Rent to Own

From Craigslist:

Hi, I am seeking seller financing for a home in West Seattle. Currently rent, tired of renting, newly divorced, so I won't have the 3.5% down saved for a long time! Desperately want to own a home again. Looking for someone who can offer me rent to buy option. Looking for payments no more than $1200.00 a month. My lease is due in Spring, I can put some funds down, but probably about $2000 if that works. Willing to sign a recorded contract and forfeit any deposit and all paid rent towards purchase in event of default (won't happen). Rent is very expensive so that is also why I want to buy. I'll even pay (finance $5,000) above your homes asking price in order to obtain financing, then can use down payment of rent in order to refinance home in my name (purchase is done as a refi if recorded and owned for a few years and contract needs to be added to title). I'm a mortgage professional, so that's why I know how to do this and am asking. Maybe you are a landlord and want to sell one of your properties, or just need to rent out your home and can sell it later. Anyways, serious offers only, I'll provide my personal info for credit check through an attorney of your choosing, or other professional who can write contract (real estate agent). Not a joke-just a desperate buyer who can't afford damn down payment banks want, tired of flushing my money in toilet with rent. Hope to hear from someone soon. Thank you.

Seller financing used to be more common than it is today, and it was a way to help buyers like this one prepare to buy a home and for sellers to sell quickly and easily for more money.

Rents are going up in Seattle, and tenant/buyers like this one are tired of wasting their precious resources on renting. Seattle is a great appreciation market, and housing prices have appreciated rapidly in this city since 2008. Now prices to purchase even modest homes outstrip most people's ability to purchase a home, even a small one.

I have no idea whether this particular buyer was successful in his efforts to secure seller financing. I am always on the search for seller financing, both for myself and for my investor clients. Seller financing gives buyers the opportunity to get into a property at a reasonable fair market price with affordable monthly payments. 

For the seller, it means they can often negotiate a higher price, avoid many of the costs and hassles of listing with an agent on the NWMLS, have a larger pool of potential buyers, and ultimately make more money.

Seller financing, rent to own, lease to own and other options are examples of owner financing, without going through an institutional lender.

If you are interested in learning more about seller financing, please message me privately at HomeLandInvestment@gmail.com or leave a message on this blog post.

Happy Investing!

 

Sources of Cash

As an investor, you may be looking for quick sources of cash in order to purchase a property for future re-sale. Perhaps you are looking for cash to make the purchase, pay the down payment, or pay for fix-up costs. Whatever the issue, the speed with which an investor can come up with cash may spell the difference between getting the deal or not.

Conventional buyers rely on savings for a down payment, and then qualifying through a bank or lending institution for a conventional mortgage. But many lenders today will put a limit on the number of residential mortgages that may be held in your name. Or require a significant cash reserve, or lower debt to income ratios. This source of cash is not infinite to any investor, and the true investor will be looking for other sources of funding.

Here are just a few.

Seller financing is typically the least expensive form of financing for the purchase of real estate. The Seller may be willing to carry 80-100% of the financing, for as long a term as a conventional bank, depending on the issues surrounding the sale of their property. Typically, sellers will provide this kind of financing if it is impossible to get bank funding on a property, due to its condition or other factors; if the seller is trying to minimize their tax burden upon a sale; or simply to speed up the transaction or attract more buyers. The terms of this financing are negotiable to the buyer, and may be anywhere from 0% to whatever the market will bear.

Short-term financing will typically have the highest interest rate, as will a second- or third-lien position of the Seller behind another mortgage. Some sellers will help finance the down payment, when the Buyer can come up with a conventional loan, so this interest rate will tend to be shorter-term and for a higher rate.

Buyers may also take out a home equity loan or home equity line of credit on another property they own to come up with the cash they need for a new purchase.

Sometimes buyers will offer collateral to make up the difference needed for a down payment. This might be in the form of an automobile, boat, airplane or something else of value to the seller.

Buyers may work out installment plans, or offer to do a lease with the option to purchase later at a set price.

Many cash buyers will get hard money loans from non-bank lenders. Hard money loans are issued by professional money lenders, who usually offer terms with shorter-timeframes, higher interest rate, and lower loan-to-value ratios (requiring some skin-in-the-game by the borrower). This funding tends to be the most expensive.

Buyers may find private lenders, generally private individuals they know who are willing to lend money at a lower interest rate. Family and friends are a good source of this type of financing.

Buyers may come up with cash by doing a joint venture with the seller or another partner. Partnerships may be formal or informal, and take the form of true partnerships, limited liability companies, corporations or syndications.

Buyers who are at least 59 1/2 years of age may make withdrawals from their IRAs or life insurance policies without penalty. They do however have to pay taxes on any distributions.

Buyers may sell something else of value to come up with cash quickly, such as a car, gold or other collectibles.

There are many different ways for a Buyer to come up with cash, if they want something badly enough. Or they could broker the deal for another buyer by selling their interest for a wholesale price to another Buyer prior to closing.

Real estate investment can be enormously creative, and finding cash is not as difficult as some investors make it out to be. So get out there, and start finding property!

Happy Investing!

Private Money Tutorial

Did you catch the report this morning on NPR about investing in real estate? The point was that there are so many ways of investing in real estate, and that real estate is a great asset class to include in every portfolio. The report talked about small investments in Real Estate Investment Trusts (REITs) as an asset class easily-accessible to any real estate investor.

Private lending is another way that someone could invest small amounts of money into real estate.

In case you missed my previous blog, click here for another private money tutorial by real estate investor Daniil Kleyman:

Private Money Tutorial 2

https://tvallc.infusionsoft.com/go/PMSV2/WendyC/

Finding Private Money

Legalities of Private Money was covered by Jillian Sidoti during our NAREIA cruise. Most investors are interested in raising money. Yet under the Uniform Securities Act, at what point does the law come into effect? The test that governs securities law is the Howie case from the late 1800s. It states simply: Is there investment in a common enterprise with expectation of profit through a promoter? One private lender per house will generally keep investors out of trouble; yet "common enterprise" could mean when you are doing more than one house rehab. Asset backed security; must disclose risks to a lender. The investor must do more than a promissory note; the investor must disclose that funds are at risk; house may burn down, etc. Prepackaged websites may violate securities law, so be careful when purchasing from national speakers. Late filings may trigger fines; Not filing Form D exemption from registration to file with SEC will also trigger scrutiny. So what is the process and cost to stay legal? When using private lenders, try to limit one property per lender - rather than pooling funds. File Form D, quarterly and annual reports. Owner financing is exempt from SEC requiremets; one private lender on top of that is fine. Be sure to disclose risks to lender. How to raise private dollars: Jillian then gave several examples of how her clients raise private money. Chris Yates, who had 100 lenders on 100 properties, qualified investors and provided disclosures, used the internet to promote investing with a SDIRA. People signed up for his newsletters, saw properties that were being rehabbed and spoke with him about investing with their SDIRA. He never asked for money. Another client in Beverly Hills raised money for the fashion industry; his goal was to talk to 50 people before he went to bed every night. His strategy was all about making friends; he raised $2M from three people in a month. Jillian recommended writing a great blog; give a lot of information talk about your market, hang out at swanky places; Warren Buffet approach, folksy, personal; send out a newsletter - give a tip, talk about market, something funny (Employee of the Month - same employee every month); bulky mail; exclusive wine and cheese parties; Make your gatherings as glitzy as the corporate annual meetings where prospective investors buy one share of Microsoft, Google, Amazon, etc. just to go to annual meetings. Start your private placement memorandum by writing a business plan: Who, what, when, where, how? How much do you need? How much will I make? When do I get my money back? Offer investors a promissory note attached to risk factors; plus document your pre-existing relationship with your lenders. Are you intimately aware of your investor's ability to invest? income? net worth? verify that this is true. Know your investor. Scott Whaley also announced plans for an Association for private lenders, association on private lending; National Private Money Institute (non-profit association). Stay tuned for more info on this.

Learn How to Earn a Better Rate of Return!

Are you disappointed in the performance of your portfolio of stocks, bonds and equities? Are you looking for a higher rate of return on your bank savings and CD accounts? Would you like to be earning more money for retirement on your IRA and 401K accounts?

What type of investments are most attractive to you? What are the most important factors you consider when deciding on an investment?

What rate of return do you need to make to feel satisfied with your investments in mutual funds, IRAs or 401K?

What rate of return do you expect from your money market, savings, and bond accounts?

What rate of return would you look for on your real estate invesments?

What rate of return do you expect for lending private funds? Have you thought about lending private funds?

If you would like to learn more about private funding, and how it works, please send for our free report on private lending by responding to this post, or confidentially to me at HomeLandInvestment@gmail.com. There is no obligation or cost to get some free information, and to determine whether private lending is right for you.