A “Win Some, Win Some” Investment Opportunity

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Interview by Anita Cooper

In the real estate world, investors have a lot of choices to grow their portfolios; fix and flip, buy and hold, residential, multi-family or commercial, and finally, one type of investment that’s often forgotten or at the least remains shrouded in mystery: note investing.

Note investing is a fantastic way to grow your wealth, but until the last ten or so years, it’s not been on the radar of many property investors. We sat down with Jasmine Willois, founder of The Note Assistance Program (N.A.P.) to learn more about her and to discover how her organization can very often help investors reap double digit returns.

Question: Jasmine, how did you get involved with note investing?

ANSWER:Note investing is one of those things that kind of came to me. I started out with a real estate investment club called Lady Landlords of San Diego, and that really took off! We ended up expanding to two clubs, the latter being Lady Landlords of Orange County.

After years of flipping homes, offering turn-key investments (rentals) and some life changes, it occurred to me that I didn’t want to work this hard at investing.  So I called a hedge fund manager I knew from networking, and we will it off. I ended up shadowing him for the next two years of my life, and learning everything he did inside and out.

Question: Do you enjoy your work?

Yeah, it’s exhilarating… it really fits my personality. It’s something that allows me to use my problem solving skills to help those in need. You see, I used to be a day trader and a stock broker. It was a lot of money, but not as rewarding. With note investing I’m able to make good money and also feel good about what I do.

Question: Why should investors add notes to their investment portfolios?

ANSWER: Outside of the sheer return, which is very alluring — it’s really a product that, whether investors know it or not, they’re most familiar with.

The majority of people use traditional means to invest and save, such as stocks, bonds, ETFs and mutual funds. These vehicles are really hard to understand and that’s the difference with notes, if explained correctly almost anyone can get it.

Again, because most of us are familiar with the underlying asset, real estate and even further a majority of them have experience getting mortgage loans from one of the bigger mortgage banks, like Wells Fargo or Chase.

As far as the underlying asset, which is the actual real estate, investors who buy notes are already very familiar with the concept. They’ve bought a home before with a loan, so whether they realize it or not at first, they’re very familiar with the product.

Question: What is The Note Assistance Program process and how quickly can investors expect it to take?

ANSWER: Well there are two opportunities, but what is making this revolutionary and bringing real change to the market is that we have built a platform for the retail investor. You no longer have to go to a $16,000 to $40,000 program unless you need the crowds.

Until recently, the past three to six years, this side of the market really wasn’t open to the average investor, never-mind the fact that still to this day it’s hard to find out about notes without running into a guru, broker joker or scam artist.

One product we offer is our Non-Performing Note Trade Desk. Here you will find a cornucopia of notes usually around $35M to $55M worth of unpaid balances nationwide that can be cherry picked.

Investors have access to tapes that are direct from the seller, so no daisy chains! And here’s the most exciting part, because we have established such a track record with the sellers, our clients are actually benefiting from lower pricing than they can find anywhere else. Our members benefit from our relationships by being able to curtail on a bulk trade or with direct pricing from the sellers.

This is something the average note buyer cannot get just due to barriers of entry. Seasoned investors love our trade desk because they are finding that we have the inventory and the pricing that cannot be beat. Even in cases where they have access to the same inventory our the transparency and pricing you find on our trade desk is hard to beat.

They get to benefit from those relationships with my pricing so they’re buying in bulk, and then they get direct pricing from the seller there, THAT’s something that the average individual can’t get.

The second way investors benefit from The Note Assistance Program is the educational piece. We’ve put together the most comprehensive on-line note education platform to date. This platform takes out all the fluff and distractions that can be found to throw investors a loop.

For those, like me who learn best by doing, there is our accelerated hands-on program where we have a flat fee. This program is different because you have to be committed to buying a note to join, it’s not one of those programs where you can join and hang out for a few years and not invest.

Like I mentioned, we have well over 37M worth of inventory on our trade desk as we speak.

We’ve got big banks like Bank of America, all the way to smaller hedge funds in rural america. So for those who are committed to learning, buying and have the capability the program is here for you.

Through this program we offer support for the life of the loan the investor purchases. This in not a joint venture situation where we split the profits in the end, you get the full experience and the full profit at the end of the investment. To that point, being actively involved with your note is mandated here at The Note Assistance Program.

So you’ve got to know how to be active and know what you’re doing. This industry is just as dangerous as the others, you can hurt yourself and the borrowers so it’s very important that you are trained correctly. I have found that most of the programs out there are too cumbersome or leave out certain tips and best practice that ultimately leave the investor dependent on the guru. We do it differently here, and that is how we are shaking up the industry.

Question: How does the additional layer of protection work?

Answer: The protection really is for the people using self directed IRAs. It’s not a “dollar-for-dollar” type of protection; it’s really about keeping these investors compliant with IRS regulations, and avoiding decisions that jeopardize their tax benefits. If you own a self directed IRA, you shouldn’t be doing “hands-on” activities with the investment. There is a fine line with the IRS, they have prohibited transactions and even disqualified people for investors to navigate around. So a lot of people choose to use The Note Assistance Program and it’s team to handle these grey areas.

Most investors want to be active so we train them to outsource with the professionals in the industry, and extend our black book of trusted vendors to them as well. There is no need to become an attorney, to learn how to read title or do foreclosures on your own. We attract those investors who want to build a working portfolio, not another job. We focus on building the right team of professionals who can help keep us out of trouble, because as I mentioned, you can loose money.

Question: How many investors have you helped?

Answer: So far we have helped over 200 people since we opened our doors. We’ve expanded and added two locations one in Newport Beach, CA and another in Bayonne, New Jersey. Our investors are very successful, which in turn is why we are successful. We are not running a private island or club, it’s a community of investors that have established and implemented best practices.

We take our community of clients in small teams. The classes for the Non-Performing note lab that we teach isn’t more than thirty-two.

Four times a year, I get out there and teach small classes of 20 or less in our 2-Day Non-Performing Note Lab as well, so that has helped us with our reach. We keep those classes small and practical so each investor can get what they need from the experience. We want to make sure the investor is given a real life view of what it means to be a note investor, not a lot of hype.

Question: What would you say is the average return an investor could expect with a note?

Answer: It’s definitely double digits, and if you approach the business the right way you can do that consistently.

That’s what this is really about, beating Wall Street. We get these numbers because of the relationships we have built over the years with these banks, and because we have a system of people who work our system. We also only play in the 1st position space, so we aren’t buying 2nds or 3rds for that matter. You will find that most investors are junkies for control and security, we find both when note investing.

With that first position comes THE security and the control that we’re looking for, to make sure that we can tackle those types of returns. Unlike second or third position, when you buy in first position, you pretty much “win some and win some”, and that’s what appeals to me.

ABOUT JASMINE WILLOIS

An advocate for responsible investing Jasmine spends her time educating audiences on conservative real estate strategies. She has owned rentals and flipped out-of-state properties since 2005 in states such as California, Mississippi, Indiana and New Jersey to name a few. She is the Managing Director of The Note Assistance Program a firm that provides additional security and education on real estate investing, specifically with non-performing notes. Her reputation for the judicious use of resources, result-oriented management style and skillfull negotiations, has opened many doors.

Jasmine offers a unique blend of experience. She received her B.A in Economics from California State University at Long Beach, and enthusiastically accepted her first job as an equity trader with Joseph Stevens, in New York, NY. She emotionally ended her 7-year long career on Wall Street as financial advisor with Morgan Stanley Dean Witter after losing colleagues to the world trade center attacks.

Jasmine focuses on conservative real estate cash flow strategies and the abundance of opportunities that lay out side of her backyard. She hosts a note mastermind at her Note Lunch & Learn every Thursday from noon to 2 pm at her Newport Beach, Calif., office. Find out more on Meetup.com or their Facebook page.

Photo caption:Known for her signature pink cowgirl hat, Jasmine Willois, MBA, likes to incorporate fun while learning about a serious topic: distressed notes.

2020 REI—-The Mustang GT of Real Estate INVESTING

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Interview by Tim Houghten

Go faster, put the power, experience and hindsight of 2020 REI in your hands, and get on the fast track to your real estate goals

As he jumped into the driver’s seat of a new Mustang GT, Realty 411 caught up with 2020 REI’s founder, Tim Herriage. Our fast-paced, hands-free conversation, ripped open what’s going on under the hood of one of America’s power houses of the real estate investment world, as the 435 horsepower machine rumbled to life.

FORD & THE 2020 ADVANTAGE

2020 REI is a leader in the real estate investment space, and for investors it’s not too unlike the experience of getting behind the wheel of America’s best loved, and perhaps most exciting sports car.

With Ford’s Intelligent Access you have the ability to remotely start your vehicle, and the ease of push button start. You have rearview mirrors and a great dash, so you can both clearly see the road behind you, and in front of you.

In the Mustang you have many working parts, from the engine to the technology that runs it. You can have a great navigation system plugged in, a good sized gas tank, and a whole team of experienced individuals that put decades of knowledge into building it.

You don’t need to understand or master the art of every part of the engineering yourself in order for the car to work. They did it for you. You just need to know where the button is to start, and how to put your foot on the gas pedal.

At the 2020 REI group of companies you’ll find vertically integrated solutions for investing in real estate, including financing (your gas). Like the original Henry Ford, Tim Herriage says he believes real estate investing should be easy, and it should be accessible to the masses. He doesn’t believe the individual investor should have to master email or direct mail marketing, or knocking on doors to reap the benefits. Through 2020 REI, he has built his own system, designed to consistently build and turn out real estate investment success. With over $1B real estate transactions so far, the group may have cracked the code.

FORWARD THINKING VALUES

They say hindsight is 20/20. We all know we’d invest and navigate the investment landscape far more successfully if we had the benefit of time travel. 2020 REI is built on the mission to give today’s investors the benefit of the knowledge of those that have gone before them, and the clarity to make the right moves for the future. Like the Mustang, 2020 REI has changed the game from just being about having heavy weight capital to throw around, to being more like a hi-tech sports car that can take investors where they want to go, faster, and with better handling.

Tim, who would much rather talk about his great team members and customers, than himself, can’t be ignored. He continues to both harness an elite level of thoroughbred leadership, and be highly relatable to.He’s been the Marine who just got out of the service with no money and no credit. He has been the once successful hard working professional who had to fend off foreclosure in the great recession. Yet, he has also headed up Blackstone’s B2R Finance division. Now he also knows the point when you’ll get the back out on the new Mustang, and when to throttle it to maneuver safely. He’s been where you are, and knows the way forward.

While real estate has made him wealthy, Tim says he remains “extremely grateful and passionate about helping others.” Pressed about his business goals and vision for 2020, Herriage says it is simply to “just help more people next month than the last month, and even more the month after that.”

To achieve this our driver says he has focused on building a phenomenal team of professionals “who really know how to listen to customers.” Not only listen, but hear them, and help them reach their own goals and destination.

Yet, no matter how big the company has grown, and the immensely valuable set of resources it has developed, Tim Herriage says one of his favorite things to do is still to meet investors that come into the office, let them interview him, get to know them, answer their questions, and help them map a path to the success they want.

THE VERTICALLY INTEGRATED ECOSYSTEM FOR INVESTORS

Under the hood of 2020 REI, the parent company has a full stable of resources, comprising a full toolkit for investors.

  • Investable Realty

A real estate brokerage with dozens of licensed Realtors ready to help investors find, negotiate, buy, lease, and sell.

  • 3L Finance

An in-house concierge finance partner and lender providing custom mortgage lending solutions.

  • REI Choice Insurance

Insurance company designed specifically for investors.

  • H&R Acquisitions

Wholesale acquisitions company.

  • DFW Investors

A regular social networking event with over 300 attendees each month.

  • Elevate Private Capital

Private equity arm that enables investors to place their money in real estate without having to do any work, while generating a guaranteed return on investment

  • REI Data Systems

The group’s technology division, encompassing the Investor Well funding solution for matching investors with the best fitting lenders.

TEST DRIVE IT!

For those that really want to get more out of their real estate investing, don’t want to have to master direct mail or Facebook ads, and just want to get on the fast track are invited to engage and test drive the 2020 REI group for themselves.

Get out to the next DFW Investors meeting, punch in your loan scenario at InvestorWell.com, or click over to 2020REI.com and setup a complimentary consultation to find out more about how they can help you.

Embrace the Mobility of Your Investor Lifestyle

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By Linda Liberatore

As you build your real estate investment portfolio, you dream of ending your 9 to 5 corporate job and the day your freedom begins. No need to go into the office. Now you can spend your days finding properties and evaluating progress on rehabs while managing your current assets.

To operate as an investor having an office space is not necessary and it’s a great way to save capital. Let’s be sure that while you have saved on the cost of office space, you are able to keep great records in your new mobile workspace. There is a multitude of ways to stay organized while on the road. You might want to consider adding these mobile apps as you embrace your new virtual office. First things first, you’ll want to be sure your notes are logged from your mobile device. Some of our clients enjoy the speech-to-text features and exclusively use the Google suite of apps to manage their documents. This works perfect for sharing documents with a future virtual assistant.

The Zillow Rental Manager app allows you to post an ad on several sites. With Zillow Rental Manager, you can have your ad on Zillow, Trulia, HotPads and other top rental sites. And unlike some real estate apps, Zillow Rental Manager is free. Simply enter details and insert a few photos. Applicants from Zillow and Trulia include pet information, credit score and income. Remember, finding the most qualified candidate quickly is the goal.

Homestyler is a wonderful app that helps you envision your next rehab. Take a picture of the current floor plan and let Homestyler show you how it will look with tile or hardwood. Take the dream-work out for contractors and leads. Let them know how furniture placement can work. Check out lighting changes and more. Homestyler removes the guess-work, and the multiple trips and returns to the store.

It’s great anytime you need to share your vision with others. With more than 200,000 vendors checking in nationwide try Thumbtack for the next unexpected maintenance request. It’s more likely than not that you may get an emergency call during unexpected conditions.

If you can’t get there it’s worth giving Thumbtack a try. You can search for contractors by listing the job and they will send you the bid. You don’t have to accept anyone you don’t want to and you have the ability to read reviews and check credentials.

Private messaging allows you the ability to ask questions before selecting a vendor. If your regular crews are behind on projects this app is a great back up plan. Think big picture. You can get started with a small job with these people and if you like their work then you can add them to your team down the road.

As you grow your portfolio you are constantly on the lookout for the next best deal. Auction.com allows you to find your next potential deal anywhere. This free online auction app has over 30,000 properties to select from. It’s powerful features include using an interactive map in both local and national markets with the ability to access details and property photos.

You can use the search and bid features while you are on the move. You no longer need to feel limited by attending auctions. You can start due diligence research with free title information or HomeDisclosure.com reports. Whether it is foreclosure or bank owned homes this is a leading source for the real estate marketplace.

No mobile app list is complete without the power of the app that allows you to finalize the deal, cue Docusign. Docusign saves you from the time and resources associated with completing business critical transactions. This app keeps everyone more productive and accountable from purchases to rentals.

Once you have reviewed the details of the agreements or contracts it’s both simple and secure to e-sign. Forget about the wasted time associatedwith sending out lease renewals to be signed andnot knowing if they are getting to your tenant securely.

This application has been a huge timesaver for us and our clients. It is a must for anyone looking to increase output and efficiency.

As an investor you are constantly on the road looking for properties or checking out existing properties. Make sure to dot your I’s and cross your T’s with the amazing technology available to you today.

From the array of Google products to the apps listed above this only skims the water on the countless ways you can improve your business productivity. Take advantage of these today and you will see a difference!

Choosing the Right Neighborhood

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By Marco Santarelli

Classifying a neighborhood by “type”, or what many investors refer to as a “grade”, is typically nothing more than a subjective description. Although most people will have a general idea of what is being referred to, in my experience it is usually nothing more than a qualitative rather than quantitative description.  Because of that ambiguity, we’ve developed a proprietary, simple grading system that we use with all our investment-grade properties. To help you understand this, a basic overview and description follows:

NEIGHBORHOOD TYPES

Low Income (“C” and “D” grade neighborhoods)

Low income neighborhoods generally have a large portion of their residents on government assistance (for example Section 8 housing assistance). The ratio of renters to owner-occupied homes is greater than 50% and often as high as 80%. These neighborhoods are almost always the most affordable (lowest-priced) areas within a market and usually have some of the highest rent-to-value ratios.

This provides some of the highest cap rates and cash-oncash returns compared to other neighborhood types. You will find substantial area anchors including schools, churches and shopping in these neighborhoods. The anchors are there to meet the needs of the people that live there. Low income neighborhoods are best suited for the wholesale (flip) strategy.

Moderate Income (“B” grade neighborhoods)

Moderate income neighborhoods are similar to Low Income neighborhoods with one critical difference – higher home ownership. While low income areas have a large portion of their residents on government assistance, moderate income areas have a large portion of residents working in the blue-collar sector. This stabilizes the neighborhood and makes for a more attractive investment area.

The ratio of renters to owner-occupied homes is more balanced and closer to 50% for each. Area anchors are similar to low income neighborhoods but with home owners being anchors as well. Moderate income neighborhoods are best suited for the wholesale (flip) and buy-and-hold strategies.

Middle Income (“A” grade neighborhoods)

Completely different in almost every way to low income and moderate income neighborhoods. The biggest differences are homeownership and types of employment. Most of the residents own their homes in these neighborhoods and are employed in high-level blue-collar jobs or in the white-collar sector. Middle income areas are excellent for long-term holds because of the stable nature of the area and tenants.

The ratio of renters to owner-occupied homes is closer to 80% owners and 20% renters. Middle income areas will have a greater number of anchors that meet the wants of the people that live there. These include the three “Ms”: malls, movies and meals. Middle income neighborhoods are best suited for retail fix-andflips and buy-and-hold strategies.

HOME VALUES

Home values vary from market to market, and between neighborhoods within each market. So one should not choose a neighborhood based on the market values alone. It is usually best to target those neighborhoods where property values represent the affordable housing stock in the middle market.

These properties are often within desirable neighborhoods making them easy to lease, buy and sell. Properties in the upper-end of a market’s price spectrum often don’t provide desirable rates of return, while properties in the lower-end of a market’s price spectrum often provide some of the highest expected returns but with the risk of attracting some of the lowest-quality tenants.

SCHOOLS

When it comes to residential real estate investing, it is not as important to have top-rated schools as it is to have multiple schools located in the area. Too many investors put more weight and emphasis on the school’s rating than all the other factors which can be a mistake and cost you in lost opportunities.

While many of our investors choose properties in neighborhoods with some of the best school districts, when it comes to investment properties, often times these properties come at a premium price relative to the income it generates. Many renters are just not willing to pay premium rents for premium schools.

CRIME

Generally speaking, better neighborhoods (“A” and “B”) will have below average crime rates (both violent and property crimes). Although lower relative crime rates are certainly a desirable characteristic to have, it is not the most important factor in your neighborhood selection criteria.

Finally, if you’re working with a reputable company to help you find or provide you with investment-grade properties then they should be able to advise you on the various markets and neighborhoods as well as provide you with detailed information such as neighborhood characteristics and demographics.

Personal Service in a Busy Financial World

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By Anita Woods

Investing in property can be frustrating, especially when you’re always searching for good financing options that suit your time-frame as an investor.

Having someone in your corner toprovide quality information and advice can help you reach your goals more quickly than going at it alone.

Steve Bighaus’s clients know they can count on him when they need to finance a new opportunity, even when that opportunity is their own place of residence.

Bighaus has a vested interest in the success of property investors…it’s why he does what he does. His number one goal is to become the all-in-one resource for property investors.

But as a forward-thinking kind of guy, Bighaus is always on the lookout for ways he can improve his processes to get better results for his clients.

One such process is technology, using it efficiently and effectively.

That’s why, after speaking with thirty to forty companies, Bighaus settled on working with Sierra Pacific Mortgage Company. They understand his goals as a specialist in lending to investors, and they share his vision of using technology to deliver exceptional products for his customers.

One exciting development is the creation of a new loan origination system that will allow a borrower’s information to be obtained straight from the source.

This will simplify the process for both investors and homeowners and expedite the loan origination process.

One particular issue that many fix-and-flip investors are facing is the challenge of finding eligible buyers for their properties.

Steve’s research has found that these investors are experiencing a dismal fall-out rate of 40 to 50 percent.

As part of his goal to be a full-service company for investors, Steve and The Bighaus Team at Sierra Pacific Mortgage Company aspire to preclude any potential problems as early in the process as possible.

Using all of the tools at their disposal, they can provide quality pre-approval letters towards the goal of improving results for investors. Other tools that Bighaus can use include an automated system for appraisals that will let the lender know whether or not an appraisal is needed, and a great customer relationship system.

And as any of his customers will tell you, Team Bighaus is known for their stellar customer service. Whether you leave a voice message, drop an email or send a fax, you will receive a response the same day.

Need a pre-qual letter and it’s the weekend? Just call Steve Bighaus! He’ll take care of it.

Think of him as your personal banker – someone you can count on to be in your corner.

Bottom line, while pricing is important, there’s something Bighaus and his team can offer that few can: Responsive customer service paired with innovative technology to create exceptional products to help investors grow their wealth.

10 Rules of Successful Real Estate Investing

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By Marco Santerrelli, CEO of Norada Real Estate Investments

I came up with the following rules of successful real estate investing over my many years of successes and failures. These are the same rules I follow today and share with our clients at Norada Real Estate Investment.

1. EDUCATE YOURSELF Knowledge is the new currency. Without it you are doomed to follow other people’s advice without knowing if it’s good or bad. Knowledge will also help take you from being a “good” investor to becoming a great investor, and that knowledge will help provide a passive stream of income for you or your family.

2. SET INVESTMENT GOALS A goal is different from a wish; you may wish to be rich, but that doesn’t mean you’ve ever taken steps to make your wish come true. Setting clear and specific investment goals becomes your road map and action plan to becoming financially independent. You are statistically far more likely to achieve financial independence by writing down specific and detailed goals than not doing anything at all. Your goals can include the number of properties you need to acquire each year, the annual cash-flow they generate, the type of property, and the location of each. You may also want to set parameters on the rates of return required.

3. NEVER SPECULATE Always invest with a long-term perspective in mind. Never speculate on quick short-term gains in appreciation, even in a heated market experiencing double-digit gains. You never know when a market will peak and it’s usually 6 to 9 months after the fact when you find out. Don’t chase after appreciation. Only invest in prudent value plays where the numbers make sense from the beginning.

4. INVEST FOR CASH-FLOW With few rare exceptions, always buy investment property with a positive cash-flow. The higher,  the better. Your cash-on- cash return is directly related to the before-tax cash-flow from your property.

Cash-flow is the “glue” that keeps your investment together. Your equity will grow over time (through appreciation and loan amortization), while the cash-flow covers the operating expenses and debt service on your property.

5. BE MARKET AGNOSTIC The United States is a very large country made up of hundreds of local real estate markets. Each market moves up and down independently of one another due to many local factors. As such, you should recognize that there are times when it makes sense to invest in a particular market, and times when it does not.

Only invest in markets when it makes sense to do so, not because you live there or you bought property there before. There’s an element of timing and you don’t want to buck the trend.

6. TAKE A TOP-DOWN APPROACH Always start by selecting the best markets that align with your investment goals. Most investors start by analyzing properties with little to no regard of its location. This can be a big mistake if you don’t consider the investment in light of the market and neighborhood it’s in. The best approach is to first choose your city or town based on the health of its housing market and local economy (unemployment, job growth, population growth, etc.). From there you would narrow things down to the best neighborhoods (amenities, schools, crime, renter demand, etc.). Finally, you would look for the best deals within those neighborhoods.

7. DIVERSIFY ACROSS MARKETS Focus on one market at a time, accumulating from 3 to 5 income properties per market. Once you’ve added those 3 to 5 properties to your portfolio, you would diversify into another prudent market that is geographically different than the previous one. Typically that means focusing on another state.

One of the underlying reasons for diversification within the same asset class (real estate), is to have your assets spread across different economic centers. Every real estate market is “local” and each housing market moves independently from one another. Diversifying across multiple states helps reduce your “risk” should one market decline for any reason (increased unemployment, increased taxes, etc.).

8. USE PROFESSIONAL PROPERTY MANAGEMENT Never manage your own properties unless you run your own management company. Property management is a thankless job that requires a solid understanding of tenant-landlord laws, good marketing skills, and strong people skills to deal with tenant complaints and excuses. Your time is valuable and should be spent on your family, your career, and looking for more property.

9. MAINTAIN CONTROL Be a direct investor in real estate. Never own real estate through funds, partnerships, or other paper-based investments where you own shares or other securities of an entity you don’t control. You always want to be in control of your real estate investments. Don’t leave it up to corporations or fund managers.

10. LEVERAGE YOUR INVESTMENT CAPITAL  Real estate is the only investment where you can borrow other people’s money (OPM) to purchase and control income-producing property. This allows you to leverage your investment capital into more property than purchasing using “all cash”. Leverage magnifies your overall rate-of-return and accelerates your wealth creation. As long as you have positive cash-flow and your tenants are paying off your mortgage for you, it would be foolish not to borrow as much as possible to buy more income property.

For more information, visit: http://www.noradarealestate.com/

 

Land Trusts vs. Limited Liability Companies

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By Randy Hughes aka Mr. Land Trust

Recently I read an article by an attorney telling his readers not to use a Land Trust. He recommended titling your investment property in a Limited Liability Company. His reasoning was that Land Trusts are only a “deterrent” to a lawsuit and they do not provide “true” asset protection. The attorney went on explaining how any lawyer “worth his salt” would find out you are the beneficiary of a Land Trust as the result of a judgment debtor’s exam (which is a hearing in a court room…sometimes called a Citation to Discover Assets). The attorney writing this article concluded that you have “zero” privacy with a Land Trust and if you want privacy you should “save the expense” of a Land Trust and title your investment real estate directly into an LLC (Nevada or Delaware).

After over 40 years in the real estate investment business, I can spot an attorney who understands the law but does not have practical real world experience. I agree that LLC’s have better asset protection than a Land Trust, but Land Trusts have far better privacy elements than LLC’s. I use LLC’s in my business but NOT to hold title to investment property. Let’s review the benefits of using a Land Trust.

LAND TRUSTS:

  • Are NOT registered anywhere on the planet
  • Do not require a registered agent
  • Pay no franchise taxes
  • Cost nothing to form (you can form them yourself)
  • File no tax returns
  • Require no tax ID number
  • Can be formed in a state other than where the property is located (for terrific privacy and asset protection)
  • Can easily hold each property separately from other properties to keep all investments insulated
  • Can have an LLC, Corporation or Personal Property Trust as its beneficiary

Experienced real estate investors understand that putting all of your properties into any one entity (be it an LLC, Corporation or a Land Trust) is a nexus for a lawsuit. Remember grandma’s advice to not put all your eggs in one basket? It makes logical sense to put each property into its own separate Land Trust and then make the beneficiary of the trust your LLC or Corporation.

This yields the best of both worlds from a privacy and asset protection standpoint. Since the Land Trust Agreement is not recorded anywhere no one can find out who the true owner of the trust is without a full blown lawsuit…which is expensive for your adversary. Furthermore, if the property is in one state, the Land Trust is formed in another state, and the LL C beneficiary is registered in a third state you get a dy-no-mite structure that is not only difficult to unravel but legally expensive to pursue. Most contingency fee lawyers would give up and start looking for another sucker to pursue.

Real estate investors are more susceptible to a lawsuit than most other Americans. The general public’s perception of a real estate investor is that they do not have any debt on their property, have lots of cash in the bank and tons of positive cash flow. So, even if the investor is upside down on their property debt and suffers monthly negative cash flow they are still at the mercy of the contingency fee lawyer and his/her dead-beat client. Keeping property isolated in separate Land Trusts makes logical practical sense to those of us in the trenches every day. A huge benefit to holding title to each property in a separate trust is the ability to finance without affecting the other properties.

You can also sell property on an installment contract basis without affecting other properties. If you title multiple properties in one LLC the lender will want to tie up all the assets of the LLC as collateral for the loan on just one property. Take your advice from a streetwise investor with decades of real-life experience. Use a Land Trust to hold title to your investment real estate…you will be glad you did!

To receive a FREE copy of my booklet “50 Reasons to Use a Land Trust” send me an email at: mailto:[email protected]

 

MULTIFAMILY PROPERTIES: Should It Be in Your Future?

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By Tom K. Wilson

One of the most common questions I get is: Which are better investments, multifamily properties (apartments) or single-family homes? My answer is, both, but not multifamily without experienced or qualified and experienced partners.

A multifamily property is defined as 5 units or greater, and single-family homes, duplexes, triplexes, and four-plexes are referred to as “1-4s”. For someone with a goal of building a medium to large real estate portfolio, I generally recommend considering the inclusion of a commercial or multifamily property with one caveat: Don’t start by yourself and don’t put all of your real estate working capital into one large investment.

After purchasing and selling over 2,000 units and 12 multifamily properties over 37 years, my experience is that the best investment property I ever owned was a multifamily property and the worst investment property I ever owned was a multifamily property. These properties have ranged from 10 units for $400K to 176 units for $10M.

Multifamily properties offer higher potential reward along with higher risks. On the surface, an apartment building seems to be nothing more than many units, like single-family detached homes, but in one address, however, their proper management is a specialty. There are many more variables and expenses than in 1-4s including utilities, landscaping, contract maintenance, on-site maintenance, office management, tenant profile, advertising, lender and government inspections, requirements, and more.

So why are the largest investors attracted to them? For one factor, the rent ratios are usually higher and, therefore, the potential Net Operating Income (NOI) and the cash-on-cash return can be higher. In the multifamily world, rent ratios are represented as the GRM (gross rent multiplier): The property price divided by the annual gross income, the lower the better.

There is also generally an efficiency of scale for maintenance and other expenses, and with good management, expenses are easier and more efficient to control. The advantage of scale best manifests itself when the monthly income is great enough to afford full-time, on-site management and maintenance. For non-high end metro areas this is usually about a $2.5M property or higher. With a typical 60-70% loan this is a stiff barrier to entry that may best be solved by partnering with other experienced investors.

And then there is the issue of the loan. In these post crash years, getting a government- backed loan such as from Fannie Mae is virtually impossible in today’s tight money market without current or significant past multifamily ownership experience. Regional banks and private lenders may sometimes provide loans at the cost of higher rates, shorter terms and amortization, and lower LTVs. For investors who are “tapped out” at 10 loans for 1-4 residential properties and can’t get more loans because of Fannie Mae loan quantity restrictions, a multifamily purchase has the advantage of not being forbidden just because you have 10 or more loans on 1-4s.

For an investor who would like to own a multifamily product, but who does not have the experience or local residency that the lender wants, one can work with a syndicator who can connect you with an investor or investors who can qualify for the loan, reduce your risk and exposure, provide the expertise needed to evaluate a deal, and to manage the property for maximum return on investment.

Many investors are drawn to small multifamily “Tweeners” (5-50 units) because it is a lower entry price. However, the problems include:

  • Loans are generally more difficult to obtain
  • Loan terms are not as good
  • Price per unit is higher
  • Banks prefer local borrowers
  • Properties are generally older
  • The economics cannot justify full-time, on site management and maintenance

And, it is usually difficult to manage effectively. Stories of offsite management showing up after a week or two at small multifams only to discover that drug dealers have run off decent tenants are common stories. Also, a single vacancy in a small mulitfam has a greater percentage impact on cash flow than in a larger investment. Again, one valuable way to mitigate these factors is to purchase a larger product with partners through syndication.

Due diligence is much more critical than with single-family rentals but there are also more resources available to get a lot of the general information because there are a lot of marketing firms that support the REIT and institutional investors who mostly purchase large multifamily and commercial properties.

A multifamily seller’s proforma (projections of the potential income and expenses in a perfect world) should for the most part be disregarded. True expenses are seldom less than 50-60% of gross income, otherwise be suspect. And study local demographics carefully. Visit the prospective property unannounced, walk it, and then sit in your vehicle to observe who is living on and visiting the property. Take note of the time of day and night. Yes, evening observations are the most enlightening. Go to the local schools, parks, and retail stores and see whom your prospective tenants and demographics are.

Do you feel at risk parked so near your potential property, or would you feel comfortable joining the tenants for a barbeque? Please do not rely on website data about the neighborhood. There are a lot of variances in a one-mile radius. Lastly, my post data analysis is always punctuated with the satellite view question: Would I be comfortable with my daughter living here?

In addition to syndications an alternate way to have many of the benefits of a multifam with less money down, an achievable loan, and much less risk is with a portfolio of single-family properties. Throughout my investment career, I have always also owned many 1-4s.

This approach spreads your risks by building a “mutual fund” of properties in various locations. In addition to having a variation of rent, price appreciations, and occupancies that tend to converge on the averages for a region, single-family homes are more liquid, have less expenses, are less complex to manage, and tend to appreciate more because they are based on owner occupant demand rather than on income. In the next decade, most economists project a higher upward trend in occupancies and rent for single-family homes and for multifams.

The most important ingredient is to select that right team of professional resources. How much experience and knowledge do they have in the region and product of interest? Are they invested in the products themselves? If you are considering partnering to own multifamily properties, do they have experience with syndications and access to experienced and qualified investors, lenders and property management?

When you invest in real estate, don’t start with the “deal.” An honest assessment of the amount you have available to invest, your risk tolerance, your experience, and your long-term goals, along with the right professional team, will lead you to the right deal or deals: A multifamily investment or a portfolio of cash-flowing single-family properties? I choose both.

Tom Wilson is a 37-year real estate veteran who has executed over $100M and 2000 units of real estate investments. Wilson is also a weekly host of the Real Estate 360 Radio program on KDOW 1220 am every Wednesday at 2 pm. Listen to his podcasts on iTunes or his website: www.tomwilsonproperties.com

 

Five Steps to Raising Private Capital

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By Jillian Ivey Sidoti, Esq.

Many people assume that in order to raise capital all they have to do is go out and find potential investors to whom they may pitch their idea. However, the laws regulating the sale of any security are such that operating in such a matter would be illegal.

Too often, people learn fact and decide that their aspirations are out of their reach… or worse, raise the capital illegally, putting themselves at risk to suffer very serious consequences should the SEC catch on to what they are up to. Truth is, with the appropriate planning and effort, anyone can raise the capital necessary to execute their business plan.

At a very abstract level, there are five steps to raising private capital, and they are as follows:

1. Develop Your Business Plan: One cannot very well start a company without a plan! At the very least, you want to put together bullet points of the “who,” “what,” when,” “where,” “why,” and “how” you will put your company to work and start generating income. From there, you can flesh out the details.

2. Set Up Your Company: Your next step is to decide what type of entity is appropriate for your business plan, and in which state. A corporation, limited liability company, and limited partnership each have their respective positives and negatives. The particulars of your situation will dictate what best fits your company.

3. Decide What To Offer Investors: If people are going to invest money in your company, one of the most important questions they will have is “what do I get out of this?” First and foremost, you have to analyze your business plan to determine your baseline of what you can afford to offer investors in addition to what the market dictates in your particular industry. You must then determine what you are comfortable offering investors and land somewhere between those points. This could be a percentage return on their capital investment, simply just a share of profits the company earns, or a combination thereof.

4. Put Your Offering Documents Together: Not only may you be required by law to present offering documents (called a “Private Placement Memorandum”) to your prospective investors before taking their money in order to ensure you have made all the appropriate disclosures, but such documents will provide all the information they need to decide to make the investment. The private placement memorandum encompasses the three “D’s” – disclaimers, disclosures, and details.

5. Find Investors: For many entrepreneurs, finding investors is the most intimidating step in the process. However, if you organize and execute your capital raising efforts in the correct manner, then you will be well on your way to meeting your capital goals.

Yes, this is a very boiled down step-by-step. Yes, you will need the advice of a professional to help you along the way. However, you need to realize that if you do give all the above steps the appropriate amount of attention, there is no reason that you cannot raise the capital you need.

Jillian Ivey Sidoti is a partner in Trowbridge, Taylor & Sidoti, a boutique securities law firm with locations in California and Florida. Jillian may be reached for consultation at 323-799-1342 or at: [email protected]

 

Meet the Future of Private Money

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By Tim Houghten

In the words of the great Bob Dylan: the times “they are a-changin,” for Sean Morsi and Ajay Mehra — CEO and CFO of MOR Financial, respectively — the notion of shaking things up has been woven into their company’s genetic code. It may come as a surprise to hear that an asset- based lender, known for utilizing cutting-edge marketing and high-tech analytics, assert for a traditional approach in customer service and building lifelong client partnerships.

With an average yield returning 10.5% for their lenders, Morsi and Mehra have compiled more than $70 million in committed capital from their investors, with roughly $35 million in their active in-house servicing portfolio. Built in a relatively short period of time with a focus in Southern California, where both were raised, the two have also set their sites on penetrating the Florida, Nevada and Arizona markets.

Ajay came on board as a partner in MOR Financial in 2009, with both partners coming from established lending backgrounds before re-shifting focus after the market crash. “Since then, we’ve grown into a premier private lender here in Southern California, specifically around Los Angeles County,” notes Morsi.

As the new kids on the block, the business moguls captured a very large percentage of the market in a very short span of time. A large percentage of their competition has been in the private money lending sector for 20 years or more. Mehra added that the industry had always been something of an “intuitive-based” one, which both men felt kept it from growing like it could. “We wanted to deliver structure,” said Mehra. “We wanted to shift the industry from the whimsicality it had.”

The demographic for private money investors today, according to the executives includes much of the younger mindset than was seen 10 or 15 years ago. The change in development is spawned mainly from disappointed and lack of confidence with the stock market and the desire for more tangible investments.

“Thanks to the stock market crash, several savvy financiers have a sour taste in their mouths, yet are still hungry for yield,” said Mehra. “We are seeing people, who would otherwise have investment portfolios centered around Wall Street now, deviating into real estate.” Today, instead of owning Microsoft as a growth stock, youthful investors would rather invest in assets they can hedge. The emerging generation with access to capital doesn’t have faith in the stock’s paper and would rather place funds into something concrete. At the end of the day, a hard asset like real property is never worth zero. They can hang their hat on that!

Another way the industry looks different today is the high-creditworthiness of the borrowers. For the most part, the “flippers” and other borrowers MOR Financial scopes have great credit. In the past, hard money lending was often seen as the realm of the hard-luck borrower. Mehra suspects, “Maybe 20 years ago, that was the case, but a lot has changed. Banking guidelines being as stringent as they are have really opened things up for private money lending. Where else are people supposed to go to get the access to leverage?”

Morsi adds, “Today’s investors are strong and hungry.” Since MOR comes from the customary lending side, the company strives to maintain and deliver on customer service. And deliver they did. MOR Financial has set themselves apart by taking the insight of due diligence and recalibrating it in a way to center on becoming trusted advocates for their borrowers.

“We always try to play the devil’s advocate for their benefit,” said Mehra. “Not to kill the deal, but to make sure our affiliates aren’t walking into a black hole.

As the company’s directors, Sean and Ajay look at every deal as though it was their own so they can provide bona fide feedback to their clientele.

With repeat borrowers, MOR has rapport in the industry. The company aims to educate everyone from their able borrowers to individuals just breaking in — and they work with a lot of beginners.”

“We’ve always felt that the most durable relationships are built through education,” mentioned Mehra. Since MOR has considerable professional relationships with their borrowers, it brings perhaps an unexpected benefit: fewer defaults.

Mehra and Morsi both feel strongly on not being viewed as a corporation, but as a part of a business network working conjunctively to meet each other’s needs. Out of 360 plus transactions that they’ve written, only two notices of default have occurred.

One of MOR Financial’s core principals centers on the belief of education and the conventional techniques of equity partnership arrangement, mainly structured for borrowers who are just starting out.

“You can literally walk into a deal with no cash out of your pocket,” said Morsi. “We’ll provide the investors willing to bring capital to close and supply the rehab funds. All you need to have is a great asset and an ability to manage a property. The financing side we’ll take care of.”

The program has allowed many of MOR Financial’s clients to evolve. With their eminent skill and market presence, they’ve won over the masses. Clients effortlessly transform from wholesaling a deal to doing their first flip. MOR Financial is giving beginners an opportunity that cannot be captured elsewhere.

For information about MOR Financial visit wwwMORFinancial.com