Sell By the Foot

There is an old land speculator's adage to "Buy by the acre; Sell by the foot," a sure-fire formula for making profit. This concept is applied in many different ways to real estate, with the idea of taking something larger and selling it at a higher price in smaller, more affordable increments.

I have seen this concept applied to condominiums, buying a large building or parcel and selling off separate units. I have used it myself to buy or rent income-producing property by the building, and to lease it out by the room. Many commercial spaces are subdivided this way by artist-developers in creating art space. Time shares, vacation rentals, co-housing and fractionalized ownership models are all applications of this concept. These are but a few examples.

Affordability, as well as potential profit, are by-products of this approach to investing in real estate. Recently, I was hired as a buyers' agent for four friends looking for a nice residential property in Seattle that they wish to purchase as Tenants In Common (or TIC). I refer to them affectionately as "Cuatro Amigos."

These Cuatro Amigos are looking for four or more bedrooms, so that each of them has their own separate space, in addition to nice larger common areas in more desirable neighborhoods than either of them might be able to afford if they were to purchase on their own. They are considering features, such as separate bathrooms, entrances, wings or additional kitchens that can accommodate a communal living arrangement. Each will contribute to the down payment and to the monthly mortgage payments, but in different amounts, reflecting each owner's financial ability and different ownership interests. They also intend to modify percentage of ownership based on the private space each will occupy in the house they purchase.

Tenancy In Common is one way of vesting title or ownership to property. TIC is defined as "a form of concurrent ownership of real property in which two or more persons possess the property simultaneously; it can be created by deed, will, or operation of law."

TIC may come with or without rights of survivorship. This means that when one owner dies, his/her ownership interest may be passed on either to the surviving owners or to the owner's heirs. Legal and tax professionals should be consulted by anyone considering this type of ownership model.

Many different models exist for vesting title or ownership in real estate. Your real estate title and escrow representatives may also be helpful in explaining options to home buyers and investors exploring different possibilities for creative real estate acquisition.

If you are interested in exploring this method for purchasing a primary residence or income property, feel free to send for my FREE special report on Tenants In Common. Contact me at HomeLandInvestment@gmail.com or at 425-270-7292.

Happy Investing!

Seller Financing

What is seller financing? Can you really get a house and a loan all in one-stop without bank approvals? It’s time to get your facts straight on this important financing tip.

In 2008, about 32 percent of all American homeowners owned their homes free and clear, according to a U.S. Census American Community Survey. 

In seller financing/owner financing/creative financing, the purchaser will still make some sort of initial or down payment to the seller; then will make regular installment payments over a specified time, at an agreed-upon interest rate, until the loan is fully repaid. This happens when the seller in a transaction offers/agrees to give the buyer a loan rather than the buyer obtaining one from a bank.


To a seller, this is an investment in which the return is guaranteed only by the buyer's credit-worthiness or ability and motivation to pay the mortgage. For a buyer it is often beneficial, because he/she may not be able to obtain a loan from a bank.

There are no universal requirements mandated for seller financing. In order to protect both the buyer's and seller's interests, a legally binding purchase agreement should be drawn up with the assistance of an attorney or a real estate broker, and then signed by both parties. This ensures that if any problems should arise in the financing or agreed upon terms both parties can be protected. Essentially the loan is secured by the property being sold.

In the event that the buyer defaults, the property is repossessed or foreclosed on exactly as it would be by a bank.

So why would a seller offer this kind of financing without the expertise of a bank?

In seller financing, the seller functions as a direct lender, with the buyer making monthly mortgage payments to the seller instead of a bank. Buyers who accept seller financing usually cannot qualify for a traditional mortgage loan, often because of credit score.

Because of this risk the sellers take in this particular financial transaction, they can determine the interest rates and contract terms to guarantee a better return than many other types of investments would.

Buyers without the ability to get a mortgage can even use the seller financing as a stop gap measure until refinancing can be secured by a bank to improve credit ratings.

If a property is in bad condition or the owner has a vacant home sitting on the market for a significant period of time, then he may consider owner financing. This kind of financing may ensure a quicker sale or the sale of a property which may otherwise be difficult to sell.

There are benefits and risks to seller financing, but for many people in the housing market this is the best option.

Benefits of Owner financing for both Buyer and Seller:

- First, the chances of making a quicker sale are higher.

- Closing may also be easier since one does not have to wait for the mortgage to be approved by a lender.

- Buyer can save money in the form of origination fees and other lender fees.

- Paperwork is comparatively less extensive.

- A large down payment may not be required and the appraisal may also be skipped.

- Buyer and Seller can work out the terms of the agreement together – there is a certain degree of flexibility involved.

- Seller may obtain a higher price if he meets the terms of the buyer.

- Seller may secure future income in the form of interest payments.

Contact me at HomeLandInvestment@gmail.com for more information on how seller financing can work for you.


Happy investing!

Equity Investment in Your Home

Here is a unique and novel approach to home equity investment and appreciation. Rex HomeBuyer is new to the housing market since 2004, and is a private equity fund that uses investments by private real estate investors to help creditworthy borrowers come up with down payments.

They put up to 50% of the down payment on a house in exchange for a share of the equity whenever the house sells. There are no mortgage payments and no interest on this money. It is a form of shared appreciation.

Conversely, if the market goes down, they also share in the loss, thus mitigating some of the risk for the homebuyer.

For more information on this program, see this article from the LA Times:
http://articles.latimes.com/2013/jun/07/business/la-fi-lew-20130602

Happy investing!

Can't You Get a Mortgage?

Inevitably, when approaching a seller about providing owner financing, this question comes up.

Well, if you can put 10% down and pay 5% interest, why don't you get a mortgage?

Here is my response.
First, a bank may not let me put as little as 10% (or less) down on a property today, and certainly not if it is a non-owner-occupied investment property or rental. Investors are significant buyers in today's market, the first to go in where others fear to tread. By requiring a 20-30% down payment, as many traditional lenders do, an investor who often plans to spend that much in remodel costs anyway, will balk. Better to find a deal that does not require that much out-of-pocket cash.

The less cash I have to put down, the more deals I can buy. Or the more I can put into fixing up the property.

Banks have all kinds of requirements that an investor might find onerous. For example, lenders will limit the number of properties that a single investor may finance. The limit may be four, or it may be ten properties. Again, with seller financing, an investor does not have to limit the size of his portfolio and can buy more properties than dealing with a bank.

Until recently, FHA financing required a lengthy amount of time for "seasoning." (See my previous post on this). An investor was unable to buy a property, fix it up, and resell it without having to wait for this "seasoning" term to expire. Therefore, many investors stopped flipping and hence, stopped buying.

Banks require appraisals, pre-payment penalties, mortgage insurance and other fees that add to the cost of a property, and limit an investor's flexibility.

Nationally-known note-buyer Eddie Speed claims that 50% of deserving buyers cannot qualify for a mortgage today.

A seller offering owner financing has a larger pool of potential buyers, can get a higher price for his property, and receives an above-market rate of return on his cash. In some cases, through seller financing, he may be able to defer capital gains taxes. And his investment is secured by collateral (his property he sold)that he knows.

Sure there are risks for the seller, but these can be mitigated. If the buyer/borrower has a good credit score - say anything higher than 690 - good references and track record, good income, and/or some "skin in the game" (which includes not only the down payment to the seller, but also the investment they intend to make in the property), then the seller can feel more secure about making a loan.

And if the buyer should default, the seller gets to keep all the money he has already received, all of the improvements to the property, and gets his property back to keep or sell again. Furthermore, Washington is a non-judicial foreclosure state, which means that the foreclosure process is much faster than in a judicial state.

Why can't the buyer get a mortgage?
Well, maybe he just doesn't want one....

FHA Bridal Registry

Are you planning to get married and buy a home in Seattle, but wonder from where your down payment funds will come?

FHA has a Bridal Registry program where the money you receive as a wedding present can be used towards your down payment. Just like registering at a specialty or department store, the FHA Bridal Registry program allows you to register with a lender. Then your friends and family are able to make gift payments into an interest bearing account on your behalf.

It's a win-win! Not only can your gifts earn interest, but they can be used as a down payment towards an FHA Loan.

Bridal Registry Guidelines

Bridal Registry Accounts were originally introduced in 1996, but still remain a little known fact when it comes to down payment assistance. The misunderstanding of how this program works might be the fact that it was originally only allowed by banks. Soon after, FHA modified the program and offered new flexible options and the opportunity for the newlywed to set up the account at any bank. Plus, newlyweds are now able to make deposits on their own from the gifts they receive.

Here's how it works in 3 simple steps:

--You will open a savings account at your bank prior to the wedding

--Friends and family will be given the banking information where the gifts will be deposited

--All of the gift funds can go towards the FHA required 3.5% down payment.

Anyone with an interest in the purchase cannot be party to the gift funds (i.e. realtor. There is no requirement that you be married prior to closing on your new home.

Another huge advantage is that there are no gift letters or other documentation required other than proof of your savings account named "bridal registry account."

It's that simple!

Please contact me for a list of preferred lenders who can help set this up for you.

Fannie Mae Cracks Down on Strategic Defaults

Fannie Mae announced this week that people who can make their payments and who do a strategic default will be forced to wait seven years before they are eligible for another Fannie Mae loan. It is estimated that there are 11 million homes acros America who are under water. A strategic default occurs where a mortgagee chooses to walk away from their mortgage, even though they are financially capable of making payments.

Fannie Mae is a private mortgage corporation that began as a government subsidized entity in the late 30s. Today Fannie Mae, along with Freddie Mac, are government-sponsored and together they are responsible for setting annual conforming loan limits, assuring that most Americans are able to finance a home. Fannie Mae lends to mortgage lenders which in turn extend mortgages to borrowers. They purchase loans from the private lenders who actually underwrite the loans.

It's a process called securitization, and by passing on the loans to the secondary market, banks have more capital on hand so they can lend even more. Fannie Mae and Freddie Mac control about 90 percent of the nation's secondary mortgage market.

Please re-read my previous two blogs, and let's talk in our next blog about what it all means....

Advertising Securities

"Hi, I'm an investor looking for private funds. I offer 12% interest on a short-term loan of less than one year, secured by real estate." Is this simple statement made at a real estate association meeting a violation of SEC or state laws?

Investors offering equity opportunities must not advertise as follows, according to PART 230—GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933:

(c) Limitation on manner of offering. Except as provided in §230.504(b)(1), neither the issuer nor any person acting on its behalf shall offer or sell the securities by any form of general solicitation or general advertising, including, but not limited to, the following:

(1) Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and

(2) Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising; Provided, however, that publication by an issuer of a notice in accordance with §230.135c or filing with the Commission by an issuer of a notice of sales on Form D (17 CFR 239.500) in which the issuer has made a good faith and reasonable attempt to comply with the requirements of such form, shall not be deemed to constitute general solicitation or general advertising for purposes of this section; Provided further, that, if the requirements of §230.135e are satisfied, providing any journalist with access to press conferences held outside of the United States....will not be deemed to constitute general solicitation or general advertising for purposes of this section.

§ 230.135c Notice of certain proposed unregistered offerings. (a) For the purposes only of section 5 of the Act, a notice given by an issuer required to file reports pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 ....is making or has made an offering of securities not registered or required to be registered under the Act shall not be deemed to offer any securities for sale if:

(1) Such notice is not used for the purpose of conditioning the market in the United States for any of the securities offered;

(2) Such notice states that the securities offered will not be or have not been registered under the Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements....

§ 230.135a Generic advertising. (a) For the purposes only of section 5 of the Act, a notice, circular, advertisement, letter, sign, or other communication, published or transmitted to any person which does not specifically refer by name to the securities of a particular investment company, to the investment company itself, or to any other securities not exempt under section 3(a) of the Act, will not be deemed to offer any security for sale, provided:

(1) Such communication is limited to any one or more of the following:

(i) Explanatory information relating to securities of investment companies generally or to the nature of investment companies, or to services offered in connection with the ownership of such securities,

(ii) The mention or explanation of investment companies of different generic types or having various investment objectives, such as balanced funds, growth funds, income funds, leveraged funds, specialty funds, variable annuities, bond funds, and no-load funds,

(iii) Offers, descriptions, and explanation of various products and services not constituting a security subject to registration under the Act: Provided, That such offers, descriptions, and explanations do not relate directly to the desirability of owning or purchasing a security issued by a registered investment company,

(iv) Invitation to inquire for further information, and

(2) Such communication contains the name and address of a registered broker or dealer or other person sponsoring the communication.

(b) If such communication contains a solicitation of inquiries and prospectuses for investment company securities are to be sent or delivered in response to such inquiries, the number of such investment companies and, if applicable, the fact that the sponsor of the communication is the principal underwriter or investment adviser in respect to such investment companies shall be stated.

(c) With respect to any communication describing any type of security, service, or product, the broker, dealer, or other person sponsoring such communication must offer for sale a security, service, or product of the type described in such communication....

§ 230.251 Scope of exemption. A public offer or sale of securities that meets the following terms and conditions shall be exempt under section 3(b) from the registration requirements of the Securities Act of 1933 (the “Securities Act”):

(a) Issuer. The issuer of the securities:
(1) Is an entity organized under the laws of the United States ... with its principal place of business in the United States or Canada;
(2) Is not subject to section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) (15 U.S.C. 78a et seq. ) immediately before the offering....
(4) Is not an investment company registered or required to be registered under the Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq. );
....
(6) Is not disqualified because of §230.262.

(b) Aggregate offering price. The sum of all cash and other consideration to be received for the securities (“aggregate offering price”) shall not exceed $5,000,000....

What does this all mean? Can our hypothetical investor at the top of this blog advertise for private funds or not? Is his offering a security? For answers to these and other related securities registration questions, stay tuned to this blog!

HUD's Proposed Rules Eliminate Seller Financing!

If this is true, it would be a disaster for buyers, sellers, homeowners, and investors. In an attempt to better regulate the mortgage industry, HUD has apparently decided that it is in America's best interest to eliminate the possibility of seller financing for individuals!

If you are as concerned about this proposed regulation as I am, you must make your concerns known BY TOMORROW! Here's how:

1. Logon to www.regulations.gov You will see two white boxes for searching
2. On the left box labeled "Document Type", pull the menu down and select "proposed rules"
3. On the right box labeled "Enter keyword or ID", enter "safe mortgage". Then, press search
4. Locate the blue search result "FR-5271-P-01 Safe Mortgage Licensing Act: HUD Responsibilities..."
To read the rules: click on the blue title FR-5271-P-01 You will be taken to another page. You will see "views". You can click on PDF file or another symbol which will show you the rule document online. If you want to submit a comment after reading the document, use your back button to return to the search results and then move on to #5 below.
5. To submit a comment: On the right of the screen, across from FR-5271-P-01, click on "submit a comment"
6. Complete the form providing required information with blue asterisks and your comments and then submit. (Note: you do not need to fill in the blanks for organization name, government agency type, or government agency)

Here's what I had to say in my comments to HUD:
Please do not limit the opportunity for a buyer of any house or property to negotiate a seller-financed mortgage! There is nothing wrong, immoral, illegal or inherently wrong with seller financing! this is a method that has been used by buyers for decades--particularly in periods where interest rates are very high. In today's economy, many sellers PREFER to carry a note, as it generates a steady and predictable income stream for them. This works especially well for senior homeowners who have owned their property for a long time, and do not want huge amounts of cash to worry about having to invest, or that would disqualify them from receiving Medicaid. Also, in this economy, it allows more houses to be bought and sold--rather than leading to foreclosure! It generally results in a quicker sale for motivated sellers, and more opportunity for a motivated buyer. So why in the world would anyone want to limit the ability of a willing buyer and a willing seller to use this time-honored system of acquiring and selling property?