Friday, January 30, 2009
Foreclsure Investing for Cash Flow in Indianapolis
Rehabbed completely, rented for 2 years @ $795 and higher...this house will cash flow over $300 per month. Buy it now for $65K, increase your net worth and payoff your down payment in less than two years. http://www.ezkeyre.com will guarantee rents for 12 months after your purchase.
Cash Flow Property with 12 months guaranteed rent.
4 bedroom 1 bath house in a great neighborhood and school system. Cash flow over $300 per month. After repaired value $80K plus, avail of at our EZ price of $65,000. The home has been completely remodeled and we guarantee $750 per month in rent whether your tenant stays or goes. Cash on cash return of over 28 percent and a net worth increase of nearly fifty grand. Buy this house, and the income stream it provides, as a turn key cash flow property or let us package it with 5,10, or 15 others and build yourself a vehicle to replace your income now vs. later.
How to sell a house in a down market.
Here is a great article from our friend and expert Wendy Patton. If you have not yet read her book on lease options, it is a must for your library. See our recommended reading list from http://www.amazon.com on our blog http://www.ezkeyre.blogspot.com/. We use her strategies every day for cash flow properties and our Indianapolis foreclosure investing.
Selling in a Down Market.
What Can I Do?
©2009 by Wendy Patton
It’s in the news day after day about how bad the real estate market is across the country. Available supplies are rising, builders are cutting back, the sub-prime mess, prices are dropping, etc, etc. We both know that while many areas in our country are experiencing challenged real estate markets not every market does. Real estate is local, so there are some markets going down and some going up, no matter how much the news media tries to convince us otherwise.
That being said, however, there are a large number of markets right now in downward trends. If you happen to live in or own a home in a down market and you need to sell this is a time to get creative. Down markets are buyer’s markets, meaning you, as the seller, are competing for the smaller pool of buyers who have a large inventory of housing to choose from.
Mostly we hear about making sure your home is priced competitively and it is well staged (perhaps even using a professional home staging company). These things certainly can help. However, often they aren’t enough. The reason for this is that you are still competing for the same small pool of buyers as everyone else. If you really want to get your home sold you need to expand the pool of buyers. What I mean by that is that the existing pool of conventional buyers is comprised of people who want to buy now and can qualify for a mortgage now. We all know that the extreme tightening of the lending industry has made it much harder for prospective home buyers to qualify for mortgages. If you really want to sell your home you need to expand your pool of buyers to include those people who want to buy a home but can’t qualify for a standard mortgage at this time. This pool is actually much, much larger than the pool of buyers who can get a mortgage right now.
Let’s take a look at some of the more creative selling methods you can use to help your home stand out among the rest, reaching a larger pool of buyers and get sold in a down market.
Seller Carryback – aka Seller Holdback or Second Mortgage
Seller Carrybacks bridge the gap between conventional financing and more creative seller financing. In this case your home buyer can qualify for a mortgage but not for the full amount. They may be able to qualify for anywhere from 70% to 90% of the purchase price. To cover that differential the seller must give the buyer a second mortgage covering the remainder. The seller is essentially acting as a bank offering an additional mortgage. The terms of the second mortgage are entirely negotiable.
In the case of the seller carryback the sale of the property and transfer of the deed is completed. This allows the buyer to get their principal mortgage at the time you are providing the second mortgage. There are several advantages to this. By completing the sale the buyer is the new owner of the property, freeing you from the responsibility of taking care of that home. Additionally, if you have equity (beyond the amount of the second mortgage you are offering) you will get paid that equity. The disadvantages to this are that: 1. should the buyer default on their loan for some reason you would have to foreclose and 2. you must actually have equity in your home so that when the buyer purchases your home their first mortgage is enough to pay off your existing mortgage.
As I mentioned the terms of the second mortgage are entirely negotiable. That means the interest rate, the frequency of payments, the rate at which the interest compounds (yearly, monthly, daily, etc.), whether the payments are principal and interest or interest only, whether there is a balloon payment, and the duration of the loan are all factors you can set with the buyer. These terms should not be taken lightly either, as you can substantially increase your profit by negotiating favorable terms. While all of these terms may sound a bit intimidating, fear not, you don’t have to resolve them on your own. I recommend using an attorney to help you with the loan documents and terms. The small cost of using an attorney will pay for itself as the attorney will help you set favorable terms and protect you with proper documentation. I DO NOT recommend allowing the buyer’s loan officer to set up the second loan for you! Remember, they work for the buyer. They will be doing their best to make sure the terms favor the buyer and not you.
To help you understand how important it is to get favorable terms, let’s take a look at a variation in just a single term, the interest rate. All other terms being equal, let’s assume you take a seller carryback for $25,000, amortized over 30 years but with an 8 year balloon – this means the interest is based on a 30 year time table like a conventional mortgage, but the buyer will have to pay the balance after 8 years, usually by refinancing. If you set the interest rate at 8%, over the 8 year period the buyer would pay you a total of $15,364.77 in interest on the loan. If you set the interest rate at 8.5% the buyer would pay $16,381.76 in interest. That’s just over $1,000 in additional interest for just a ½% increase in interest rate.
There are a couple of important things to keep in mind when doing a seller carryback. The first is that the primary mortgage lender must be fully aware that you the seller are providing a secondary mortgage. Failing to disclose this constitutes fraud. The reason for this is that banks lend based on what they feel the borrower can handle based on the value of the property. If they are willing to loan 80% of the value of the home and permit a second mortgage for 15%, requiring the borrower to put 5% down, that is the most the bank feels this borrower can afford. If they are only willing to loan 80% of the value with NO second mortgage, it’s because they feel the borrower cannot handle the additional mortgage. If you provide that mortgage anyway, you are violating the terms of the first mortgage.
The second thing you need to keep in mind with a seller carryback is another type of fraud. It’s the forgiven loan scheme. It works like this: The buyer is approved for, let’s say, a 90% mortgage. The buyer, their loan officer, or their real estate agent, might ask you to take a 10% second mortgage, but they adjust the purchase price up to cover all or part of that 10%. They disclose to the bank that the seller will provide a 10% second mortgage, but as soon as the sale is complete you forgive that 10% second. In other words, you accepted the 10% second but had no intention of ever making the buyer pay it. What this effectively does is make the buyer’s 90% first mortgage a 100% first mortgage instead. Make no mistake, even though you are disclosing that second mortgage to the primary lender, you are still committing fraud.
Both of these types of fraud are very rare, and most likely as a seller willing to carry a second mortgage you won’t encounter someone who asks you to do it. However, I want to make sure you are aware of them because no matter how badly you need to sell your home, it’s not worth committing fraud over.
Land Contract aka Contract for Deed
Land contracts are essentially 100% seller financing. In this case your buyer will not be getting any other mortgage except the financing you are providing. Land contracts can be structured 2 different ways. You can either close on the property with the buyer and convey the deed to them and the land contract exists as financing on the property or you can set the land contract in place and the deed isn’t conveyed until the buyer pays the land contract off, either by refinancing down the road or by paying the balance in full. It is to your advantage to do the second, where you retain the deed until the buyer pays off the land contract.
You may have heard that in order to sell your home on land contract you must own it free and clear. This is not 100% true. In some cases, your existing mortgage may have a ‘Due on Sale’ clause. By conveying your home on a land contract when you do have a mortgage the bank has the right to invoke the ‘Due on Sale’ clause. However, it is VERY, VERY rare that a bank will invoke this clause as long as payments are being made. This is especially true in down markets where foreclosure rates are high.
Like a seller carryback the terms of the land contract are completely negotiable. All of the terms I mentioned in seller carrybacks apply here. I also strongly encourage you to make use of an attorney when it comes to setting the terms of the land contract and completing the paperwork. In some states title companies can assist with these documents.
As we know, traditional closings can be very costly in terms of closing costs, especially for the buyer who has to pay loan origination fees. An advantage to selling with a land contract is that most of these fees don’t apply, saving thousands of dollars in closing costs. This means that the buyer can either put this money towards a down payment, which goes directly to you, or for the buyer whose funds are more limited, they are still able to get into the house when they might not otherwise be able to do so.
A land contract results in the conveyance of the property. Because of this your buyer is actually a buyer and not a tenant. This gives you the advantage of putting someone in your home who has a buyer’s mentality not a tenant’s. They are much more likely to take care of the house and be responsible than the average tenant. The disadvantage to this is that if your buyer should stop making payments for some reason, in most states, you cannot simply evict them. You will either need to follow forfeiture procedures or foreclosure procedures, both of which cost more in time and money than a standard eviction.
On a Land Contract you can also “wrap” your mortgage. For example, if you are paying 5.5% interest, you might be able to charge 8% or more. Even without much of a higher price on your home, you have the spread between 5.5% and 8.0%. On $100,000 of a loan balance, it would mean $2500 per year in your pocket! This is 2.5% difference in interest on $100,000.
Land contracts hold a big advantage over seller carrybacks in that you are able to market your home to a much larger pool of buyers. With the seller carryback the buyer is still qualifying for a mortgage for most of the cost of the property, but with the land contract you can sell to someone who is currently unable to get a mortgage, which greatly increases your reach. Who are some of these people? Buyers who have moved from another area that are still trying to sell their old home and can’t qualify for two mortgages, someone who is going thru a divorce and their existing home is tied up, a buyer who’s credit is bruised, a buyer who’s credit isn’t established enough yet to qualify for a mortgage, just to name a few.
Lease Option/Lease Purchase
Lease options and lease purchases are probably the most creative forms of seller financing and are particularly effective for selling your home in a down market. In both, you are leasing the property to your buyer for a period of time and at the end of the lease period they can buy your home for a pre-set price. In the case of a lease option, the buyer has the right to purchase the home, although if they don’t they would forfeit their option fee. In the case of a lease purchase the buyer is obligated to buy the home at the end of the lease period. Obviously from the home seller’s perspective the lease purchase is more desirable. You must however, make sure that if you sign a lease purchase they can actually get a mortgage down the road, otherwise you will be suing them in court to buy your home (not a good experience).
Unlike the seller carryback and land contract, you are not charging interest on a loan, the tenant buyer is, instead, paying rent. One of the negotiable terms of the lease option/lease purchase contracts is whether any of the rent will apply as a credit towards the purchase price, otherwise there is no principal pay down.
With lease options and lease purchases you have a landlord-tenant relationship with your buyers until they actually purchase the house. This bears some advantages and some disadvantages. While your buyers are tenants, they do not have the typical tenant mentality. Their intention is to buy the house. As part of the lease option or lease purchase contracts they pay an option fee, which applies against the purchase price when they buy, but, it is non-refundable if they don’t. This money helps keep them motivated to become home buyers. However, because they are tenants, during the lease period you will be responsible for repairs on the house, except of course for damage done by the tenants.
One of the main advantages to having the landlord-tenant relationship during the lease period is that if the tenant stops paying rent you can evict them. The reason for this is that in lease options and lease purchases you retain ownership of the house until the buyer actually exercises the purchase agreement. While evictions are rare, they are definitely advantageous because they are much less costly and much quicker than foreclosure or forfeiture. Additionally, if you are forced to evict you still get to keep the option fee.
The terms of lease options and lease purchases are different than mortgage based seller financing. Instead of negotiating interest, amortization and the like, you are negotiating the length of the lease, the amount of the rent, the amount – if any – of the rent applied against the principal, and whether extensions will be permitted and how much the purchase price, option fee and rent will increase for an extension period.
Like land contracts you are truly offering your home to the largest possible pool of potential buyers. Offering this kind of flexibility is the most effective way to sell your home in a down market.
Mortgage Assumption
Mortgage assumptions are much more limited, but can be a useful option for selling your home in a down market. Instead of obtaining a new mortgage the buyer assumes (takes over) your existing mortgage. Depending on how much equity you have in the property it may be necessary for the buyer to either make a down payment or for you to offer a second mortgage.
The reason that mortgage assumptions are more limited is because of the qualifying criteria that must be met. First, your existing lender must be willing to let a new buyer assume your mortgage. Most mortgages are non-assumable, however, given the challenged market conditions many areas are experiencing this may be negotiable with the lender. In order for the buyer to assume the mortgage, however, they must be able to qualify. The lender will not let just anyone assume it. If the buyer can qualify for the existing mortgage they can likely qualify for a new mortgage as well.
There are a couple of reasons a buyer might want to do a mortgage assumption versus just getting a new mortgage. First, the terms of your existing mortgage may be much better than the buyer can get on a new mortgage. Interest rates have gone up and the difference in rate between your existing mortgage and a buyer’s new mortgage may be as much as 2% higher. If you remember from our above example, just a ½% rate differential for a much smaller loan can make a difference. The other reason a buyer would want to assume a mortgage is because it can save them thousands of dollars in closing costs. The advantage of this to you, the seller, is that is means they can put more money down when buying your house, or it allows them to buy your house when they might not otherwise have been able to.
When selling your home in a down real estate market it is critical to reach as many buyers as possible. The typical pool of buyers is limited to those who can currently qualify for a mortgage. By offering creative financing solutions you are able to reach far more buyers than the conventional seller, especially using lease options, lease purchases and land contracts.
Selling in a down market can be tough. This type of creative financing differentiates you from the pack of other homes on the market. Additionally by offering seller financing you can actually receive more money on the sale of your home, either in the form of interest payments or purchase price.
--Whenever you are ready, check out our selection of turn key rehabbed, rented, and managed homes with 12 months of guaranteed rent and monthly cash flow. http://www.ezkeyre.com
Wednesday, January 28, 2009
How to have your calendar enliven and inspire you every day.
If you are like most people we try and get as much stuff shoved into a day as possible to feel productive. The more we get done the better the day. I ask you, are you fulfilled and satisfied by the work you get accomplished or the tasks that you tick off? Most people are not...it is just stuff to do, that gets us through the day or to a place we can REALLY do what we want. What if by making a slight shift in how you relate to and fill your calendar could change your entire experience of your day, yourself, and what you are capable of?
- Begin by filling your Calendar with Happenings that get at the source and heart of what you're after in life - at work, at home and at play. When you write them, do you have the experience that they will alter your behavior when you act upon them? (most do not)
- Drill down when writing each opportunity for action until it addresses at least one of your core concerns and matters in life. Keep drilling and looking until you're clear that when it comes up in your calendar you're going to do it. You can ask yourself the following question: Is this thing worth giving my life for? After all, this moment right now, is your life.
- If at some point your Happenings in your calendar no longer inspire you, rewrite them. The sharper your skills in creating powerful Happenings, the more satisfying and fulfilling your life will be. The relationship is direct.
- Express each happening as an accomplishment that you have already achieved. e.g.(called mom and shared my heart and how much I appreciated her. Created a whole new opening for our communication.)
- If some happenings do not address your concerns or what your up to in life, you might consider moving them to your list of not doing.
- Or, you may choose to take them completely off your list.
If you practice this, happening by happening, week by week, you will know yourself as the designer of your life. Never mind checking off a snores-ville endless "to do" list. Instead, you will create a day and a life filled with amazing accomplishments that leave you fulfilled.
Wednesday, January 21, 2009
"The 10 with the lowest risk for lower real estate values were Denver; Indianapolis; Cleveland; Columbus, Ohio; Charlotte, North Carolina; San Antonio; Pittsburgh and three Texas metro areas: Houston, Fort Worth and Dallas, according to the survey."
Check out Bob Irvy at Bloomberg and what he has to say about Indy and the rest of the country.
http://ping.fm/Z7dft
Real Estate Values Continue to tumble till 2010...but not ours!
http://www.bloomberg.com/apps/news?pid=20601087&sid=aov5kTvfFfAU&refer=home
Tuesday, January 20, 2009
"The time has come to set childish things aside." What are you waiting for?
Erik Sale is my guest Tuesday 1/20/09 at 3pm EST:
Erik is a coach, mentor, national speaker, serial entrepreneur and real estate investor. He has been investing through good times and bad and currently serves as the president and founder of EZ Key Real Estate LLC a company focused on cash flow property and foreclosure investing.
Raised in Oregon, schooled at Northwestern University in Evanston, Illinois, Erik has spent the last 12 years living and traveling from Vail Colorado, where he has created and launched several successful businesses and carved out an exceptional piece of life.
Erik has spent the most recent years in the real estate training, coaching and seminar business working with likes of Money in Training, National Real Estate Investors, Enlightened Wealth Institute, Donald Trump, and Robert Allen. Erik also served as a co-host of the radio program "Real Talk with the Real Estate Experts" with Dave Burke on 630 KHOW for Clear Channel. The show is still on the air Saturday afternoons and is now syndicated in half a dozen other markets around the country. Although no longer co-hosting, Erik is a regular radio visitor.
His company, http://www.ezkeyre.com provides turn-key real estate investment opportunities. The core of the business is providing investors with affordable cash flow properties, rehabbed, rented, and managed, with guaranteed cash flow. The intention of the company is to eliminate the typical hassles of investing in real estate, allowing customers to grow wealth, work less, and get paid.
Erik's mission statement is simple: Extraordinary service, and exceptional relationships. EZ Key Real Estate exists to empower and enable investors who seek freedom, peace of mind and self expression through wealth and passive income real estate. His purpose is to make a difference, inspire others, have fun, make money, and transform lives and his communities.
Radio Show guest today in 1.5 hours
What are you waiting for? Build passive income in the best market in history.
Monday, January 19, 2009
Putting a New Spin on Coaching & Personal Development through Social Broadcasts
Kristen Moeller has invited you to the event 'Coach, Mentor, Real Estate Investor & Entrepreneur Erik Sale' on Real Coaching Radio Network!
Check out "Coach, Mentor, Real Estate Investor & Entrepreneur Erik Sale" on Real Coaching Radio Network
Time: January 20, 2009 from 3pm to 4pm
Location: Real Coaching Radio Network
Organized By: Kristen Moeller
Event Description:
Erik is a coach, mentor, national speaker, serial entrepreneur and real estate investor. He has been investing through good times and bad and currently serves as the president and founder of EZ Key Real Estate LLC a company focused on cash flow property and foreclosure investing.
Raised in Oregon, schooled at Northwestern University in Evanston, Illinois, Erik has spent the last 12 years living and traveling from Vail Colorado, where he has created and launched several successful businesses and carved out an exceptional piece of life.
Erik has spent the most recent years in the real estate training, coaching and seminar business working with likes of Money in Training, National Real Estate Investors, Enlightened Wealth Institute, Donald Trump, and Robert Allen. Erik also served as a co-host of the radio program "Real Talk with the Real Estate Experts" with Dave Burke on 630 KHOW for Clear Channel. The show is still on the air Saturday afternoons and is now syndicated in half a dozen other markets around the country. Although no longer co-hosting, Erik is a regular radio visitor.
His company, http://www.ezkeyre.com provides turn-key real estate investment opportunities. The core of the business is providing investors with affordable cash flow properties, rehabbed, rented, and managed, with guaranteed cash flow. The intention of the company is to eliminate the typical hassles of investing in real estate, allowing customers to grow wealth while working less.
Erik's mission statement is simple: Extraordinary service, and exceptional relationships. EZ Key Real Estate exists to empower and enable investors who seek freedom, peace of mind and self expression through wealth and passive income real estate. His purpose is to make a difference, inspire others, have fun, make money, and transform lives and his communities.
See more details and RSVP on Real Coaching Radio Network:
http://ping.fm/F7tOa
What are you waiting for? Join us on the air today Tuesday, January 19th this is the only day you have. What are you going to do with it?
| Real Coaching Radio Network Putting a New Spin on Coaching & Personal Development through Social Broadcasts |
To control which emails you receive on Real Coaching Radio Network, click here |
Posts
