Realty411, the source for real estate news, just uploaded their brand new draft of REI Wealth Monthly. This unique and though-provoking publication reaches real estate investors, entrepreneurs, private lenders, wholesalers, real estate service providers, brokerages, real estate top-producing agents and more! Discover our latest issue. Normally, this issue sells for $45 annually, but we upload our draft issues up her on occasion so we can test it out and edit the publication on screen. ENJOY...
5. 5
TableofContents Marketing to Motivated Sellers
in Rural Communities
Dealing With “Balloon” Payments
14
25 Is the Secrecy of a Land Trust Lawful?
20
31
41
46
Should You Foreclose
After a Charging Order?
Underwriting a Loan Transaction
where the Borrower is a Family Trust
Yield Compression
– Why are rates in California for alternative real estate financing declining
in a rising interest rate market?
Free Money..…
No, Really! It’s True!
A Rehab Repair Estimator52
61
Making Money
And Understanding Tax Lien Certificates
58
68
73
Texas Cash Cow Arrest
Beware of Real Estate Fraud
"T" is for "Time"
07 It’s Time To Get Connected!
Connected Investors Launches New Mobile App For Real Estate Pros
9. 9
What It Does
This mobile app essentially
puts everything an investor
needs to do business right
in their palm, car and at the
control of their voice.
Ross says, “Real estate
investors are people on the
go. They are in motion,
looking for properties,
speaking to others,
investigating neighborhoods,
travelling and living life.
They needed a tool that
empowered them to do
business at that speed,
seamlessly. We created it.”
Connected
Investors in Your
Pocket
The app puts all of the
Connected Investors tools
and resources in your
pocket. With it you’ll have
everything you need to find
it, figure it, fund it and flip it.
Location, Location, Location
From the second you
download the app you’ll see
all the investors and deals
around you. Hundreds of
thousands of real estate
pros are connected by this
app. With it you’ll be able to
instantly see the flippers,
wholesalers, rehabbers,
landlords and lenders in
your area. You can reach out
and start doing deals on the
spot.
Since 2005, Connected
Investors has been location
tagging the volumes of
content it has been
publishing on its platforms.
This information is all
already populated in the
app. So, you can tap into
historical data, location
based news and trends and
be hyper knowledgeable.
Wherever you are you can
get alerts to new deals being
posted based on your
criteria too.
It Moves with You
Being as mobile as we are,
the Connected Investors
team built in all the features
we need to move with us.
You can set up alerts for
multiple locations so that you
can for example watch deals
coming on live where you
live, and in the emerging
markets with better returns
where you are most focused
on investing.
This freedom and the
finances investors are
enjoying means we like to
travel a lot too, right? CI has
you covered. Ross explains
that as you travel to new
locations your app updates
so you can see local
investors, professionals and
deals too. So, if you are
spending the weekend in
Jacksonville, FL and find
yourself wondering what
local properties are going for,
and what deal opportunities
look like, all you need to do
is pull out your phone. You’ll
have contacts right there,
and new deals popping up to
choose from. All without
missing a beat back home
either.
It’sTimeToGetConnected!
11. 11
Building Your Network FAST > For New &
Existing Members
This app should prove to be a complete game changer for new
investors. The capital is out there, the deals are out there and
buyers are still hungry. The one thing that has held new investors
back from being able to jump in is connections and a network for
doing deals fast. The app gives it to you instantly. Existing
members who have found they have slacked on taking advantage
of all their potential connections no longer have to worry about the
extra step of checking an inbox and accepting friend requests.
You still have to be connected to DM someone on the system, but
you can now connect with a click on a notification on your phone.
Existing members can use the opportunity to catch up on the
hundreds of pending connections they have and supersize their
network in minutes.
Successfully Bringing Real Estate Into A
Mobile World
If anyone can deliver a game changing mobile app for investors,
Ross and his team are certainly the horse to bet on in the race.
Connected Investors has a strong history of pioneering real
progress in real estate investing.
It is a team never willing to rest on what they succeeded with last
quarter. They are always thinking about what’s next, and how they
can improve things and solve the next problem for real estate
investors.
Recently that has included the private lender network which is
handling around $3B per month in lending requests. There is the
robust news and honest blog feed that helps investors spot trends
and get inside tips for improving their game. Then there is the
Smart Forum, which enables investors and professionals to
connect online, ask questions and get real answers from their
experienced peers out in the field.
Pinpoint Profits, the tools
that has transformed the
industry with access to off
market inventory data and
seller contact info, has even
completely blown the
expectations the firm had for
it out of the water. As Ross
puts it, “it solves a huge
problem.”
If you could possible want
anything else to fuel your
real estate investor journey,
Ross leaked the newest
addition to the platform a
funding portal for everything
else you need to finance.
It’sTime
ToGetConnected!
21. 21
Dealing With
“Balloon”
Payments
mortizing
” Versus
“Balloon”
Notes
An “amortizing” note is one
where the principal amount is
paid off over the term of the
loan. A “balloon” note is one
where the payments are not
sufficient to retire the debt,
and an outstanding balance
is due at maturity.
What Is The Problem?
The problem arises when the
borrower does not have the
funds necessary to pay the
“balloon” amount when it
comes due. Oh, oh! So, here
are some ways to deal with
that!
"A
Refinance the
Property
The first recourse for an
owner who wants to keep the
property is to refinance either
the property itself, or another
property in the portfolio. This
is a good approach as long
as financing conditions are
favorable. If conditions are
not favorable, other
approaches will need to be
considered.
Sell the Property
If the owner does not care to
own the property any longer,
they can sell it and have the
sale pay off the loan. Or, they
can sell another property to
pay off the loan. If conditions
are not favorable for selling,
again, other approaches will
need to be considered.
Renegotiate With
the Lender
This is not an ideal approach
because the borrower is
negotiating from an inferior
position. The lender “has the
upper hand” because they
can always foreclose. So, the
borrower should offer the
lender a monetary
“inducement” for an extension,
either a fee, an increase in
interest, or payment amount,
or both. But, it gets the job
done! (Unless the lender says,
“No”!)
Protective Note
Terms
The best way for a borrower to
protect themselves from
becoming in an uncomfortable
position is to negotiate
protective terms in the note in
the first place. One might be
called a “rollover clause” or an
“extension”. Here, for
example, the borrower gets a
time extension, say two years,
for a 2% interest rate increase.
This must be written in the
note as one of its terms.
Another approach is to convert
the note into an amortizing
one when the balloon payment
is due. Again, these terms
need to be negotiated when
the note is written and
included with the other terms.
In some cases, lenders do not
need a cash payoff and enjoy
receiving reliable note
payments from a proven
borrower.
22. 22
Bring In A Cash Partner
If the above approaches aren’t working, the borrower can bring in a
cash partner. This basically involves selling a partial interest in the
property for cash to pay off the “balloon”. An escrow is recommended
with title insurance, and an attorney should draw up an agreement
between the parties, who might not be familiar with eachother.
Return the Property to the Lender
This is the leastdesirable alternative in most
cases. It involves giving up. If it’s going to be done,
it needs to be done right, with an escrow, deed with
a “DeedinLieuofForeclosure” recitation, title insurance,
and transfer of any rents and deposits back to the lender.
The lender should cancel the note, and return the original
to the borrower. The lender should also record a “
Full Reconveyance” in the escrow to clear the title.
File Bankruptcy
This is an alternative, but a risky one. The
day a bankruptcy is filed, a 30day
“Automatic Stay” of all collection actions is
established. After 30 days, the lender can file
a “Relief from Stay” request to foreclose on
the property. There is a hearing, and in the
case of homeowners the bankruptcy judge
will urge the parties to work something out. In
the case of investors, the “sympathy factor”
is usually low because investors are
considered to have resources and several
years to handle the “balloon”. The lender is
due the money, the judge is likely to rule.
(i.e., no relief!)
Dealing With
“Balloon”
Payments
33. 33
A family trust usually requires three parties:
•Trustor(s)– The person(s) who creates the family living trust,
either revocable, or irrevocable. There may be one or more
trustor(s), such as husband and wife. There are many forms of
trusts, for example, a children’s remainder trust or a trust
representing some group. The intent of a trust is usually to
protect accumulating assets such as cash, real estate, stocks,
bonds, businesses, and other valuables, from excessive
taxation and perseveration of capital. The purpose of a trust
may also include an attempt to protect assets from certain liens
or creditors during life or upon death of the trustor. Although
the trustor(s) conveys title into the trust, the trustor(s) will
usually reserve some or all the benefits of owning the property
placed in the trust during his/her/their life. The added purpose
is to preserve some of the benefits for future beneficiaries.
•Trustee(s) The person who is authorized by the trust
document to perform certain acts and sign the loan
documentation for the trust. There may be one or more
trustee(s). For, example husband and wife becoming trustees.
This person(s) is/are considered the trust manager(s) with
rights and obligations that are stated in the trust document.
The trust document contains delegated rights, responsibilities
and establishes who possess authority to act.
•Beneficiaries Are those whom the trustor designates to
receive some future benefits of the trust assets as defined in
the trust document. There may be one or more beneficiaries.
The benefits are usually based upon the investment
performance of the trust assets, and the distributions resulting
from the trust, now and sometime in the future. Beneficiaries
may be the children, relatives, or some designated
organization, such as a religious group, foundation, education
entity, or benevolent group, such as The American Cancer
Society, or The Make A Wish Foundation.
34. 34
A Trust Deed Document contains
3 Parties:
A deed of trust is a security instrument that a
borrower will sign and record which will reflect a
lien on a subject property. Terminology in deed of
trust has similar words, but entirely different
meaning or definitions. A totally different
conversation as a matter of understanding the
process is that there is a trustor, trustee, and
beneficiary in the language of a deed of trust.
Consider that a property owner who desired to
obtain a loan and encumber real property.
Consider that they take title as an individual(s),
not a family trust. We can use husband and wife,
as joint tenant with right of survivorship.
•Trustor(s) – Is the person(s) or entity who
owns the property. The trustor is sometimes
referred to as the grantor. The
owner/trustor/grantor decides to borrow money
and use the property as collateral for a loan. An
encumbrance called a deed of trust will be
drawn, signed and recorded against the
property at the county recorder’s office. A deed
of trust is also referred to as a security
instrument. Public records will then reflect
notice of that lien.
•Trustee (s) – A deed of trust requires a third
party entity, generally a title company, to hold
what is referred to as a bare equitable title on
behalf of the or investors beneficiaries, in the
loan transaction. The trustee is given three
powers; 1) to foreclose 2) to reconvey and 3) to
modify the trust deed per agreement. The
trustee cannot benefit from the ownership but is
hired only as a place holder in states that use
trust deeds as recordable security instrument.
The trustee is an intermediary that has a
fiduciary responsibility to the stated
beneficiaries. His/her job is to protect the
beneficiary’s rights, and in the event of default,
act in their best interest. Also, when a
borrower/trustor pays off the loan, the trustee will
reconvey, meaning remove the lien from public
records, and return full ownership back to the
borrower/trustor.
Some states use a security instrument called a
mortgage, rather than a deed of trust. A
mortgage document only requires 2 parties. One
is the borrower/trustor, and the other is the
lender/beneficiary. There is no trustee required.
•Beneficiaries – Are the
investor/lenders/bankers who invest capital and
receive a recorded deed of trust or mortgage
document and promissory note signed by the
borrower/trustor to hold as collateral for the
consideration of the loan.
Underwriting a Loan
Transaction where the
Borrower is a Family Trust
37. 37
UnderwritingaLoanTransactionwheretheBorrowerisaFamilyTrust
Original Trust document and all related Amendments
1. There are differing views on whether the complete trust should be obtained and read as part of the
loan approval decision, or whether the statutorily authorized Certificate of Trust (discussed below)
should be the sole source of information. My view is that the entire trust should be read to determine
who are the trustors, trustees and beneficiaries. This gives the lender the contact information for all
parties. If the trustor/trustee dies, then the lender can contact the beneficiaries, to continue.
2. Does the trust give authority for one or more trustees to borrow, submit information on behalf of and
sign the related documents encumbering the subject property? The purpose in reading the trust
document, and especially the amendments, is that the trustor, trustee, and/or beneficiary might have
changed. The powers may
have changed, and
successor trustees may have
replaced deceased trustees.
3. Title Page, Trustee
Identification Page, Signature
Page, Powers Page, Any
Amendments Thereto. Some
Lenders will only request
these three pages. This is
suggested by some as
incomplete.
4. Trust certification
(Probate Code section
18100.5) A trust certification may be prepared by the lender, the trustee or an independent source such
as a title company and can be recorded. It certifies who are the trustor, trustee, and beneficiaries. It
establishes the authority to borrow and encumber, provide information and sign loan documents. As
part of Probate Code section 18100.5, the certification provides protection for lenders who rely on the
information it contains. However, a lender cannot rely on the trust certification if the lender has actual
knowledge that the matters set forth in the certification are incorrect. Therefore, some lenders believe it
is best to not even get a copy of the trust itself. However, the statute itself provides that simple
possession of the entire trust document itself without more is not enough to prove that the lender has
“actual knowledge”.
53. 53
I
ntroduction To
Real Estate Matters
This is an initial article in a new
series called, “Gary’s Real
Estate Matters” from Gary
Massari, CEO of REI Fortunes
and Bruce Kellogg, Real Estate
Consultant. In this article you
will learn the importance of
estimating repair and renovation
improvements and how you can
benefit financially!
Use With Contractors
When working with contractors,
you can save money several
ways; first, buy your own
materials and only hire the
contractor for labor. This will
save you 20% on materials that
contractors mark up. Secondly,
if you are a veteran, Home Depot will give you a 10% discount. If
not, then find a friend who is a veteran to make your material
purchases for you.
We are going to show you a template we use so you can see how
it works, especially with contractors and subcontractors for each
area of rehab. It is important for the bidding to be uniform so that
careful comparisons among bids can be made. If a bidder departs
from the estimator, there must be discussion to reconcile any
differences. Otherwise, you are comparing apples and oranges,
as the saying goes.
Building Your Own Estimator
There are a lot of cost estimators you can get for free by
searching Google, but designing your own to meet your specific
needs is far better and more accurate.
When designing your estimator using an Excel spreadsheet, there
are four summary parts you want to include to the estimator:
1. Exterior
2. Interior
3. Mechanics
4. Other
55. 55
Concluding Remarks
1) The unit cost in our example is based on
the San Francisco Bay area. They will need to
be revised for areas that have substantially
different cost structures. Input from local
contractors submitting bids should make this
possible.
2) In many markets around the country, sale
prices are now declining. Therefore, it is critically
important that rehab costs be estimated
accurately, and an extra margin be added for
safety.
3) Put a Yes/No column, and that way you
can walk through a home in minutes and mark Y
or N based on your observations. When you
leave you can then calculate the cost.
4) Make sure you add a 10% to 20%
contingency to the total project to cover
unknowns. Some hard money lenders will only
allow 5% overall contingency, so in that case pad
your line items to include a sufficient contingency.
5) When doing major renovations, it is wise
to get SKU numbers for your kitchens, bathrooms
and mechanical items.
6) The best use of a detailed cost estimate is
to assure that you have covered your bases to
have a profitable project, and to convince your
investor as a wholesaler of your accuracy and
credibility.
7) Your cost estimator will also come in
handy when you negotiate your final offer on a
discounted property to assure profitability.
Let Gary and Bruce know if this article helped
you, and write us to request other topics. You can
always reach either of us by calling us or emailing
us…
Gary Massari, CEO REI Fortunes,
https://reifortunes.com
9254511619 gary@reifortunes.com
Bruce Kellogg, Real Estate Consultant,
brucekellogg10@gmail.com (408) 4890131