold. I have also looked at 1000’s of fixer uppers, 100’s of finished houses, in an effort to find the right houses, fix them up correctly, and get them marketed and sold as fast as possible for the best profit.

Along the way I have learned a few things:

1. A We Buy Houses Sign on the back of your car can work – Joe’s story.
2. Always put your contact info on everything you hand out, even contracts.
3. And if you are not talking with buyers and sellers on a regular basis, you’re not going to do any deals!

I have been thinking about this as a meeting presentation or a book or something for about 5 years. It all started when I listed a so called rehabbed house for one of my investors and held an open house. It was not a really great area for an open house and needless to say we had no traffic. So I had 3 hours to make a list of things that rehabbers do wrong, just from this one house:

1. Light fixtures in a room should match each other.
2. Swing arm lights that hang on the wall go over beds, not in the hallway.
3. The chimney pulling away from the house should be fixed.
4. The bay window leaking the day before the open house is a bad thing.
5. Don’t buy raw cabinets, install them, stain them, and then start sanding before they are dry.
6. Don’t install the carpeting and mini blinds before 100% of the rest of the rehab is complete.
7. Cut off doors so they don’t rub on the carpet.
8. Replace the rusty front screen door.
9. Don’t buy next to a house where the neighbor does not mow his yard till it is 6 foot deep.
10. Don’t buy on a really busy street with very little off street parking.

Over the 3 hours I ended up with about 5 legal pages of items and I was ready to write a book. But I can’t find the notes now, so I had to start over. And because I don’t have 10 hours here I had to pick the top 10 things.

As I worked on this list I found that most of my key 10 things would fit just about any investor our there. So if you are not planning on rehabbing and selling, but holding the house as a rental these items will be things you want to watch for as well. If you are not planning on even buying a house, but rather wholesaling it, you will find a few of these things helpful.

To find out more, I hope to see you at the May 12th meeting of MAREI at the Overland Park Marriott at 6 pm.  Paid members of MAREI can attend for free, guest are $25 at the door or visit their web site to register for less.

Mistakes that Investors Make

I am the guest speaker at my own REIA next Tuesday (I must know someone or something)

My topic is the top 10 mistakes rehabbers make. Being married to a rehabber and also his private realtor who finds the houses and helps sell them I have seen a ton of rehabs. I also list houses for my rehabber buyers from time to time. And I go through a ton of the competition to see what we need to do to our house, confirm pricing, etc. So I have seen a lot of great rehabs and a lot of really bad ones.

So today as I sit here comtemplating my presentation on this fine cloudy Mother’s Day morning, I am finding that while the topic is for Rehabbers, it seems more like for most investors.

The very first mistake that many rehabbers make is not taking action. I am guilty of this as well as the next person.

First the newbie investor who wants a magic pill to swallow and they will instantly become a successful real estate investor – YOU NEED to TAKE ACTION in the form of educating your self. You don’t know what you don’t know. And while a great deal could just fall from the sky it probably will not so you need to do three things.

1. Educate yourself on real estate investing in general and your niche in specific. You can do this through books at the bookstore, online articles, teleseminars, training courses from the so called experts, bootcamps, and trial and error. Or maybe a selective combination of these things. Make it a goal to read 1 book or listen to one teleseminar a week (or maybe 2 or maybe 3, dending on the time you have).

2. You need to build your real estate investing team. This is the group of experts in their field that you will call on when needed: Realtors, Lenders, Appraisers, Contractors, Property Managers, Accountants, Attorneys, the list can be quite large, and the best place to start is your local REIA group. Make it a goal to speak to at least 5 new people at each meeting, find out what it is that they do, and follow up with them after the meeting to get referrals for your team.

3. You need to pick an area to focus your attention. This could be a subdivision, a school district, a zip code or a town. Become the expert on that area. Go look at every house for sale that you can. Call every for sale by owner. Get to know all the realtors who work that area. What do the houses look like, what do they sell for, and who is selling.

Then we get past the newbies who are just getting started and we find the people who know exactly what they want to do, but they spend all their time finding excuses as to why they have not done a deal yet. The simple truth, they are afraid.

So if you have not done a deal yet, keep in mind that if you don’t make offers, you dont do deals. If you don’t go look at houses and talk to sellers you don’t make offers. And if you don’t have a way to get the houses to look at or to get sellers to call you, then you are just at home getting business cards and setting up web sites.

If you have not done any deal yet you also need to do 3 things.
1. As you already know what kind of deals you want to do and the area you want to do it in, you need to find a way to get deals in front of you. There are several options.

If you are going to buy REO property, you need to find out every agent that sells REO properties and every investor who wholesales houses and get on their mailing list of properties. Then set up a schedule to (1) look at their web site and give them a personal phone call at least once a month and ask “what house in “x” area are you having trouble selling that I should make an offer on” Or what is the hot deals this week. Then go look and make an offer.

If you are going directly with sellers you could sit down and watch craigslist and the newspaper and call all the for sale by owner houses, plus all the signs in your area, but guess what you probably will not. So you need to spend some marketing dollars to get sellers to call you. Put up bandit signs, mail to code violations, post notices on front doors that you buy, and get the seller’s to call you. And answer the phone if possible. Then you are talking to sellers and will be going to look at houses.

As you talk to the realtor, wholesale seller, or home owner, set up time to go look at houses. If you are not buying anything anyway, you have plenty of time. Get out of the chair and into the car and go look at houses. Work your numbers and make an offer. Who cares what the asking price is, make your offer, the worst they could do is say no, they might counter offer you, and you never know, they might take the offer.

But there is a secondary reason for going out to look at houses, to see what else is out there. While driving to and from have a house buying sign on the car. Have a note pad in the car to write down addresses to mail, for sale by owner signs to call on. Have business cards in the car to hand out to neighbors. Have notices to post on front doors of potential houses.

3. Make offers this is the hardest thing for many investors to do, they are afraid they will pay too much, they are afraid they might have to buy it. What ever. If you are financally ready to buy houses, get your financing lined up and make offers. If you are not ready to buy, but want to wholesale, if you find a true deal, something that is going to make someone money, you can take it to someone in your group with more experience and funding and they will do a deal with you in some way.

Then we have the experienced investor and we too don’t take action. We get stuck in what we are doing and get blinders on and can’t see the forest for the trees. It may be that what we are doing in our business is great, but we might be able to make some changes and do it better. The economy might have tanked and we might need to change a few things. So those of us who are experienced need to do three things as well.

1. Keep an eye on the market to watch for major changes and adjust our methods.

2. Take continuing education to make sure we are on the right track and make implement improvements as we learn new techniques.

3. Implement new strategies if our old ones are not working so well.

I will be going over more mistakes rehabbers and other investors make at the May 12th General Meeting of Mid-America Association of Real Estate Investors. I hope you will be able to join us. Their meetings are FREE for paid members of the assoication and guests can attend for $25 (pre-register through the calendar on their web site for just $15) Web site is www dot MAREInet dot com (www. MAREInet .com)

Our Real Estate Investing Model – Protecting our Lenders

While we would love to go back to the old days where we have a huge line of credit at a bank that was going to charge us 1% for the money, about $400 for an appraisal, and $500 for title company fees and get the money for 6 to 7%, the banks are running scared and just not lending money to investors or to anyone for that matter in some cases.  So why are they scared of us investors? 

Well the main answer is some idiot a while back came up with subprime loans and then they went bad and houses started getting foreclosed upon.  All these foreclosures glutted the market with houses that were selling for less that usually, which reduced the average value of homes in that area, the more foreclosures, the lower the values went.  So the banks that were sticking to a very good business model of only lending us investors 75% of the after repair value on a home were suddenly finding out that the after repair value was now at about 10% less, or more. And because the subprime loans went away, the investors could not sell their houses as fast and sat on them 6 months or more while the values kept tumbling, eventually their bank lenders gave up on them selling the houses and took the loans back.  Then they found that they could not sell for the 75% they lent, because that 75% was now less than the value of the home in some areas.

But there is one area that homes are holding their value – areas where first time home buyers are buying homes and in the KC area that price range is $120,000 to $150,000, the market we are targeting.  Several homes we have been working with in the past few months are selling at right about the same values they appraised for 2 or 3 years ago.  So no appreciation really, but no depreciation really.  So if you were a private lender lending to us on one of these houses, your 75% loan amount to our 100% repaired sales price should stay fairly constant in the next 6 months to 2 years, and quite possibly will go up.  (I don’t know if we are at bottom on prices yet, but it sure seems like we are)

So our first step to protect our lenders is to only buy houses and borrow the funds where our purchase and rehab costs are 75% or less of what we can sell it for all fixed up.  So if we screw up and can’t sell the house at our orginal planned price, we can alwasy drop the price to cover the 75% we owe on it, so you get paid.

Second, we work the numbers forwards and back wards and because we have been doing this for 10 years with over 25 years combined experience in this field, we know what houses sell for, how much it costs to fix things, how to plan for holding and selling costs, and we are not ever more than a few $100 off in our numbers.  Plus we are know for getting in and out of a house.  We have a set sequense of rehab so we can do it in 4 to 6 weeks.  If we can’t work a rehab in 4 to 6 weeks, we don’t buy the house.  And we stay away from major foundation issues, fire damage, mold, and houses that don’t make sense.

Third, we insure the property with vacant insurance to make sure if the worst should happen, we are all covered.

Fourth, we want to make sure you get paid if something should happen to us, so we file mortgage documents, deeds of trust, promisorry notes with the recorder of deeds to put the whole world on notice that we owe you money and it has collateral.  If something should happen to us, our estate manager would have to liquidate property and pay you on the property first before any money goes back into our estate, plus there are 4 of us in the deal so one of us should be able to finish up the deal instead of you facing a fire sale.

Fifth, should we go to a long term loan situation if we just can’t sell, we would also file an assignment of rents, so you could have the right to collect the rents if we are not making our monthly payments.

The one question that everyone has at this point, is ok, so I am protected if something bad happens, but what do I get paid.  My answer here on the internet would have to be that all depends on what the going rate for money is.  If you want 10% and I can’t get money anywhere else, then we would have to make a deal work with 10%.  But if I have access to 6% money and right now when I write this, I do, I would want to get money from you at 6%.  Also we usually pay more in interest for the shorter term loans.  So if we were looking at a 6 month loan we may be looking at 8% while if we were at a long term 2 year loan mayb 6.5% to 7%, and if we go for a full 20 year or 30 year loan we may want to be at 6%.

If we needed to borrow purchase and rehab from two different sources, the lender on the purchase would be in 1st position and the lender on the rehab would be in 2nd position. 

The next question might be how much do you need to borrow, as the previous post showed, we are looking at purchase and rehab between about $80,000 and $100,000.  So we are talking a larger number, minimum of $50,000. 

We would love to sit down with you on a one on one basis to see how we might be able to work together.  Give Don or I a call at 816-523-4400 and we can discuss specifics more in detail.

Real Estate Investing Model and Private Lenders

In my last post I defined what our current investing model is.  If you go back and read it, we plan to buy, rehab, and sell to first time home buyers in the $120,000 to $150,000 price range in western Jackson County Missouri or eastern Johnson County Kansas. 

We plan on utilizing a private lender for the purchase and rehab funds.  That means the people that we know or who know us who are sick and tired of seeing negative returns on investment on their retirment portfolios in the stock market, who want to see positive returns and who want to invest for at least 4 to 6 months, and are willing to tie up for up to 2 years, will lend us the funds for purchase and repair costs.  We will pay them a return on their investment in the form of simple interest on the money they lend.

At the best case scenario for us, we borrow purchase and rehab funds.  We buy and rehab the house in 30 to 45 days, market it to find a buyer in 30 to 60 days, and sell and close with in 3 to 6 months and the private lender gets their principle back plus interest. 

Example:

• Price to Purchase  House:  $70,000
• Price to Rehab House:  $30,000
• Holding Costs:  $2,000 (utilities, mowing, insurnace)
• Buying and Selling Title Company Fees:  $2,000
• Staging Fees:  $1,000
• Sell the House:  $130,000
• We pay 6% in Realtor Commission ($7,800)
• We pay the private lender $4000  ($70,000 plus $30,000 x 8% interest for 6 months)
• We make $23,200 (if we can cut out realtor commission, rehab cheaper, and we make a little more

Note that we never contemplate a rehab on a house unless the project profit is at least 20,000 and the purchase and rehab costs are 70% or less of the end sale price.

Now we all know the market could shift and end prices could go down a bit.  So we need a back up plan or two.  So back up number one would be to do the same as above, but in month 7 we would find a lease to own buyer who would buy in 2 years at the $130,000 price.  In this case the private lender may be paid off the interest for the first 6 months and then refinanced at a longer term rate, maybe 6.5%.  The private lender is then pocketing about $80 in principle and $480 in interest, but does not have a lot of paperwork or need to move their money around a lot.  If we plug the $90,000 loan into an amortization chart for 30 years, the monthly payment would be about:  $568 with taxes of about $100 a month and insurance about $50.  Our total PITI would be $718, and we would need a lease to own payment of $900 to $1000 a month.  We make a little each month on the  monthly payments.  Then we work with the buyer to get their financing in order so they can buy, and we make our profit when the finally cash us out and the private lender makes profit each month.

Back up plan #3 would be if we can sell to a financed buyer right now and if we can sell lease to own, our last resort would be a renter.  In this scenario, the private lender would again be getting the same payments as above, but our rent payment would probably be less than a lease to own payment.  We would probably be renting for right around $800 a month so we would essentially be break even.  The plan being that in the next 2 years we would refinance to bank lending at 75% loan to value and cash the private lender out , if they wanted to cash out.  Or if the private lender wanted to go really long term at a lower rate and shorter amortization, we might want to refinance with the private lender at something like 6% with a 20 year amortization.  It would all depending on the going rate of funding from the bank at that time.

Please note that these are just examples to put real live numbers so you can get a really good feel of how a private lender deal would work in terms of numbers.  We can always be negotiable by the deal.  If you would like to learn more about becoming a private lender with us, please give us a call at 816-523-4400.  And see our next post on how we structure the paperwork to protect our private investor.

Current Real Estate Investing Model

They guys in the office will probably shoot me for giving away the farm, but here is what we are looking for in a house.  Bird dogs, please take notice.

Location:  First time home buyer neighborhood that is primarily owner occupied, but with a few rentals.  (Not almost all rentals and tons of vacants like Ruskin Heights in Kansas City Missouri.)  Near our office so we don’t have to drive a long distance which gives us on our map the north eastern corner of Johnson County Kansas south to about 83rd and west to about Lackman.  On the Missouri side up and down the state line, west of Troost south along I435 east and back up through South Kansas City, Bannister Mall Area, and then Raytown.  There are similar markets in the Olathe area, south Overland Park, North of the River and in Eastern Jackson County, but it is a little out of our driving range.

Type:  Preferrably a 3 bedroom, 1 1/2 bath, home with 1 car garage.  Four bedrooms ok, 2 or more baths ok, and 2 car garages.  Age is probably 1950 to 1975.  Older and Newer ok, but needs to be in price range and sellable style.  Ranches, Split Entry, Side to side Split, and some Bungalows.  Maybe a 2 story.  Nothing that just does not make sense or has no sense of flow.  If the house just does not feel right in room layout, we don’t want to rearrange rooms and you can’t sell a house that does not flow.

Price Range:  We are targeting neighborhoods where the houses sell for between $120,000 and $150,000. 

Exit Strategy:  Sell to a first time home buyer, FHA. 

Which means we need to be rehabbed in line with the neighborhood with a little bit better than “Home Depot Specials” including hardwood floors if they are already there, ceramic tile floors in bath & kitchens, real wood cabinets, tile backsplash and tub surround, formica counters ok.  No items left to be deal killers like ancient roofs, furnaces, ac, hot water tanks, and windows.  We need to be able to buy and rehab to sell at the average price for the area and be the above average house on condition and showing.  We will probably list for sale in MLS.

Back up Plan – if the market shifts in pricing during our rehab and we just can’t sell, then we can always turn to a lease to own strategy and sell over time.  Need to net enough in monthly payments to cover private lender fees, taxes, and insurnace, and make the profit in non-refundable earnest money and then at the sale at some date in the future.  Private lender will need to be willing to lend from 6 months and extend up to 2 years.

Last Resort – if we just totally screw up and can’t sell in anyway, the PITI (principle, interest, taxes, and insurnace) needs to be at a price that will be less than what we rent for and give us a little bit to bank for cosmetic repairs in about 2 years when the market should be back up or going up and we can sell to a first time home buyer then, or refi to a bank loan and pay off the private lender(assuming banks are lending in 2 years).

So thats it in a nut shell – what we are looking for in a house.  Check out our next post to see the private lender side of the deal.