Real Estate Note

Real Estate Transaction On Steroids

2006-06-26T06:35:00.000-05:00

Hava Knote wanted to purchase a prime buildable lot to build the “dream-house” he had promised his wife. Realtor Deal Whiz had listed such a lot for $50,000, and the lot was perfect for Knote's plans. But Knote was having trouble getting his new home/land package financed, due to a shortage of cash. However, his financial statement included some rental properties, and a $ 132,000 commercial real estate note.

Spotting the note, Whiz suggested that Knote should sell that paper to raise cash. Knote said he wouldn't take less than $105,000 for the note, but nobody was willing to pay him that much. But Whiz was persistent. He inquired about the particulars, and learned it was 2nd position paper that Knote had carried back from the sale of an apartment complex six months earlier.

Knote had sold the apartments for $400,000, receiving $20,000 cash down. There was a $248,000 senior loan in front of Knote's note, amortizing over 20 years at 8%, with 18 years left. Knote carried the balance with a 2nd position note for $132,000, payable monthly, interest only at 8%, with 18 years left. Knote carried the balance with a 2nd position note for $132,000, payable monthly, interest only at 8%. The balance was due in 34 months. The first was now paid down to $244,000, and the 2nd was due to pay off in 28 months. Whiz also learned that the apartments had a marginal debt coverage ratio of 1.1 and the rent history wasn't yet stabilized.

Whiz contacted a cash flow consultant, FastCashFunding.com, to learn what might be done with Knote's note. Looking over the particulars, and the shaky property history, FastCashFunding.com told Whiz that an appraisal would be needed to make any decisions. As luck would have it, Whiz discovered that Knote had obtained a full blown appraisal two years earlier. He sent it to FastCashFunding.com. Though supporting the sales price; the appraisal also indicated problems that were still ongoing, as demonstrated by the continuing unstable rental history. This made the 2nd note a high risk, and certainly no chance of selling for $105,000. But Hava Knote only needed $50,000 to purchase the prime building lot, and then he could put up that free and clear lot as down payment he needed to complete his construction plans.

FastCashFunding.com offered Knote $52,000, to purchase the 28 remaining monthly, plus buy $79,000 out of the $132,000 balloon payment. Knote would keep the remaining $53,000 share of the balloon. Knote got the cash he needed to buy the lot and get construction financing- and a total of $105,000 for his note; FastCashFunding.com received a nice investment with much less risk exposure; and Deal Whiz sold his lot and made a nice little commission for himself! The partial purchase agreement turned paper into gold- and allowed everyone to solve their problems!

The Right Stuff

2006-06-16T07:22:00.000-05:00

All real estate notes are evaluated in relation to primary qualifications, used in evaluating the risk/yield acceptance levels of the individual real estate note:
Property Value
Loan to Value (Note Balance vs. Property Value)
Payer's Hard Equity (Down Payment)
Payer's Credit Rating
Payer's Income History
Real Estate Note Seasoning
Account History of the Real Estate Note

2nd Position Real Estate Notes bring several more factors to the table:
Ratio between the first mortgage and the 2nd mortgage?
Rate and Terms of the Senior debt?
Are there any Balloon Payments on the first that are due before the 2nd is payed off?
Are there any artificial terms on the senior debt that camouflage potential risk to the 2nd?

What about second position real estate notes secured by commercial real estate?
Operating history of the property
Debt coverage ratio of the property (does the property “carry itself” or carry enough income to more than cover the debt service regardless of what happens with the payer)?
The preferred ratio of income to debt ratio to net operating income is 1.3 to 1.5 for senior loans, depending on the property type. This ratio should also provide for coverage on the debt service for the second, with no negative cash flow.

Commercial 2nds are generally not too attractive to note buyers because of other circumstances in the transaction, and the Payer's down payment will usually be a very critical in a potential note buyer's decision. More real estate note information is available at Fastcashfunding.com.

2nds- More Than One Helping!

2006-06-07T09:30:00.000-05:00

In the private note industry, we routinely see real estate notes that are referred to as seconds. The term “2nds” refers to real estate notes that are in lien position, or in other words “junior” to an existing senior loan where both loans are secured by the same collateral. The senior lien note (“first”) has a priority claim over the second loan against the collateral in the event of Payor default. Behind one or more senior loans in the chain of title means that 2nd position real estate notes have less total equity to insure that there will be sufficient collateral available to satisfy the payment of the real estate note, and preserve the invested capital, in the event of default. This also means that 2nd position note holders have to absorb liability for existing senior real estate notes, in order to protect their own interests in the event of default.

Due to this potential liability, the holder of a second note must have more liquid reserve capital available to cover his/her position in the event of default. The need to maintain sufficient liquid reserves to protect a second position note, poses an “opportunity cost” to the investor in terms of not having that money available for higher yielding investments. All things being equal, a senior position real estate note is more desirable than a second position real estate note. Because of the risk factors intrinsic to “2nds”, some types of second position real estate notes are not viable in the private cash flow markets.

For example, senior position notes secured by freestanding manufactured homes known as mobile homes, and business notes, already have somewhat limited markets, due to the risks and default rates associated with these sectors. “2nds” secured by such assets are virtually impossible to sell in most instances except when there is a large down payment, good credit, and decent collateral. Still the private cash flow industry has long been a source for second position real estate notes. However, it is important to understand that “real estate note” is not the whole picture in describing a note investment.

There are real estate notes that are secured by single-family homes and condos. There are commercial real estate notes that are secured by income producing property which includes multi-family housing of more than four units, retail properties, gas stations, office buildings, hotel/motel buildings, restaurant properties, industrial properties, and agricultural land operations as well. Also, there are land notes, which include prime building lots, semi-improved lots or parcels less than 15 acres such as vacation properties, commercial lots or development parcels, raw land that are unimproved or parcels, acreage over 15 acres, agricultural land.

Each of these has their own set of risk factors. It is helpful to understand that “2nds” on many condos, commercial properties, and land notes, often are not viable for the same reasons that business notes and mobile home notes are not attractive as they carry to much risk, as there is not enough equity. Like all investing, it is a question of two basic facts that drive investors to purchase any note, which is yield and the degree of risk to obtain that yield. Another important factor in the private cash flow industry is driven by investment value rather than fair market value. Investment value defines the value of an investment to a particular investor, or class of investors as distinguished from fair market value, which represents an impersonal and over all detached marketplace.

Essentially, “investment value is based on an individual investor's investment requirements. It reflects the subjective relationship between a particular investor, and a given investment, which in turn makes the private cash flow industry such a thriving marketplace. It means investor flexibility that doesn't have a tightly defined structuring norm that gives the privately owned paper asset side of financial markets a greater degree of latitude and attitude that can be found in conventional lending markets. But it is also important to recognize that the flexibility of the private cash flow markets makes it very difficult to simply provide a generic answer to how much is my real estate or other note is worth? As no two notes are the same, and no two real estate note or other cash flow buyers are the same. All real estate notes or other cash flows have to be carefully scrutinized individually in order to provide a truly thorough answer to this question.

Though buyers for “2nds” inherently require higher discounts and yield spreads to justify the risk of purchasing this type of paper, the availability of this resource, and the ability to creatively structure real estate note purchases, serves as a lifesaver for your clients who have a pressing need for liquid cash now. Fell free to contact me if you need more information on how to solve your clients problems by selling any second position notes they are holding.

Manufactured or Modular?

2006-06-03T16:27:00.000-05:00

The origins of manufactured homes can be traced back to the 1930's. Originally, all manufactured homes were known as trailers, and they were 8 feet wide. By the 1950's, the width on most models had grown to 10 ft; by 1962 the width expanded to 12 ft, which at this point trailers became known as mobile homes. What's the difference between a mobile home, a manufactured home, and a modular home? For the most part, it all depends on how the home is built. Since 1976, all manufactured homes must comply with the National Manufactured Home Construction and Safety Standards, administered by HUD.

The federal legislation greatly improved the quality and the overall government intervention of manufactured home construction and design, including fire resistance, energy efficiency, and durability. If built to these HUD standards, which includes retaining the chassis, it's a manufactured home (still commonly referred to as a mobile home). If a home is built in the factory to meet state or local building codes, it is a modular housing or prefab housing, that technically built to higher standards. In reality, however, most of the major manufactured home builders produce both types of homes with relatively few differences with regard to superstructure and infrastructure.

The real differences materialize is in the quality of the interior finish work, plumbing fixtures, flooring, appliances, cabinetry, and other similar amenities. A high end manufactured home (mobile home), will often present a durable, spacious, comfortable, and richly appointed living area, whereas a low end modular home will be smaller and more reminiscent of a basic small tract site built home, with very limited features. If you are currently selling a mobile home or single family real estate note, please go to Fastcashfunding.com, as we are buyers of both including business notes.

Business Notes Bust or Bonanza!

2006-05-31T13:58:00.000-05:00

The practice of “hiding” income is commonplace in the world of small business, but off the books income will not add to the sales price or worth of the business. In fact, most likely it will have an adverse affect and decrease the value of a business. As potential buyers for the business are going to be wary of a business seller who insists that an unverifiable income will be included. As you can see income verification can become a double-edged sword, whereas if the buyer is not willing to be above board with Uncle Sam, then most likely s/he will not be honest with a potential buyer as well. And the potential buyer could blow the whistle on the Seller, therefore creating havoc on the whole transaction.

It would be better for the seller to simply learn about the multitude of various tax advantages that are now available to the small business owner, so that s/he can shelter their income in a verifiable and legal way. Even more problematic are the instances where sellers fail to properly account for the tangible assets of the business, and the appropriate value of those assets. Far too many business sellers have not accurately kept good records, as some tangible assets may have been “expensed out” in the same year as the purchase under favorable tax guidelines, rather than capitalized. These assets are frequently overlooked. And intangible assets are not normally recorded on a company's books unless they were purchased from outside the company.

Those that were generated internally by the existing owner do not show up on the balance sheet, including identifiable tangible assets. Chances are high that your client purchased a preexisting business, and again, when it was resold the parties involved all took the easy way out by simply lumping all the intangible assets together into everything else and classifying it as “goodwill” rather than carefully segregating those discrete intangible assets that could have been expensed out, depreciated, or amortized, and properly valued accordingly.

Intangible assets often represent the largest component of economic value of a small business or professional practice. Note investors are very interested in making sure these asset values have been properly accounted for, particularly if some of these intangible assets have collateral value as hard assets, which will usually increase the viability of the note. But what if you are coming late to the party? Or what if your client already sold his business and now is holding a business note and now needs cash? What if the note is a little wrinkled around the edges? No question, that could pose a problem... but thankfully, in many instances, these poorly crafted deals can be salvaged. For more information, go to fastcashfunding.com.

Manufactured Housing On The Rise!

2006-05-30T13:31:00.000-05:00

Welcome to part 2 of my blog on Manufactured Housing. Fortunately, the private paper investment markets have slowly gravitated toward the seller and dealer financed carry back notes secured by used manufactured homes in parks. It is important to recognize that real estate note buyers are not lenders. Real estate note investors purchase existing loan notes to hold as alternative investments, comparable to what they can get with a well managed stock portfolio or real estate investment. Where lenders traditionally look to bond market returns as a benchmark, working on thinner yield spreads on higher volume and discount points. Naturally real estate note buyers demand higher yield structures for their mobile home note investments.

Another important distinction is risk management. Though the private investors who will purchase these real estate notes are much more risk tolerant than traditional lenders due to the well documented default factors in manufactured housing, knowledgeable investors purchasing notes secured by mobile homes, require a deeper equity cushion to protect their investment. This in turn causes these types of notes to have a steeper discount structure than real estate notes do. It is helpful to understand that the manufactured home industry's research through the latter half of the 1990's, indicated that lender's loss recovery rate on defaulted loans was only 82.5 cents on the dollar and that was in a market that was thriving!! Real estate note buyers will not accept that type of loss exposure. They demand 100% on the dollar recovery on any defaulted notes. Subsequently, a note buyer for mobile homes will purchase an existing mobile home note at a deep discount if necessary, to preserve the necessity equity cushion.

Alternatively, we will use a safe structured purchase agreement such as a partial purchase, or a split funded purchases, when necessary, to achieve the necessary equity protection. These structured purchase agreements can be deal savers in situations where the seller is not able or willing to discount deeply enough to satisfy the note buyer's equity protection requirements. If you have clients who are holding manufactured home notes and are looking for ways to get needed cash, feel free to give me a call. I'll be happy to explore their options with you.

Manufactured Housing On The Rise!

2006-05-30T13:29:00.000-05:00

Grease The Wheels

2006-05-25T15:51:00.000-05:00

Manufactured housing industry estimates indicate that approximately 800,000 to 900,000 used manufactured homes change hands throughout the U.S. In the average year! Although some real estate offices specialize in mobile home sales, and some have incorporated mobile home sales into their inventory on a case by case basis, the “freestanding” mobile home brokerage industry has never been strong. Part of the reason is no doubt due to the fact that mobile home prices are generally much less, so the average commission per sale is a lot less motivating on a time/cost basis.

A more obvious problem, however is that there is no strong lending pipeline in place, to provide the financing necessary to grease the wheels of a sale for used mobile homes! In fact, industry studies indicate that the major market for mobile home financing lies in resales. When there is no structure for financing in a cash deficient marketplace, there is no liquidity creating a vacuum that inhibits normal business activity!

Brokers need financing to make sales without this financing, the distribution channel breaks down, and many mobile home owners are faced with going it alone! Subsequently, these private homeowners either wind up selling their manufactured homes for much less than they are worth, in order to get the cash they need or they wind up with owner financing themselves, in order to make the sale. Historically, about 46% of these sales are owner-financed. If this much owner financing is going to happen anyway, how can the secondary private paper marketplace help the manufactured home broker, and his homeowner client?

The primary advantage is the provision of a new source of fluid funding options and additional liquidity. Understanding how to work in this environment allows the creative broker to increase his inventory of “bread and butter” commission sales; and also provides a back door for converting mobile home note holders into customers for the purchase of new homes or other properties. If you or your client have a mobile home note or real estate note that you would like to fund, contact us or call us toll free 866-841-2420.

Tin Cans To Gold Pans!

2006-05-25T15:13:00.000-05:00

Despite an history of severe up and down cycles, the manufactured housing industry is booming throughout the United States. It is estimated that close to 10 million American households now live in manufactured housing, including almost two million new manufactured home sales over the past few years, which represent one out of every three total new home sales. Contrary to the “trailer trash” stereotype of the people who inhabit them, manufactured homes have evolved in an acceptable alternative to site-built homes, condos, and apartment housing. These new generation mobile homes aren't the same as the mobile homes that our parents or grand parents may have lived in. As the construction of mobile homes have dramatically improved since 1976, so too have the demographics of the people who purchase them.

The driving force behind the mobile homes has been the affordable price, as the average sales price of a new stick built home cost on the average 3 to 4 times more than a similar quality manufactured home (not counting the cost of the land). And at the same time, improvements in construction quality have led to an average useful life of 55.8 years, while also providing a distinct advantage in the cost effectiveness of owning and maintaining a manufactured home, further enhancing the growing broad based appeal among current home buyers.

The growth in manufactured housing has also spawned corresponding growth in several related industries as well to include; dealerships, park owners, and manufactured housing rehab/remodeling specialists. However, many of these businessmen, as well as the many manufactured home owners themselves, have had to contend with a major problem over the years. The manufactured housing market place has historically been a stepchild in the traditional institutional lending arena long under served by a fragmented funding pipeline. For “freestanding” mobile home parks, finding purchase money hasn't been a difficult proposition when buying a new home- but refinancing, and finding the funds to purchase an existing resale manufactured home, are almost impossible!

Consequently, over the past 10 years, owner financing has facilitated an estimated 46% of all mobile home resales. Creating an average of approximately 430,000 new notes every year, these seller held paper assets are estimated to represent $6 billion annually of owner financed debt and $ 30 billion dollars of total assets in just the past five years alone! For many of these note holders, this paper is an albatross, weighing down their present circumstances. For manufactured home dealers, holding this paper on their used homes resales may be drying their ability to obtain needed “floor plan” financing to maintain their sales inventory. And for the park owners, it may tie up the funds necessary for capitol improvements, or other more attractive investment opportunities. And for real estate and mobile home brokers, it may determine whether they can get a particular property sold. As for homeowners, these paper assets can be a real nightmare to wade through in resolving new home purchases, divorce, estates, medical emergencies, retirement planning, and similar circumstances requiring liquid cash.

Fortunately, the private paper investment markets have slowly gravitated toward the seller and dealer financed carry back notes secured by used manufactured homes in parks. It is important to recognize that real estate note buyers are not lenders. Real estate note investors purchase existing loan notes to hold as alternative investments, comparable to what they can get with a well managed stock portfolio or real estate investment. Where lenders traditionally look to bond market returns as a benchmark, working on thinner yield spreads on higher volume and discount points. Naturally real estate note buyers demand higher yield structures for their mobile home note investments.

Another important distinction is risk management. Though the private investors who will purchase these real estate notes are much more risk tolerant than traditional lenders due to the well documented default factors in manufactured housing, knowledgeable investors purchasing notes secured by mobile homes, require a deeper equity cushion to protect their investment. This in turn causes these types of notes to have a steeper discount structure than real estate notes do. It is helpful to understand that the manufactured home industry's research through the latter half of the 1990's, indicated that lender's loss recovery rate on defaulted loans was only 82.5 cents on the dollar and that was in a market that was thriving!! Real estate note buyers will not accept that type of loss exposure. They demand 100% on the dollar recovery on any defaulted notes. Subsequently, a note buyer for mobile homes will purchase an existing mobile home note at a deep discount if necessary, to preserve the necessity equity cushion.

Alternatively, we will use a safe structured purchase agreement such as a partial purchase, or a split funded purchases, when necessary, to achieve the necessary equity protection. These structured purchase agreements can be deal savers in situations where the seller is not able or willing to discount deeply enough to satisfy the note buyer's equity protection requirements. If you have clients who are holding manufactured home notes and are looking for ways to get needed cash, feel free to give me a call toll free at 866-841-2420 or please visit our website. I'll be happy to explore their options with you!

Fair Market Value?

2006-05-16T07:59:00.000-05:00

We have heard it said many times, “ I couldn't get anywhere near the fair market value of my house if I put it on the market today,” of “ The value of ABC Company stock is really much more or less than the price it is selling for on the Stock Exchange today”. The standard value that those people have in mind is some standard other than fair market value. This is because the concept of fair market value means the price at which a transaction could be expected to take place under prevailing conditions existing at the valuation date.

Fair Market Value is the most widely accepted standard of value in the United States. A current definition agreed upon by agencies that regulate federal financial institutions is “The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and the seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus”. Implicit in this definition is the consummation of a sale as of a specified date, and the passing of title from seller to buyer under conditions whereby:
1- The buyer and seller are typically motivated
2- Both parties are well informed or well advised, and acting in what they consider their best interests.
3- A reasonable time is allowed for exposure in the open market.
4- Payment is made in terms of cash in United States dollars, or in terms of financial arrangements comparable there of.
5- The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

(Uniform Standards of Professional Appraisal Practice)

This is also the standard that generally applies to most federal and state tax matters, as well as many other valuation situations. It is worthwhile to observe the use of the phrase “the most probable price”, in place of the previous “the highest price” used in most definitions widely accepted a few years ago, as it takes two to tango when it comes to value! To find out what your best price for your real estate note or other cash flow please contact us right away. You will be glad you did!

Cash or Carry?

2006-05-15T15:54:00.000-05:00

Small business sellers frequently have many misconceptions about their business, and about the critical elements of the selling process itself like the following. They think the business is worth more than it really is as acute pride of ownership seems to be a highly contagious disease among most business owners. They expect to receive payment in cash that's not usually a problem for a seller who purchased a previously existing business.

In an industry where 90% of the sales are seller financed, chances are high that this is how he purchased the business in the first place! But what about the guy who started up his own enterprise from scratch, or maybe inherited the family business from the original founder? Now it's 10 years later, and chances are s/he will want all cash, for the money that's been invested over the years.

Expect the buyer to have the same high opinion of the business as the seller does. That might happen some day, but usually not until the buyer assumes the mantel of ownership. Finding a buyer who needs a business, is comfortable with a particular type of business, who can afford it, and where the numbers work for this specific person is like finding a needle in a haystack. Educating clients has long been an important staple in building a relationship with them.

If an opportunity presents itself, counseling your business-selling client on the importance of preparing a detailed and documented sales presentations, and assisting him in structuring both the sales transaction, and the subsequent note he may carry back as a result of selling his business, can go a long way in helping you and/or your client to achieve their objectives satisfactorily!

Cash or Trash!

2006-05-15T15:18:00.000-05:00

Only 10% of small businesses and professional practices actually sell for all cash! In most cases, the buyer typically comes in with a cash down payment of 20% to 40% of what is referred to as a transaction value with owner/seller financing the balance of the purchase price on the sale of the business, carrying back an installment contract secured by the business via a business note. However, it is a common practice for business brokers, and their principals, to think of the cash value of a business or professional practice on the basis of the face of the sales transaction and on the terms at which the business type is sold in the marketplace.

Unfortunately, the deal wasn't for cash and far too often, the business note for the balance of the transaction price is usually bearing interest at a rate that is below the market rate! In other words, third party lenders would generally charge higher rates on loans that have comparable collateral and the same terms as those in the seller financed business notes written for the balance of the typical transaction price. And many of these owner/seller held contracts may include contingency clauses related to the outcome of lawsuits, settlements of tax liabilities, refunds from prior periods, certain costs of compliance with various regulatory agencies requirements, or provisions for customer retention or earn-outs. This makes the full expected amount that the seller will realize dependent on certain future events.

Also, many business sellers inflate the sales price to try to shift income from ordinary rates over to capital gain rates. Others actually have some concept of cash equivalent value, and the fact is that they likely will have to take a discount when they go to sell the note. So they try to turn the tables in their favor by increasing the sales price, in an effort to absorb the cost of the discount when they sell the note. Nothing wrong with that, if the deal is well crafted. In many instances, the trade off between price and terms can be a good and reasonable strategy.

In fact, it usually can be argued that seller financing should warrant a small premium, or other concessions from the buyer. The problem is most sellers tend to take it too far. They may offer terms that are too lenient, and they elevate the price to a point that they now have created a pure Blue Sky dollar valuations that cause the paper to be higher risk of default, and less secured in relation to true collateral values, so now the fellow is sitting there with an oversold business, and an over sold note!

It is generally understood that fair market means a value in cash or cash equivalents, unaffected by special or creative financing or sales concessions granted to the buyer. Consequently, the fair market values of such contracts in terms of cash or cash equivalents accepted as part of the consideration in a sale, are usually less than their face values. In the world of finance, there is often a great deal of difference between transactional value and cash equivalent value. Business notes present their own set of special circumstances and risk factors and professional business valuation experts are very aware of the market factors that play in to the value equation with regard to discounted values, and how substantial these factors are: We know of no other class of transactions whose prices diverge as far from a cash equivalent fair market value, as the values of contracts arising from sales of small businesses and professional practices.

It is not at all uncommon for the terms of the contract and the business note to be such, that the cash equivalent value is 20% to 50%, or more, BELOW the transaction value as presented on the face of the transaction documents, or as reported in some of the data reporting services. Such as Valuing Small Businesses & Professional Practices by McGraw-Hill Publishing.

The private secondary market is inherently a higher risk marketplace than the institutional lending sector. This market offers the advantages of purchasing more substandard paper, and more flexibility in structuring note purchases, than most lenders can, or will offer, when originating new loans. Investors in the private secondary marketplace are generally more risk tolerant than institutional lenders. But, just like anything else in this world, there is a price for risk tolerance. By understanding the difference between “cash” and “trash”, you can help bring your clients expectations into line with realty, thus helping them create business sales transactions that make sense, and allowing them to carry back financing that has liquid viability-in the event they need to convert the note to cash some time down the road. If you or your client have a business note that you would like to sell, please visit fastcashfunding.com.

Business Notes Bust or Bonanza?

2006-05-15T10:14:00.000-05:00

America is the land of small business. Every day, hundreds of small businesses like dry cleaners, laundries, medical practices, restaurants/bars, liquor stores, convenience stores, auto repair, printers, gas stations, florists, vending machines, antique shops, cabinet makers, machine shops, small manufacturers, distribution companies, barber shops, beauty salons, and many others are bought and sold. Despite the growth of government programs such as the SBA, SBIC's, and SBDC's, and the many small business loans offered by the banking industry, the vast majority of these small business sales by virtue of necessity, require the the seller finance a large portion of the purchase price by taking back their equity through owner financing with installment payments.

According to Business Reference Guide 2001, 90% of the approximate 200,000 small businesses that are sold annually are owner-financed! About 180,000 new business notes, worth about $25 Billion Dollars are created each year! Many of these business note holders are likely to be one of your clients! Accessing that cash is difficult proposition for these people. The good news is there is a thriving private secondary marketplace that can provide the liquid capital that many business sellers need. Here in the secondary marketplace is where such cash is available. The bad news is many of these sellers may still have problems in gaining access to this cash for the same reasons that bank financing for business sales is so limited.

If you are fortunate enough to be able to assist your client structure the note carefully at the time of the sale, you can overcome these difficulties. Meanwhile, according to the business press, more businesses would successfully sell if business sellers structured the whole transaction properly. Your input may be critical to your client's ability to even sell his/her small business in the first place. The two biggest problems in the sale of most businesses are “hidden” income and assets. The first problem is usually intentional, and the second is usually a mistake, but both can have the same devastating effect on the sale of the business, and/or the subsequent sale of a note secured by the business. Bookmark this page for part 2 of this blog. In the meantime, should you have any questions, feel free to contact us.

Real Estate Note

2006-05-11T15:08:00.000-05:00

Hey did you hear that old Bud Theweiser is retiring, and wants to sell his pub for a $ 135,000; including real estate valued at $70,000? Bud wants $50,000 dollars down in cash to pay off closing costs and pay off some personal debts, and $15,000 to put into a money market fund, for retirement income and emergencies. Bud is willing to carry the remaining $85,000, payable at $913.41 per month over 15 years, at 10% interest. He is counting on this income to supplement his retirement over the coming years.

I heard that Roger Mantis wants to purchase the pub, but he only has $12,000 cash. But Roger does however holds a $16,000 business note paying him $298.82 per month, with 72 payments still due. And Roger also owns a building free and clear that is worth $40,000, that he wants to keep as an investment. So Roger's attorney Elmer Lawson, contacted Fastcashfunding.com , to look into ways to resolve Roger's cash shortage problem.

Fastcashfunding.com suggested that Roger offer $65,000 for the pub, with $28,000 down, in the form of $12,000 cash, and the $16,000 dollar business note. The remaining balance of $37,000 dollars would be carried back on a 15 year real estate note at 10% interest. Roger would also give Bud $70,000 for the tavern real estate in the form of two separate real estate notes. The first real estate note was to be in the amount of $40,000 dollars, that is to be amortized over 30 years at 9 % interest. The payments would increase by $200 at the 140th month, and increase another $400 per month, beginning at the 181st payment. The second real estate note would be for $30,000 and would have a term of 360 months at 9% interest rate, with the payment increasing by $300 per month, beginning with the 73rd payment. This real estate note would be payed off in 139 months.

In order to create equity protection, Roger would pledge his free and clear building as additional collateral for the $40,000 dollar real estate note. Bud on the other hand, will sell the first 137 payments of this note to Fastcashfunding.com who will pay $23,000 dollars for them. Although Bud only gets $35,000 total in cash on the front end of this deal, he still retains an additional $15,000 in liquid equity, earning a weighted average coupon of 9.3%, rather the 4% paid by the money market fund.

By using this approach, Bud receives an average $938 monthly payment for 137 months, two payments of $1,260, and 41 months of $919. At 180 months, Bud will have received $168,755 in total monthly payments. Better yet, he has a balance of $22,173 remaining on the first real estate note. If he wants to cash out, he could sell his real estate note for around $20,000.

Three is not a crowd!

2006-05-11T14:17:00.000-05:00

Adopting an appropriate system for collecting real estate note payments, and establishing reliable payment records, is often the most neglected aspect, of “owner financing” yet, attending to the necessary documentation may ultimately be the most critical step in most real estate note transactions. The real estate note records protect the Seller, Payer, and any other advisors who may have been involved in assisting the completion of a “owner financed” transaction.

Good record keeping is vital for establishing earned interest calculations, and providing the Payer with an accurate Form 1098 each tax year. This is equally important for investors who are holding real estate note paper for the purpose of “Installment Sale” tax benefits. Well-documented account history records often paramount in the event of future disputes, or in the event of default. The other side of that coin is when a Payer must refinance to pay off a balloon documented in the original real estate note.

Verifiable account history is also of utmost importance if the real estate note holder ever decides to sell all, or part of the note. Good or bad, note buyers must be able to determine exactly what it is that they are buying. Is the note performing according to its terms? Are the balances, and payment amounts correct? Have their been any modifications, or concessions, been properly accounted for?

Without verifiable payment records, many real estate notes are not salable, and those that do sell, are subject to significant discounts to compensate for risks, thus reducing the cash price a note seller will get for his real estate note. The best defense for most note holders is the use of professional “third party” account servicing firms. The better firms provide high quality records, and diligent collections services, at relatively little expense, that takes a huge load of the principals' shoulders.

An Equity Question?

2006-05-11T10:13:00.000-05:00

What if your client should want more security and more cash out of the deal as well? His best bet would be to split the $28,500 in to two new second notes- one for $14,000, secured as a junior lien against the duplex; the other note for $14,500, as a new second secured by the home he is selling to the buyer. By going this alternative route, the buyer still only brought $6,500 in cash to the closing table and your client is still holding $28,500 in secured real estate notes. But now, your client has much deeper equity behind each note ($90,000 + $14,000/$140,000 = 74% CLTV, and ($90,000 + $14,500/$125,000) = 84% CLTV. Now, what about that extra cash your client wants to pull out of this transaction? Frankly, this deal is still a little thin, but the duplex property has a two-year history under the buyer, and a deeper equity cushion. All things considered, your seller may still be able to sell the duplex note for perhaps $7,000 (depending on rate and term).

What if he needs $10,000? Well, that gets a little trickier but if he is willing to accept the possible risk of loss, your client can offer the 2nd real estate note he is holding against the house, as additional collateral for the duplex note. Or in other words, the note buyer would purchase the note secured by the duplex, which is additionally secured by the real estate note against the house. Your client still holds the house note, but in the event of default on the duplex note that was sold to the note buyer, your client may lose the real estate note on the house, but only if the note buyer is unable to recover $10,000 out of the defaulted note. And if the real estate notes are structured properly, your client can take steps of his own to protect his interests in both real estate notes. The result is that a deal with apparently little equity, now has a much higher protective cushion. Contact me for more information on structuring equity on a real estate note.

An Equity Question?

2006-05-11T10:02:00.000-05:00

A borrower's equity in a given deal is a good indication that the loan is relatively secure and more so on a new loan. Equity in this context, presents two closely related nuances- the borrower's vested economic interest in the deal (a risk of loss)and, the “cushion” offered by the liquidation value of the collateral. Lenders refer to this cushion as “protective equity”. The minimum equity considered sufficient to mitigate the low equity risk factor, ranges from 20% of the purchase price for owner occupied residential property to 25%-30% for prime commercial loans and up to 35%-50% for higher risk “special use” properties, businesses, and various types of land deals. The problem is, most buyers don't usually have the cash available to make these kinds of down payments.

People tend to think of down payment equity as represented by the amount of cash the buyer puts into the deal. Fortunately, equity can come in many forms such as cars, antiques/collectibles, boats, fine jewelry, stock portfolios, time shares, other properties, even other notes. This might be viewed as a form of bartering, and it occurs quite frequently, particularly in real estate exchanges. For astute deal-smiths, creating equity can take can take on several other practical forms as well. Substituted collateral is one such effective technique.

A good illustration is your client is asking $125,000 for his home. He has an existing 1st mortgage of $90,000 dollars. He gets an offer of $6,500 cash down, and a owner financed second mortgage for $28,500. Both you and your client are concerned about the limited down payment, especially when being asked to carry back a 2nd position junior real estate note. However, the buyer owns a duplex he exchanged two years ago. The value of the duplex is $140,000, with an existing first mortgage of $90,000 owed against it. Instead of securing the 2nd note by the seller's residence, the buyer offers his $50,000 equity in the duplex, as substitute collateral to secure the real estate note.

Going this route, your client picks up the difference between the Combined-Loan-To-Value he would have carrying the note back against the property he is selling ( $90,000 + $28,500/$125,000 = 95%), as opposed to the lower CLTV he would achieve by accepting the substituted duplex collateral for the real estate note ($90,000 + $28,500/$140,000=85%). The use of substituted collateral in this instance has increased the buyer's equity in the deal by 10% more. Bookmark this blog now, and come back for the rest of this story in my next blog. For more information now on this subject contact me.

Seller Financed Real Estate Notes

2006-05-10T13:15:00.000-05:00

They say “ a rose by another name, is still a rose”- but the same can't be said for real estate notes. The private real estate note industry is made up of several sectors, generally categorized by the type of collateral securing the paper. For example, real estate, mobile home and business notes are all different types of cash flows instruments that are regularly bought and sold in the secondary market place. Various “niches' exist within these sectors, which differentiate them even further. For example, there is no such thing as pure real estate note- there are residential notes, commercial notes ( further broken down into sub-niches such as multi-family residential of more than four units, retail properties, gas station notes, land notes, mixed-use property notes, special use property notes, etc. These notes are also differentiated between senior and junior lien priorities. Different types of risk factors, and collateral assets, exist for each note sector and niche. These differences are reflected in the various grading mechanisms that apply in the individual note segments, the diversity in yield requirements and investment to value thresholds for each sector.

Residential real estate notes are generally tend to have lower discount pricing than similarly commercial real estate notes. When looking for real estate notes secured by single family properties, real estate note buyers generally want to see a down payment of at least 10%, though down payments of 5% is acceptable. (20% is considered ideal). The acceptable credit scores for these notes can range from 500 to 650 or better, but usually credit scores of 550 to 620 supports the majority of the real estate notes that are sold. Maximum IVT (investment to value) levels range up to 95% of the balances remaining on these types of notes.

Real estate notes secured by commercial properties tend to require down payment ranges of 15% to 35% although 25% seems to be the norm. Credit requirements are a little tighter, and investors typically look for credit scores of at least 600+ although a score of 650 seems to be the most preferred. The investment to value threshold for commercial real estate notes ranges from about 60% to 75%, with the norm of about 65% to 70%. Real estate notes are usually non-recourse as no personal guarantees are required. Also, with real estate notes secured by income producing real estate, note buyers will rely much more on the operating history in making a buying decision. The debt coverage ratio can go a long way in making up for other weaknesses in the real estate note, such as the down payment or credit issues. Most other types of notes, including business notes, don't have that luxury!

Business notes are much higher risk than real estate notes. The two factors that help contribute to the risk is the large portion of the purchase price in the sale of the business is based on the expected future earnings potential of the business. No matter how carefully quantified the earning potential might be the real value is not rocket science. In most cases, tangible assets are typically 50% or less in a business note, which creates the problem of pinpointing it's net worth. And unlike real estate, many business assets are difficult to objectively value. The value is further complicated by the lack of effort most business sellers who fail to get an business appraisal. Therefore, business note investors need to offset this misrepresentation of value by wanting to see higher down payments and overall credit ratings from the business buyer.

Down payments are typically range from 20 to 40% for the purchase of small businesses, although the customary target down payment range is 33 to 40%. In addition, business note buyers look for minimum credit scores of 620 or better, with preferred scores of 650 on up. Also investors look for personal guarantees to back up the note. Most of the time, ITV's for a business note are likely to run anywhere from 40% to 65% depending on the type of business, the tangible value collateral securing the note, and several related factors. Although the parameters can be somewhat relative, a well secured and located note of high quality on some land around Lake Tahoe will fetch a higher price, and higher ITV threshold, than a note secured by the Bates Motel.

Risky or Calculated Investment ?

2006-05-10T07:22:00.000-05:00

Almost everyone understands that the whole purpose of investing is to make a profit. What many people fail to consider is to offset the risk! Investors who don't pay attention to the inherent risk factors with their investments, will find themselves in the red in a hurry. Interestingly, risk evaluation in its purest form, demonstrates a strong relationship to the odds of game theory, the very real science that has allowed the casinos in Vegas to thrive! Using the same concept as the casino industry, game theory based risk taking is the driving force in real estate note and other cash flow investment underwriting- such as insurance companies, credit card companies, mortgage companies, and retirement funds.

Like these other knowledgeable investors, experienced real estate note buyers also perform risk analysis when looking for notes to purchase. Real estate note analysis is very similar to loan underwriting in terms of the variables measured including a down payment, Payer's credit score and credit profile, the age and payment history of the account, the Payer's income history and debt to income ratio and of course, the market value of the collateral securing the real estate note. However, a major advantage for note sellers is that note investors as a group are generally much more risk tolerant than the lending community. Subsequently, note buyers are frequently able to bring cash to a situation, where traditional lenders not dare to tread!

The important thing is in order to gain access to this cash, it is important for real estate note sellers, and their advisors, to insure that clear and concise documentation exists to support the evaluation of the real estate note. Be sure to keep your clients informed of the importance of keeping accurate records for any real estate notes that they are currently holding, as you never know when they may need them!

Realtors Take Note!

2006-05-05T13:23:00.000-05:00

Although a great many real estate agents have lost touch with their roots in the use of seller financing to structure real estate sales, the practice remains common enough, that the retail real estate industry is still considered a good source for finding privately held paper. Unfortunately, on the whole, these agents are generally viewed a great source for lousy notes! One owner financed formula that has held fast in the real estate industry, is the use of 80/10/10 financing where the buyer puts 10% down toward the purchase price, obtains a new 80% first mortgage, and property seller carries back a new 2nd mortgage for the balance. This type of lending program can be found in the lending industry as well.

So, let's take a closer look at the 80/10/10 deal. If the buyer makes all of his payments, then there is no problem. However, if the buyer does not make the payments, the seller must foreclose on the mortgage to try to salvage the deal, or loose the remaining equity currently in the real estate note. The foreclosure process can take up to 4 to 18 months depending on the circumstances and various state laws. In addition to the costs of foreclosure proceedings, the seller is usually faced with the making the payments on the underlying first mortgage, in order to protect his/her right to foreclose on their second mortgage. In the absence of a strong appreciation in the local market, or a substantial equity stockpile from the loan payments made by the buyer, the seller may end up loosing money on the deal. That is why there is a shortage of 2nd position notes that are carried back under 2nd position real estate notes.

Sellers can however protect themselves from this kind of a situation by giving themselves a safety net by taking the following steps. These are particularly important if the seller is being asked to carry junior financing, or anytime the buyer is offering less than 15% down. The first step is obtaining a financial statement or a detailed credit application along with two years proof of income (tax returns, W-2's or similar) and proof of current income (two most recent pay stubs, twelve months worth of bank statements, or similar) from a prospective buyer. Once such information is received, a tri-merge credit report should be obtained. With these two items in hand, the seller can evaluate the borrowers credit worthiness and risk characteristics.

Three areas are critical to evaluating the buyer. First, the buyer's credit score. While not perfect, credit scores have proven to be strong indicators of potential for default. Generally, scores above 700 are excellent, 660-669 very good, 640-659 good, 600-619 fair, below 600 poor. It is worth noting that both sub prime lenders and note buyers, are active and willing to deal with credit scores ranging from 550 to 619 because this is where most of their business comes from!

A second critical area is credit profile. Does the buyer show major derogatory items on the credit report, such as a previous foreclosure, automobile repossession, collection accounts, or charge offs? What about judgements? How about payment histories on existing accounts? Are they behind on any payments now? Do they have any accounts that have shown 60 days late over the past couple of years? Any combination of these is likely to indicate that this buyer is a serious default risk. On the other hand, perhaps there was situations beyond their control, such as medical or another disaster. Perhaps a job loss in their recent past has caused a temporary hardship. Such instances may explain a low credit score, and also indicate that a potential buyer may not be a credit risk.

A third critical area to watch is the debt to income ratio. How many debt obligations have six or more monthly payments remaining? What is the total monthly debt service obligation? What is the buyer's gross monthly income? While no investigation can absolutely prevent a default, spending an hour or so to perform these steps can go a long way in preventing the likelihood of default. If you or your client would like to get more information on real estate notes please click here.

It Pays Not Being Partial!

2006-05-05T10:13:00.000-05:00

A tremendous benefit offered by the private note industry, is that most note buyers are much more flexible than most institutional lenders, which brings a great deal of options to the table for a property seller that are not available through traditional lending sources. This is especially true for sellers of smaller commercial and investment real estate; sellers of special use properties such as churches, nurseries, movie theaters, RV parks, nursing homes, as well as sellers of mobile homes and small businesses and any other paper that is weak in risk evaluation. This flexibility allows note sellers the opportunity to custom tailer the sale of the note, to match up perfectly with his/her cash needs, and/or turn a relatively po-dog note into gold.

One of the best techniques a note buyer might employ is the partial purchase. The partial purchase technique is a particularly powerful way for note sellers to “Have their cake and eat it too” and is especially useful in the mobile home and business note sales, as this method allows investors to offset a huge amount of risk that are inherent in these two type of properties.

Some other techniques a note buyer might try is to construct a real estate note sale that is agreeable to all parties including split-funding, split-purchase, additional collateral, substituted collateral, and cross collateralization. Each of these partial sale alternatives offers it's own advantages that outweigh the potential disadvantages. In certain situations, a combination of several of these techniques on occasion can also bring tax advantages to your clients as mentioned in my previous blogs. If you or one of your clients would like more information on real estate note and business partials, please contact us.

Business and Mobile Home Notes For Sale?

2006-05-05T07:50:00.000-05:00

One of the primary beneficiaries of this burgeoning secondary market are mobile home or manufactured homes, and those holding paper resulting from the sale of small businesses. In the past, these two note sectors have been tremendously under served by traditional lending markets, especially in the instances where real estate was not a part of the selling transaction. In fact, sellers of used mobile homes located in parks, and small businesses operating out of leased spaces, often have no other way to sell their properties except by way of seller financing. In both instances, risk factors, inability to quantify collateral value, and to some degree, misguided perceptions have created an unreliable funding pipeline in the lending industry, for these property types.

As a result, over the past five years, approximately 46% of all used mobile home sales transactions were owner financed, which represents about $5 Billion Dollars a year in new real estate notes. At the same time, 90% of small business owners have been forced to carry back approximately 180,000 1st position lien notes from the sale of their businesses, which tied up approximately $24 Billion Dollars a year!

One group in particular is mobile home dealers who must finance the sale of their used traded in mobile home inventory. Small business sellers had to do the same in order to purchase a new and often larger businesses. For mobile home dealers, the private cash flow secondary markets like Fast Cash Funding offer an opportunity to free up working capital and maintain the smooth operation of their dealerships. And for small business sellers that are looking to move up to larger business, the ability to convert their notes to cash is often the only way they are able to purchase another business.

Fast Cash Funding has opened a huge pipeline for real estate and business notes sellers who are aware that we exist. Professional advisors who are savvy can also benefit their clients as well. This in turn opens up a viable network for their clients financial problems and gain the edge on their own patrons. Please fell free to contact us if you would like to discuss this any further.

Real Estate Notes Are Nothing New?

2006-05-05T07:07:00.000-05:00

Did you know that Seller financed transactions have existed since biblical times. However, sellers who wanted, or needed, to convert their paper assets into cash, didn’t have many options in those days. What market there was for selling paper, was almost exclusively entertained on the local level. And the farther away the property was from a metropolitan area, the less chance of finding a buyer for the real estate note. Essentially, Sellers and their advisors (attorneys, cpa’s, real estate brokers, financial planners) were on their own.

For decades, the most active participants in the local arena were local real estate brokers. As the local broker ran out of money, private investors were brought in to purchase the real estate notes and when that money dried up deals were simply not getting done. At this point, existing Seller held real estate notes became unsaleable until funds were once again available from the limited buyer pool. In the case of note sellers desperate for cash, this limited buyer pool frequently led to extreme hardship. In the scheme of life, such circumstances create a vacuum, but sooner or later the money will follow the path of least resistance.

However, it wasn't until the past 20 years that an effective secondary market developed for real estate notes as the grand daddy of the private cash flow industry. Until modern times, there was no structured networking that could quickly move money where it was needed, as there was no broker network that could create a liquid market for real estate notes or owner financed real estate properties. There just wasn't any framework developed to underwrite and purchase these paper assets on a permanent, reliable basis and there was simply no method for marketing or directing these notes up a nonexistent funding pipeline.

By the late 1970's, a loose confederation of private note brokers and note investors began spreading across the country, and several large institutional funding sources emerged. So by the 1990's, a full blown secondary market developed, encompassing a wide spectrum of diversified privately originated cash flows. Today, the private cash flow industry or private real estate note industry has become a major source of liquidity for sellers holding a broad range of paper assets, delivering billions of dollars to cash seeking sellers, and offering creative problem solving avenues for their advisors! Hence, as we move into the 21st century Fast Cash Funding has developed an even better network to facilitate the sale of real estate notes and other cash flows for individuals and professionals alike.

Selling Structered Settlements

2006-05-03T14:39:00.000-05:00

The cash flow industry is a 4.7 trillion dollar marketplace, where as approximately there are 60 varieties of cash flow instruments are traded. Many such cash flows may currently be in the hands of your clients. Structured Settlements is a noteworthy category of cash flow instruments that is actively bought and sold in the private cash flow secondary marketplace. Structured Settlement- refers to a deferred payment obligation resulting from the settlement of a personal injury legal claim. In this case, rather than receiving a lump sum settlement, the plaintiff or injured party agrees to accept a settlement that is structured to be paid in installments over a specified time period. In most cases, the defendant, or the insurance company guarantees the settlement obligations by purchasing an annuity and naming the plaintiff/claimant as the payee.

The payment nature of structured settlements is often the best manner of compensating the victim and/or his family and is often a valuable tool for negotiating larger settlement amounts. The structured payout takes into account a set amount of funds for: ongoing medical care, education, retirement, family needs, and lifestyle adjustments or changes. A structured payout can be beneficial in protecting minors and others who may struggle with managing huge lump sum awards. However, one thing that structured settlements do not seem to anticipate is the change in the future financial needs of the beneficiary.

In life, many circumstances beyond our control can erupt no matter how well we try to anticipate future events. The same holds true with a structured settlement. The death in the family, debt consolidation, estate taxes, estate dissolutions, a business opportunity and so on. The need to convert some or perhaps all of the stream of income into cash becomes paramount. The problem is that Plaintiffs cannot circumvent their contracts to agreeing to periodic payments. Furthermore, the annuity is not assignable because the claimant does not own the annuity. And most annuity contracts contain non assign ability language, which the majority of insurance companies argue prohibits the transfer to third parties. But beneficiaries do own the absolute right to receive the payment benefits under the annuity contract and it is this right that can be transferred in secondary market transactions. And there is a strong market for them.

However, as viable as structured settlements may seem, there are legal risks to would be purchasers which must be properly addressed and priced accordingly. In July of 2000, the National Conference of Insurance Legislators known as NCOIL drafted a model act for state adoption that would allow the sale of structured settlement payments if the sale was in the best interest of the Seller. This would help accommodate Sellers who wanted cash to use as a down payment for a house, college tuition, or for other purposes of economic gain that would not construe a dire necessity.

For a discounted purchase price, investors could buy the right to receive the annuity payments. Typically, the Plaintiff would agree to sell all or a portion of the payment stream at a discount of 50% to 80% of the face value of the total payments purchased. For clients with immediate cash needs, the ability to sell all or part of their structured settlement offers a solution to potentially devastating problem. But the clients are not the only ones benefiting from selling there annuity payments. Attorneys who have accepted structured fee agreements as part of a client's settlement have found the ability to sell payments on a secondary market an extremely valuable commodity especially when the need for money arises, or a law firm partnership breaks up.

Real estate brokers as well as business brokers, too, have found the ability to sell off payment streams a valuable way to raise cash for clients who own structured settlement entitlements, but are currently short on cash necessary for the purchase of real estate or business ventures. If you, or one of your clients are the beneficiary of a structured settlement that may need to be converted to a lump sum of cash, feel free to contact me to learn what options are available for your situation.

4.7 Trillion Dollar Industry?

2006-05-03T14:37:00.000-05:00

Better Investing Than Wall Street!

2006-05-02T16:01:00.000-05:00

Downturns in the stock market, with the potential to wipe out trillions of dollars in assets have certainly commanded the attention of continued interest in avoiding the volatile risks of stock market investing. There seems to be an enduring trend toward investing in private real estate and mobile home notes as an attractive alternative to heavily weighted portfolios in lower yielding bond investments. The biggest advantage to purchasing real estate notes is the noticeably higher yields one can often obtain, and the fact that these yields are generally well secured as they are backed by the tangible real estate. Investors can regularly enjoy returns on private notes from 14% to 20% on their original investment and occasionally up to 40% or more, depending on the circumstances they are operating under! This is particularly true for mobile home note investments.

Additionally, private notes offer opportunities for greater yields in several ways with the most obvious being an early pay off. Real estate notes can only be purchased based on the terms of the original contract between the Seller and the Buyer. But, if the real estate note should pay off early, as long as it's not to soon, the accelerated receipt of the discount significantly raises the yield. Another favorable yield booster is the ability to restructure the real estate note and/or repayment terms after purchasing the real estate note. This will lead to an accelerated receipt of the discount, enhancing yields considerably. Yet another advantage, though not one that appeals much to true real estate note investors, is the possibility of foreclosure, which leads to a possible windfall profit.

Private real estate notes offer more flexibility than a great many other investments, significantly higher returns, and most of the time they are well secured. To be a successful real estate note investor, you will have to be on your toes or work with someone who is. Feel free to contact us if you would like to explore the possible advantages that private real estate note investing can offer you or your clients.

Create And Sell A Real Estate Note At Closing

2006-05-02T15:09:00.000-05:00

This is part two of my blog- On how to create a valuable real estate note. The following are some good guidelines for writing a good first position note:
1- Keep the Loan To Value at 75% or less, based on the lower of appraised value or purchase price. If the down payment is 10% or less, try to obtain additional collateral to secure the note or notes being created.
2- Include the highest interest rate and the shortest payback term that you can get the payer to legitimately ( the amount they can afford to pay) agree to.
3- Use a balloon payment structure when practical to cut the long term discount on the back end of the payment schedule. Be sure to make sense with a clearly defined exit strategy documented in your real estate note package. For example, a person with a 575 FICO, showing a 45% to 50% DTI, isn't really a good candidate for a three year or even a five year balloon in most cases. If you include a balloon note on a buyer like that, you would want to see proof of solid evidence that would indicate the probability of timely payment is good, despite the Payer's poor current financial condition. Otherwise, the probability of a timely balloon payoff is remote and investors will want a deep discount.
4-Annual payment increases- interest rate increases can work in some instances, but the laws on these are pretty sticky, so be careful.
5- Include a prepayment penalty, subject to whatever your current state law allows.
6-Assignment of Rents clause should always be included in the security agreement.
7-Military Personal- be aware of the Soldiers & Sailors Civil Relief Act. This Act provides that no property owned by a service person can be foreclosed on without consent of a court, if the service person: incurred the obligation before s/he entered the military, and foreclosure is attempted while s/he is on active duty, or within 3 months after discharge from the military. This exemption rarely affects foreclosure actions; however, it seems like we have seen a lot of “active duty” firefights going on since 1990. Title companies and foreclosure attorneys or trustees don't always get it right. You will want to have the Payer sign a Declaration of Non-Military Service, with a stipulation clause that the note was created after the Payer entered into the Military, or that each of the debtor parties to the note in not now, nor was s/he at any time in the three months prior to the creation of the note, a person in military service as defined by the Act.

Seller financing in the form of a real estate note is one of the most valuable deal making tools a real estate agent or his/her clients can have. All of the above items help reduce potential negative factors from the note, and help protect the risk rates assigned by an investor, while providing the Seller with a valuable, well-secured asset. For more information on creating a real estate note or to sell your existing real estate note click here.

Creating a Valuable Real Estate Note

2006-05-02T13:19:00.000-05:00

Visionary real estate agents are always looking for new ways to close more deals, as well as generate more referrals from previous clients. The amount of private paper being held by property sellers has grown to $350 billion which does not include seller financed mobile home or business notes! Sellers may benefit from financing the sale of their properties. Besides the potential tax benefits, there is also deal structuring advantages that can accrue to an investment property seller that also allows the seller to offer more attractive, and better financing terms.

Seller financing also eliminates the need for large loan fees that are generally associated with institutional bank financing, which makes it easier for more buyers to qualify. It stands to reason that a real estate note is a great way to increase your potential buying pool. It also is very important that the real estate note be well structured in the event the seller decides to sell it in the future. The better the real estate note is structured the more valuable and marketable it becomes. In terms of structuring a valuable real estate note in the event of selling it, you might want to consider the following parameters, such as the relationship between the down payment, credit score, and debt to income ratio (DTI) of the payer.

Hard equity(down payment) is always the best. With 5% is poor, 10% is fair, 15% is good, and 20% is ideal. A credit score of 650 or higher is generally considered excellent for a real estate note, 620 to 649 is good, 600 to 619 is average, 550 to 599 is fair, and 500 to 549 is poor. Below 500? Don't bother! One thing to remember is that credit profile and debt to income ratio is more important than a pure credit score. A careful review of the credit report will provide details of a Payer's account histories and potential character elements critical to determining creditworthiness.

Also, by comparing this information to the Payer's completed credit application, and measuring income history and debt load obligations, a clear picture usually emerges, demonstrating that Payer's capability for making the payments according to the terms in the real estate note. By including the payments that will be due on the note, a good rule of thumb is to avoid a situation where the Payer will have a debt load more than 45% of their monthly income whereas 40% or less is a much safer bet. For more information please click here.

Networking For Dollars!

2006-04-27T15:29:00.000-05:00

Professional team building is a powerful tool and a recognized force in the development of any business. Attorneys and CPAs have used networking together to forge strong and profitable relationships. This in turn creates a strong bond that often provides the opportunity to offer better service to their clients and a higher probability for achieving client objectives, less chance for error due to the cross-checking that inherently occurs, economies of scale within their respective business development budgets, and the possibility for expanded income opportunities- by way of increased client volume and, where applicable, through referral fee stipends.

Effective team building relies on more than a simple informal arrangement between principal agents. Establishing rapport between the team members helps build relational familiarities that the parties can use to offset on another's person traits in persuading clients to make more rational moves. In many instances the strength of relationships between professional representatives can also raise the comfort level of the client giving him/her the feeling of being part of the family, or receiving special treatment that makes the professionals top ten list of clients.

As the market place grows more competitive, using the team approach can make a significant difference in the success of a business and provide a method for overcoming the “desensitizing effect” that so many other marketing efforts get bogged down with. With the average consumer now getting hit at least 600 times a day with various advertising messages, building a successful team can allow you to cut through the quagmire and get you clients that you may otherwise never have seen. Let's Team Up!

Secondary Financial Market

2006-04-27T12:28:00.000-05:00

As our secondary markets have grown and adapted, we have seen the cross over with traditional lending markets as well. With growing frequency, we have seen the banking and mortgage company paper assets (including performing and non-performing portfolios) that are being marketed through our services. And, we are seeing increasing numbers of loan origination packages coming through the door, particularly for the larger and more difficult to close lending transactions, including commercial, development, and residential related hard money and construction funding deals.

The crossover of these alternative cash flows trading into the private cash flow industry has allowed us to expand our product lines and greatly diversify the scope of solutions they may be able to bring to you and your clients'. Fastcashfunding.com can help you to create a viable real estate note that can assist your clients in their current situation. Don't hesitate to call us to explore the possible range of solutions we might be able to figure out together, when the situation arises for one of your clients. Please feel free to Contact Us anytime if you would like to find out more about the benefits that we might be able to offer your clients.

Small Business Financing?

2006-04-27T09:24:00.000-05:00

Small businesses have exploded across America in the last ten years. A recent Department of Commerce report indicates that fully 65% of the nations work force is now employed by small businesses. Yet, many of these business owners may be an intricate part of your current data base, but the odds are that many of these very same businesses owners may not have their financial needs taken care of. The need that comes to mind and is paramount is the buying or selling of a small business. Despite the relatively “easy money” cycle our economy has enjoyed in the past several years the government's efforts through the SBA and SBIC programs, as well as the growing number of banks advertising for small business loans, the high failure rate of small businesses has raised detrimental results.

When it comes to financing the buying or selling of a business, the risk becomes magnified. Why? Because in just a business sale there is no real estate property involved, and only 25% or less of the sales price has any hard tangible assets such as furniture, fixtures, equipment, inventory, and chattels. The rest of the purchase price is based on the income/revenue the business generates now and in the future. But some income projections are difficult to justify as markets change and the new owner may not have the experience or skills to run the business as the Seller did.

Now how does financing come into play? It seems that in about nine out of every ten prospective buyers want the Seller to offer some of the financing. Most of the time because of limited available financing and buyers with a limited amount of cash, a seller's only option is to offer owner financing. In fact, 80% of small business sales in this country involve seller financing! The result is there are several hundred billion dollars of private business notes that are stagnating in seller's hands, sellers who need cash for new business ventures or other business activities. Fortunately, the private cash flow marketplace offers an alternative form of financing for these desperate business note holders.

Of course not every business note will be marketable, particularly given the high risk context that these notes are created in. But the opportunity is there for many of these sellers to convert their notes to cash in the secondary marketplace. Keep an eye out for your business clients who may benefit by selling their business note and feel free to contact me.

Realtors - What's In Your Marketing Toolbox?

2006-04-27T06:02:00.000-05:00

In today's competitive real estate environment, real estate agents face a mounting problem- they must constantly rely on marketing to develop new business. Recent studies indicate that the average retail brokerage spends from $1,000 to $4,000 per listing depending on the geographic market and local demographics! Regardless of what end of that spectrum you are on, this “black hole” of eternal marketing is an expensive process, and can be counterproductive. Marketing is tedious and at the individual agent level, uses up precious time that would be better spent on what the agent is in the business to do and that is closing deals.

A strong referral base leads to less marketing costs, more discernible productive time, and increased revenues. This compounding effect puts more dollars into the Realtors pocket on a per deal closing basis. It will also reduce agent turnover, another major cost saving factor. Good incentives, don't you agree? So how does one build a profitable referral base? The catalyst for developing potential referral business lies in one thing and that is closing deals.

Most hometown home owners and buyers discuss their situations within their circle of friends and family. Most friends and family either own their own homes or would like to. Anyone that buys, sells, or leases a property is likely to deal with a real estate agent somewhere along the way. A good agent can develop an endless supply of referrals, that come from past closed deals. A certain percentage of his Sellers will stay in the area after the sale. If the agent is on the ball, they will be selling the same people their new homes as well. Per chance the Seller is leaving the area, a good agent will be sure to get a referral fee on the other end.

In the meantime, the Seller is leaving behind friends and family who are still sources of additional referral business. At the same time, if the new buyer is satisfied, they can become a client for life with the possibilities of referrals as well. The average real estate agent, who puts their client first, should be able to generate another deal from each deal that is closed in a 24 month time period. The reality is, this ratio could be higher over time, given the fact that homeownership on the average is around eight years. Also, if you consider other opportunities such as brokering small commercial properties, rentals, and businesses, an agents referral base grows exponentially. With this in mind it becomes clear that more deals should be the goal of one's referral marketing efforts.

So, to close more deals, a perceptive agent would do well to consider opening the doors to other real estate techniques to the tool box. One such formidable tool is adding private financing known as a real estate notes that will lead to fewer expired listings by qualifying more buyers to your buyers pool. This essentially would lead to more clients, referrals, and ultimately sales! Professional Exchangers have been using this very technique for decades, so it has been tried and proven. The National Association of Realtors many years ago incorporated these practical and alternative techniques as part of the course for obtaining the Certified Commercial Investment Member designation as the highest professional designation that the National Association of Realtors bestows on it's members.

Uncle Sam long ago acknowledged the importance of these techniques in facilitating the free and active flow of real estate commerce, by assigning certain tax advantages like Section 1031 (tax deferred exchanges) and Section 453 (deferred taxation on installment sales). It seems based on this tax information, the broader your areas of expertise in the private cash flow industry, the larger your cut of the pie. Even if you are only involved in residential real estate, agents represent almost every other type of profession out there. As a result, agents often come across businesses notes, commercial notes, chattel mortgages, and other financial instruments in their dealings with people who hold these notes. As you can see, by learning how to add these techniques to your marketing tool box will help you to close more deals that will make a huge difference in your income and your referral data base. For more information on this subject please click here.

Scope Of The Private Market Sector

2006-04-26T08:47:00.000-05:00

The hidden real estate note market is exploding, especially now that interest rates are on the rise. The real estate note market is a $350+ billion dollar market and this figure only represents the tip of the ice burg of a bigger private cash flow market of 4.7 trillion dollar secondary market. There is a wide variety of privately held debt and other cash flow instruments that are actively bought and sold. This secondary market involves institutional lending arenas much like banks that are made up by individuals and investment groups. The private cash flow market provides cash flow asset holders huge advantages not often obtainable through traditional funding pipelines are more flexible, available, and have easier underwriting requirements.

For professional advisors representing holders of these cash flow instruments, awareness of these advantages, and a basic grasp of the possibilities, provides the opportunity to fulfill the most important service they have to offer their clients and that is solutions. Seller financed transactions have existed for decades and potential buyers for these real estate notes have existed right along with them. The private real estate note arena some 60 years ago took root and now has flourished to encompass a wide spectrum of diversified debt instruments throughout the past few decades as more and more smart participants continue to explore, underwrite, potentially profitable financial niches. For more information on real estate notes, please click here.

The Best Real Estate Investments Include Real Estate Notes

2006-04-24T13:00:00.000-05:00

Often the best and most creative real deals will include real estate note paper or some kind of seller financing. Exchangers, in an elite category of the real estate industry, are very familiar with this strategy and are highly skilled at complex deal structuring. Unlike traditional real estate brokers, Exchangers are like “free birds”, unconstrained by the rigid orthodox of the retail real estate profession. Most Exchangers have achieved the status of Certified Commercial Investment Member, which is the National Association of Realtors most prestigious designation. Further, most have also completed the rigorous Society of Exchange Counselors program, another prestigious qualification.

Adept at counseling their clients in a shifting marketplace and closing sound transactions in economies shifting from tight to easy lending and back again. Exchangers are economic survivors well trained in taxation, economics, investment analysis, and alternative financing. Most are experts at creating and maneuvering private paper, a necessity often presented by the complexities and mechanics of successful exchanges.

Exchangers rely heavily on other brokers to provide opportunities for motivated retail agents to participate in these exhilarating and rewarding deals. For example a semi-retired man walked into Robert's Realty desiring to dispose of 13 older rental units on 1.5 acres. A thorough interview revealed that the Seller was tired of manging the run down property, besides his wife wanted to live in a brand new house. The only hitch is the Seller still needed investment income and they preferred low maintenance rentals. Robert's analysis on the situation determined that rents could be doubled in 12 months and deferred maintenance could be caught up from monthly cash flows. The underlying 1.5 acres alone would be worth 3 times the purchase price in ten years or less.

Robert knew of a professional Exchanger and contacted David who was seeking investment property for a client who was the business manager of a private pension fund. David had also recently listed a $180,000 small commercial property, owned by a successful auto repair shop. Robert was pretty ecstatic about making 3 deals out of one. Robert first contacted Fastcashfunding.com to arrange for the purchase of the newly created note that would be a part of the overall transaction. He quickly found his Seller a new home for $95,000 dollars, and the listing agent was more than willing to cooperate with the exchange. Even though the agent would have to split her commission.

At closing, David's Seller sold the commercial building to the pension fund for $180,000, financed by a real estate note or private paper. The pension fund paid all the closing costs for that side of the deal. Meanwhile, the pension fund paid $95,000 cash for the new home then gave Robert's Seller the home and the commercial building in exchange for the 13 original rental units. To make this deal work, David's Seller signed a ten year lease for the commercial building, to provide the investment income that Robert's Seller wanted. The $180,000 note created by the pension fund was moved to the thirteen rental units to balance the equities giving Robert's Seller his free and clear commercial building, while providing the financing needed by the pension fund to complete the purchase of the 13 rental units. And at closing, the real estate note for $180,000 was sold to Fastcashfunding.com that provided David's Seller with the cash he required.

To recap, visionary thinking allowed Robert, David, and the Realtor to achieve their clients' objectives, while at the same time enabling Robert and David to move difficult properties. It is a truly win/win across the closing table.

Owner Financing

2006-04-22T14:55:00.000-05:00

Offering Seller Financing allows investors an opportunity to earn more substantial profits in the long run. Consider how we can maximize our profits and minimize our taxes on the sale of a triplex worth $180,000. The balance on our underlying loan is $101,400 at 9.5% fixed, with 225 monthly payments remaining. The Buyer has $20,000 cash to work with. So we agree to a sales price of $183,800 accepting $19,000 dollars in cash down and another $1,000 to cover the closing costs. We will carry back a wrap-around mortgage for $161,000 at 10.5% interest amortized over 30 years all due in 12 years. The Buyer agrees to give the Realtor a small note for $3,800 as additional consideration toward the purchase price as part of his commission.

After paying the remaining $7,000 due the Realtor and our $2,000 share of closing costs, we net $10,000 cash at close. Our realized net capital gain after closing is $69,600. Structuring the deal this way the Buyer is able to get in with a low down payment, lower costs and more attractive loan terms than he would achieve through traditional lending sources. So, we were able to sell a $180K property for $183,800 with attractive terms. After making the loan payment on the underlying first mortgage we realize a positive cash flow of $505 per month on our remaining $59,600 equity. And soon we will receive a net payment of $85,033 from the balloon payment due in 144 months after paying off the underlying first position loan.

Do the math and you will see that our $59,600 equity in the wrap around mortgage has grown to $85,033! We received $10,000 cash at close and another $72,720 in net monthly payments over 144 months. And we still have an additional profit of $25,433 when the balloon payment comes due. Our net result that we will have achieved is an effective rate of 11.8% with most of it taxed deferred. In this way we get our money now and Uncle Sam gets his later. Not Bad! Interested in finding out more? Click Here.

Seller Financing

2006-04-22T14:17:00.000-05:00

Contrary to popular belief “Seller Financing” is a major force in real estate deals even with the advent of still relatively low interest rates in conventional institutional financing. Private paper accounts for over $100 billion in assets in residential markets alone, growing by $20 billion over the past five years. Factoring in the commercial, industrial, and agricultural real estate transactions, private real estate notes presently represent over $350 billion in total assets.

This pool of private paper assets offers a great resource for investors and those real estate professionals who understand the advantages and techniques of practical real estate deal structuring. Knowledgeable professionals have long recognized that there are always more takers in the marketplace with Seller Financed real estate notes than there are cash buyers! As one respected real estate professional puts it: “There are more than 169 known ways to close a real estate transaction, but only of them is cash!”

A real life example of this took place in Florida some years ago. An elderly gentleman listed 20 rental homes valued at $1,000,000 with a local Realtor who was experienced in creative real estate techniques. His Realtor approached an equally enlightened Investor who was willing to trade his equity of $250,000 in a multifamily project, which the Realtor subsequently sold, for the 20 homes. The Investor provided the Seller with an escrow reserve for the remaining $750,000 owed. Now the real beauty of this transaction is that the Investor got his money by obtaining a new loan that was secured by 20 homes.

The Investor then spent the next six months purchasing $833,000 worth of private real estate notes at a 25% discount using the escrow reserve funds to purchase the real estate notes. Upon the Sellers approval the real estate notes were assigned to the Seller at 90% face value or $750,000. As a result, the Seller received $833.000 in safe, high yielding private notes secured by real estate, which only cost the Investor $625,000! This creative application of equity exchanging and discounted private real estate notes enabled the Investor to pocket $125,000 in total profits, while obtaining ownership of 20 rental homes and completing the transaction with no money down!

The Seller received $83,000 extra out of the deal, while satisfying his objective of finding a well-secured, low-maintenance, long-term income stream. The knowledgeable real estate professional sold 20 homes and a $600,000 multifamily project transaction. This demonstrates that, practical real estate techniques offer far more innovative options than simply having a Seller carry back a commission. So regardless of the dollar amount of your next real estate transaction it is extremely important to understand how Seller Financing and creative deal structuring can enhance all your real estate deals. Interested in finding out more information in real estate notes please click here.

Noteworthy IRA

2006-04-22T10:59:00.000-05:00

More than 25 million U.S. Households have annual incomes exceeding $50,000 and over seven million have annual incomes above $100,000. Yet most of these high-income earners are not wealthy. Nearly one-half of all personal wealth in the United States is owned by only 3.5% of households. The major difference between financially independent people and others is that they realize that the more they spend, the more income they must make. And the greater the income the more Uncle Sam wants in taxes.

Self directed retirement plans (SDRPs) are the ultimate weapon for reducing taxation. For many professionals, these plans may one of the most practical wealth accumulation product for building an investment portfolio. If you are in a high bracket income wage earner, you will realize 30% to 45% guaranteed returns on your tax-deferred SDRP contributions, before your dollars earn anything from your investments. The investment earnings are also tax-deferred, maximizing the compounding effect of all the dollars in your SDRP.

Using your SDRP for purchasing real estate notes, and for making loans to others for purchasing notes, provides a well secured, low risk, very stable, high yield avenue for jump starting the returns on your investment dollars. Careful investors can easily average 20% annual returns with such a plan, safely and easily doubling their investment capital every 4 years. To find out more on how to invest in real estate notes please contact us.

Owner Financing

2006-04-21T09:58:00.000-05:00

Owner financing in the form of a real estate note is an excellent way to move your for sale by owner property, especially in a slow real estate market. Slow real estate markets usually mean that most conventional buyer pools have been maxed out mainly due to increasing interest rates. So while the conventional real estate market is adversely affected by rising interests rates, owner financing becomes the home selling technique of choice. What a lot of people don't realize is that they don't have to wait for their money just because they are offering owner financing. As a matter of fact, a newly created real estate note can be sold at closing. So you will receive all cash in one lump sum right at the closing table.

Another noticeable benefit by taking back a real estate note is how fast you are able to sell your home by using it. Normally, in a conventional real estate sale it usually takes about 90 days from start to finish to complete the sale. On the other hand, an owner financed sale takes about half that time, usually 30 – 45 days. And there are no realtor fees as well. Perhaps, now you can truly really appreciate just why the real estate note industry is a $92 billion dollar industry! It's a huge market that not everybody is aware of. In fact, there are many investors who buy real estate notes as premium investments for their investment portfolios. With returns as high as 10% or more and their investment backed by real property who could blame them? Where else can you get this kind of rate of return with a built in safety net? One thing you can be sure of is there is no shortage of people who would gladly buy your newly created real estate note. If you are interested in creating or selling an existing real estate note click here.

Uncle Sam's Friend

2006-04-19T13:12:00.000-05:00

So in my last post, I was discussing a creative financing technique other than a 1031 exchange that would be a win/win for all parties involved. The creative strategy that I touched on in my last two posts will migrate your client's capital gains taxes, so his dollars go to work acquiring more investment assets. This strategy also gives him a higher mortgage interest deduction and increases his tax shelter as a result of a new and higher depreciation basis. Meanwhile, the 11.5% mortgage payments he receives from his buyer are covering the payments on the 10% second mortgage he gave to the duplex seller.

At the end of the day, your client received all of the same benefits he would had he used an exchange. The difference with this more practical approach is your client was able to loan out $5,000 of his equity and gain an additional $11,042 over eight years. This constitutes a 14.66% annual return on his original investment of $5,000. By using a few practical techniques and our services , you accomplished your client's investment goals and made him an extra $11,042 in the process! Certainly a win/win strategy at it's best.

Uncle Sam's Friend

2006-04-19T13:09:00.000-05:00

Financing a high percentage of the purchase price provides a large interest deduction in the early years of a real estate note ownership. This deduction generates a tax shelter, which shields any positive cash flow. It also shelters the non-cash equity buildup occurring through principal reduction on the loan. At times it may even shelter some of our other income from the tax man as well. Investment debt allows us to control more properties, so we can build wealth more rapidly. And the mortgage interest deductions also reduces taxation as well. This allows more of our dollars to remain in our piggy bank so as to work for us now and in the future!

By loaning our equity in the form of Seller Financing in the form of a real estate note, and borrow on it for new acquisitions, we can maximize our yields through increased profits and reduced taxation. For the investor looking to pyramid real estate assets, using this creative real estate technique is the best way to go. For example, say you or one of your clients owns a $75,000 rental home with $35,000 dollars in equity. Say he wants to sell this rental property in order to purchase a $120,000 duplex, which has $30,000 in equity. At first glance, a 1031 exchange might seem like a good way to go. But even better is to instruct your client to do the following. Say, your client has found a solid buyer who has $8,000 for the down payment. The seller wants to cash out of his duplex property, so what now? Here is a creative technique that will be a win win for everybody.

Have your client sell his rental home by taking back a real estate note by offering owner financing for his property. Your client can take back a real estate note in the amount of $28,000 for 25 years, at 11.5% interest with an eight year balloon payment due by charging the buyer a $1,000 premium to offset your client's closing costs. Your client will net $7,000 after closing. But with only $7,000 net cash from the sale of the rental, he is still short $23,000 to close on the duplex. But if your client sells the note to an investor or gives the note to the duplex to the seller will trigger a taxable event for your client.

On the other hand, if your client offers the seller $7,000 cash down and a second mortgage for $23,000, which he will sell to an investor for $20,500 ( Time Value of Money) at the closing (simultaneous closing). This new mortgage is amortized over 135 months at 10% with a balloon due in eight years. Also to make the real estate note more attractive and reduce the discount, your client could pledge his own $28,000 real estate note from the sale of his rental property as additional collateral for the new $23,000 real estate note he gave to the duplex seller.... For more information on how you can benefit your client's using real estate notes please click here. Stay tune for more on this creative financing technique in my next post.

Uncle Sam's Friend?

2006-04-19T08:54:00.000-05:00

They say that death and taxes are the only two certainties in this life. When it comes to achieving financial independence, it seems that they can get in the way. Just as oil helps reduce the friction from your automobile engine, good real estate planning can thwart off the effects of death and taxes as well. In order to build wealth, you have to maximize your tax deductions. Many property sellers make the mistake of thinking they have to pull all the equity out of their real estate. Uncle Sam doesn't think that is such a good idea, in fact, that's why he slaps us with taxing our gains, but rewards us handsomely with tax savings when we structure our transactions with some forethought.

The U.S. Tax Code provides several strong incentives for doing just that, and the rewards can be extremely profitable for building wealth. For example, section 453 of the United States Tax Code (Installment Sales) allows investors to avoid the bulk of their taxes due on capital gains. By using the seller financing technique, we can defer these taxes by paying them in very small increments over a long period of time. There are several other notable benefits as well.

When you offer owner financing in the form of a real estate note, it improves the marketability of your property. In fact, if structured correctly is also creates an opportunity to maximize sale values. Although the value added appears more pronounced in a slow market, the tax benefits make “seller financing” extremely attractive regardless of economic conditions. Seller financing in the form of a real estate note provides us with a well-secured, high yield, liquid asset that offers us a broad foundation and a great deal of flexibility in building your investment portfolio. A real estate note improves our financial statements, while earning far better returns than a savings account or cd.

Interest payments can kill our efforts to achieve financial independence. There is an exception, besides the tax break, that lending our equity brings to the table. Uncle Sam throws investors another meaty bone as well: Tax Code Section 163, allows us to write off interest on debt used to finance the purchase of our investment assets! Stay tune for tomorrows blog for more information on this topic.... If you are interested in finding more information on real estate notes click here.

Notable Note

2006-04-12T13:50:00.000-05:00

Before sub-prime ( a sub-prime lender is one who lends money to high risk individuals) became common in the mainstream it was a primary source of funding real estate sales in problem situations. Seller financing in the form of a real estate note on the other hand has remained and continues to remain a viable option in circumstances where conventional financing isn't available.

In fact, seller financing may be the only way to get a deal financed at all in sales involving unique properties such as small commercial buildings, shop buildings, light industrial, recreational facilities, mixed use, or unusual properties. Seller financing is common in rural areas as well as resort locations.

The real strength in seller financing is the ability to sell a property quicker and at a better price. This works in all market conditions except in the hottest seller markets. Sometimes the advantages to the buyer can even justify a premium price for the seller. This is because the cost and paperwork involved with seller financing are less and the resulting leverage improves selling prices and terms on the note.

For an example: a seller with a rental property valued at $100,000, may command a $102,000 sales price, with an interest rate of 11 to 13%, from a buyer who has 10% or less as a down payment. And, the buyer can get a better deal than s/he could get with a new loan on a $95,000 purchase price. Shop around and see for yourself! For more information on real estate notes click here.

Predotory Practices?

2006-04-12T13:48:00.000-05:00

Spending money to make money might make sense in the right business platform, but giving it away spills red ink all over. Consolidation in sub-prime lending markets will likely make equity king again. This will force deal makers to return to "common sense solutions" for real estate financing solutions, and not always just for sub-prime borrowers. Ok so how does this effect you and your clients. For many of you it will be a whole new educational process. Fortunately, you don't have to look very far as we are a phone call away at 603-330-3911.

Remember every deal is different and we can always give you some basics so you'll have a complete understanding, and the ammunition, for giving your clients the low down on closing deals in a less fluid enviroment. As there are many alternative financing techniques to choose from that will provide a wide range of options so your clients can complete transactions that is acceptable to them.

Here are some options that can be used: 1- Private seller carry back purchase mortgages; 2-Table funding; 3-Trading equities; 4-Exchangin; 5-Substituting collateral; 6-Bartering; 7-Using land contracts; 8-Converting existing notes to cash; 9-Lease options. All of these deal making strategies have been used for decades and are valid, viable, and valuable techniques. Professionals such as Realtors, attorneys, cpas, and mortgage brokers have used these techniques reliably for years. For more information on this subject please click here.

Predatory Practices?

2006-04-12T12:30:00.000-05:00

Forget all the negative press about "predatory practices" that have put some major subprime lenders out of business as there is much more to the picture. A subprime lender is one who lends money to high risk individuals. The biggest players, including some large banks and insurance companies, are losing a huge sum of money at the subprime game.

Over the past several months most major sub prime lending companies, including the biggest and the oldest in the business, experienced difficulty in one way or another. Many have either struggled to keep their doors open or have actually filed for bankruptcy. Those still standing have had their investment ratings downgraded due to the industry's legal and political risks, not to mention the financial realities of lending money to high risk borrowers, secured only by high risk, high loan to value to low equity valued properties.

The strategy of aggressively creating loans and then selling them off in pools of securities, known as "securitization", has given fuel to this multi- billion dollar industry, at the expense of profits. Stay tuned for more on this subject in our next post, but in the meantime should you have any questions or you would like to find out more about real estate notes please click here.

Better Than Robbing The Bank!

2006-04-11T09:58:00.000-05:00

Mr. and Mrs. Smith had very successful white collar careers. However they were tired of all the travel and the hectic lifestyle. Deciding to take a much needed vacation they wanted to put a large chunk of their savings into a high income investments to help defray their living expenses. So they contacted a mortgage broker who specialized in originating hard money first and second mortgage loans, with interest rates ranging from 12% to 16%, over a two year to fifteen year terms. The Smiths wanted this type of returns, so they invested $200,000 into several of the broker’s loan packages.

Two years on vacation was enough for the Smiths and they were ready to go back to work. Needing a new car and updated computer equipment, they decided to pull money out of their loan note portfolio. The only problem was there funds were tied up in mortgages that still had five years to go. The mortgage banker was a good friend and he wanted to help, so he contacted Fastcashfunding.com to sell their real estate notes.

Fastcashfunding.com saw that the Smiths had received 24 monthly payments of $2,343 at 13% interest. The remaining balance on the notes was $195,192 and there 60 payments left, plus a balloon payment of $176,016. The Smiths were not to keen on discounting their notes, until Fastcashfunding.com made them an offer they couldn’t refuse.

Fastcashfunding.com would purchase the last 30 payments for $ 40,175 that would provide plenty of cash for the Smiths new car and computer equipment. The Smiths would keep the first 30 payments totaling $70,290, providing a monthly cash flow while they were getting their careers restarted. In five years, the Smiths would receive the $176,016 balloon.

The Smiths did some calculations and quickly saw that they were getting $286,481 ($40,175 cash now, $70,295 through 30 monthly payments, and the $176,016 for the balloon) for their $195,192 real estate note. This was better than robbing a bank, they thought to themselves, taking the deal! For more information on how we can help you in your own situation click here.

Save Me Some Cake

2006-04-10T15:42:00.000-05:00

Most sellers assume they need all cash at closing. However, an installment sale can often be a better alternative, for both taxes and a reinvestment point of view. Also by holding onto existing paper, you can use that paper as collateral to secure more assets, while enjoying higher returns and more tax benefits.

The power of a partial purchase lies in the flexibility the technique brings to the bargaining table. The time value of money is the primary pier-post of this flexibility. By selling only parts of his notes, the seller will receive substantially more total dollars, particularly if he sells off parts over a period of time. Why? Because the time is reduced between when the investment is made and when the investor’s return is received.

If you or your clients are disposing of real estate assets or need to liquidate existing real estate notes, feel free to give me a call ahead of time. I would be more than happy to assist you by clicking here.

Partial Purchase- A Piece of Cake

2006-04-09T16:05:00.000-05:00

The hidden real estate note market is exploding. It is our aim to keep you informed of the many ways in which you can assist your clients, and increase your professionalism and profits. One of the miracles of a real estate note is the ability to sell only a part of it. This is know as a partial purchase and refers to a transaction in which the real estate note holder sells a part of the indebtedness of the note to a buyer.

In selling a Partial Purchase you can have your cake and eat it too. How is this is possible? A real estate note represents a stream of payments that are due sometime in the future. It can be amortized just like a bank mortgage with monthly payments at either 30 years, 20 years, 10 years of equal payments. And there could be a balloon payment due in 60 months with the principal balance due in full. Or the payments can be paid out in annual or semi annual payments. Never the less each one of these payments has a separate value, determined by the time factor it is to be received. As a dollar in the future is worth less than a dollar today due to inflation.

So with the stream of payments there is also the flexibility to buy or sell any portion of the note. For example the first 12 payments , the last 12 payments, half of each payment, a balloon payment, part of the balloon payment… It is just a matter of how creative you are and coming to an agreement with the buyer of the note. The time value of money is the primary pier-post of this flexibility. By selling only parts of his note, the seller will receive substantially more dollars, especially if he sells off parts over a period of time. Why? Because the time is reduced between when the investment is made and when the investors return is received.

Another consideration is Investment to Value (ITV) ratio. Risk will increase in proportion to the ratio of invested dollar to equity. Most real estate note investors prefer not to exceed a 65% ITV, especially where the payer on the note has put less than 20% down on the property at purchase. Other risk factors that are taken into consideration is how long is the seasoning on the note. The longer the seasoning and the note payment history the more the risk is offset. So an unseasoned note would have more risk, but it can be offset by calculating the ITV.

A partial purchase lowers the buyers dollar investment, thus increasing the equity cushion. This technique also provides the additional security of having a motivated seller by his remaining vested interest in the note. The buyer's risk is correspondingly limited, reducing his yield requirements, which in turn allows for a lower discount and more total dollars for the seller. So whether you're buying or selling a note, the partial purchase opens the door in which both sides wins. For more information on this subject please visit Real Estate Note at Fast Cash Funding.

Sandwich Lease Anyone?

2006-04-08T20:50:00.000-05:00

A sandwich lease is a great way to buy an investment property. In a sandwich lease, you control the property which is much easier and less expensive than owning the property. As a matter of fact, by using a sandwich lease you don't even have to use any of your own money to control the property to make a profit! And a sandwich lease is both a win/win for the buyer and the seller. For the property owner a lease purchase can be beneficial in many ways. For example a lease purchase is an excellent way to convert a present tenant to a buyer in an existing rental you may currently own. Or if you're local real estate market is slow and interest rates are climbing, a lease purchase can be an attractive and beneficial way to sell your property. As there are many qualified buyers around that would jump at the opportunity to lease purchase your property. Another benefit for the property owner is it allows them to defer their income for tax purposes for as long as they want. How? By simply converting a sandwich lease to a real estate note. For more information on a sandwich lease and real estate notes please visit us at http://fastcashfunding.com/sandwichlease.htm .

Selling Your Home Alone?

2006-04-06T08:51:00.000-05:00

Certainly selling your home alone can be pretty intimidating. In fact in some of my previous posts, I have touched on this subject. I realize that there are a large number of people who are interested in selling their home alone, but they just don’t have the experience or a clue how to get there. From my own personal experience, I have found that most for sale by owner’s homes are overpriced! Home owner’s get caught up on an emotional level when it comes to pricing their home. The best way to set the price on your home is to get an appraisal from a certified appraiser and not that of a realtor’s opinion. In this way, you eliminate the hassle of defending your asking price with your prospective buyers, especially if you offer owner financing in the form of a real estate note. For more FREE information on this subject please visit: http://fastcashfunding.com/realestatenotes.htm .

Real Estate Blues?

2006-04-05T13:58:00.000-05:00

Are you currently trying to sell your house? Are you finding that maybe your house is less than perfect? Not getting any offers? Does the thought of paying 6% to your realtor enough to make you sick? Are you trying to buy another house contingent upon the sale of your present home? Is your present listing about to expire? If you answered yes to any of the questions above, then I have some good news for you!

You see most home owners are unaware or overlook the awesome possibilities that owner financing in the form of a real estate note can bring to them at the closing table. A real estate note can help you to sell your home faster than any other way on the planet! It’s just a matter of getting people to think out of the box. Most home owners are pre-programmed to hire a real estate agent to sell their home.

What they fail to realize however is that selling a real estate property is much like selling an automobile. If you trade in your car to a dealer you will get far less than if you sold it yourself in a private sale. The same holds true when selling your house. Of course, some people prefer to pay someone to do the work for them.

As mentioned in one of my earlier posts, taking back a real estate note is a “for sale by owners best power tool”! Being a little apprehensive about selling a home on your own may be a scary thought, but with a little help, you’ll find that it’s really not that hard. In fact, I encourage you to find out FREE just how easy it is to get top dollar fast in all cash by creating a real estate note. For more information please click on this link- http://fastcashfunding.com/realestatenotes.htm .

Real Estate Note- A Higher Interest Rate's Best Friend

2006-04-04T07:51:00.000-05:00

The economy is like a roller coaster ride, it has its ups and downs. The key ingredient in our economy is of course the prime interest rate set by the federal government. With the recent news that the interest rates are due to go up again most of us become concerned. There are many factors involved that can sway the prime interest rate up or down, but the only thing to remember is when interest rates go up, so does the creation of real estate notes. When this happens, bank loans become less prevalent and real estate notes or owner financing becomes the loan of choice.

Now if you are a savvy for sale by owner, you will realize that a great opportunity is knocking at your front door. When interest rates go up so does your profit margin when you sell your house or other real estate property. How? By offering owner financing on the sale of your real estate property. As this opens up a large pool of qualified potential buyers that are raring to purchase your real estate property for top dollar fast. Talk about being in the driver’s seat! So when interest rates go up, so does your bottom line when you offer your buyer a real estate note in the purchase of your real estate property. For more information on real estate notes and how they can benefit you, please go to http://fastcashfunding.com/RealEstateNote.htm .

What is a real estate note?

2006-04-03T15:43:00.000-05:00

A real estate note is an IOU or promissory note given by the seller of a real estate property to the buyer of the same property. Or in other words, it is a mortgage much like that of a bank, which is to be paid directly from the buyer to the seller for the purchase of the seller’s real estate property. The actual real estate note is nothing more than a written legal document that states all the particulars of the owner financed loan taken back by the seller. Some of the details include the amount of the loan, the interest rate amount, pay back time period, and the cure of the loan in case of default.

Once a real estate note is prepared and agreed upon by both the seller and the buyer, it usually is notarized and recorded at the registry of deeds or county court house by the seller or his legal agent such a title company or attorney. Then the real estate note or debt becomes a matter of public record. Now at this point, as long as the buyer makes timely payments on the loan or real estate note, the note stays in force until it is paid off in full.

If there is a balloon due, which means if there is a call to pay off the balance early for example in 5 years or 60 months or whenever the balloon payment due date was set, then the payer on the note will have to refinance to pay off the real estate note at that time. Usually, the payer refinances with a bank to pay off the real estate note, but the real estate note can be re-negotiated by both original parties as well. Also depending on what state you live in will determine if the real estate note is going to be referred to as a mortgage or a trust deed.
For more information on real estate notes please follow this link: http://fastcashfunding.com/RealEstateNote.htm .

Subscribe To My RSS Feed

2006-03-31T09:19:00.000-05:00

If your like me, it was not to long ago that I asked the very same question. What is an RSS feed? Sounds like something you find in your local Blue Seal Feed grain store. The internet is full of new jargons and RSS feed is one of them. RSS feed stands for "really simple syndication", which is nothing more than a programming technology that is the internet paper boy that delivers blogs (short for web logs) to your computer. By subscribing to my Real Estate Note blog you will find many informative discussions on the subject of owner financing, and you will have the opportunity to ask questions and comment as well. So how do you suscribe? If you look on the left hand side of this page, you will see Subscribe and just underneath is several icons to choose from, just click on the one of your choice and login using your login ID and your password. If you do not currently have an account, you can sign up for one on the spot and my Real Estate Note Blog will be delivered automatically to you.

Real Estate Notes

2006-03-30T11:23:00.000-05:00

Second cup of coffee and I am ready to take on the day. The crown import of good conversation begins with the appropriate introduction of the person behind the words that is talking to you.

Let me introduce myself, as my name is Robert Pomerleau [pronounced][pom ur lo]and I have been around the real estate arena for over 20 years. I have flipped, remodeled, renovated, sub-divided, and built houses in the past. I have also been mortgage free on a couple of my homes that I previously owned and plan on doing the same on my new lakeside community home that I built in 2004. I have also spent thousands of dollars on real estate courses to expand my knowledge on this subject.

Currently, I am the president of Fastcashfunding.com/Real Estate Note.htm a nationwide buyer of real estate notes. So just what is a real estate note? A real estate note is a promissory note taken back by a real estate property seller to his buyer to facilitate the sale of a real estate property. What's interesting is that most people do not know that real estate notes even exist. The real estate note industry has been around since mans existance and is a over a 92 billion dollar industry.

Business: Are You Looking To Sell Real Estate Note?

2006-03-26T19:29:00.000-05:00

Are You Looking To Sell Real Estate Note? If you’re looking to sell real estate note or are in need of a lump sum cash payment then you will need to consult with a professional buyer.

The World Wide Web makes securing a buyer a simple and straightforward task. The Internet is full of buyers who will give you a cost estimate in a matter of moments.

If you wish to sell real estate note, most buyers will offer an online quote for free or will give you a complimentary quote on any real estate notes over the phone.

A good buyer purchases real estate notes nationwide. Nationwide service is a sign of reputable service. If you’re currently receiving payments on first or second lien position real estate notes or an all-inclusive wrap (a mortgage that wraps around the first lien position), cash can be paid directly from most buyers for your future payments in as little as 10 to 15 business days.

Whether this is your first sell real estate note experience or you’re an seasoned investor you can benefit greatly from a buyer that will handle your transaction in a fast, friendly and professional manner.

The best buyers will provide you with the highest possible lump sum cash payout for any real estate notes you’re selling and will also provide you with a fast, hassle free funding experience by clicking here.

Real Estate Note Buyers- Promissory Note Buyers- Buy My Business Note

2006-03-23T13:22:00.000-05:00

Real Estate Note Buyers- Promissory Note Buyers- Buy My Business Note

2006-03-21T08:50:00.000-05:00

The Author- Robert Pomerleau

Real Estate Note & For Sale By Owner

2006-03-20T18:27:00.000-05:00

Selling your house alone can be a daunting task to say the least. It's not like your a realtor or anything. So just where do you begin? How do you sell your home the fastest way for the most money? These questions and others is precisely what I am going to share with you. They say real estate is location and timing! I am here to tell you that you find both. Instead of you trying to re-invent the wheel, why not use the best wheel available? I will show you step by step how to sell your home with the greatest of ease by taking back a real estate note. You will also have access to email and phone support along the way, should you have any questions or concerns in creating your own real estate note. Want to learn more about this amazing home selling secret? It's FREE! Click here.