Conventional vs. Portfolio

Are you a full-time real estate professional? Do you have income from multiple sources or multiple businesses? Do you do non-traditional leasing, for example month-to-month rather than 12-months?

If you answered yes, then you may have a difficult time getting conventional financing to purchase new property or to refinance an existing property - even one that cash flows over $2500/month. Ask me how I know.

Here are the comments from a conventional mortgage lender regarding my personal situation:

there are so many different aspects to your loan file, that it’s going to take a really long time to process and underwrite your loan file.  We can do it, but I want you to know that’s going to be no easy task.  As far as I know right now, we need to document two businesses, self-employment income, 3 rental properties, pension income, 10+ lease agreements, unconventional private mortgage, and misc odds and ends...I cannot guarantee anything at this point since your income has so many determining factors now that only when an underwriter is able to fully process your loan will we even know what we can work with. 

 And here are the comments from the portfolio lender to whom he referred me:

If you want to submit your application(s) for purchase and refinance, I will need to have your completed loans application(s), signed disclosures (2 sets if you apply for 2 loans), and application deposit of $32.33 (only 1) as requested last week.  I would also want to see a letter from you summarizing your business plan of month-to-month room rentals, including how your Oklahoma rentals are managed, etc.  This is a complex request, and while I am happy to take it on, I need your full commitment to  the process if you want a decision.  There are just too many facets and our UW will want to see the full picture. This isn't a 'quick' let me run this by you question.  We are a portfolio lender, which allows us to review requests that are out of conforming guidelines, but that sometimes means borrowers have to provide more information to support their request to help our UW's  understand their business or situation in order to take on additional/different risks.

While [your previous conventional lender] provided me with information, I cannot move forward until I have completed information from you.  We have 'lost' 5 days since I sent our application, disclosures, etc. to you. I spent part of my weekend reviewing your information and determined that this is not one that I can just 'run by' underwriting.  If you want my full attention, you will have to commit to providing everything needed to move forward.  I will be happy to do my part with a complete sense of urgency, but I need your help.

Keep asking around for other lenders. I have found a great portfolio lender at Sound Credit Bank who is happy to do my loans for me, without the hassle described above. And I am sure there are others out there. So dear readers, if you have a Seattle-area lender who has worked miracles for you, be sure to leave a comment and recommend them here.

Happy Investing!

My Most Profitable Deal

Back in 2008, while the housing market was crashing all around the country, I managed to do my fastest and most profitable fix-and-flip deal. The deal began as part of a mail campaign I was doing in my neighborhood. Here is the letter that I sent out:

I am writing this letter to you today because I am interested in buying your house located at XXXX Yesler Way in Seattle. I live in the neighborhood and run by it almost every morning. I would love to work on a property like this. Would you consider selling it?

I spent 25 years working in the arts, and recognize that there is much more to life than making a profit! My real estate involvement provides not only a means of support, but a way to improve the neighborhood and the community, while offering affordable housing options to individuals, couples and families. This has given me great satisfaction and reward in pursuing real estate, in that I can often buy houses and properties in “as is” condition that other realtors would not want to list. I am willing to fix up and improve properties, thereby improving the neighborhood and offering new buyers or residents the chance to live in a nicer community.

I promise you that I am a serious buyer. I bring in partners to help on properties that require additional funds to purchase or restore, when needed. I won’t waste your time. I hold a Washington real estate license, so you understand that I am serious professional. I pay fair prices for properties based on current condition —with no commissions whatsoever.

If now is not the right time to sell, please keep my information and feel free to contact me at 206-355-1706 any time. Our conversation will be kept completely confidential. Financial, professional and personal references are available upon request.

I look forward to hearing from you!

After the second letter, the Sellers responded and agreed to meet. I followed all of the creative finance training I had been given, and structured my offer as follows:

$245,000   Purchase Price, with a private lender providing the $35,000 down payment, and the Seller providing a $210,000 note at 6.4% interest. I could not get the Sellers to agree to a Substitution of Collateral clause, but I tried. So there was no money down from me to purchase.

$   1,700   Buying Costs

$ 16, 663  Fix-up costs for roof, gutters, exterior paint and carpet

$ 14,867   Holding and sales costs

$364,000   Final sales price, after 44 days of ownership and multiple offers to purchase. Advertising was all on Craigslist, and showing appointments occurred while we were working on the improvements.

$ 92,733   Net profits

So it is possible to get great deals, by following the techniques and training that we have blogged about here.

For more information or consultation on your real estate investment strategies, please message me privately at HomeLandInvestment@gmail.com or call our 24/7 real estate investment hotline at 888-621-4999.

Happy Investing!

Homebuyer Tax Credit

Did you know that you could be eligible to receive a $75,000 tax credit to purchase a primary residence here in Seattle?




Many homebuyers are simply unaware of the financial incentives that exist in the lending market for qualified buyers today. Working with an agent broker who understands the loan products that can save you time and money as a buyer is critical. Buyer's agents are NOT all alike! Some of us actually spend time researching creative and little-known ways to save our clients money! I will continue to blog about some of those options here.





How much more house could you afford if you qualified for a $75,000 tax credit?




Many lenders are unfamiliar with the State of Washington's Mortgage Credit Certificate (MCC). These are tax credits that put extra cash in your pocket monthly, not a mortgage. MCCs are available with fixed or adjustable rate conforming loans, FHA, VA, or USDA loans.




MCCs are available for new purchase loans only, not refinances, unless you are replacing some type of bridge loan. There are income limits, so the borrower in King County must earn less than $90-97,000 annual income (depending on family size). The purchase price of the house must not exceed $475,000, and it must be owner-occupied, with no more than 15% of the residence used for business or trade. The borrower must also attend a qualified homebuyer education course.




Applications are accepted on a first-come, first-served basis by a statewide network of lenders. My preferred lenders understand this program, and they work with my VIP Buyers. These lenders will establish all underwriting criteria, including interest rate, downpayment requirement, term, fees, points, and closing costs. The lender will then submit your loan application and notify you as to whether your application is accepted.



I offer financial and homebuying education, and information on the most attractive financing options through my preferred lender network to my VIP Buyer Clients. If you are interested in learning more about your homebuying options, or are interested in purchasing real estate in Seattle, please email HomeLandInvestment@gmail.com or leave me a private message on my recorded real estate information hotline at 888-621-4999.




Happy Investing!

New Markets Tax Credit

The New Markets Tax Credit is a great investment tool used to spur development in lower-income neighborhoods. Here is information on how it works from the City of Seattle's Office of Economic Development:

The federal New Markets Tax Credit (NMTC) program provides a 39% credit against federal income taxes for business and real estate investments located in low-income areas. The tax credit is claimed over a seven year period. NMTCs can only be distributed by certain entities that have obtained tax credits through a competitive application process with the federal Treasury Department. The City of Seattle’s Office of Economic Development (OED) created the Seattle Investment Fund LLC (SIF) to participate in the NMTC program.

SIF will distribute NMTCs to private investors who provide low-cost financing for business and real estate projects located in eligible census tracts. The following are examples of the types of projects financed with NMTCs:

· Business owner-occupied property undergoing expansion and/or large equipment purchase

· Commercial real estate development that includes space for neighborhood retail businesses and/or office space

· Mixed-use projects with at least 20% of the project revenue coming from non-residential sources

· Community facilities

Qualified Projects

· Geographic Eligibility

o Minimum eligibility: NMTC projects must be located in census tracts meeting minimum criteria set by the federal government regarding poverty and resident income data.

o Areas of deeper economic distress: beyond minimum eligibility, SIF will give strong preference to projects located in areas of deeper economic distress regarding poverty, resident income and unemployment data. SIF has made a commitment to the federal government to allocate the bulk of its NMTC allocation in such deeper distress areas.


· Project Readiness

o The Investment Committee will not consider proposed projects until SIF has obtained letters of interest from the lenders/NMTC investors needed to finance the transaction.

o Evidence is submitted to confirm that the project's proposed use of NMTC proceeds is feasible and that the project can be completed within the proposed timeline.

· Project Type and Size

o Real estate or business projects with at least 20% non-residential income.

o Projects with a development cost in the neighborhood of $10 million.

· Public Benefits:
Priority will be given to projects that achieve one or more of the following economic development benefits:

o Create or retain permanent jobs;

o Increase the availability of goods and services needed by the neighborhood;

o Serve as an anchor for future economic development in the immediate neighborhood;

o Enhance the local tax base through increased sales and/or property taxes from future project operations;

o Include energy efficient building or process improvements; and/or

o Increase the amount of affordable housing (i.e. housing serving households at 50% - 80% of median income) available for nearby residents

Financial Benefits to Projects

· Interest-only loans for seven years

· Up to 18% of NMTC financing is permanent equity that does not need to be repaid

· Hypothetical example of how NMTCs benefit a $10 million project

o SIF distributes NMTCs for an eligible project

o Project uses NMTCs to attract $10 million in private financing, including $8.2 million in loans and $1.8 million in permanent equity from NMTC investors

o $1.8 million permanent equity does not need to be repaid

How to Get Bank Financing for Investment Deals

The Banking Decoder

(The 7 Step Process To Opening Up Your Funding Faucet for Purchasing Real Estate)

1- Block out 3 to 5 hours and look up 10 to 15 banks online in your area and call to speak to their residential/commercial loan department to let them know what you are looking to do. Time blocking is the best way to quickly work through who does what and who does not.

2- Turn off the e-mail and outside distractions to focus in on the bank interview process.

3- Build you bank cheat sheet.  Take good notes so you can refer back to your master banking list later.

4- Understand that you're just collecting information so you KNOW YOUR BANKING MARKET.  Some will, some might, some won't... so what! Knowing where you stand with your local market is VALUABLE information.

5- Don't stop when you find one that will (lend) because later on they may NOT!  You can't have enough funds lined up as a good business owner.

6- Be prepared.  Clearly define what you are looking to do when you talk to them.  Bankers will lend more easily if they know you have a purpose and are organized.

7- Ask the right questions. Be ready to take notes w/ your questions on paper with space to put the answers and refer to later.  And set an appointment!!!

Being Prepared: 

A. People buy into what they can see.  Come prepared on paper w/ typical deals that your are looking to do w/ sample numbers.

B. Have your taxes in order and asset statements.

C. Have your POWER TEAM on paper so they know you have the entire process covered when they lend to you and your business. (Title Co, Appraiser, Insurance Agent, Private/Hard Money, Inspector, Insured Contractor and so on...)

D. Show them prior deals if you have already done them.

E. Tell them about your active investor network that is ready to buy and sell.  This could lead to them telling you they have some properties to unload.  Hmmm... opportunity.  

You can help them market online w/ your marketing engine. 

F. Let them know you are also looking to grow your business with other partners.  (This lets them know that you may have other banking customers to bring if needed.)

G. Put your "Buyers Web Site" link on your sample deal scenario to encourage them to check out your business. (Credibility Boost)

H. Have a mission statement on what your company is business for and where you plan to take your business in 2,3,5 years.  (People can get on-board your business bandwagon easier if they can see the VISION.) Put your web site addresses at the bottom.

J. Have several copies of your "Prepared Package" in hand and ready to give to the lender so they can share w/ other decision makers at their bank.  (You want everyone in the bank to have their eyes on your stuff... the more the better.)

Banker Interview Questions to ask:

A. Who is the best person to speak to about lending on investment real estate at you bank? Can you put me through to them and do they have an extension and do they have an e-mail address?

B. Ask the lender what is their typical amount they will lend up to on an investment property deal or project? (60%, 70%, 80%)

C. Is that amount of the purchase price or does that include purchase price and rehab costs?

D. Do you lend on the After Repair Appraised Value?  If so, then ask what % of the ARV?

E. Do you require down payment if the deal is good enough to stand on its own from a ARV standpoint?  If yes, then how much %?

F. What are your typical costs and terms? Upfront costs? Loan terms (20 yr, 30 yr, Fixed or not fixed rates)?

G. What is the typical funding turn time for deals w/ a complete loan/funding package in hand?  (This shows you mean business.  Bankers LOVE to hear that you are implying you will be ready, organized and not a waste of their time.)

H. Are their loan (amount) minimums I need to meet on my investment deals I deliver? (Again... you are implying your are ready to give them good researched real estate deals that "fit" what they are looking for.)

J. Do you have good business banking accounts for my business to start a deposit relationship as well? (They look good to their superiors when they bring in NEW depositors and this can go miles towards getting them to open their money faucet to your investment business!!!)

K. Who would be my point of contact to get you what you need to get my investment deals/projects approved?  (Try to get name, number, extension and e-mail if possible.)

L. Is there a limit on the number of deals we can do with your bank or a lending limit that I need to be aware of, so I know what to bring you or not bring you? (Lets them know that you know that banks have these rules and you are an informed investor.)

K. Do you lend in personal names only or LLCs as well?  I'm willing to sign personal guarantees if you lend in the LLC.  Lets them know that you know they will want you to personally guarantee the loans. (Shows Knowledge and Professionalism over your competition.)

M. Do you have a preferred title/closing company that your office likes to use? (Shows, that if needed you are will to make the relationship user friendly.)

At this point... you want to find a spot in the conversation to transition into asking... 

N. What would be good time to set an appointment and talk about setting up accounts with you and going over my investment package to make sure you have what you need from me to be ready to close on deals?

Get the appointment and land the relationship!!!

--------------------------

Bonus Banking Tips: (Here are some other tips to help you land the lending relationships)

1- Ask other investors who they use and when you call in start by saying "I was talking to Joe Blow about banking and funding for my business and he told me to give you a call." The bank will already be way more inclined to listen to you since they will immediately put you in the other investor's category that they are already lending to.  MONSTER TIP!

2- If the lender/banker says "No" to what you are looking for then don't shut the book on them.  Just ask them what type of deals do you typically look for that are more in your lending sweet spot.  I have a large network of investors that I work with.

3- If they want money from you on deals, (what lenders call "Skin in the game") then get creative and ask them if they can "Cross Collateralize" or place a lien on other property you own to help cover the down payment.  Or ask them if you start a deposit relationship with them if they can place a hold on some CDs you start with them as some down payment or collateral.

4- In replacement of down payment the lender may sometimes take your pledge of assets (i.e. stocks, bonds, mutual funds and so on...) to get your deals to the closing table.  

5- If you use some of these tips also ask if they can look to release the collateral or pledged asset after you prove on a few deals that you perform.  Or ask if they can release the holds after you make on-time payments from 12 months or so.

Remember this should be a part of your "Real Estate Business Development" time.  If you are not working on your business development, then ask yourself "Who is?"  Be purposeful and systematic to your business and reap the business success benefits.

Above all else... he or she who comes prepared, asks the right questions and shows the bank that you want a "relationship" while being user friendly to deal with will win the "Funding Battle."  Now block out time on your calendar and crack the code because after all, your business deserves it!!! 

Tips provided by 

Jason Palliser

Co-Founder

REI BlackBook

6 Things To Know Before You Buy

6 Things You Must Know Before Obtaining a Mortgage

Before you commit your hard earned dollars to monthly mortgage payments, consider these 6 issues. Effective consideration of these important areas can make your payments work much harder for you.

❶ You can, and should, get preapproved for a mortgage before you go looking for a home.
Preapproval is easy, and can give you complete peace-of-mind when shopping for your home. Your local lending institution can provide you with written preapproval for you at no cost and no obligation, and it can all be done quite easily over-the-phone. More than just a verbal approval from your lending institution, a written preapproval is as good as money in the bank. It entails a completed credit application, and a certificate which guarantees you a mortgage to the specified
level when you find the home you’re looking for.

❷ Know what monthly dollar amount you feel comfortable committing to.
When you discuss mortgage preapproval with your lending institution, find out what level you qualify for, but also pre-assess for yourself what monthly dollar amount you feel comfortable committing to. Your situation may give you a preapproval amount that is higher (or lower) than the amount of money you would want to pay out each
month. By working back and forth with your lending institution to determine what this monthly amount is, and what value of home this translates into at today’s rates, you won’t waste time looking at homes that are not in your price range.

❸ You should be thinking about your long term goals, and expected situation, to determine the type of mortgage that will best suit your needs.
There are a number of questions you should be asking yourself before you commit to a certain type of mortgage. How long do you think you will own this home? What direction are interest rates going in, and how quickly? Is your income expected to change (up or down) in the near term, impacting how much money you can afford to pay to your mortgage? The answers to these and other questions will help you determine the most appropriate mortgage you should be seeking.

❹ Make sure you understand what prepayment privileges and payment frequency options are available to you.

More frequent payments (for example weekly or biweekly) can literally shave years off your mortgage. Simply by structuring your payments so that they come out more frequently, will significantly lessen the amount of interest that you will be charged over the term.

For the same reason, authorized prepayment of a certain percentage of your mortgage, or an increase in the amount you pay monthly, will have a major impact on the number of years you will have to pay and could shorten your payment term considerably. These two payment options can cut years off your mortgage, and save you thousands of dollars in interest. However, not every mortgage has these prepayment privileges built in, so make sure you ask the proper questions.

❺ Ask if your mortgage is both portable and/or assumable.
A portable mortgage, where available, is one that you can carry with you when you buy your next home and avoid paying any discharge penalties. This means that you will not have to go through the entire mortgage process again unless you are making a
move up to a much more expensive home.

An assumable mortgage is one that the buyer for your home can take over when you move to your next home. This can be a very powerful tool at the negotiating table making it much easier and more desirable for a buyer to buy your home, and again saves you any discharge penalties.

❻ You should seriously consider dealing with a Mortgage Expert.
Consider dealing only with a professional who specializes in mortgages. Enlisting their services can make a significant difference in the cost and effectivness of the mortgage you obtain. For example they can make the process faster thereby avoiding
costly delays. Typically there is no cost or obligation to enquire.

Purchase Price is Firm

When the Purchase Price Won’t Budge
Don’t abandon ship. Purchase price is just one variable in the entire equation. If the purchase price is non-negotiable, consider what other things might be up for discussion.
--Seller financing or adjusting the interest rate on seller financing
--Quarterly rather than monthly payments
--Amortizing over an extended period, perhaps even fifty years
--Exchange a down payment in return for improvements
--Loan assumption
--Extend the closing date
--Allow improvements before the closing date
--Reduce or eliminate the down payment
--Seller to pay closing or improvement costs
Many items on this list could translate to substantial savings and make the issue of purchase price less daunting. It is critical not to jettison a potential clear sail (sale?) just because one item doesn’t quite float as you had hoped.