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.