Selling A Mortgage Note

You don’t have to be a sophisticated investor to sell a mortgage, although conventional thinking leads us to believe that only the most astute and risk taking investor will venture into this arena. The fact is that once you understand the process, selling notes is in many respects much simpler than marketing and closing on an actual property. And simplicity of transaction equals consolidation of dollars and reduction of your most precious commodity – time. Taken together, these factors often add up to a shorter path to a greater return on your investment.

Here are some of the things to consider when selling a mortgage note:
1) The note will be more valuable if the interest rate on the loan is higher than prevailing interest rates, because buyers will see it as an opportunity to generate higher returns. Sometimes, for instance, a owner/seller-financed home sale will involve a mortgage with a higher rate, because “owner financed” property sometimes sells to buyers who are otherwise not able to get a loan. This doesn’t necessarily mean they are at a higher risk for default, however, and if you find a mortgage with a good payment history and a high interest rate, this can be a wonderful investment opportunity.

2) Balloon payment notes that are about to come due may seem like a great bargain, because you will get a huge payment soon if you own the loan. But often these loans are trouble in disguise, because if the debtor defaults, you can end up in foreclosure proceedings, and perhaps eligible for only a partial payment on the note. Selling this kind of note can sometimes be difficult unless you sell it for a discount, especially if the person paying on the mortgage has trouble making their payments on time.

3) The same can hold true for loans that don’t mature for a long time – say for example, a conventional 30-year mortgage – because your potential buyer may want to “cash in” sooner. For that reason, a 5-10 year note will typically be more popular with those shopping around for mortgages to buy, and a 3-5 note may bring an even better price.

4) If you have ever applied for a loan to buy a home, you can apply – no pun intended – the lessons you learned from that process to your knowledge of selling a mortgage. The bank you borrowed from checked your credit rating, did an appraisal of the property, and evaluated your ability to produce enough income to make your monthly payments. When you decide to sell a mortgage, the same kinds of criteria will be involved in determining the value of your mortgage note. If you have lots of equity in the house, and the note as a long history of timely payments, for instance, it is probably a sound investment and will fetch a higher price when sold to an investor. If the property is in disrepair and the payment history is sketchy, investors will be hesitant to buy the mortgage, unless it is sold at a deep enough discount to help them offset any expensive problems.

Pinnacle Investments
Email: info@pinnacle-investments.com
www.straighttalkforrealestateinvestors.com

Investing In Notes

How to Buy Property That “Looks Good on Paper” to Take Advantage of Investments So They Don’t Take Advantage of You

What is a Real Estate Note you ask? Well let me tell you. A note is simply an IOU. A payor has promised to pay someone else, called a seller/lender, a certain amount of money. The payor may agree to pay interest on the money, and to pay part of it back in daily, weekly, monthly, yearly installments or in one lump sum in the future. We, as note buyers, will buy that IOU from the Note Holder (i.e. the person receiving the payments) for a lump sum of cash now. How much we will pay depends on the discount we can convince the beneficiary to take from the face amount of the note.

Any seasoned real estate professional can recite a litany of anecdotes about investments that looked really great on paper, but in reality were a Pandora’s box of costly problems.

For example:

1) An investor buys a commercial property in an up-and-coming section of town, expecting to lease it for the short term and then cash in on the predictable spike in real estate values, to make money on both ends.

The following year a national development company opens a shopping mall on the other end of town, draining all the consumer traffic away and creating a rush to open stores closer to the mall. The investor’s property sits empty as the equity vanishes, replaced by monthly debts that cannot be offset.

2) A homeowner decides to fix up a garage and convert it into a rental apartment.
The extra income will be enough to pay the mortgage on the house, which will essentially transform an empty garage into an investment project that produces a steady cash flow while the equity of both properties – the house and the new garage apartment – rise.

Before the renovation is completed – but long after legal agreements are made with contractors to do the work and the building materials are delivered to the site – the local preservation society manages to get the neighborhood included in the state historical record. No new construction is allowed under the strict guidelines, which are imposed to discourage modernization. The plan to rent out the garage is now against the law, but if the contractors are not paid for their materials and contracts, they can impose a lien on the main house in lieu of payment.

3) An investor finds a vacant apartment complex in need of repairs, but the cost of
repairs is minimal compared to the immediate income and cash flow that can be
had by renting out the property to military families at the nearby Naval station.
The repairs are completed ahead of schedule and a newspaper and billboard marketing blitz is planned, in order to fill up the thirty units as soon as possible. An ad agency is hired and completes their plans.

But two weeks before the planned ribbon-cutting ceremony and launch of the publicity campaign, the government closes the base and ships the personnel and equipment elsewhere, in order to save money and streamline the organization.

Although these are fictional stories, they demonstrate the fact that although in real estate “location is everything”, it doesn’t mean that location is always a good thing, or a dependable one.
And other factors can bite into the profit margins of a real estate investment project before it reaches completion. These include unexpected spikes in the cost of repair materials (due to everything from hurricanes on the other side of the country to inflated prices at your local gas station), inclement weather (which can delay projects like pouring concrete, painting an exterior, or repairing a weak foundation), fluctuations in the labor market, and a variety of other issues.

Many investors finally opt out of the hands-on real estate game completely, or decide to at least supplement some of their investments in physical “brick and mortar” property with a portfolio of real estate debt notes or mortgage paper.

At a time when interest rates are rising – making debt instruments more attractive in the short term, many investors are looking for alternatives to low-yield instruments, such as bank certificates of deposit and Treasury notes. They frequently find higher returns and plenty of liquidity in the market for real estate paper, which not allows offers better short-term yields, but the opportunity for long-term or time-staggered investment strategies as well.

And when rates rise, the stock market has historically gone bearish. But by the time most people figure out that their gains in the stock market are dwindling, it is often too late to get into the bond market, because the bargains are gone. Those who keep a strong portfolio of real estate paper, however, can potentially profit from both economic climates, and enjoy the diversity of owning real estate as part of a well-rounded investment allocation plan, but without the day to day risk of being a developer, landlord, or rehab project manager.
Regardless of what kind of investor you are, real estate notes or “mortgage paper” can provide diversification, cash flow, and hassle-free convenience. Ask your local real estate note broker to explain how a real estate investment that looks good on paper can also be found through the global market for real estate-based paper debt transactions.

Investment Companies Providing Opportunities Banks Can’t

There are even more reasons why a trust deed investment company would be needed, even by ordinary individuals. Every lending product is different, and banks and trust deed investment companies have very different regulations covering their activities.

Let’s take a look at the imaginary scenario of a man named Jeff. He wins the lottery and splits the jackpot with a group of friends so that he walks away with 4 million, after taxes. He’s opted to receive the money in annual payments over the next 10 years. He decides he wants to use part of the money to build a 12,000-square-foot house on the shores of Lake Tahoe. However, a 12,000-square-foot, completely elephant proof house will cost him $4 million and he’s opted to take his jackpot earnings in annual payments. He doesn’t have all the money up front. So what does he do? Can he go to the bank? Maybe. But the Federal Institutions regulatory and Reform Enforcement Act (FIRREA) limits the amount of money banks can loan to any one borrower. So Jeff puts up $500,000 and approaches his good friend Millionaire Mack, asking him to lend Jeff the remaining half a million. Millionaire Mack agrees, but only if he can charge a 12% interest rate and can secure the loan with the lakefront property and home.

In real life, trust deed investment companies fulfill the role of Millionaire Mack in the above example with the difference that, in real life, Millionaire Mack would serve as the intermediary. Someone behind the scenes-an investor-would have given Mack the money to loan Jeff. This system works well for Jeff, though, because Millionaire Mack is willing to loan Jeff as much money as he needs.

Trust deed investment companies operate in a similar manner. They sky’s the limit when it comes to how much money trust deed investment companies can loan to any one borrower. They’re not under the same chokehold as banks in regards to lending limits. Some of the other reasons that trust deed investment companies might be needed instead of banks are: there is something unusual about the borrower, there is something unusual about the property, oor there is insufficient equity. These categories can include specifics like: the borrower has a low credit score (perhaps they managed their money well enough never to need credit?!), too many late payments on loans (which is a negligible risk when the property is held as security), opr a property which seems undervalued (which is easily fixed by requiring a higher interest rate or different terms). Trust deed investment companies are in a position to be flexible about these things, and so can serve a market that the rigidly regulated banks, bastions of bureaucracy that they are, can not serve.

Therefore people in unusual situations, or with specialized money-making methods, can get the money they need to keep their own millionaire dreams chugging along, all the while fueling others’ dreams in the great circle of life!

Anything Can Happen

We know that investing can actually be a very creative thing, and there is rarely a best path to making money. However, along with this creativeness comes a need for great communication, systems which work and are followed to the letter, and impeccable record keeping. Here are just a few examples of ways your investment might vary, and how a trust deed investment company makes it all very simple and safe for you.

Some trust deed investment companies charge prepayment penalties to borrowers who pay off early. Others companies, happy to get their money back waive the penalty.

Occasionally, a loan extends. A commercial shopping center that doesn’t have enough tenants to get a permanent long-term loan is a prime example. The center is leasing fast, the borrower has enough money to continue paying the trust deed loan and asks to extend the loan for six months. Who decides if the extension happens? The trust deed investment company? No, you, the investor make the call. And here’s where communication comes into play. The trust deed investment company must contact all the investors involved and ask how they want to proceed. Depending on how much money each investor has loaned, not all investor must agree to the extension in order for the loan to continue.

Communication loan extension and /or early payoffs requires efficient and timely accounting and date processing. Because commercial trust deed loans routinely involve millions of dollars in transactions, a seasoned and experienced firm that can expertly juggle these transactions is a definite asset for the investor. Consequently, customer service is as important as your investment itself. The other most important aspect of a relationship is trust. The best way to establish trust, in this case, is to check out your trust deed investment company. Ask about their license, and what was involved in getting it. Ask about their employees, how they came to be in trust deed investing, what qualifications they have, and what experience they have. Ask about their past clients: what they thought were their big successes, and what losses they have had. All this knowledge helps you feel comfortable around them, and creates a great and trusting working relationship between you both.

The best news of all is that you’re not actually paying the trust deed investment company a fee or a commission to make use of its knowledge and efficiency. The borrower pays this cost. The trust deed company does need you to make it’s money; but then again, you need it to make your money! It’s really a great situation, where everybody gets something they need.

In the end, it’s about relationships. The relationship between you and the trust deed investment company should be one of mutual understanding. The strength of this relationship will make investing in trust deeds pleasant and profitable. In fact, you may look on trust deeds as a financial form of CPR, since they can breathe new life into your IRAs and savings accounts.

When Back - to - Back Becomes Simultaneous

One of the most common investment strategies employed by those who buy and sell property for a short-term gain is back-to-back close. As the term indicates, this technique involves two closings – or completed real estate transactions – which happen at essentially the same time.

For example, many times the scenario happens wherein a homeowner decides to move, and they plan to use the proceeds of the sale to buy a new house. Once they get an offer to purchase their first home, they go shopping for another one. But they can’t afford to buy it until the sale of their first house is completed. In this kind of situation, they may elect to schedule two closings – back to back – at their attorney’s office. First they close the sale, and then they turn right around and close the purchase of their new home.

Using this kind of basic concept, investors sometimes tighten the time frame even more. Rather than buying a house and then borrowing money to fix it up to generate equity or buying one and assuming the duties of a landlord in order to make a profit, the investor simply buys a property and sells it at the same time. While signing the paperwork to buy the property, the buyer also sells it to someone else, so the entire investment cycle is completed within a matter of minutes, not months or years. The closing attorney has all the paperwork for all of the components of the transaction drawn up and signed at the same meeting, all the parties convene at the same time, and the “signing party” begins and ends and all of the buying and selling occurs at one sitting.

But another more complex variation on this strategy is what brokers refer to as the “simultaneous close”. These closings are often used as clever tools for those who sell property by using owner financing but don’t really want to carry the mortgage loan for an extended time. These sellers don’t intend to be note holders, but are simply trying to figure out a way to help their buyers come up with the financing necessary to purchase the house. As soon as the sale is completed, these owner-financing sellers are interested in selling the mortgage note to an investor who will give them a lump sum of cash in payment. This allows the seller to “cash-out” of the transaction and not assume any responsibility for actually collecting monthly payments or carrying an extended mortgage for the new buyer. Because it all takes place at one sitting, the simultaneous close is also called a “table closing”.

For this kind of transaction to go smoothly, the seller (who wants to sell the house and the new mortgage at the same time) must take care to meet specific legal guidelines that exist to prevent lenders from charging unfairly high interest rates. If the seller accepts payment for the property, agrees to carry the mortgage, but sells the note immediately, it might be construed that the seller is trying to hide from the role of “lender” to avoid compliance with all laws pertaining to fair lending practices. In other words, the seller wants the convenience of making a loan, and only for a moment – long enough to get the deal signed and done. But within that moment the seller may incur the entire legal responsibility of a lender, and not disclosing that in a totally transparent fashion can be a violation of the law.

The seller also needs a qualified note buyer – who understands the complexities of simultaneous closings and other loan instrument procedures – to purchase the mortgage. Because delays or failures to comply to rules and regulations can be costly, the seller who wishes to take advantage of a simultaneous closing is strongly encouraged to seek expert advice from experienced, certified, financially stable mortgage brokers before entering into this kind of transaction.

Those who find a legitimate broker or buyer of notes to partner with may be able to enjoy the convenience of walking away with cash in hand, but never lose sleep about the future legal or tax consequences of actions. If a simultaneous closing is not appropriate to help an investor or seller meet his or her financial goals, a qualified and competent mortgage broker will understand and recognize those facts, counsel the client, and then offer advice and alternative strategies and plans for a more desirable course of action.

Pinnacle Investments
Email: info@pinnacle-investments.com
www.pinnacle-investments.com

Keeping A Piece of the Action

Although debt paper can take many forms, ranging from mortgage notes to lottery winnings annuity contracts; we can usually describe the loan notes held by brokers and investors by placing them into one of two basic categories:

1) First lien notes that they can sell for a lump sum.

These notes have a beginning and an end, and when they are paid off, the note is canceled and no longer represents any debt.

2) Second lien notes that may be much smaller but offer the security of regular and gradual monthly installments of income.

These notes are created to take advantage of equity, for instance, and represent a new loan that will be paid off after the first lien has been satisfied. If someone owns a house with a first lien mortgage of $300,000 and they later borrow $15,000 against the value of their house in order to update a bathroom; the smaller note becomes the second lien.

By simply slicing up some of their debt paper pie, brokers can have their cake and eat it too, by creating a portfolio of diversified investments. Rather than putting all their eggs in one basket by only investing in first lien debt, they can rely on both short-term payments and longer-term payouts, by choosing to restructure some of their inventory of notes.

For example, if an investor wants to have a steady stream of income – maybe to plan for retirement or to help add principle to a college tuition savings account – the notes can be created with different maturation dates. By staggering the payments so that there are always some notes coming due while others are still “ripening”, the investor enjoys predictable monthly cash flow.

When the government advertises and sells treasury notes, the same idea is used to attract buyers. You can buy short-term notes of a year or less, and you can buy notes that don’t mature for many years. You might buy a long-term note to help finance a child’s education, and let the note sit for 15 or 20 years. A short note – say three years or less – might be more advantageous if you are planning to pull money out of the stock market temporarily and let it accumulate interest only until the next stock market upswing.

When a first lien note is sold, the seller gets paid and the lien is removed. As far as the seller is concerned, there is no more action to be had in that particular note and it is time to look for another investment. But if the seller creates a second lien on the note, the transaction becomes two-tiered. Even though the first note is paid off in full, the paper is still active because of the remaining second note. The entire note may be for $100,000, and the second lien is only for $10,000 – but several of these smaller notes taken together can represent a substantial investment portfolio, with a prudent level of built-in diversity.

Brokers who trade in debt paper often keep an inventory of various types of notes, so that they can tailor their investment packages to suit a client’s needs. And those who find themselves with mostly first lien notes can create smaller second liens, to automatically gain a diverse portfolio with twice as many options and opportunities.

Give The People What They Want

The real estate market has the potential to produce such lucrative investments, that there is stiff competition for the best places, and many people who spend a great deal of time scouring their sources for potential big earners. In real estate investing, every day counts – you can’t necessarily sit on your idea, mulling it over for a week. Someone less cautious and risk averse as you will come along and snap up the offer while you are looking the other way!

Real estate developers often move fast to acquire property, or they risk losing out on a choice opportunity. The clock is tick, tick, ticking away for them. Consequently, developers may opt to avoid banks, which can take 90 to 120 days to fund a loan. Trust deed investment companies, on the other hand, can fund a loan in less than 30 days. Therefore, trust deed investment companies-despite their higher interest rates-are a developer’s best friend.

Usually, developers don’t mind paying higher interest rates because they know trust deed investment companies set up a short lending term. Unlike home mortgages, which last from 15 to 30 years, trust deed loans typically last about one year-36 months at the most. Consequently, commercial real estate developers can obtain the money as soon as they need it, knowing the high interest rate is temporary. When the term expires, they can find a lower interest rate elsewhere.

The other reason that people turn to trust deed investment companies rather than banks is that the bank won’t give them a loan. This is usually for one of three reasons – either there is something wrong with the borrower, there is something wrong with the property, or there is insufficient equity. Some things that might happen to make the institution think there is something wrong with the borrower are: their credit score being too low, or no source of income to pay back the loan. As many of you may know, there is a variety of reasons you may have a low credit score, the most incongruous of which is the fact that you have managed your money well enough to never need credit! However, most single problems can be overcome easily, with a little flexibility and lateral thinking. The only reason that banks can afford to turn away these loans is that they have economies of scale on their side – they don’t necessarily need every single loan, and they prefer very high security over much higher return on their own investments.

So basically, borrowers who need a lot of money fast are very well served by trust deed investment companies. They are able to temporarily trade off having a low interest rate for being the ones to get the deal, which they hope will make them much more money than the pittance they paid as extra interest! Neither are these loans unethical, in that they lock in people desperate for cash to overblown interest rates – they are simply fulfilling a need in the market, and serving both parties.

Trust Deeds Create Double Digit Returns for Investors

Next time you drive down the street, look around. You’ve probably driven past all the commercial office buildings, all the condominiums, houses, and shopping centers without giving them a second glance. You’ve also ventured inside those shopping centers, perhaps sipped a cup of Starbucks coffee or bought a hammer at The Home Depot, without giving a thought to the buildings that house the coffee or the hammer. You were probably more concerned about savoring your Starbuck’s beverage than you were about the owners of the roof over your head.

The way you’re going to earn double-digit interest on your investment is to increase your awareness of the real estate around you. You’re going to realize that there’s life beyond Starbucks, that someone built the shopping center in which Starbucks resides in order for you to enjoy your morning mocha. It is the builder of that shopping center who can help you earn high interest.

Developers of commercial and residential real estate-shopping centers, condominium complexes, office buildings, and homes-need money to build. Although they can seek this money from banks, often, they turn to mortgage companies (also known as trust deed investment companies) for the money to build their properties. But how do trust deed investment companies find the money to lend these real estate developers? They get it from investors. And it is those investors who are earning double-digit interest.

Trust deed investment companies serve as middlemen between borrowers (real estate developers) and investors. Good trust deed investment companies are as discriminating as a meat lover searching for the choicest cut of beef. They scrutinize every loan proposal and only loan money to borrowers who pose the least risk. However, say something does happen to the borrower. Say a rabid poodle attacks him and he is unable to make the loan payments. The trust deed investment company never could have foreseen such an unexpected event. What happens in situations like this? The beauty of this type of investing is that the trust deed investment company and the investor always have an “out” in the rare event that the borrower fails to make payments. That “out” is the real estate project itself. The trust deed investment company can foreclose on the project-sell the shopping center, the office complex, the condominiums, or the homes-and return the money to the investors.

This is what makes trust-deed investments such a great part of your portfolio. They are inherently much safer than business investing, or currency exchanging – there is an inbuilt safety mechanism in them. They are not without their pitfalls – but clever investors will be the ones to enjoy the safer returns that this sort of investment brings. You can be one of those clever investors – look beyond term deposits with the bank as a safe investment option … expand your mind, man! Investing is not necessarily either fractions of percentages with your bank or the radical, manic depressive highs and lows of stock markets investing. Trust deeds are that middle ground.

Thinking Outside The Box

Banks have been doing the same thing for many, many years – they have a rigid formula that loans must fit into, and because of the diversity of their operations and the need to make fairly standard procedures and rules, they tend to view the unknown with caution. Trust deed investment companies, on the other hand, are much more open-minded.

One of the reasons that investors go to investment companies (sounds obvious, huh?), instead of banks, for their loans, is that they know banks try to force loans to fit inside a tight box. In other words, every loan must fit a predetermined structure. If the loan strays outside those borders, it’s rejected. Say there is an investor who has an elephant phobia, and wants to build his house with special elephant protective features. He knows the bank won’t necessarily approve extra amounts on the loans for such an unconventional expense - but on the other hand, that investment companies are creative, innovative, and flexible. They would be more likely to approve the loan.

That’s the same reason why many real estate developers turn to trust deed investment companies rather than to banks. Loan policies at banks are set in stone. Trust deed investment companies, however, take a different approach. Remember when your kids and/or your grandkids grabbed a piece of play-Doh? Did you tell them what sort of creation they could sculpt with that rubbery piece of dough? No, you let them use their imaginations, shape it any way they pleased. Trust deed investment company loans are just as flexible. As long as we are dealing with a reputable borrower, one who has a good track record and who fits other criteria, we shape the loan to ensure that we-and most importantly, that you, the investor-don’t lose out on a good deal yet remain well secured just because the loan doesn’t fit “inside the box” of the traditional financial institution. Trust deed investment companies cheer the entrepreneurial spirit of borrowers.

Traditionally, real estate developers have had a difficult time prying money loose from banks. Often, the developers are seeking money for construction-in other words, they’re borrowing against something invisible. The borrower has a vision, complete with architectural plans and renderings, but all the bank officers can see is dirt. “Where’s our collateral?” they wanted to know.

Trust deed investment companies, on the other hand, see more than dirt. They see the developer’s vision and they know the chances are good that the successful developer will repay them. If not, they have ways of recouping the investment. Remember, the trust deed investment company can see the vision of something great on that patch of dirt – they know the same avenues that the borrower would have taken to complete the work, and they are quite willing to use those also. The work is finished, the money is made (possibly more than before, given that the investment company now takes all the profits, rather than just their margin of them) … and you have a fatter wallet or a fatter bank account statement. Or a big pile of notes to put under your mattress or up your chimney!

Short Sales - Are They The Best Option

When a home owner finds themselves in a position of failing to meet mortgage payments, there is an option that does not include foreclosing on the home. A short sale is a home sale where the lender is willing to accept less than the amount owed on the home. While some lenders do not offer short sales for the loans they have secured, and other lenders may choose a foreclosure as being more financially beneficial for the loaning party, others will allow a homeowner to enter into a short sale if all paperwork is filed properly and on time.

The paperwork involved in setting a short sale in motion is the not so short part of the sale. For obtaining permission to begin the short sale process from a lender the homeowner will need the following documents.

· Letter of Authorization. The letter of authorization will need to include the property address, the loan reference number provided by the lender, the name of the home owner or the person holding the loan, the date of the request, and the agents name and address. The agent may be a real estate agent or a lawyer dealing with the financial matters in the case. The letter of authorization will give the lender permission to speak to any outside parties listed in regards to the homes loan and the home loan status.

· Preliminary net sheet. The preliminary net sheet is a financial document proving the amount of money you expect to receive from the sale of the home. The amount of the total sale, any fees, late charges, and real estate charges. The real estate firm handling the short sale will be able to address the preliminary net sheet. To ensure the approval of the short sale, the bottom line of the net sheet should show zero profits going to the seller of the home.

· Letter of hardship. This is one of the most important documents the homeowner will provide to the lender. This letter should read as real and honest as possible. If there are extenuating circumstances surrounding the sale of the home or the loss of income leading up to the late mortgage payments, the lender will need to know these facts in detail.

· Financial documentation. The lender will also need copies of all financial statements and proof of all income and debt. These statements will include assets, income, bank statements, credit card statements and any monetary statements available at the time of the short sale request. Financial statements that prove the homeowner is not in debt will cause the lender to instantly deny the short sale.

· Purchase agreement. The lender will want the listing agreement and purchase agreement agreed upon by the seller of the home and the buyer of the home. The lender has the right to refuse any and all payments in association with the sale of the home that are not required by law. These may include inspections of the home and home protection plans, depending upon the laws of the state.

A short sale will be highly followed by the lending institution. While this sale will certainly remove the burden of an over expensive mortgage from the homeowner, it will leave that homeowner in the hands of the lender. At any time during the short sale proceedings, the lender can choose to remove the authorization and simply foreclose on the home.

Mortgage Note Buying Versus Rehabbing Homes

Sometimes rehabbing a home takes longer than anticipated. The cost of materials and labor can rise unexpectedly, local ordinances can change, or other scenarios can come into play to make a project run longer than scheduled or over budget – or both. And many of the circumstances dictating how things unfold may be impossible to foresee. Weather can play a critical role, for instance, especially if you are doing roof repairs, concrete work, or exterior painting and need the help of sunny skies. When hurricanes and other natural disasters strike, even on the other side of the country, construction materials can suddenly become more expensive – the price of plywood can jump 20 percent overnight.

“ By buying the debt that finances real estate, they can participate without having to roll up their sleeves and deal with the nitty-gritty details of rehab work... ” Many projects are now on hold simply because of a rise in gasoline prices, which adds to the cost of all materials delivered by truck to the local lumberyard or home improvement store. “It can even add to labor costs, because if your contractors are commuting, they expect to be compensated for the cost of getting to and from the job site,” says Troy Fullwood. If you are working on a slender margin, a few cents per gallon at the gas pump can be enough to erase your potential profits while you work to rehab and “flip” a property.

Any delay in a real estate project leaves the investors open to vulnerability from shifting economic factors. If the housing market cools off and interest rates spike before you get your house on the market and sold, for instance, you can be left holding the bag through the downturn, with expenses like mortgage payments, insurance premiums, and property tax added to your balance sheet.

To find an alternative way to invest in real estate – without the day-to-day logistical headaches – many investors turn to paper investment, either as a way to supplement their portfolio or as a full-time business in lieu of actual physical ownership of properties. “By buying the debt that finances real estate, they can participate without having to roll up their sleeves and deal with the nitty-gritty details of rehab work,” said Fullwood. “And without financing, you aren’t a buyer; you’re just a browsing looker, so those who invest in the loans that fuel projects will always be in demand, as long as there is a market for buying and selling property.”

Especially in times like these – when the real estate market is challenged by steadily rising interest rates – mortgage note investors can earn substantial yields, taking advantage of the higher rates. And those who have prior experience as real estate investors can use their knowledge of property to help choose sound, secure, credit-worthy investments. “If the building that serves as collateral on the note is valuable, then the debt carries less risk, and those who are accustomed to rehabbing property usually have an eye for what constitutes solid and problem-free construction,” says Fullwood.

As with any debt instrument, when investing in real estate mortgages there are different rates of return, yields, timetables to maturity, and degrees of risk versus potential reward. To learn more about investing in mortgage notes, log on to http://pinnacle-investments.com.

The Inside Scoop on Bank Foreclosures

Many new investors want to buy properties directly from the bank. You never hear anyone say, "I want to buy a property from a mortgage company, credit union or savings and loan."The attraction to bank owned properties is understandable, as it is the bank you borrow money from to buy a home. It is natural to assume that the bank owns the property. Whether a Deed of Trust or Mortgage, the title to your property is either held by a third party or pledged as security for the loan, so in fact the bank does not own the property.You borrow money from and give a mortgage to the bank. The mortgage is the security instrument utilized to protect the bank from loss should you default on the loan. Unless you bought a bank foreclosure directly from the bank, the bank has never owned the property at all.

The Lenders Profits

The goal of the foreclosing lender is to gain possession of the property. The financial goal is the recovery of the principle loan balance, accrued interest, late fees, penalties, taxes paid on behalf of the property owner, court costs and attorneys' fees. In most states, the laws are written so that the lender can only attempt to recover these widely accepted standard losses.The lender will add in every legitimate expense when foreclosing. This is what is sued for: the total the lender claims is owed by the property owner. In most states, this is the maximum amount the lender can collect. The laws are written this way to protect home owners from unfair practices.The commonly held notion that a bank (or any other lender) must sell a repossessed property for the same amount it cost to gain possession and therefore cannot make a profit is false. If the foreclosing lender is the successful bidder at the auction, it will take possession of the property for the very first time. When this happens, all the rules change. The lender, now the legal property owner, can do anything it wants with the property, Rent it, keep it, whatever. It can also sell the property for any amount it so desires.

Condition of Title

Often when purchasing foreclosures buyers are concerned about the quality issued by the lender. A common belief is that there may be liens or judgments clouding the title. This is a myth. The lender will bid at auction only if it wants the property. The lender, typically the senior lien holder, wipes out all junior lien holders or judgments in the process.If the foreclosing lender does not bid at that sheriff's sale or auction, it probably doesn't want the property. This may be due to excessive superior liens, such as IRS or tax liens. (Tip: If the lender doesn't bid for the property at auction, you probably shouldn't either.) The lender, in an effort to recoup its losses, will bid on the property, wipe out other lienholders, then pay the balance of outstanding property taxes to secure the property's clear title. No lender will go through the time, effort and expense of foreclosing, only to lose the property for a few thousand in back taxes. Having absorbed these costs, the lender generally adds them to the asking price and will sell the property with clear title.If you have heard that the lender must sell the property for what they paid for it at auction, forget it.Another myth is that all banks are bending over backwards to give away foreclosed homes. It's true that the lenders want to sell their foreclosures. Lenders, banks in particular, are corporations. These corporations are driven to make money, not to lose it. A bank has to answer to its shareholders just like other corporations do.The business of repossessing properties is not new. Over the years, many lenders have developed effective methods of selling their REO's quickly, with minimal loss.

Property Disposition

Lender practices and procedures vary greatly. Some widely market their inventory of REO's, while others practically hide them.We know of some banks that advertise foreclosures in daily newspapers, while others demand that you maintain an account with them (or better yet, become a stockholder) just to get their list of properties.Lenders are in the money business, not the real estate business. This is why most properties are marketed through recognized real estate brokers or agencies. Some agencies specialize in foreclosures and may represent several lenders' properties. Brokers may have several investors lined up just waiting for a good property to turn up. Brokers can also assist the lender in determining market prices, suggest marketing strategies, recommend appraisers or contractors, etc. Some lenders establish a set price for the property and will not allow the sales agent to consider offers for less. Many lenders dispose of their own properties. Depending on the size and complexity of its REO inventory, the lender may have one part-time clerk or a staff of special asset managers handling property sales.Lenders with larger inventories often have a staff dedicated to analyzing and managing the properties, while at the same time coordinating and managing the brokers retained to market the properties. The lender determines the strategy and the broker markets the properties accordingly.

Investing Overview

Purchasing directly from the bank is the most popular way to buy foreclosures. It's fairly easy, and less of a headache than other investing methods because it involves less complications and risks.Locate bank or government owned properties in the newspapers or by researching them at the county courthouse. You can also contact a realtor, or use a good listing service. We believe we offer the best foreclosure service on the market. Decide for yourself. Visit us at dandrewstrategies.com. Find properties that meet your investing criteria, those that are in your area, price range, size and style. Determine whether you are buying to resell or to secure a residence for yourself. Determine if the property is a bargain by deducting the lender's asking price from the average market price of very similar properties in the immediate area. Your goal as an investor is to realize a tidy profit. You can buy property at a 15%-20% discount and earn a 35%-40% return. As a home buyer, you want to buy below market value with a low down payment, low interest rate and reduced closing costs.Contact the lender or the broker and meet him at the property so you can inspect it. Record any damages and deduct the repair estimates from your price. Use a good property inspection checklist.Investors must deduct all expenses associated with buying, repairing, borrowing, holding and closing again, from the price they think they can get.Homebuyers should negotiate around the four discount factors: price, down payment, interest rate and closing costs. The bank, being a lender, can negotiate all these items.If you still like the numbers and the property, proceed with a written offer containing the following:

A statement indicating your intent to purchase the real estate.
The physical address of the property.
The legal description of the property.
Your price.
Your down payment terms.
Your financing terms.
Your desired closing date.
Any contingencies.
Your deposit information.
Your name, address and phone number.

Depending on the property and several other variables, you may want to buy a property at 15%-25% below market value. Start your offers accordingly.Unrealistic offers will be rejected quickly. Learn to work with the banks. You can negotiate around interest rates, price, down payment, whatever, just stay within reasonable boundaries if you want to succeed.Some lenders sell thousands of REO's every year. Many sell their properties at or near market price. We know one lender who has sold almost 10,000 properties in the last 3 years, with average sales of 99% of market value. Not all lenders behave the same way. Try to locate those that are more flexible in their property disposition policies.When the bank accepts your offer, close as quickly as possible. Avoid delays and complications from competitive offers.

Advantages

The advantages to this buying method are many. There are no liens or judgments to contend with, no homeowners or tenants to evict, no back taxes due, and accessing he property for evaluation or inspections is easy. The fact that the property has officially changed hands means that all that work has been done by the lender. With all the legal work done, the complications of buying and the associated risks are removed.Lower down payments, better interest rates, reduced closing costs and a discount off the market value of the property, taken all together, make for a better than average home purchase.While you may not be able to steal a property from the bank, a properly structured deal will make you the envy of the neighborhood because you will have a low down payment, low monthly payments, and a low total price. For those looking to save money buying their first home, this is usually the way to go.

Disadvantages

In this industry the rewards follow the risks. Therefore, the payoff from this investing method is typically lower than that of buying pre-foreclosures or buying at the auction.An REO investor should have no problems achieving 10%-20% discount from the market value of comparable properties. Savings of 25%-35% are harder to find. Savings of 40%-60% are possible, but getting rarer.Other disadvantages include: the lender that moves at a snail's pace; a lender selling the property "as is," with no cooperation in making reparations or allowances; and the very rare, but always possible problem of evicting a tenant or homeowner.

Purchasing a Home in This Down Market

The real estate market bubble has burst and home seller and buyers are battling throughout the United States. Home sellers are left with properties they can not sell. Home buyers have more choices and more room to negotiate than ever before. The key to finding just the right home, for just the perfect price, is all in the comparable sales.

Many real estate agents live and breathe by comparable or comp sales. These sales represent the homes in a given area, their total square footage and amenities, and the sales price recently achieved by that home. Other factors taken into consideration when analyzing comp sales are the lot square footage, the age of the home and the extra thrown in during the sale.

For the real estate agent, comp homes will provide guidelines for listing homes from other sellers in the area. If a given area has comp sales of 4 BD homes with 2000 square feet in the $250,000 range, a comparable or similar home would have to be priced in that same price range in order to sell in the area.

Real estate agents are not the only ones who use comp sales to their advantage. Potential home buyers will often study and research comp sales in a given area before looking at the homes available on the market. Then, they will look at the time a home has spent on the marker and thus weed out the sellers who may be in a pinch to sell their home.

Using this information, the buyer can approach the seller with a “deal”. The buyer may choose to offer the seller a price just below the comp sales in the area. No matter how far off the price is from the sellers listing price, the buyer has the upper hand. The financial obligations of keeping a home on the market for extended periods of time are often enough to push the seller into a low balled sale.

Home buyers will need to use a bit of time and careful planning when utilizing the comp sales as a bargaining tool in their real estate purchases, but, when the real estate market is at its lowest, the deals can be life altering. A home that once sold for more than $500,000 may be acquired for as little as $350,000 during a down swing in the real estate market. When the down swing reverses and the real estate bubble expands, the new home owner will have immense amounts of equity in the new home without ever paying an extra dime.

A floundering real estate market is what is called a “buyer's market”. Buyer's have the upper hand and seller are left to either sit on the property, or sell the property for less of a profit than originally intended. Either way, the seller is the one who loses when a real estate bubble deflates. For patient sellers, the bubble will re-inflate and the sale of the home will become profitable again, but this can take years and some sellers just do not have that amount of free time and extra money.

Making Your Credit Score Jump

Fixing your credit score or your FICO score can seem like a daunting task when the score is much lower than the national average. The key to improving credit score can mean less about what credit decisions you have made in the past and more about the credit decisions you are currently making and you make in the future. Improving a FICO or credit score can improve your overall interest rate for purchases dramatically and should be worked on heavily before choosing to invest in a new home or a new vehicle.

The credit score or FICO score of a person is the numerical equivalent to the person's credit history. The FICO score judges the credit worthiness and the ability of the person to pay back debt. When a credit score or FICO score is low, lenders will believe the person is not able to repay debt and will thus not extend any further credit to the person.

A FICO score can range from 350 to 800 points with the higher the score meaning a better credit rating. When the aim is fixing credit, the most recent credit decisions are the ones that will most affect the overall credit score or FICO score.

· Pay bills on time. From the day that you decide to improve your credit score, you will need to pay all bills on time. This timely payment will establish a new credit relationship between you and your current lenders. They will report the bills as paid on time and this will raise your overall credit score.

· Don't take on too much debt. The overall debt to income ratio is another important factor when judging credit worthiness. If a person has too much debt in relation to the amount of money they earn, the lenders will shy away from offering new credit. This will also lower the credit score.

· Stay away from debt consolidation companies. Debt consolidation companies do not offer any additional help to the person aiming at fixing credit. They simply work with the debtors to create a win-win situation. The debtors get their money and the payers pay less. But, this will be reported on your credit report and can lower your credit score.

· Opt for bankruptcy when needed. If you find yourself overwhelmed with debt with no way to pay back the creditors, aim for bankruptcy. Even though it will stay on your credit report for 7 to 10 years, the slate is wiped clean and those years can be spent paying everything on time. This is a great option for people who have a very low credit score.

Changing your credit or FICO score for the better takes time. There are no quick fixes and the only true way to accomplish fixing credit is to work with the creditors to pay off the old debt while paying every new bill on time. Keeping current bills current will greatly improve your credit score for the positive and can even raise your score 20-50 points or more within the first year of current payments.

Buying Pre-Foreclosures - The Art of Buying Before the Sale

The advantages to buying properties from homeowners in default can only be measured by the individual investor. Some do not see enough reward, some think it's too risky, while others are plagued by moral issues. Are you helping the troubled homeowner or taking advantage of his misfortune?

Both the lender and the homeowner lose in a foreclosure action. Neither want it to happen. Both parties are motivated to resolve the situation. Motivated parties are key to the process.

The investing window of opportunity opens the day the Lis Pendens, the notice that a legal action is pending, is filed. The window closes the day the property is sold at auction. The time between these two events enables an investor to work with the homeowner and lender to create a workout strategy or a purchase of the property from the homeowner before the sale date.

The amount of time the window remains open depends solely on state and local laws, as well as the behavior of the property owner. Some states sell properties within 90-120 days from the first notice of default. In New York, the process can take a year or more.

As for the moral question, keep in mind that by dealing with a homeowner in default, you not only help him, you generally rescue the loan and maintain the value of the property (and surrounding properties) as well. If there is enough equity in the property, there is the potential to work out an arrangement that satisfies all parties and allows for a handsome profit. That's what pre-foreclosure investing is all about: buying the equity in the property, working out an arrangement with the lender and the homeowner, then selling the property for a profit.

Investors follow these basic guidelines to ensure a successful purchase and sale:

Locate loans in default Evaluate choices and narrow selections Contact homeowner Inspect property and loan documents Determine homeowner's needs Calculate your selling price and profits Negotiate with lender, owner and lien holders Close the deal, repair as necessary and sell.

Locating Loans in Default
The Lis Pendens is the first public notice (document) that announces a loan in default, so it makes sense to start there. Access these notices at the county courthouse, newspapers that routinely advertise these notices or through a reputable Foreclosure Service Provider.

Evaluate Selections & Determine Potential
You know the default amount from the legal notices or service provider's information. Now you must estimate the property's market value. Subtract the default amount from the estimated market value to determine the gross equity in the property. This figure also reflects your gross profit potential. If there is little or no difference in the amount of debt and the market value, move on to another property. If there is a big difference, there may be enough equity in the property to make a sizeable profit.

Contact the Homeowner
This is easier said then done. The homeowner is probably being bombarded with letters and calls from attorneys and bill collectors and has creditors showing up at his door. The only way to contact the homeowner is by phone, mail or in person, and chances are you will have a difficult time getting in touch with him.

Start with mailings. Indicate in your letter that you are a private investor looking for property in that part of town. Let the property owner know that you may be able to help him with his financial problems.

Demonstrating an understanding the homeowner's dilemma will help your efforts. Indicate in your letter that you may be able to stop the foreclosure, save his credit rating and provide cash for use in paying his bills and/or for relocating.

Be professional and gracious in your correspondence. Invite the homeowner to call you at his convenience. If you don't hear from him in a reasonable amount of time, say three or four weeks, follow up with another letter, perhaps worded a bit more urgently. As you get closer to the auction date you may want to send two or more letters per month.

Follow up with phone calls if you can. Be courteous, never pushy. Never interview the owner on the phone. Merely state that in order to determine whether or not you can help him, you will need to meet with him at the property. Make sure he understands that the meeting will be more productive and less time consuming if he will have the loan, mortgage and insurance documents available, as well as the foreclosure notices.

If you are going to make an offer on the property, you must have the loan, ownership, and debt or lien information. You must also assess the condition of the property and the property owner. Combined with the market value and the default amount, you have all the ingredients necessary to formulate your offer.

If you feel comfortable with it, you can visit the property in person. You may be confronted by an angry homeowner. Be polite and leave if you are asked to. Never, under any circumstance, snoop around, inspect or generally trespass unlawfully on somebody's property.

Meeting the Homeowner
Use common sense and dress appropriately, something casual but not sloppy. Be sympathetic. Does the homeowner need cash? Is he waiting for a bailout? Will he go bankrupt? Find out. Review the loan and mortgage documents. Verify the loan amount, monthly payments, interest rates, taxes, etc. Review the insurance policies as well. Get all the pertinent information you can. Ask the owner if there are any other liens or judgments he may be aware of.
Inspect the property with the homeowner. Never comment on the owners lifestyle, just the physical condition of the property. Point out the obvious defects or items in need of major repair. Use an inspection checklist and record your information and estimated costs of repair.
Make no promises at this point. Make no offer or give the homeowner any money. Make an appointment to meet with him again if you think you want the property.

Preparing Your Offer
Determine the net equity in the property. This is the difference between the market value and the default amount plus liens and repair amounts.Negotiate with the lien holder. You may offer to satisfy the lien for 20% of the amount. Chances are the lien holder will lose everything when the property sells at auction. Buying out the lien puts more equity in the property and more money in your pocket.

Remember to include closing costs in your calculations for the purchase and sale if you intend to flip the property. Also included the carrying costs, the mortgage payments and taxes and insurances, while you hold, repair, and then resell. Also include a seller's commission if you use a broker.Calculate every legitimate expense associated with buying, repairing, carrying and selling the property. If a large enough figure remains, you may have a very nice deal. This bottom line figure has to pay the homeowner for his property and produce a profit for you.

How much do you offer the homeowner? Some investors itemize every expense, show their calculations to the owner and offer to split the profits. Some itemize the expenses and pay the owner the remainder on the bottom line. The investor then earns his profits by the reduction in lien amounts as negotiated, savings in repairs by doing them himself, negotiating a lower seller's commission, or selling the property himself. Others still make offers based on the bottom line, and negotiate from there.

The Purchase Contract
When the owner decides to sell, you will both need to sign an Equity Purchase or Real Estate Purchase and Sale Agreement. All parties recognized in the mortgage contract must sign.
Check with your attorney before signing any contract and make ure he is knowledgeable in real estate equity purchases.

Investing experts agree that the terms of the agreement must be clearly stated in the contract. Leave nothing to verbal understandings. Your best defense against future problems is the manner in which you present your evidence. Have everything documented properly.

Make sure to include the following in your purchase agreement:

A "Subject to" clause that allows you to bow out of the deal if something is not as originally agreed upon. This could be for unknown damages, general condition of the property or loans, termite damage, etc. A statement that allows you to show the property. A statement indicating that the property has to appraise at a certain value. The property must be vacant, all tenants and possessions out by the specified date. An agreement between buyer and seller that the payments for the current loans equal "X." A statement indicating the sale is subject to the condition of the loan and/or encumbrances against the title. A statement indicating the buyer shall pay all closing costs. A statement indicating the seller shall: Deed the property to the buyer... Authorize the buyer to record said deed at the appropriate time... Be aware that the buyer may resell the property... Be aware that the purchase price may be below market value... Leave the premises in good condition and pay for damages incurred after the contract has been signed and before the seller has left... Agree to pay for any damages or repairs necessary as discovered by termite and roof inspections... Vacate the premises on the date specified. A statement indicating all net proceeds paid to seller will be paid at closing.

Closing
Inform your attorney that you have a signed contract and that you need representation at closing. Have him prepare a Release of Lien, to be recorded at or just prior to closing, if you have negotiated a settlement with a lien holder.

Arrange your financing. If you assume the loan and have been in contact with the lender, make sure the foreclosure process is stopped before the sale date.

Order your certified appraisals and inspections as required before closing. Order the termite and roof inspections as well. Verify from a title search that there are no other lien holders against the property.

If all goes well, you probably just bought real estate well below market value.