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Hey everyone. Paul here, REO auction Academy, just looking at this new article came out today. 2020 home sales hit the highest level since 2006.
And if you remember 2006, that led up to the crisis of 2008 and I was busy doing a lot of fix and flip store in this time period here in 2006 and getting record numbers. And we're kind of seeing some of the same things. Now that's far, far, far different, and I'll go over some of the similarities and differences. What led up to that is all the easy loans, they call them the liar loans. Where if you were alive, you did not need to have to prove you had a job. You had strippers getting houses. It was totally insane, and totally different thing, which led up to the financial crisis. What we have now is that we're being pushed in this direction because of COVID. That really push people to move. That is why you're seeing a 22.2% increased year over year in existing home sales. What COVID did, everybody decided I'm moving. For people who are thinking about moving, COVID pushed people that direction. For people that weren't thinking about moving, they wanted to get out of the city. They wanted to get out of the major metropolitan areas. And it wasn't just the COVID shutdowns in the cities, it was also due to the rioting and other disruptive things that were going on in the city. You have a big transient push out of the cities and into the suburbs and into more rural areas is what we're seeing here. I think that's going to continue for a little while and that's the way the trend is going right now. I do think this year we will start to see an uptake housing inventory. I think we'll start to see that probably in all likelihood towards the second half of the year. Maybe towards September, October, November, December timeframe. Late Q3 or Q4 is when we'll start to see housing inventory increase. Biden spoke about putting a moratorium until end of September. That's only on federally backed loans, government backed mortgages, Fannie, Freddie, and HUD. It's not going to be on your conventional mortgages so the non-government back loans could still go into foreclosure. But it will still reduce housing inventory. What else is pushing existing home sales higher? Record low interest rates. As you can see here, they're projected to stay 3% or below for the foreseeable future. The federal reserve is just buying up these ten-year T-bills to keep the record rates low artificially. I was talking to some people who think the interest rates are going to increase, but the Fed will attempt to keep interest rate low. The Fed may not be able to keep interest rate fully down, but I believe the Fed is going to do everything in their power to keep interest rates low. Where are people migrating? Currently, Tennessee's number one, Texas is number two. Nevada is up there, as is Florida. Basically where people are migrating to is to low or no income tax states and warmer climates. Also, to red states. Red states have lower taxes. You're seeing a lot of that currently happening. I think the blue states are going to have a major drop in population over the next year. Looking at home prices from their lows right after the 2008 financial crisis. In June of 2012, $198,768. That when you start seeing the increase from the low of $195,000. The low was March of 2012 and then home prices started to increase from there. Fast forward to June 2020. the median home price went from $198,768 in June of 2012 to $278,621 in June of 2020. And of course, home prices have increased since June 2020. It is probably closer to $286,000 currently. That means you had a $79,853 increased over an eight-year period, roughly just under $10,000 per year. People gained in home equity which was a 40% increase, which is a staggering increase. We really been helped by everybody moving from the big cities to suburbs and rural areas and record low interest rates. We have matched or just slightly exceeded, the all-time medium home price highs. I think that's going to continue into this year, but how far into this year? I don't know, but I'll tell you what my plan is. My plan is to sell off my dog rental properties and keep my good rental properties. I have rental properties that I've purchased for $80,000. It is a short-term rental (Airbnb) and I put about $10,000 of renovations into it. I am $90,000 into the property. I then got a mortgage for roughly $80,000. This property rents for $3,000 a month on average as a short-term rental (Airbnb). Minus property expenses and mortgage, I am netting somewhere around $1,100 a month. It's a real good cash flow rental property for me. So I'm will keep this property. Plus the value right now is probably around $175,000. These types of properties that I have where I have no more of my money into them, they are just producing cashflow, I'm will keep these rental properties. Other rental properties that are either more difficult or have issues with them, I'm going to sell those properties. If you're thinking about your poor performing rental properties right now, you should probably sell them right now. Get these poor performing rental properties on a market ASAP before home prices reach their peak. I do believe we are at or near our peak. I don't know how much longer the rising of medium home prices will continue. I know the government will keep printing money into oblivion. We'll see what happens, if that continues to inflate home prices a little bit further. If you're on the fence, definitely sell the poor performing rental properties. Those are my plans. Hopefully you got a lot out of this article. If you want more check out https://youtu.be/tCJO2zd2OgQ
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Structuring an Owner Finance Property
- have the applicant (potential borrower) fill out a 1003 (mortgage application) - copy of drivers license - 2 months bank statements - 2 months recent pay stubs - run their D/I (debt to income) ratio. Keep at 0.45 or less meaning their debt cannot be more than 45% of their gross income with the new mortgage payment included - contact their employers and verify employment - find a RLO (residential loan mortgage officer) to underwrite (charge $500 to $1,000 to underwrite) Sample Owner Finance Property Deal #1 - $29,000 sales price with $2,000 cash down. Borrower has decent credit. Mortgage rate at 12% due to lower down payment and lower credit - 5 year term with a principle and interest payments of $600.60 - Total payments received $36,036 plus $2,000 down payment = $38,036 - Purchased the property for $11,996.93 - net profit over 5 years = $24,039.07 - ROI = 200% and annual return of 60% ($7,207.20 / $11,996.93) Sample Owner Finance Property Deal #2 - $69,900 sales price with $7,000 cash down and $62,900 mortgage payable over 15 years at 5.50% (decent credit and income) - Principle and interest payment of $682.63 plus escrow of taxes and insurance $162.03 and loan servicing fee of $30 per month - Principle and interest over 180 months = $122,873.40 - Servicing fee of $30 over 180 months = $5,400.00 Total payments received $36,036 plus $2,000 down payment = $38,036 - Purchased the property and rehab costs = $33,500 - ROI over 15 years = 367% and annual return of 24.45% ($8,191.56 / $33,500) Sample Owner Finance Property Deal #3 - Purchased the property for $16,218.44 - Sold for $35,000 with $20,000 cash down (after closing costs costs had $1,723.32 profit not including the mortgage) - No money into the deal, immediate profit after back to back closing - Created a $15,000 mortgage at 8% payable over 24 months for a monthly payment of $678.41. Total payments received is (24 months) = $16,2891.84 - ROI = 111% and annual return of 55.55% ($9,002.58 / $16,218.44) Sample Owner Finance Property Deal #4 - Purchased price (all in) for property for $10,569.30 - $11,200 down, so profitable from the start ($884.74 after closing costs costs() - Sold for $30,000 with $20,000 mortgage payable over 5 years at 10% for a monthly payment of $424.94 - Total payments received is (60 months) = $25,496.40 plus $884.74 = $26,381.14 - ROI = 250% and annual return of 48.2% ($5,099.28 / $10,569.30) Sample Owner Finance Property Deal #5 - Purchased price for property plus repairs = $5,657.81 - Sold for $25,000 with $5,000 down (out of pocket $657.81) - $20,000 mortgage at 9% payable over 5 years $415.17 plus tax and insurance escrow - Total payments received is (60 months) = $24,910.20 - ROI = 529% and annual return of 88% For more details on this topic please see our video: https://youtu.be/vBy4EF6EUSQ Seller Financing or Owner Financing a House
Deed of Trust States
Installment Land Contract
Tax Advantages of Seller Financing - Tax benefits of Installment Sale are not all of the gains are realized in that year and may lower your tax burden - Seller does pay ordinary income tax on interest paid each year - Principal payment is taxed at a long term capital gains rate - Downside of installment sale is the depreciation recapture which requires you to pay 25% tax on the amount of depreciation you have taken on that property. In an installment sale you may end up having to pay more than you bring in initially that way. Wet Funds vs. Dry Fund States - AZ, NV, AK, CA, HI, ID, NM, OR, LA are dry fund states - All remaining are wet fund states - For dry fund states if you are doing a back to back closing you can use your buyers funds to fund the deal - Great for beginning investors with limited funds. You won't need transactional funding which typically runs at least $2,500 per deal Watch at https://youtu.be/osnOG5Cfg9Y In this article, I will answer a question I see asked all the time...
Can I wholesale REO Properties? The short answer is YES you can. We have done this in 44 states. The seller is the Bank and The Bank’s contracts are not assignable. That means you need to actually buy the property. Now once it is under contract with the bank you can start marketing the property. Best case scenario would be to find a buyer before you close on the property and you can do a double close. A double close is Buy a property and sell the property the same day. If you don’t have a buyer before you close but you know it is still a deal, still close on the property (buy it) and then continue to market to sell it. If you don’t have the funds you may need a transactional funder or private lender. We actually purchase almost all of our wholesale deals (REO and non-REO) so we can maximize profits. Whether it is to sell for cash, owner financing, or wholetailing (light renovations). Video on this article visit https://youtu.be/2QTSGftDAEU How Does Private Lending Work? This post will be a Q&A format to answer common questions.
First What is Private Lending? Private money lending serves as an alternative to traditional lending institutions, like big banks. Private money lending is when individuals lend their own capital to other investors or professionally managed real estate funds, while securing the loan with a mortgage against real estate. Why Would Someone be a Private Lender? Leaving your hard-earned money in a savings account that is earning 10 to 60 basis points is no way to grow your assets. Private money lending allows you to earn 8 to 15% interest and be secured by a loan with real estate that is worth much more than the loan. It’s important to familiarize yourself with the real estate financing options available to today’s investors. Why Would Real Estate Investors Use a Private Lender instead of a bank? It is easier to fund a property using a private lender than applying for a bank loan. Banks have a list of strict requirements and longer timelines. So a need for alternative lending sources quickly developed. Private money lending is a critical component to the real estate investment industry. Its presence makes it more possible for the average investor to run and maintain a sustainable business. Who Is a Private Lender?
How Does Private Lending Work? The concept of a private money loan is relatively simple. You have a borrower, a lender, and paperwork. While they seem to serve the same purpose as traditional lending institutions, there are several key differences. Private money loans typically charge higher rates than banks, but they are also more available in cases an average bank would pass on. Additionally, private lending offers speed that allows an investor to make a strong offer by closing fast. How To Become a Private Money Lender? Networking. Meet successful real estate agents and investors. Talk to others that do private lending. What Type of Properties do I Private Lend? With private money lending, you will be confronted with several types of real estate investors. Here are a few scenarios you may encounter:
How Do I Get Paid? Private lending is very flexible on how you structure your deal.
To wrap up this video, Private money lending can represent an attractive opportunity for both parties involved. Real Estate Investors seeking alternative financing sources will find the benefits include a faster approval process, increased access to funding, which will lead to strong offers on properties. On the other hand, those lending may find they have unique access to potential investments and deals. No matter which side of the transaction you are on, private money lending is a viable option for expanding your financial portfolio. For a video on this article visit https://youtu.be/gLMIUHSKF8k |
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