Recent email from someone looking for a refinance (from a commercial hedge fund… Chase won’t refinance for them… they just want their $1,157,000 balloon payment):

“Dawn,

You have us thinking.  We would like to sell anytime between now and 5 years.  What we would like out of a transaction is $100,000 a year for 20 years.  Is that doable?  Otherwise, it will pay to keep the building.

Meanwhile we are all proceeding to have a loan in place by 10/15.  Loan is uppermost in our mind, but thought I’d give you something to think about–for us.”

Yes, great to be thinking… Just off the top of my head…

Installment Sale

• Purchase price: $3,500,000
• Buyer comes in with $1,500,000 down payment (kinda stiff - pays off existing financing and closing costs)
• You carry a first note and deed of trust for: $2,000,000
• At 5% amortized over 240 (20 years)
• Monthly P&I payment from buyer: $13,199.12 (x12 = $158,389.37/year to you)
• This also defers capital gains, but you have to deal with depreciation recapture.
• Buyer pays all taxes and insurance and maintenance

Installment Sale

• Purchase price: $3,500,000
• Buyer comes in with $875,000 down payment (25% is reasonable, more buyers can do this)
• Buyer gets a bank loan for $1,000,000
• Between DP and bank loan you pay off underlying financing and put $375,000 in the bank (for capital gains, or money to make real estate loans with at 9-12% safe returns)
• You carry a second note and deed of trust for as much as the bank will let you: $1,625,000 (alternatively… have the buyer get a private money loan for just enough to get rid of the underlying bank financing… another $600,000 or so, instead of a $1,000,000 bank loan, then you don’t have to worry about the bank not letting you record a 2nd)
• At 5% amortized over 240 (20 years)
• Monthly P&I payment from buyer: $10,724.28 (x12 = $128,691.37/year to you)
• This also defers some capital gains, but you have to deal with depreciation recapture.
• Buyer pays all taxes and insurance and maintenance

Use a Title Holding Trust instead

• You place the property in a title holding (land) trust
• Mutually Agreed Value: $3,500,000
• Buyer comes in with $1,500,000 initial contribution (kinda stiff - pays off existing financing and closing costs)
• You become co-beneficiaries in the trust
• Buyer leases property from trustee
• Monthly lease payment from buyer: $13,199.12 (x12 = $158,389.37/year to you)
• This also defers 100% capital gains and depreciation recapture until trust is terminated (1-20 years) at which point you can potentially do a 1031 exchange if you want to
• Buyer pays all taxes and insurance and maintenance

Sell to conventional buyer, cash or cash-to-new-loan and use Deferred Sales Trust

• Purchase price: $3,500,000
• You pay off underlying financing and put $2,000,000 in a DST (low risk portfolio you help determine)
• Create payout equivalent to 4% amortized over 240 (20 years)
• Monthly payout from trust: $12,119.61 (x12 = $145,435.28/year to you)
• This defers capital gains like an installment sale, but you have to deal with depreciation recapture.

Of course, these numbers are based upon your opinion of value at $3,500,000.
Selling now will get you…

1. A simpler life… no management to deal with
2. You are buffered against downturns in the market in the next 10 years (very likely)
3. You are buffered against major improvements that need to be done, like new roof, etc., new plumbing or electrical… catastrophic events

If you’re thinking of selling any time in the next 10 years,

THE SOONER THE BETTER!!!

Don’t waste another minute.  Things are stacking up to get more ‘interesting’, not less.  What you need to think about is quality of life, which of course is influenced by monthly cash flow, but also stress level, and how hard you have to work to manage the property, and what you could do with your time if you weren’t managing.  Wanting to travel more?  Visit family?  Take up basket weaving?

If you decide to sell, I would recommend that I co-list the property with an expert in apartment buildings (I know some), and I have the expertise in owner financing strategies and private money solutions that most agents lack.  If I am not co-listing the property I will need to charge you an up front deposit for consulting that will be refunded to you at close of escrow when we have the buyer bring in my fees as part of their closing costs.

Anyhow, we’ll talk soon!

Dawn

P.S.  Ask questions, make comments and connect on my Facebook Page!

P.P.S.  My real live book is available at last: “Seller Financing on Steroids: Pumping Paper for Power, Peace and Profits“  Book purchase includes a complimentary 30 minute consultation, so save the receipt!

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The perfect set up:

• Seller owns $500,000 property free and clear (or only has a small loan)
• Buyer offers seller full asking price if they’ll accept $300,000 now and
• Carry a $200,000 note

I know… you’re thinking,

“So what’s the problem???  That’s a 60% down payment for cryin’ out loud!!! I’d take that in a heart beat!  There’s $300,000 of protective equity on this deal!  I HOPE they default so I can take the property back and sell it again for full value!”

Not so fast…

The $300,000 that the Seller received at close of escrow was a loan from the Buyer’s Private Money Buddy, and the seller carry back loan was in 2nd position.

THERE WAS NO DOWN PAYMENT!!! 

Zip, zero, nada.  No “skin in the game”.  And there’s no problem if the buyer is 100% ethical and lives by the Golden Rule or the Golden Fleece or Fibonacci’s Golden Mean… but if the Buyer only lives for GOLD, here’s what they do…

They tell their Private Money Buddy,

“Hey Dude, I’m not going to pay you according to the terms of the note, so… you might as well foreclose on me, right?” (wink wink, nudge nudge)

The sellers/note holders (holding that 2nd lien note), if they’re not sophisticated and don’t take precise and definitive action, they’ll get wiped out at the Trustee Sale, and the Buyer and his Buddy get the property for a total investment of $300,000 plus foreclosure costs.

Sweet, huh?  I thought you’d like it.

So how to avoid it:

• Use a professional note consultant to engineer your transaction (or an attorney or accountant or someone you trust who understands how real estate and notes work)
• Use a highly professional and diversified note servicing company… they’ll help you keep on top of things and advise you on how to proceed if anything goes wonky
• If you’re thinking of taking a 0% down deal from a buyer… have your head checked

Owner financing is an effective and powerful tool when used

• Legally
• Ethically and
• Intelligently

Wishing you the best!

Dawn

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“As a new note broker that wants to get started with all these laws going into effect, is this a career path that will you recommend?” - Josephina

Hi Josephina,

Like with anything, only go into the note business if you really love it.  Knowing the note business helps you understand so many things . . . like how owner financing works.  It gives you a much better sense of how the real estate market functions and gives you a lot more flexibility:

• You can buy property with owner financing
• Sell property with owner financing
• Buy notes for yourself
• Broker notes to others
• Become a consultant to sellers thinking about carrying paper
• Learn how private financing and basic underwriting works

It can take concerted effort and a couple of years before trying to broker notes pays off in a significant way, unless you’re already in a closely related business or you have favorable connections from the start.

I don’t believe the new laws are going to kill the note business… at least it doesn’t appear to be that way yet.  Because loans are probably going to be harder and harder to get, there will be even more notes being created than ever before.

 If you have a passion for the information, learn the note business!  Just don’t spend a fortune doing it.

Best wishes,

Dawn

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***

[watch video] Help protect your personal property rights: the ability to use owner financing to sell your property, the ability to buy a property without needing to qualify for new bank financing, your ability to defer capital gains and enjoy cash flow for retirement by carrying paper.

If HR 4173 goes through unamended, it will greatly harm the real estate industry and the private note business.  Thank you, Eddie Speed, for sending around this email:

Dear Friend and Colleague:

With HR 4173 moving forward in conference, we need to contact the Representatives and Senators listed below, as they are Conferees and will have final decision as to the inclusion of Section 1073 and 1074.  Please review the draft letter (ready to be cut and pasted to your letterhead) and the attached fact sheet.  Both items should be e-mailed or faxed to your Congressman.  (Sending to Congressmen outside your area will have little to no impact.)  The 5th paragraph has a bolded sentence where you MUST personalize or remove the sentence.

Who is your Congressman?

Contact a Senator from your state, or in state where you do business. Contact a Representative if you have property or do business in their
district.  If you are not sure check this site:

• http://www.congress.org/congressorg/dbq/officials or here:
• http://www.house.gov/zip/ZIP2Rep.html”

Please contact your Senator or Representative if they are on this list.

List of Conferees on HR 4173:

House Democrats:

• Financial Services Chairman Barney Frank of Massachusetts
• Howard L. Berman of California
• Leonard L. Boswell of Iowa
• John Conyers Jr. of Michigan
• Elijah E. Cummings of Maryland
• Luis V. Gutierrez of Illinois
• Paul E. Kanjorski of Pennsylvania
• Mary Jo Kilroy of Ohio
• Carolyn B. Maloney of New York
• Gregory W. Meeks of New York
• Dennis Moore of Kansas
• Gary Peters of Michigan
• Collin C. Peterson of Minnesota
• Bobby L. Rush of Illinois
• Heath Shuler of North Carolina
• Edolphus Towns of New York
• Nydia M. Velázquez of New York
• Maxine Waters of California
• Melvin Watt of North Carolina
• Henry A. Waxman of California

House Republicans:

• Financial Services ranking member Spencer Bachus of Alabama
• Joe L. Barton of Texas
•  Judy Biggert of Illinois
• Shelley Moore Capito of West Virginia
• Scott Garrett of New Jersey
• Sam Graves of Missouri
• Jeb Hensarling of Texas
• Darrell Issa of California
• Frank D. Lucas of Oklahoma
• Ed Royce of California
• Lamar Smith of Texas

Senate Democrats:

• Banking, Housing and Urban Affairs Chairman Christopher J. Dodd of Connecticut
• Tom Harkin of Iowa
• Tim Johnson of South Dakota
• Patrick J. Leahy of Vermont
• Blanche Lincoln of Arkansas
• Jack Reed of Rhode Island
• Charles E. Schumer of New York

Senate Republicans:

• Banking, Housing and Urban Affairs ranking member Richard C. Shelby of Alabama
• Saxby Chambliss of Georgia
• Bob Corker of Tennessee
• Michael D. Crapo of Idaho
• Judd Gregg of New Hampshire

Donations to support this effort of a $100 or more would be appreciated, and may be sent to:

National Association to Protect Private Property Rights
1725 east South Lake Blvd. Ste. #102
South Lake, TX 76092

Don’t forget, here is the customizable letter to email or fax to your representative, and the fact sheet to attach to it:

1. Sample letter
2. Fact sheet

When banks say NO, I say YES!

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“It seems that while the middle and lower end of the market was seeing real price recovery this Spring, the high end, which was pretty flat all fall, started to really tank from March through May.

Not surprisingly, the inventory of high end homes surged in January, just before that price drop and is continuing to climb.”

One real estate broker I’m working with in the Calabasas area is tweaking her business to increasingly implement alternative strategies for her high end clients.  One of her listings isn’t moving because the sellers are insisting on $1,100,000, when the market only wants to pay $900K - $950K. (If they wait too much longer, the market might only want to pay $800K!)

If she can get this listing sold, then they’ll buy this other $2mil home they’ve got their eye on, so getting the listing sold for asking price is worth $3mil in business.   We’re working on it . . . if we can get them to offer terms, then there’s a good chance they can get their price.

There’s not much help for many high end homeowners who are already far under water and have unattractive short term financing in place, but there are a few we can help who still have equity and happen to have great long term financing . . . but they’d better not sit around!  Those trends above don’t look especially promising.

When banks say NO, I say YES!

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Keith Jurow over at the Real Estate Channel recently wrote a compelling article that relates specifically to everything I’ve been talking about for a while now.  Make sure you read the full article.

As jumbo mortgage defaults have skyrocketed in the last two years, banks have raised down payment requirements for new loans and sharply curtailed the total number of jumbo originations.  According to Lender Processing Services . . .

66,000 jumbo loans were originated nationwide in March 2007.  In March 2010, a mere 13,000 were closed.

The drying up of jumbo mortgage money has made it extremely difficult to sell almost any California home which is encumbered with a jumbo mortgage.  That has put tremendous downward pressure on prices for these homes.

If you want to sell a high-end home and preserve what equity you still have, then

• sell sooner than later,
• be flexible and willing to offer terms in one way or another, and (unless money is not an issue)
• don’t get yourself in a negative cash flow situation by leasing your property out instead of selling it . . . not a good idea heading into uncertain economic times

If you’re a buyer that can afford a luxury home, then just know that there are many opportunities for you to buy without getting a new bank loan if the existing financing is reasonably attractive.

When banks say NO, I say YES!

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When banks say NO, I say YES!

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I guess if Lisa has a secret, then I should think of one . . . OK, how about this?  The secret to buying and selling real estate (and businesses) without getting a loan from the bank through using:

• owner financing strategies
• note sales
• private money
• title holding (land) trusts
• commercial hedge funds

It should start at 12:00 noon Pacific if you want to listen in or get to the archives.

A special thank you to all our veterans this Memorial Day weekend.

When banks say NO, I say YES!

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I’m going to do a one-month mentoring program to help people quickly be able to find and submit deals that together we can close and profit from. It will start Wednesday, May 25, 2010.

Watch the video, and if you think this opportunity is for you, then email me with your bid, and be sure to tell me about who you are, what you’re most passionate about, and what results you’re be looking for.

I want people who are especially interested in:

• high-end residential
• commercial
• small businesses

Good luck out there!

When banks say NO, I say YES!

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Perhaps there is some good that will come out of the SAFE Mortgage Licensing Act , but the inclusion of owner financing in an effort to clean up all the hooyah that the big banking systems and Wall street created themselves is probably one of the most harmful attacks on the real estate industry I’ve seen.

All you buyers out there who can’t get a loan?  Your government just made it a whole helluva lot harder for a seller to offer you financing so you can enjoy home ownership.  Nice.

[Agents . . . you just lost out on some hard-won commissions.  There are many agents who have businesses largely involved in dealing with owner financing.  Call and thank NAR for helping you out.  As far as I know, they did nothing to remove owner financing from the legislation . . . are there heavy mortgage interests whispering in their pocketbooks, or is there something else I don’t know?]

According to the regulation, if you’re an investor, you can’t sell your own residential properties (1-4 units) and offer terms to take advantage of IRC 453 (installment sale) unless you get a mortgage originator’s license. You can’t even get around it by hiring one to negotiate it for you (although I hear that lobby efforts have rallied this concession in Texas).

Isn’t this a nice attack on personal property rights?

This supposedly applies to you even if you’re not in the business of buying lots of properties and turning them around with owner financing like a lot of the guys buying REOs and short sales by the dozens.

You may only own one duplex, or you may be liquidating your family’s estate upon the death of your parents . . .

If the property is not your primary residence, or you are not selling to a family member, you have to have a license to sell your property with owner financing (but I guess you could get your attorney to negotiate the terms for you, as long as he’s not being paid by a licensed mortgage originator . . . heck, here’s what we do: have the attorney pay the LMO or note professional to negotiate the terms of the loan to make sure the paper will sell for the highest possible price in the secondary market!!!).

I can’t imagine that this is enforceable or that it would stand up in court.  Going back to this: SAFE Mortgage Licensing Act . . . there seems to be a distinction between those engaged in a ‘commercial context’ and those who aren’t.

So, based on the perceived intent, it’s probably fair to say that it might be ’safe’ to sell your own portfolio of properties (as long as you did it legally and ethically — and if you did it intelligently, you could even sell the paper down the road!).  Or go the extra mile and have a licensed mortgage originator process the paperwork and put together all the Truth in Lending and other standard docs for your buyer.

If you’re in the business of buying and carrying on your properties, seems like there’s no way around needing to get a license.  Hogwash.  Pure hogwash.  And I didn’t even grow up on a farm.

My take . . .

When you’re selling a residential investment property that you own and you want or need to offer terms to get a fair price, and/or defer capital gains, here’s what you could do…

• just do it, business as usual (some people in the business are so convinced that it’s unconstitutional to restrict this basic right, that they’re not giving the whole conversation a lot of thought or concern . . . they’re just ethically putting their deals together for their investors and the grateful home owners that come to them)
• hire a Licensed Mortgage Originator to negotiate and produce all the typical disclosures for the buyer - complies with the intent, if not the letter of the law (if they got this to fly in Texas, then it’s likely a precedent that will be followed).  Ideally, this LMO understands the secondary trust deed market so they know how to craft a note that can be sold for the highest possible price (I’m in the process of getting my license in CA… what are the rest of you doing out there?).
• I like my attorney play… that was kind of an accidental thought, but I think it could be a good one
• get yourself licensed
• use a Title Holding (Land) Trust instead (all the benefits without the risks of carrying paper - you just don’t have a note to sell)

I think the main intent of the regulation is protect homeowners from being taken advantage of when they’re buying a home to live in for themselves and their families.  Investors buying with owner financing would probably be considered to be savvy enough to take care of themselves, just my opinion.

So, if you want to play it super safe, just use the Title Holding Trust when selling residential properties on terms.

If you’re an agent, you can do all your regular listing and sales activities on residential properties offering owner financing as long as the seller is licensed - (yeah, right) - you just can’t be involved in negotiating the terms . . . (which might not be a bad thing because agents don’t tend to know about crafting healthy notes for the secondary market).

For me, there is so much work to be done with:

1. the sellers of high-end primary residences, and
2. commercial properties, and
3. small business owners,

that there’s no way we’re going to run out of business.

I’d love to hear your thoughts… drop me a comment down below!

When banks say NO, I say YES!

• Title Holding (Land) Trusts
  
• Owner Financing and the Title Holding Trust Helps High-End Home Avoid Foreclosure
• Sign up for Seller Financing on Steroids 

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