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Due Diligence – What it is and Why it Matters!

By Laura Alamery

 

Buying real estate is not as simple as having enough money to purchase the property. It requires time and effort to check and make sure that the condition of the property is good and the title is valid before making the final decision. That is what you call due diligence.

In case the buyer discovers that something is wrong with the property, he may give suggestions to the seller so that the latter can act on it by addendum to the contract, or the buyer can decide not to buy the property.

Contractual Due Diligence

There are certain elements within the sales contract or purchase agreement which are critical to the ‘satisfaction’ of due diligence. Let’s take a closer look at each of them.

Contingencies – Any contingencies which the buyer wants performed prior to finalizing the purchase must be stated on the sales contract. Some examples of these conditions may include: inspections, partner’s approval, financing, research of code violations or permits – and, of course, a clear and marketable title. At the end of the contingencies timeline, the buyer must either release the them and proceed with the sale or cancel the purchase.

Time is of the Essence – Due diligence supported by contingencies comes with a definitive timeline in the sales contract. If the buyer cannot complete his/her due diligence by the deadline, he/she will have to renegotiate with the seller. The seller has the choice whether or not to agree to the extension; which in turn may compel the buyer to follow through with the purchase regardless, or cancel the contract.

Title Discovery – Whenever you purchase real estate (especially as an investor) a marketable title is the most crucial element. Without it, an investor cannot sell or transfer the property. There are several types of title discovery searches which look into a chain of title; as well as liens or judgments against the property. The following are 2 main types of searches performed; keep in mind these may go by different names according to the title company and location:

  1. Full Title Search – the most complete of the two, this search checks into everything affecting the property’s history. It is the only one that will be used prior to issuance of title insurance, and is of course the most expensive to perform.
  2. Letter Report – a summary of what’s on the title; which reveals any possible liens and judgments.

Please note: Securing title insurance is an important step. Though title insurance for cash transactions is optional, it is mandatory when the buyer must obtain a mortgage to purchase the property. In my professional opinion, an investor should always acquire title insurance. According to Wikipedia, “Title insurance is a form of indemnity insurance predominantly found in the United States which insures against financial loss from defects in title to real property, and from the invalidity or unenforceability of mortgage loans.”

Due Diligence Questions & Answers

 

Q: Should an investor perform due diligence on every property before purchasing?

A: Yes, and no. When an investor is looking at several possible deals at the same time – and not sure if they will go through with a specific contract, holding back could be wise. For example, it would be prohibitively expensive to perform even a Letter Report (average cost is $150) on every single property. These actions are also time consuming: even a title report will take 3 business days to be issued.

With that said, there are times when some basic due diligence is an important decision factor; for instance, when an investor is considering a property coming online at a foreclosure auction. The investor will want to know what potential issues there might be on title (liens, judgments) and whether the title would be marketable.

Q: Is it necessary for a title company to perform the due diligence for any sales contract?

A: The investor can actually perform a lot of their own basic due diligence without hiring a title company or spending any money. Checking with the appropriate government offices (most of them can also be accessed online) for some basic discovery is the simplest way to gain confidence in proceeding with your purchases.

Q: Which government agencies do you recommend searching to complete due diligence?

A: I don’t check with all the government offices for each property. If my discovery at the Recorder of Deeds Office comes out clean (with no red flags) I will stop there; unless I see a spotty history of liens and releases on title. This is also a useful means of locating properties undergoing issues that have kept them off the MLS. Here is a list of searches available in the public domain, and what you can expect to find:

  1. Recorder of Deeds Office – Will have record of liens such as: Mortgages, Federal & State Income Tax Liens, Sewer, Water, Judgments, HOA (Homeowner’s Association); and other property document history.
  2. Collector of Revenue – Lists any Back Property Taxes and Tax Liens
  3. Building Inspections Office – Data on any building violations and inspections.
  4. HOA – If the property is within a subdivision or a condo development, there are probably Homeowners’ Association Dues.
  5. Clerk’s Office – Mechanics Liens (filed by contractors for unpaid work on the property).
  6. Comptroller – City liens, for unpaid taxes and fees.

Due diligence is a must when it comes to purchasing real estate. Though a preliminary search can be performed at no cost before making your decision to proceed – it is my opinion that a full title search and insurance are necessary prior to final purchase.

 

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This is the Best Day of the Year for Real Estate Investors

By Fuquan Bilal

What is the best day of the year for real estate investors?

I think Mother’s Day is a strong contender. It’s hard to beat from both a business point of view, and in being personally meaningful.

If you’re not a mother yourself, then you’ve got mothers in your life. Either they work with or for you, rent from you, support you in your investing, or are your grandmothers, daughters, cousins or just your neighbors. Everyone can relate.

The Start of a New Season in Real Estate

Mother’s Day really marks the start of a new phase of the market each year. New property listings are popping up to get ahead of the peak buying season. Serious buyers are coming out to sign contracts and set up their summer moves so they are all settled before school starts again in the fall. It can be a fantastic time for Mother’s Day themed open houses.

What Real Estate Investors Can Do For Mothers

The first and most obvious thing we can all do is celebrate and honor the mothers in our lives. That can be in your office, at home and out in the community.

Housing them is a huge deal. One of the best benefits of being in real estate for me is what I can do for my mom. I can house her, and recently bought her a car. I’ve also really enjoyed just taking time to intentionally spend quality time with her to learn from her years of wisdom.

Housing and keeping a roof over their family’s heads is a top concern for moms out there. It keeps them up at night, and working hard. I love giving them a chance to put their families in a safe, healthy and attractive looking place in our rentals and when we sell properties.

As a real estate investor, I believe one of the greatest gifts you can give is sharing your knowledge and experience, and giving the mothers out there the chance to own those benefits for themselves and their children. Host an educational lunch, or turn them onto the PFREI podcast, or take them to an industry event with you.

The workforce and housing market is changing a lot in many cities. That can mean some transition time while getting reskilled for modern jobs, and trying to hang onto homes, and keep up with all the mail and mistakes that some lenders, insurers and tax authorities make in their paperwork. This can all lead to loan defaults and distress, that could have been avoided. If you are investing in mortgage notes this is a great time to do a cash for keys deal, or to modify loans and help moms have a fair chance to get back on track and have a fighting chance to keep their homes.

Let us know what you are doing in real estate around this Mother’s Day on your favorite social media networks and tag us so we can like your posts!

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund

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Approaches To Real Estate Negotiation

By Bruce Kellogg

Introduction

Negotiation, unfortunately, is not taught much to real estate professionals, or to investors. International, corporate, and purchasing courses exist, even to the extent of Master’s degrees, but real estate has not received the same coverage. This article aims to help that.

Start Out Early

Negotiations begin at the first encounter (e.g., phone inquiry). Many people think the initial pleasantries are just that, and the formal negotiations will begin later. Not so. The superior negotiator will have already begun gathering information and setting expectations. Start early so you don’t have to catch up.

The Three Elements

There are three elements to any negotiation: 1) Information, 2) Time, and 3) Power. These will be described below.

Gather Information

The negotiator who gathers the most information usually has an advantage. Interview people, obtain reports, do inspections, use the MLS (Multiple-Listing Service) and other online resources. Hire a private investigator on the seller if the deal is large enough, looking for vulnerabilities (e.g., bitter divorce). You can’t know too much.

The Factor Of Time

It helps to know if the other party has any time constraints, along with your own, of course. Pending foreclosure, divorce, condemnation proceedings are some examples. If the property is “a steal”, scoop it up fast. If it’s priced at or above “market”, then “grind real slow”. Use time to your advantage.

The Factor of Power

In some negotiations the power levels are uneven. One party has more leverage over the other. Seasoned negotiators assess power levels and devise strategies to take these into account. Then, even the weaker party can optimize its outcome.

Be Generous When Selling

Some sellers believe in “Win-Lose” negotiating. They want “top dollah”. This apparent greed and intransigence grates on everyone involved, sometimes to the extent of legal action or retaliation. Be generous when selling. Paint that bedroom. Purchase a Home Protection Plan for those first-time buyers. You’re on your way to wealth. Don’t be cheap!

Keep Your Word/Perform And Smile

Keep your word. Perform everything you’ve agreed to do. And smile as you do it, even if the deal is going against you and you are taking a loss. Don’t whine. Smile. Builds character….and your reputation.

The “Concession Pattern”

In the back-and-forth of negotiations, your “concession pattern” is very important because it sets up expectations in the other party. Always negotiate fairly tightly. Don’t concede too much because the other party will see that as an opening to seek more. Go back-and-forth more times if need be. Try to set things up so you take the other party’s counteroffer rather than force them to take yours. This way they will feel they won, and you will have less trouble with them the rest of the way. And, please, don’t arbitrarily “split the difference”. Amateur negotiators do that.

“Sharp Practices”

The day will come, if it hasn’t already, when the other party will bring “sharp practices” to the table. If these are illegal (e.g., undisclosed money back after the close), call them on it, and refuse to participate. If these are not exactly illegal, then counter them as best you can, or walk away. Life is too short, and your reputation is too important. Always “take the high road” in negotiations.

Re-Negotiating After Inspections

Y’all know to re-negotiate after property inspections, right? ‘Thought so.

Reading List

Included here is a list of Recommended Reading. Buy all of them, used. Read and highlight them. Then, once a year, re-read the highlights. You owe it to your clients, and yourself, to be in tip-top shape a as a negotiator.

Recommended Reading

Negotiate This, Herb Cohen, 2003

Everything’s Negotiable, Eric Wm. Skopec and Laree S. Kiely, 1994

Guerrilla Negotiating, Jay Conrad Levinson, Mark S. A. Smith, and Orvel Ray Wilson, 1999

The Negotiating Game, Chester Karrass, 1992

The Only Negotiating Guide You’ll Ever Need, Peter J. Stark and Jane Flaherty, 2003

Seal the Deal, Leonard Koren and Peter Goodman, 1991

You Can Negotiate Anything, Herb Cohen, 1980

How to Win Friends and Influence People, Dale Carnegie, 1936

may10

Garage Sale Real Estate – Make Money in Real Estate and be Dead Broke Doing It!

By Jimmy V. Reed

Folks are always telling me I would love to make money in real estate but “I’m just too broke” And I would respond every time, so was I. Back in the late 80’s I started reading books on how to make money in real estate. Every time they kept telling me you find a good deal, then you go get a loan and buy it, fix it, sell it or hold it. That’s when I would say to myself well it sounded too good to be true.

Later I learned it is too good to be true. I learned how to Wholesale Properties. I learned what I would say was the greatest technique in real estate. How to buy a house without actually buying the house. Now let me tell you how that works. I compare it to when I would go garage selling with my wife on the weekends. We would drive around looking for SIGNS! You know Garage Sale Signs. We would find a sale and then look for a deal, and we always seem to find at least 1 deal. However once we started making offers and negotiating, By the way I have taught thousands of students whose number one fear is to make an offer. But the second you put them in a garage sell they start making offers so low it was like kicking the seller in the knee cap. Any way we would finally agree upon a price. And many times realize we didn’t have enough money on us to purchase the item. So we would ask the Seller to hold it until we came back with the money. And wahlah Garage Sale Real Estate!

I know you’re thinking what? Well let me tell you the secret to this. At the garage sale we would run to the ATM get the money come back and pay. Now take this principal a little deeper as we teach in our Wholesale Classes. Tell the seller to hold it, how? A simple Purchase Contract. That’s when you tie up the property until you have the money. I know I know you’re broke! That’s ok because while it is under contract we contact other investors who are looking for deals! That’s right we are deal finders finding deals for our customers. These investors have CASH! Now we just assign the contract to them for a fee. And now you just got Paid!

Sometimes we even use a double close to close on the property because the profit margin is so large. That one is a lot of fun. Well hopefully by now you at least can see a glimpse as to how so many investors can make money in real estate without having money. Did you know when you go to a car lot, or even Wal-Mart, the items you purchase from them has most likely not even been paid for by them yet. That’s right Wholesaling has been going on in most business forever. Now the question is are you up for some Garage Selling? Well it’s all up to you, but if you need a little help look us up, we’ve been teaching Wholesale to investors since 1991.

may8

IS A REAL ESTATE FUND INVESTMENT RIGHT FOR YOU?

By Fuquan Bilal

Is investing in a real estate fund the right financial move for you? Who is it for? Who isn’t it for?

Real estate funds have been proving to be both attractive and profitable vehicles for many investors. For many sophisticated investors, family offices and even larger and broader funds and endowments, they are now one of the main staples in their portfolios. More recently they have become one of the most important and vital parts of a well diversified, sound and high performing financial plan.

Some people though, haven’t hit the gas pedal on these investments yet. Real estate funds may be a new concept. Or perhaps they just haven’t taken the time to dig in and really figure out the advantages and why others love them so much.

ALL ABOUT THE YIELD

I’ve met a lot of people over the years. Of those that do make alternative investments, the choice becomes really about the type of yield that gets them excited. The sophisticated, passive and strategic investors intelligently spread their risks. They may have some investments that ‘promise’ the chance of higher returns which are riskier. Others are more conservative and are happy with lower yields – and may choose a solid fund with a 7% to 9% return to help keep them in that target performance circle.

DIVERSIFICATION & STABILIZATION

Funds are frequently a stabilization and diversification play for strategic investors. They may have turnkey rentals, do some private lending and hold some notes. They know they can be very exposed with these investments. Funds give them much deeper and broader diversification, which in turn lower risk and keep cash flow consistent.

Let me explain. By investing in a fund, individuals may have 100, 500 or more assets collateralizing and protecting their investment. That’s versus the one or few assets that flippers, landlords or hard money lenders have. Would you rather put $150k or $500k into a single asset and cross your fingers as insurance that nothing goes wrong, or have a $5M or $25M or even larger pool of assets protecting that investment?

ARBITRAGE

The smartest investors know they aren’t going to be as successful as they could be by themselves. This not only applies to building a strong inhouse team, but looking at all options. Some are great at playing the arbitrage game. They may be great at raising capital at 6% returns. Then they just delegate that capital and invest in a fund for higher yields. The fund does all the hard work of sourcing and managing the assets. The arbitrage investor gets cash flow on a platter to pay out returns to their investors.

Is a fund investment a good fit for your portfolio? If the yields are right, the diversification is a good match, and passive investing is a priority, then this could be the piece of the puzzle you’ve been missing…

INVESTMENT OPPORTUNITIES

Find out more about investing in secured debt and real estate, go to NNG Capital Fund.

may6

10 Things to Look for When Comparing Real Estate Syndications

The increase in popularity of real estate investment syndications in the last few years has presented huge opportunities to investors looking to invest in commercial, multifamily, or industrial properties in a passive way.  As a review, syndications are a way to pool money from multiple investors to accomplish a common investment goal.  In real estate, this typically involves pooling equity to purchase a property with the intention of improving or holding it for appreciation and cash flow.

With opportunity, however, comes the need to know what to look for when comparing opportunities.  I have compiled 10 of the most important factors to look for in a syndication when evaluating them in order to make the most informed investments possible.

1)    Qualifications.  Check and see if the syndication deal requires you to be a sophisticated or accredited investor. Syndications structured under SEC Regulation D, exemption 506(c), require investors to be independently accredited via a CPA or 3rd party service.  This confirms an investor meets minimum net worth and/or income requirements in order to legally take part.  506(b) offerings, on the other hand, simply require an investor to be sophisticated which is simply a broad definition meaning an investor possesses sound financial education.

2)    Track Record. Syndications are passive, so it is extremely important that the sponsors have a proven track record and knowledge of the industries and areas they are choosing to invest in.  Good syndication sponsors will partner will experts when bringing new category deals to their investor pools.  Due diligence is key, and sponsors should be able to clearly articulate why they like a deal and what sort of risk mitigation exists.

3)    Preferred Returns.  Many stabilized properties are generating revenue via rents collected from tenants, and the sponsors of these syndications will structure a preferred return to investors.  This return represents an annual return on the principal amount invested by the investor (i.e. 8% returns on a $100,000 investment would represent $8000/year).  This return accrues at a predetermined rate, and must be paid before any sort of profit-sharing takes place upon the sale of the property.  Some deals will have a set preferred return pegged to an investor’s initial investment, while others will establish this return as a percentage of actual net cash flow received.

4)    Dividends.  Often confused with preferred returns, dividends differ in that they are the actual payments made during the hold period of a deal.  These are often paid out monthly or quarterly.  Certain value-add deals that require increasing occupancy or rehab work may delay paying dividends until cash flow of a property is sufficient to cover these payments.  Dividends are ultimately paid at the discretion of a sponsor, and can be interrupted due to unexpected expenses or vacancies that arise during the course of the holding period.

5)    Taxes.  Good sponsors will actively work to reduce the amount of taxable income received from real estate deals.  Dividends are tax reported on a K-1, which has the advantage of reducing the amount of taxable income due to the depreciation of the property.  Good sponsors will perform cost segmentation studies, where they bring on a 3rd party to accelerate depreciation, further mitigating taxable obligation on dividends paid out.

6)    Reporting Periods.  Many sponsors elect to provide progress reports on the status and management of the property during the course of the investment.  Some provide extremely detailed tenant by tenant accounting, and others simply provide a cash flow or overview of the property.  It is helpful to ask a sponsor for previous reports to see what kind of reports they typically provide.  Most of the time these are provided at the same interval as the dividends being paid (monthly or quarterly).

7)    Profit Split.  A common feature in syndication deals is for the net profits upon sale to be split with a portion going to the sponsors and the balance to the investors.  These profits are what is left over after closing costs and fees are paid, preferred returns are paid, and original investor principal is returned.  The percent of profits that get split among investors can vary significantly on a deal, based on risk, sponsor involvement, and overall return structure.

8)    Sponsor Fees.  Syndication sponsors get paid through three main ways, and investors should be aware of these when evaluating deals.  Sponsors may derive compensation from one or more of these categories.

a.     Upfront Fees.  These fees are built into the amount of money raised and help compensate sponsors for time and money invested to get the deal secured and put together.  There is no formal terminology, but this money is commonly called sponsor fees, acquisition fees, or due diligence fees.  These are separate from 3rd party fees from entities such as lenders, attorneys, title companies, and inspectors.

b.     Asset Management Fees.  During the hold, some sponsors will take compensation for management time and costs incurred to keep the property running successfully.  These are typically a percentage of rents collected or net cash flow that the syndication receives and are paid at the same time as dividends to investors.

c.     Profit Splits.   Typically, most of the value of a property is derived at the time of sale.  A successful syndicator is incentivized by a percentage of net profits to help close a deal out and maximize profits.  These will vary by deal, but should be high enough such that a sponsor is motivated to invest time and effort throughout the entire hold period to maximize returns.

9)    Exit Plan.  Syndications are illiquid and passive investments, meaning sponsors retain the final decision of when to sell the property.  A good sponsor will have an exit plan that has a projected hold period or range of years, contingent on market forces and occupancy being favorable for a property sale.  Most value-add deals will be shorter in length due to most of the value being created in early years.  Many stabilized property deals will be longer in order to take advantage of increasing rents, equity build up through debt payoff, and stabilized cash flow.

10) Voting Rights.  Most syndications are structured through an LLC.  The LLC buys and sells the property with the sponsors being Class B managers.  The Class A investors will be formally included in the company/operating agreement of the LLC that outlines their portion.  Some LLCs will give members voting rights as well, which can be used for large decisions such as changing management, restructuring returns, or dealing with death or transfer of existing members. It is important to understand the type of rights you have as an investor and what types of transferability, if any, your shares have.

These are just a sampling of the many differing components of a real estate syndication savvy investors should be educated on when evaluating opportunities.  Knowing how syndications are set up will allow you to make smart investment choices in the future.

Best regards to you and your investing,
Tom Wilson
CEO and Founder of
Wilson Investment Properties

may1

ARBITRAGE: THE INTELLIGENT STRATEGY FOR MAKING MORE, WHILE DOING LESS

By Fuquan Bilal

Arbitrage is both a very basic concept and a high level strategy deployed by sophisticated investors and entrepreneurs. It’s used for efficiently creating great profits, with a lot less hassle and stress. So, how does it work? Who is using it? How can you apply it?

Who Uses Arbitrage to Supersize their Potential & Paychecks?

  • Google with its ad services
  • Governments at all levels, with taxes and funding
  • The biggest financial institutions and brokers
  • Banks and funds
  • Amazon and Walmart
  • The Concept

According to the dictionary definition, arbitrage is:

“The simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset.”

The Cracks in the Market

Those leveraging arbitrage are those that see the gaps in the market. Gaps in the supply and demand chain.

Today so many have fallen into the temptation to try and do it all. Most just don’t do it very well. At least not nearly as efficiently or profitably as they could. They stunt their potential and under serve by trying to do too much, without being experts or having the time or hiring pros in all the different areas and roles involved.

What’s Better…

Know what you’re best at. What you love. Outsource the rest to someone you can trust.

Maybe you are great at finding assets, rehabbing, or selling houses. That’s great. Let someone else pick up the other parts. You’ll enjoy what you are doing more. You’ll do a lot better at what you are focusing on. You can go a lot bigger.

Financial Arbitrage

In this space it means, you raise the money, and you put it to work with someone like us. For example; you may be great at raising money at 4%, we might pay out double that. You get the difference. All with NONE of the work. Network, meet investors, collect checks, put it to work, get checks back. Done.

Find out about our latest fund and how you can participate and use arbitrage to make more while doing less, and enjoying it a whole lot more.

INVESTMENT OPPORTUNITIES

Find out more about investing in secured debt and real estate, go to NNG Capital Fund

apr24c

Another Reader Retires Five Years After Buying 1st Rental

Hello, Realty411 readers! I hope everyone is doing fantastic and ready to step into Spring. It’s my hope that you’re expanding your education and forging ahead with your investment goals.

I, for one, am moving right along with my mission of providing complimentary and quality resources to investors around the world, which can help them realize their financial goals.

Recently, Bobby S., one of our long-term followers in the Bay Area, reached out to share with me that he was turning in his resignation at the technology company where he worked. He is only 55 years young so he’s definitely retiring early, which is what most people dream of doing.

The reason he specifically called was to thank me for organizing an out-of-state investing bus tour five years ago, which helped him buy his first long-distance rental. That experience also sparked an interest in him to want to help others learn to invest as well.

Soon, he began to tell his colleagues about his positive investing experience, and he began to seek more properties out for himself, and later also for his friends and associates.

After a number of years, our loyal investor/reader evolved into an educated authority on investing in out-of-state rentals. He now also hosts his own events and has a loyal following of investors. What an amazing experience to know that Realty411 was the instrument which shaped Bobby’s early retirement. Not only did we teach him about passive cash flow, but now he is multiplying that message by sharing it.

What a joy to know that Realty411 is changing LIVES! I changed the course of my life with real estate, and now it’s your turn too. Please call us anytime if we can assist you, or if you have any questions: (805) 693-1497. I hope to see you soon at our next live event!

apr22

HOW TO USE FUND INVESTING TO OVER-COLLATERALIZE YOUR CAPITAL

Is it time to rethink the way you think about funds and invest in them?

There are all types of funds. Some are far better and safer than others. Some see all the gains eaten up in fees and admin costs. Others generously pass on great gains to participating investors, even though their upfront estimates may have been modest. There’s a good chance that there is a place in your portfolio for some type of fund. Yet, most just don’t get the real advantages. They only see passive income and some stability in yields in the case of real estate funds. There are other advantages though, which more sophisticated investors are aware of.

THE OTHER ROI

“What’s my return?”

That’s the most common question novice investors ask when shopping and comparing investment options. “How much are you promising me?” That’s like shopping mortgage interest rates on your home loan. If you’ve financed a few homes, you know that the rate and terms you can get at the closing table may be WAY different.

What experienced and intelligent investors prioritize is another kind of ROI. The Return OF Investment.

It doesn’t matter if you’re promised the chance of 100x returns, if the chances you’ll lose everything are pretty close to 100% too. That’s the case with a lot of investments. Especially in the tech and startup world.

If you lose your capital you have nothing to reinvest. It is far better to make nothing in terms of returns on your investment, and just walk away with your capital back to try something else. A little icing on the cake, in yield, to cover inflation and lost opportunity costs on top of that would be nice too though.

So, what the most sophisticated investors look at is how likely they are to get their capital back in the worst case scenario. Think bank loans, mortgage lenders and even VC funds and Warren Buffett. What is this asset worth? If it completely fails to perform and the borrower or tenant goes broke, how can I get all my money back, and then have the chance to potentially sell it for a whole lot more? You think banks really did bad in the 2008 crisis? Probably not near as poorly as you think.

HOW TO OVER-COLLATERALIZE YOUR INVESTMENTS

So, how do you make sure that the risk-reward balance is so skewed in your favor when investing that you can’t lose?

Well, you can invest in mortgage notes and demand great spreads. You can buy properties for pennies on the dollar. Or you can choose great fund investments.

Over the past decade we’ve only seen problems ramping up. Virtually a whole industry of novices have popped up, overpaying for assets, without any plan for sustainability. Many are already seeing their assets dive into negative equity territory. It’s a catastrophe waiting to happen. Though a massive opportunity for others.

Here’s what’s cool about funds. Not only do the best have the ability to still buy assets in bulk, off market for pennies on the dollar, they can over-collateralize your investment with all of the assets in a fund. Let’s say you put $100,000 into a $1M fund. Well your capital technically has 10x the protection of your investment. Inside that fund there can be hundreds of assets too. So, you are never counting on a single asset to perform. In fact, even if 30% of them totally flop, you’ll still be fine.

In our diversified hybrid fund we’ve also built in multiple strategies and plays that are working for you at the same time. Redevelopments, buy and hold income properties, mortgages notes, etc. if one niche slows down, the others are speeding up. It’s a great way to not only ensure your return OF capital, but a return on your investment too.

Is your capital safe? Is your portfolio future proofed?

INVESTMENT OPPORTUNITIES

Find out more about investing in secured debt and real estate, go to NNG Capital Fund

apr19

Real Estate Investors, If You Could Buy Single Family Homes With No Mortgage For 20 Cents On The Dollar, How Many Would You Buy?

By Ted Thomas

Here’s the secrets of a little known but highly lucrative business of purchasing tax defaulted properties at auction for 10-20 cents on the dollar.

For many, the question is, what’s the difference between a tax lien certificate and a tax defaulted property (tax deed)? Before you begin investing, it is vital that you understand how a tax deed works, once you know you can purchase tax-defaulted real estate for pennies on the dollar but it’s only profitable if you know what you are getting when you bid.

What is Tax Defaulted Property (Tax Deeds)?

In a very basic sense, every piece of land in the United States is owned by the federal government. The government allows you the right to own the property as long as you pay taxes on it.

Many years ago, the U.S. Congress enacted laws that allowed individual states to handle governmental duties and obligations at the local level. The states further designated counties to handle the property taxation part of those duties and obligations. When you pay property taxes to the treasurer or assessor’s office, those funds are used to pay for public schools, police and fire departments, and any number of other civic services. The local government that manages and operates these services is primarily funded by property taxes.

Every year hundreds of thousands of property owners neglect to pay property taxes for various reasons. So what happens then??

The remedy for local government is to confiscate that property and resell it at a tax defaulted property auction for only the back taxes with no mortgage. The majority of these auctions use a public oral bid system. To quality as a bidder is simple; you just need to register before bidding. The starting bid is the amount due to the local government for back taxes plus penalties and interest. If you win, in most instances, you must immediately pay for your purchase.

It doesn’t matter where you live; county governments in all 50 states are authorized to hold auctions to recover delinquent back taxes. Some states offer tax lien certificates, other states offer tax defaulted property auctions (tax deeds) which are used to collect the past due property taxes owed. The difference? A tax lien certificate entitles you to collect the amount of tax you paid plus the interest penalties; a tax deed purchased at auction allows you to become the owner of the property for the price you bid at auction the mortgage is extinguished, that is deleted by law.

The secret to becoming a successful investor in tax defaulted property (tax deed) real estate is to know the who, what, when, where, why, and how these tax auctions take place.

Golden Rule #1

Know what you’re buying. This includes the size of the parcel, how many buildings are on it, zoning, restrictions, easements, the annual amount of property taxes, the appraisal value, previous sale prices, and current condition.

Taxes are usually assessed at 1 to 1.5 percent of the property’s value. So a piece of real estate valued at $100,000 will be assessed somewhere around $1,000 in taxes each year. Three years of back taxes would equal $3,000 and the local county will probably ask for a minimum bid at the tax defaulted property auction of $3,500 -the county will add late payment penalties to the back taxes.

The next question that must be answered is where and when are the auctions taking place? Normally auctions are conducted at county offices, but not always. Regardless of the location, it will be announced in advance of the auction. Some counties hold one big annual event while others schedule tax defaulted property auctions monthly, annually in the United State of America there’s over 5,000 tax defaulted auctions.

Secondly, you must know how the bidding process works. Rules vary from state to state, taxing district to taxing district. Some counties use an online bidding process which is becoming more and more popular, but the majority still hold live auctions you may attend in person.

At the auction, each parcel number is announced in turn; then the auctioneer asks for opening bids. It works much like any other auction; the bidding goes up until there are no more bids. The person who wins with the highest bid is awarded a Treasurers Tax Deed from the county treasurer. Make note there’s dozens of unique bidding processes, this is only one.

Real Estate For 20 Cents On The Dollar

There’s big money to be made buying tax defaulted property at auction Tax defaulted property (tax deed) auctions allow you to buy low and resell for a quick profit. Do your research, and you’re bound to find success!

Ted Thomas is famous for showing newcomers and investors how to earn 6 figure incomes within 1 year of completing his training program. Conservative investors love tax lien certificates because they are predictable, certain and secure and sold by local government. Tax defaulted properties are sold at oral big auctions and online. Starting bid, only the back taxes…. More information at TedThomas.com