Draw Me Self

Real estate buying bank owned is an investment strategy used to purchase foreclosure real estate. Real estate investors, individual buyers, and business owners are seeking out discounted properties owned by mortgage lenders because listing prices are often well below market value.

Using the real estate buying bank owned strategy can result in savings of 30-percent or more. However, bank foreclosures often require repair work, so buyers must calculate the true cost of the property prior to submitting purchase offers.

Buyers are often forced to take out high-interest remodeling or construction loans when investing in distressed properties that require substantial repairs. Lender-related fees for rehabilitation loans can add up to several thousand dollars. Once renovation is completed, property owners typically must refinance into a permanent mortgage loan which incurs additional closing costs.

Due to the abundance of foreclosure properties, many home buying programs are sprouting up. Caution should be used when visiting websites offering foreclosure lists for a fee. There are numerous trustworthy sources that provide lists of foreclosure homes for sale at no cost.

One of the best sources is real estate agents. Many realtors specialize in selling bank foreclosures and can help buyers easily locate the type of property they desire. Realty websites, such as Zillow and RealtyTrac allow visitors to enter specific search criteria to locate bank owned foreclosures.

Another popular source for buying bank owned real estate is Fannie Mae's Home Path Mortgage program. Fannie Mae offers incentives and special financing options to individual buyers and real estate investors. Properties consist of foreclosure homes which have been repossessed through lenders with loans guaranteed by Fannie Mae.

Fannie Mae offers two home mortgage finance options which include HomePath Mortgage Financing and HomePath Renovation Mortgage Financing. The first is offered for homes which do not require repairs, while the second is used when properties require light renovation. When buyers obtain rehabilitation funds using Home Path financing they do not need to refinance when work is completed.

Individuals interested in buying Fannie Mae HomePath properties should consider researching HUDs Neighborhood Stabilization Program which offers government grants to rehab foreclosure real estate. NSP grants are available to qualified individuals and real estate investors who purchase properties in areas with high rates of foreclosure.

Also referred to as Section 203(k), NSP grants fall under the Community Reinvestment Act (CRA) of 1977. CRA allocates funds to each U.S. state. Recipients of NSP grants are allowed to obtain mortgage loans which include additional funds for required repairs. This can eliminate the need for obtaining remodeling loans, which eliminates the need to refinance mortgages and can save buyers a substantial sum of money.

Qualified individual buyers can obtain one NSP grant, while investors can qualify for up to five public grants. Combining government grants with Fannie Mae's special financing option and low down payment requirement can help buyers maximize their housing dollars.

Obtaining NSP grants can be a lengthy process, but savings can outweigh the time required to undergo the application process. Details of the Neighborhood Stabilization Program are provided at HUD.gov.

Millions of American homeowners signed on the dotted line and became the proud owners of adjustable rate mortgages (ARMs) over the last several years. Most knew exactly what they were getting into -- but it may still be a surprise when you get that first notice of an "adjusted" mortgage payment due. Many through neglect, optimism or simply being too busy are or will be taken completely by surprise when they see their monthly mortgage payment jump after an "adjustment."

Are you as an ARM homeowner prepared for sometimes significantly higher monthly payments on your mortgage? Here are six tips and things you can do to prepare in advance for that first spiked payment under your ARM loan.

Pay down your principal while you can

Have you thought about adding extra to your monthly payment and telling your servicer to apply the extra to your principal balance? This won't help you directly when your payment spikes, but it will build equity, which in turn makes it easier to refinance your loan once it adjusts.

Make a plan to deal with your revolving debt, and stick to it

If your credit card debt starts getting out of control, you're going to have less flexibility when it comes time to pay the higher payment on your ARM or refinance to get a better rate. During the one, two, three or five years that your payments are flat, pay some extra to get your credit card and other revolving debt down to a manageable level. This of course is good advice even for non-homeowners.

Save your money in anticipation of higher mortgage payments

Why shouldn't you set aside some savings earmarked specifically to help get through at least the first few spiked mortgage payments when your rate adjusts? Planning ahead this way can cushion the blow of a new higher mortgage payment considerably.

Become educated on your options for refinancing

Many homeowners took out adjustable rate mortgages or even Interest-Only mortgage loans planning on refinancing after the introductory rate or interest-only period was up. If you were one of them, you need to spend time educating yourself on what refinance options are best for you. The last thing you want to do is come to a mortgage broker hat in hand asking for any way out they have available.

A divorce, job change, not having as much equity as you thought you would in your home, and so many other factors can influence whether you qualify for an acceptable rate when you refinance. Don't wait until you're paying hundreds more a month -- consult an expert Realtor and/or mortgage professional in your area before you need a new loan.

Reach out to your lender

Your lender definitely knows when your payment is due to change, and you'll be hearing from them -- because they want to keep you as a customer. They don't want you refinancing with someone else. So don't be surprised if they're willing to work with you as your adjusted rate period approaches. If you've made your payments on time you'll likely have a willing partner.

Consult a local Realtor

It may be drastic to plan a move simply because your mortgage payments are going up. But many homeowners went for 3/27 or 5/25 ARMs precisely because they didn't see themselves in the same home three or five years down the road.

To know whether selling is a viable option, consult a Realtor in your area with experience listing and representing buyers throughout the current market conditions. Ask how long properties are staying listed, what prices are doing, what's making homes sell and what's making them sit there. There is no substitute for the expertise of a local real estate agent when it comes to evaluating your sales options.

Here's another awesome question I received from my discussion board. The question; Why bother keeping property after it's rehabbed? Why not sell it after the rehab and GET PAID!

Of course, the first questions that you must answer is how emergent is your need for quick cash? You can likely generate the most SHORT TERM cash by selling a freshly rehabbed house. But, you will give much of it away in taxes come next April.

If you keep it, you stand to make more! You will also enjoy some great benefits while you own it such as cash flow, a tax break, and MORE cash with the future appreciation. You can still pull some nice cash a few months after buying it when you refinance (post rehab) the property from your hard money (at 70% loan to value) to long term financing (at 85% or 90% loan to value).

The short answer is an investor is going to make considerably more money by hanging onto a property after it's rehabbed. There is a downside to it. You have to be a landlord, and you have to decide if you want to do that. I don't think it's too bad as long the landlording is done correctly.

Let me illustrate the difference in overall money between rehab and sell, and rehab and rent investing with this example;

Let's say appreciation rates are 5% in your town and the average price of a freshly rehabbed property in the neighborhoods investors buy in is $100,000. Let's also say there is Bill and Fred.

Bill sells his properties after rehabbing and makes $15-18,000 per house. Good boy Bill!

Fred keeps his rehab projects and cash-out refinances, pulling out around $10,000 per house within 3-6 months of ownership. (Fred trades his 70% loan-to-value (LTV) ratio hard money for long term, 30-year mortgages at a lower interest rate with an 85-90% loan to value ratio. He pockets the difference between what it costs to pay off the hard money and the new mortgage less closing costs. This works out to about $10,000 per property.)

Bill (rehab and sell) makes a great living. Ten houses per year is $150,000-$180,000 per year...nice jingle! The downside is that Bill has to keep rehabbing to keep making that living year-after-year and pays taxes on all that money as regular income (ouch!). So his $150,000 per year is in reality somewhat less.

Fred (the rehabber) also makes a great living. Ten houses per year makes him $100,000 or so in tax free, spendable cash. But, Fred controls a million dollars in real estate and it's going up in value year after year. Also, Fred pays no taxes on that money he gets from the cash-out refinances. It's part of a mortgage, so must be paid back, therefore is not income! I love that part!

Let's look at what Fred's doing more closely.

Let's say Fred bought 10 houses valued at $100,000 each, owes $90,000 on each one (after the 90% cash out refinance), so he controls $1,000,000 in property. If he keeps them 5 years (assuming a low appreciation rate...which is pretty conservative):

Purchase year - 10 houses x $100,000 = $1,000,000

Year 1 - Same 10 houses X $105,000 = $1,050,000

Year 2 - Same 10 houses X $110,250 = $1,102,500

Year 3 - Same 10 houses X $115,762 = $1,157,620

Year 4 - Same 10 houses X $121,550 = $1,215,500

Year 5 - Same 10 houses X $127,627 = $1,276,270

Essentially, Fred makes an extra $50,000 per year for keeping 10 properties. After owning them 5 years, if he sells, he puts $276,000 in his pocket.

Remember

- Some parts of the country will appreciate much faster than 5%. Heck some places properties will double in value in 5 years.

- No tax benefits of keeping the property is included here. That equates to thousands of dollars in real income.

- This is ONE ten-house year. Let's say you want to "top out" at owning 30 houses. Well, in just a couple of years your buying will slow down to a trickle and you'll start selling and cashing out of properties. I mean, how many ten-house years to you need to string together before you are set for life?

- What if you hold these houses 10 years? The numbers get pretty exciting.

If you're like me and you don't want to do this for too many years, then holding properties for a few years makes a lot of sense, especially if you don't have much personal money invested in them.

So what of poor old Bill? Chances are, Bill will satisfy his need for short term cash, then start holding property. What do you think?

As the real estate market continues to grow rapidly and new technology gains ground, widely accepted beliefs that were true a few years ago may not be true today. Don't jump into anything blindly or sign a real estate contract or home mortgage loan contract or any other type of contract without giving it some serious thought. Before you commit to a real estate purchase you'll need to find a lender for the real estate financing of your potential home or investment property.

Your income and your debts will typically play the biggest roles in determining what price range you should be looking at. Fifteen-year mortgages are an ideal option if you can handle the higher payments and if you'd like to have the loan paid off in a shorter period of time. Thirty-year fixed-rate mortgages offer consistent monthly payments for all of the 30 years that you have the mortgage. And if the market is good, you can benefit considerably from locking in a lower rate for the full term of the loan.

Most adjustable rate mortgage programs offer what is called "rate cap" protection, which limits the amount the rate can be increased each year and over the life of the loan and all adjustable rate mortgages are amortized over 30 years. Make sure to get an estimate of your real estate financing closing costs from the lender you've chosen. By law, the lender is required to give you a statement within three days of receiving your loan application. Any of the loan programs for down payments of 20% or less require you to purchase Private Mortgage Insurance (PMI).

A mortgage application can be resubmitted many times; it's not uncommon for this to happen. Interest rates can go up if a picture is painted of a rosy economy and that it is flourishing, like more jobs being available. This can lead to inflation which will make the rates go up. Any money that you receive from a lending institution will show up on your credit report and the payments will factor into your debt-to-income ratio.

A reported FICO credit score is not a requirement for most conventional or government loans like FHA loans or VA loans. Potential borrowers can submit information about income, assets and equity to determine just how much a down payment should be. This is usually processed through an automated underwriting system. Twenty-year fixed-rate mortgages allow you to make a consistently higher monthly payment throughout all 20 years you have the mortgage. The shorter term means you pay off the loan off quicker and pay less interest and build equity faster than with a 30 year loan.

Check with you CPA pr other tax advisor for the most current tax information; your property taxes may be deductible. If you're working with a home builder within a sub-division or housing development and just making carpeting, lighting and appliance selections for a brand new home, you'll probably be able to get a standard mortgage loan. If you're hiring contractors, electricians, plumbers, and painters, you'll probably need a construction loan, which provides funds to pay the subcontractors as the work goes along. If you plan to borrow money from other sources, some lenders may impose limits on how much of your down payment can come from other sources.

When financing real estate with a conventional loan it's important to know that a low FICO credit score does not mean you won't qualify for a home loan or home mortgage. The FICO credit score is just one of many factors that are considered in loan or mortgage applications. Although the FICO score is taken into account there are no minimum scores required.

Ask other homeowners for advice about what real estate and mortgage pitfalls to look out for. Work with a reputable mortgage broker or lender to create a customized loan program with the best combination for you of rates, points, and closing costs to meet your needs. Before you finish with any real estate financing make sure you read every real estate contract and loan or home mortgage contract carefully before you sign on the dotted line. Each and every line is important - look for anything that's vague or not clear and don't be afraid to question what you don't understand.

Whether mortgage refinancing is a good thing or bad thing, to borrow rich dad poor dad's terminology depends on whether you know how to utilise debt. Debt when utilised properly with proper cash reserves built up to withstand months when you cannot find tenants for your property will enable you to own more property than you can do so on your own steam. Real estate magnates like Donald Trump used leverage and so should you.

This article assumes that you have paid up your first property that you are staying in and have paid up your second property partially and you are looking to refinance your real estate investment so as to take some cash out to purchase a third property and highlights three good reasons why you should do that.

Reason #1- Monthly Cash flow

I know of some people who are very contented with just one fully paid up property, but there is a problem, they are asset rich but cash poor. This means that they have no cash flow but they have lots of money locked up in their real estate holdings. By taking some money by refinancing your loan out of your second property, you can invest your money into a third property and increase your monthly cash flow.

Reason #2- Lower interest rates

Spend some time looking at interbank interest rates and the Federal Reserve Interest Rate over the years to determine what way it is going and then aim to refinance in years where interest is lower. This would result in you having to spend less money all in all and save you a lot of money. Now with the lower interest rates, take the extra cash flow and save it and then as above, use it to invest into another real estate.

Reason #3- Combine properties

To bring your real estate investments into the next gear, then refinance both your properties and take the money and purchase a third property. Note that you should have a built in savings in your calculations as mentioned above to hedge against a market downturn in rentals or an inability to get tenants. After your properties increase many fold, you might want to follow the gurus advice and then start combining the total value of all your properties and then purchase a larger commercial building.

In conclusion, refinancing frees up much needed cash that you can use to purchase other real estate to generate even more monthly cash flow. Take massive action today and spend time writing out in paper your investment strategy and implement it and you will start seeing your real estate investment portfolio start increasing.

By Joel Teo 2006 All Rights Reserved

Anchorage, Alaska, is located in Anchorage County and lies 1434 miles northwest of Seattle, Washington. Anchorage has a population of 260,283. Its residents enjoy outdoor activities like kayaking through Prince William Sound, fly-fishing, skiing, and hiking and a relatively mild climate.

Anchorage is a historical and bustling city that serves as the transportation, banking, and business center of the state. Notable structures include historic buildings such as Anchorage's City Hall, built in 1936, as well as the 4th Avenue Theatre, an art deco style building dating from 1947 with stunning floor to ceiling bronze interior murals.

Anchorage, incorporated in 1920, is a relatively young city, and homes built in the 1950s almost enjoy historic status. Nevertheless, the city's vibrancy has earned Anchorage the reputation as the new 'in' city for travelers to Alaska as well as new residents, who come for its excellent transportation system, mild weather, and central location.

Anchorage Homes

Anchorage properties pool is 94,822 residential properties including Anchorage new homes. The median age of real estate in Anchorage is 1977. The average Household size is 3.19 people. 4% are one bedroom homes, 19% are 2 bedroom homes, 46% are 3 bedroom homes, 24% are 4 bedroom homes, and 5% are 5+ bedroom homes.

Anchorage Mortgage Statistics

Homes With No Mortgage 14%

Homes With Mortgage 86%

First Mortgage Only 74%

First & Second Mortgage or HELOC 12%

Anchorage Area Real Estate Tax

Anchorage Real estate Tax: Median Real Estate Taxes (2000) were $2,523 comparing to 1999 Median Family income $ 63,682. Compare to USA median yearly Real Estate Tax $1,300 and USA median Family Income $42,000 (1999).

Anchorage School District: Children make up 29.1% of Anchorage population. Anchorage has 75,871 under 18 years old residents, or 0.58 kids per one worker, or 0.8 kids per one household.

Anchorage Real Estate & Anchorage Home Ownership

Most residents of this city have come from elsewhere in the United States. Many came to work in the oil fields. Alaskan Native peoples comprise about 8% of the population. The city also has a growing population of Asian and Hispanic residents.

There are 21809.06 or 23% one person households, 30343.04 or 32% two person households, and 17067.96 or 18% three person households in Anchorage, Alaska. Median residents age is 32.4, Senior citizens (65+) make up 14,242 or 5.5%% of Anchorage population.

There are 131,228 workers (over 16 years of age) in Anchorage. Of these, 89% drive to work. Approximately 2.02% of workers in Anchorage take public transportation. An estimated 2.66% walk to work.

Median Anchorage homeowner's housing expenses are 20.9%

Crime in Anchorage (2003), crimes per 10,000 residents per year

Violent Crimes 67

Robberies 13.06

Aggravated Assaults 43.91

Property Crimes 449.74

Burglaries 54.48

Larceny-Thefts 349.27

Motor Vehicle Thefts 45.99

Invest in Anchorage Properties

When making a decision about buying real estate in Anchorage Alaska area, you should consider following statistical data:

Near Medium City

Near Large City Seattle, Washington

Anchorage Zip Codes 99501, 99502, 99503, 99504, 99505, 99506, 99507,
99508, 99513, 99515, 99516, 99517, 99518, 99529, 99530, 99540, 99599

Anchorage Area Codes 907

White population 72.23%

African-American population 5.84

Asian 5.55%

American Indian & Alaskan

Hispanic (of any race) 5.69%

Median Family Income (1999) - $ 63,682%

Population Below Poverty Level - 7.18%

Well, finance and investment is quite a difficult field to comprehend for every one. You really need to polish up your skills in order to be successful in this field. Further in this article we are going to talk about refinancing home mortgage loan. Before delving further in to the topic, let us first understand what refinancing exactly is. A refinance loan payment implies a fresh loan taken in order to pay off an original debt. If you are looking for some relevant information regarding this topic, then you must read this article properly.

Now, given below are some of the best tips to refinance home mortgage loans in real estate market. Make sure you follow all these tips and guidelines.

1. Factors affecting the rate
You really need to understand the factors that affect the mortgage loan rate. It really helps you to get a rough estimate of the entire loan payment.

2. Make sure you do not depend on advertised rates
Well, I would like to suggest you that you should not fall in to the trap of finance companies. The rates which they display are just to lure investors.

3. Understand your overall needs
It is of utmost importance to understand your actual needs and requirements. You need to understand how much money you exactly want. Besides, all this you need to check the interest rate as well.

4. Research in the market and on the internet
I must tell you that research is really important in this field. You really need to work hard in order to secure the best possible refinance mortgage deal. You can research in the real estate market or on the internet. I must tell you that internet is by far the best way of searching for home mortgage refinance options.

5. Do your homework and provide all the relevant information to your lender
If you want to secure a great refinance deal then make sure you do your homework and provide all the necessary details to your lender. If you provide him the right matter only then he can help you.

6. Expenses
I would like to bring this to your knowledge that refinancing could be a daunting task both physically and economically. Several expenses are required in this process.

So, these are some of the essential things regarding refinancing home mortgage loans in the real estate market. Don't forget to read this article once. It could be of great help to you.

In life there are a lot of things we learn by accident, which can be very beneficial to us. Sometimes understanding these processes can take a while. Sometimes after proper explanation ...BLAM, you get it. That is exactly what happened to me. When I first heard about the topic, I will discuss in this E-book, it was perplexing, however, I knew that it could reap huge rewards in the future. It took a while for me to understand the process. I remember trying to tell a buddy who owned an apartment building about _________ and what it could do for him. I remember getting it all confused (like telling someone a good joke, but while you are trying to say the good joke, in mid sentence you realize that you don't remember it all and it is not coming out right, so you just say forget it because you are screwing the joke up). Fortunately, by mistake I came across the company Pensco Trust who has educated me on this great opportunity of____________. I am considered one of their "Preferred Professionals." My learning curve is your benefit. Enough with my teasing games, the purpose of this E-book, is to educate you on Self Directed IRAs. So buckle up!

This publication is made to provide basic information in regard to Self Directed IRA's. It is presented with the understanding that I am not engaged in rendering accounting or legal advice. If you need legal advice services of a proficient professional should be contacted. I can not in any way guarantee that this material will be properly used for the purposes intended and I assume no responsibility for its correct and proper use.

We all know that Social Security (SS) is struggling and the money there will eventually disappear. Prior to 1935 there was no personal SS. All that existed were people saving their money in their bank/under the mattress. In 1935 SS was created. Remember that this was the same time period of the Great Depression. Keep in mind the life expectancy back then was like 62 years old. Now it is 76. Baby Boomers make up a huge portion of the population. Baby Boomers are retiring everyday. You want some hard facts? Well according to Research Corporation Study: The New Landscape of IRA Rollover © 2005 BISYS Retirement Services.

o The first of the baby boomers reached age 59.5 in July 2005

o 4 million more will reach age 59.5 each year

o 24 million people will reach age 65 by 2010

o 55% plan on to work after "retirement"

Now on the flip let's say there was no problem with SS. Have you ever talked to someone who gets SS checks? They don't get a lot of money. It is sad sometimes. I am not trying to offend anyone, but the majority of the older people you see at Wal-Mart greeting you and marking your receipt didn't have a "nest egg" to rely on when they "retired". The topic I will discuss will prevent that from ever happening to you and I.

1974 congress created IRA (Individual Retirement Account) to supplement Social Security. We know these are programs to help shelter money away for tax benefits. Typically people go after the traditional investments. We always hear about stocks, bonds and CD's. Yes all investments have risks, but the thing about these investments is that you can not affect the outcome of the business/your return. You are a spectator, watching the game. Also, you can't use leverage (an example of using leveraged will be discussed later). Also, with stocks if any little blip in market occurs, like oil, war, scandal, etc. your value could go down. Real estate does go up and down but generally you don't lose all of your money in worst case scenarios. Real estate appreciation has kept pace or exceeded inflation. It is a cycle. When it goes down, the value does not go down instantly (like Enron).

Self Directed IRA (SDI) an overview. Now I am not bashing stocks, I have them, if you talk to any financial planner, they will tell you to always be diversified in your investments. This is what SDI does for you. Ideally you should have SDI, stocks, bonds etc.

SDI has been a well kept secret. Why? I think it is because of ignorance, and I also the folks on Wall Street don't benefit. A broker at an investment company will not tell a person about it, because they can't make money off of the transaction (let alone having them understand how it works). The last reason is because there are "professionals" who don't have a clear understanding on its use.

To get a SDI, you would either have to go through an Administrator, or a Custodian.
What is an Administrator? Banks, brokerage firms (like Charles Schwab) and insured credit unions.

What Is A Custodian?
There are very few self-directed IRA/401k custodians in the United States. In order to be a custodian for self-directed products, the custodian is known as a "passive custodian." This simply means that they are obligated by law to provide only custodial and administrative services for the qualified plan. They can provide NO investment advice. This tremendously reduces the fees associated with traditional investments because you, the investor, make all of the investment decisions. They are also FDIC insured.

What is the role of the custodian

o Holds your IRA assets

o Performs all IRA transactions

o Keeps all IRA records

o Provides all IRS required reports

o Keeps IRA plan in compliance

o Provides access online access

There are only three things your SDI can't invest in and they are

o Collectibles/antiques

o Life insurance

o Stock of a sub-chapter "S" corporation (these are companies that are traded publicly on the stock market)

As long as the transaction is for investment purposes and you have not created a "prohibited transaction" (will discuss later) the list of investments are endless.

The beginning of a long list of real estate you can buy with your SDI

o Foreclosures, Options, Pre-construction, raw land, apartments, offices, strip malls, mobile homes, public storage, any type of investment property

o Trust deeds/mortgage notes

o Privately held C-Corp stock, LLC membership
.
The rules on prohibited transactions

o Cant buy from or sell to a disqualified/prohibited person

o Cant make personal use of property

o Cant use SDI as collateral for personal loan

Personal use prohibitions

You can't personally use a vacation home. Even if you rent it out for 354 days and spend one day in it, this is illegal. You can't perform maintenance on the property. You can hire a maintenance crew using the money coming out of your SDI, but you can't physically work on the property. You also can't hunt on raw land, dock boat at a SDI owned boat slip. There was a person, who worked with Pensco, that bought a specific area of a water fishing spot in Alaska. The person, couldn't fish there, so she leased out the area to other fishermen and received profit.

More on disqualified persons

You can't buy from a person providing services to the investment. It has to be a clean slate. It can't be business between employer and employee. If you have your SDI in an LLC and you want to buy property, you will not be able to if you own more than 50% of the company. You can't buy/sell to a member of your family including spouse, ancestor, lineal descendant and any spouse of a lineal descendant. Meaning, not you parents, children, your son in law etc. But, you can buy/sell to a sibling. There can't be a sale/exchange/leasing of any property or providing a loan between a plan and a disqualified person. Lastly, you can't buy something you already own (SDI can't be used for funds to pay off your mortgage. There should be no perceived direct or indirect personal benefit to the account owner).

Basic rules

o Can't involve the account holder, his/her spouse a lineal ascendant/descendant of family nor the spouses of your children and you can't use SDI funds to pay off a personal mortgage

o Can't make personal use of property (must be for investment purposes only)

o Can't personally guarantee the loan for your SDI nor use the SDI as collateral for a personal loan

o Can't work for or take income from an SDI investment

o Can't have your spouse, nor your family members (your siblings are ok) own the property prior to its purchase by your plan

o Can't have your business lease or be located in or on any part of the property while it's in your plan. You may receive any property as a distribution from your plan as a retirement benefit

What transactions are prohibited?

The following are defined as prohibited transactions when they involve the account holder:

o Borrowing money from the SDI

o Selling property to the SDI

o Receiving unreasonable compensation for managing assets for the SDI

o Using the SDI as security for a loan

o Buying property for personal use with the SDI

o Collectibles/antiques

o Life insurance

o Stock of a sub-chapter "S" corporation

50% rule

If a disqualified person(s) owns 50% or more collectively of an entity, then the SDI can't engage in a transaction with the entity because the company is considered a disqualified person.

Using IRA as collateral

You can't use your SDI as collateral for a loan. If you will get a loan it must be an unsecured loan. If you default in paying the loan, the lender can't go get the money out of your IRA, nor can they go after personal assets.

Any type of prohibitions have penalties, if you violate them. SDI is no different. Here are the consequences if you do not comply:

o Loss of IRA status resulting from prohibited transaction

o Loss of tax exempt status

o Income tax on account value

o Penalties and interest

o Possible audit to determine extent of prohibited transactions

If you really want more information on the rules check out:

o IRS code 4975

o UDFI/UBTI: IRS code 598

o Department of Labor (DOL) 2004-8

Tax court cases

o Swanson 1997

o Rollins 2004

o Rousey v. Jacoway 2005

Ways to invest by using your SDI

o Property purchase all cash

o Property purchase using a loan (NOTE this has not always been the case where you can get a loan from a bank for your SDI. These past couple of years a few establishments are offering loans to SDI. I have those contacts, contact me and I will explore options for you)

o As a member of an LLC or "C" Corp.

o As a lender on a trust deed (mortgage note)

o As a partner in a joint venture

o As a Tenants in Common T.I.C. member (if any of the terms I use are unfamiliar to you, look them up online)

o Make a private loan to an entity or person (hard money loans)

To give you ideas of what investors have bought through Pensco:

o Largest US massage school

o Cypress tree farm in Costa Rica

o Fish farm in Salinas, CA

o Interests in movies, plays

o Condo in Lithuania

o House on a private lake in Colorado

o Thoroughbred race horse

o Nudist resort in Virgin Islands

o Over 35 U.S. banks

o Napa Valley B & B

o Biotech company

Pensco's top investor success story is going to amaze you on the potential your SDI can have. In March of 1999, four men opened up SDI accounts. They each invested individually and through their IRA's in a company they were starting. They brought in other unrelated investors. That company is bought out a couple of times. The company goes public and sells out in June 2002. Well how much did they make? CEO made $34 million (12,000% return). Chief scientist made $22 million. CFO make $17 million. Marketing VP makes $8 million (4,000 return) What is better than that? They all invested $2,000 through their IRA's except the CEO who invested $1,800. Pensco explained the features of the 1 year Roth IRA and they all chose to invest with a Roth IRA. If the CEO gets an average return of 12% until he is eligible to withdraw tax-free at 59.5 he will have $1 billion, $100 million tax free! Yeah that is right...show me the money!

Let's compare
Real Estate Investing - with SDI

o Tax deferred growth on income and cap gains

o No 1031 requirement!

o No annual tax reporting

Taxable investments non SDI

o Tax deferred cap gains (if 1031)

o Tax on net earnings

o Annual reporting required

How it works

You have an account with Pensco (you can roll over your current IRA account to them) you tell them what you want to invest in, they do all of the paper work, make out the check and now it is in your trust account. All money that is needed for expenses and all profits go into/taken out from the trust account. The title of the property in your IRA will be held with Pensco Trust as follows: "Pensco Trust Custodian, FBO (client name) IRA, (Acct #). All documents will be reviewed and initiated by the you (the IRA owner) and signed by Pensco Trust.

Introducing SDI on steroids in the neck...Solo 401(k)

A solo (k) is a combined salary deferral and profit sharing retirement plan for sole proprietors, small business owners with no employees (other than part timers working less than 1,000 hours per year or their spouses).

Roth contributions can increase tax free $15,000 to %20,500 per year or 30k to 41k per married couple (for 2007). Unlike a Roth IRA, there are no income limitations placed on the contributor. You could be a zillionaire and it would not matter! Currently a single person making over 110k can't contribute to their Roth married couple is 160k.

Who can benefit from Solo (401)k

o Real estate brokers

o Consultants

o Contractors

o Lawyers

o Electricians

o Any sole practitioner

o Even if you work full time for an employer and have a business on the side where you are a sole proprietor you can establish a solo K

The difference is...

o You can borrow up to 50k (or up to 50% of balance, if less) from your Solo 401 k

o You can invest in life insurance

o You can invest in "S" corporations

o You can avoid UDFI and capital gains UBIT (UDFI and UBIT will be discussed later) when using leverage to buy real estate

o A portion of your savings can grow tax free for life

o You can put away more money faster with larger contributions

o No income cap on contributing to the Roth component

o Above 50 year old employee has the option to put up to $20,500 per year away, to grow tax free

Why appealing

o Allows the sole proprietor funds to grow tax free

o While Roth IRAs allow similar contributions they are limited to $4,000 in 2007 ($5,000 if over 50), and to those earning annual gross income of less that $110,000 for that year

o You can increase tax free growth opportunities by also contributing to a Roth IRA ($4,000/$5,000) in addition to the Solo (k) (15,500/$25,000), if you are eligible (check with Pensco for details)

o A married couple in business together can put up to $51,000 ($25,500 each ) per year of after tax money into retirement accounts that will grow tax free for their lifetimes and those of their heirs (including $5,000 Roth IRA contributions) and another $59,000 ($29,500) each that will grow tax deferred. That is a total of $110,000 as a couple of which $51,000 will grow tax free (assumes each is over 50 and earns less than $100,000

o And there is no income limit on contributions

o May roll pre existing plans and IRAs into it

Types of purchases of SDI

All cash

Your SDI buys one property all cash. No debt, LLC, and partners. When you do this your SDI needs to have enough funds to cover purchase price, all closing costs, custodial fees and ongoing property expenses. If you run out, you can loan your personal money to your SDI (with interest and principal).

Multiple SDI - All cash T.I.C.

SDI may belong to anyone - even prohibited people. All SDI go on contract, and on title, as "tenants in common." Ownership percentage must be identified and all costs and proceeds prorated correctly according to these percentages.

Multiple Parties - IRAs & People all cash T.I.C.

Same as multiple IRAs, as long as there is no loan (as an all cash deal) it does not matter who the SDI belongs to, or who the people are. All names must be on contract and title for unique percentages.

All cash

Buy/sell, with/without, friends/family is by far the easiest and most common transaction. When this happens all income comes back to SDI, so having a1031 exchange is not required to defer taxes. The money in your trust account is also used to pay any expenses incurred. Real estate investment related expenses are paid out of the SDI.

Getting a loan to buy

In the past there were NO banks lending to SDI. Only until recently a few banks in the nation offer this service. The loan that is offered is a non-recourse loan. This is great news, because now investors could use leverage.

When you get a loan for your SDI you:

o Can't guarantee the loan personally.

o Can't co-invest with your IRA.

o Pay the tax on any income or capital gains derived from leverage.

o Increase the returns and growth of your SDI two to three times.

What is a "non recourse loan?"

o You are not personally liable for repayment of the loan. In the event of a default/foreclosure the lender can only recover the property and your equity.

o Typically requires 30-35% down payment. If there is low cash flow or the condition of the property is bad then they may require a larger down payment.

Non recourse loan process

o After setting up the SDI, it will typically close in 30 days.

o Cash out refinance: funds are distributed back into the SDI.

THERE IS NO PRE PAYMENT FOR A NON-RECOURSE LOAN!

Property Eligibility

o Single family residential

o Condo's (100% complete, 33% or more sold, and HOA turned over by developer)

o Duplexes

o 4-plexes

o Multi-family (5 or more)

o Commercial property: including retail, warehouses, and office buildings

Ineligible properties include:

o Residential with large acreage

o Raw land

o Farms

o Manufactured homes

o Hotels, condo-hotels

o Co-ops, timeshares

o Senior or assisted living facilities

o Non-franchise restaurants

o Entertainment properties

o Mini-storeage

Requirements for debt financing must be verified for purchase along with reserves (10-20% loan amount).

Documentation required for loan approval:
1. Completed loan application

2. Most recent asset statement verifying IRA assets for purchase and reserves.

3. Purchase sales contract

4. Acceptable real estate appraisal for the property to be financed. The appraisal must come from lender.

5. Copy of drivers license

6. Property insurance should read the IRA/LLC as the insured

Income requirements for homes

o The financed property must generate sufficient net operating income to exceed debt service payments by:10%single family (less then 10% or negative cash flow is acceptable with sufficient reserves on SFR). For 2-4 unit properties it is 10-15%

o IRA assets must be verified for purchase along with reserves

How the closing process works:

1. Title company prepares closing documents.

2. SDI owner initials for approval.

3. Originals sent to Pensco for execution by the tile company or broker.

4. Pensco signs, notarizes and returns package. They overnight and wire balance of funds for closing.

5. Title company forwards recorded grant deed to Pensco.

6. Through your trust, you now own the property.

Another way to invest using IRA

This is a true story from a Pensco client. One investor wanted to buy a property in San Francisco. They buyer didn't have all of the money for a down payment. So, he approached his friend and asked about him if he was interested in earning a certain percentage return on his IRA. He agreed. So, the buyer took his portion and combined it along with his friends SDI, to purchase the property. His friends SDI issued him a second on the property. This created a "win" situation for everyone. The buyer gets the property. His friend gets a great return on his IRA (that is secured by real estate) the sales agent wins because the deal closed. The owner of the property is happy, because they sold the property. The bank, is happy because they are making a return by giving a loan. All of this is possible because the SDI was used.

There was another person, who used his SDI to buy pre construction property. In Las Vegas, there was a developer who was forming a community. The investor approached the developer and solved a problem for them. Apparently there were some fall outs with buyers. The investor, said (paraphrasing) "I will buy any homes that fall out of escrow for a discount."

If you would like to read upon an investor who used their SDI, look up: Time June 14th 2005. Investor used $195,000 to invest in property on Marco Island FL. Sold resulted in a $500,000 profit going directly to IRA

Rental property purchases

Question:

I want to purchase a rental property for $100,000 can I use:

o A. $30,000 of my IRA funds

o B. $65,000 of my personal funds

o C. $5,000 loan from my brother to do this?

o D. All of the above

o Answer: D

In the begging of this E-book, I expressed that using SDI has been kept a secret. One of the reasons is because of misinformation from "professionals" is from CPA's. Some CPA's say not to use an IRA to invest in real estate because:

o You will lose tax benefits e.g. depreciation (not quite)

o Using SDI "destroys" tax deferred compound growth in IRA (wrong)

o You have to pay ordinary income tax versus capital gains tax at the end of the line (true just like any other IRA investment)

Some CPA view points do not take into consideration the following:

o They do not address need for diversification in the retirement portfolio to hedge against other assets

o Broadly implies that even if you know that you can get better results investing in real estate through your SDI you shouldn't do it

o It is IRRELEVANT if real estate out performs other IRA investments

o IGNORES the facts that 44% of net worth in US is in real estate

o Does not recognize that after tax yield is the primary goal of the investor

Unrelated Business Taxable Income (UBTI)

If your SDI produces income from activity not "substantially related" to the exempt status UBTI comes into play. The purpose of UBTI was to alleviate unfair competition by exempt organizations with taxable enterprises. Basically when you conduct business and it is not passive income, you come across UBTI. Further explanation; if your SDI is going to open up a restaurant, you are going to have ordinary income. The IRS feels that is fair that you pay tax on the money you make everyday. Because it is not fair for you to open up a restaurant and for someone else to open up a restaurant down the street, but you don't pay tax. If it is "ordinary income" UBTI applies. If it is passive income UBTI does not apply, such as rent, interest and capital gain.

Unrelated Debt Financed Income (UDFI)

Income generated by activity that had debt financing. Tax is applied to that portion of gain/income that is debt financed. Most "passive" investments income such as rents from a property are normally excluded from taxes, but such investment income is going to get taxed if derived from debt financed property (UDFI). Basically, if you buy a property for 5 million. You have your SDI, put up 2.5 million and you get a loan for the other 2.5 million. Well the gains you get from the borrowed 2.5 million from the bank will get taxed (UDFI). You will not get taxed on the portion that comes out of your SDI.

Home values are down more than twenty-five percent from their peak in 2006 and continue to fall rapidly across the country. Some experts predict an additional fifteen percent decline in the upcoming year. As a result more than 12 million homeowners now have mortgage debt that exceeds the value of their homes.

WHAT IS A SHORT SALE?

A short sale occurs when the lender agrees to discount a loan balance and accept less than the total amount due incident to the sale of a home due to financial hardship. In today's economic environment more and more lenders are initiating short sale programs to assist people in selling their homes and thereby avoiding foreclosure.

WHO QUALIFIES?

Once homeowners find themselves in a circumstance where their home is worth less than the mortgage balance this is just the beginning of the process to determine if they are eligible for a short sale. Moving into 2009 more lenders appear ready to assist homeowners in loan modifications and short sales in an attempt to slow down the ever growing foreclosure crisis.

In virtually every short sale negotiation the lender will be looking for a statement of hardship from the homeowners which explains why they need relief and more specifically why the homeowners cannot pay the difference still due on the mortgage after the short sale. Declining property values coupled with a need to relocate or upwardly adjusting mortgages and unable to refinance are the beginning, in many cases, of the hardship picture. The declining home property value, increasing adjustable rate mortgages coupled with unemployment greatly defines the downward spiral leaving many homeowners in desperate need to sell their homes, which would not be possible without short sale assistance.

THE SHORT SALE PROCESS

The first and most prudent step would be to seek the assistance of a competent real estate lawyer to assist in the process. While each lender has their own specific requirements there is a consistency in the nature and type of documentation that can be expected.

The first step is to contact the lender to see if they have a person or department set up to respond to inquiries regarding short sales. While the situation seems to be improving as lenders become more and more organized in dealing with short sales it still may require some persistence in getting the proper individual on the phone to ascertain the lender's procedure.

Once contact is made with the workout or short sale department typically a lender will want an authorization signed by the borrower(s) which would allow the real estate attorney to communicate directly with the lender regarding the potential short sale. Many lenders will merely accept a letter, others will require a signed authorization and still others will require their specific written authorization form to be signed.

Once proper contact and authorization is in place the following requirements can be expected from your lender:

o Hardship Statement

This is a written statement which describes for the lender what has changed making it difficult/impossible for the homeowners to continue paying their current mortgage. Specifically, this is the statement where it is outlined for the lender if the homeowner(s) has lost a job or had a significant decrease in income, was hospitalized or had some other unexpected illness or medical emergency contributing to their problems, or simply had their mortgage adjust up making the payments no longer affordable. Again, your real estate attorney should assist you in writing this letter making a strong plea to your lender to accept less than the full payoff.

o Statement of Income/Assets

Most lenders will require a financial statement outlining all liquid assets, including savings accounts, checking accounts, money market accounts, stocks, bonds, cash and other real estate. Obviously this statement needs to be consistent with the facts outlined in the hardship statement in order for a lender to seriously consider the request. In many cases the borrower should be prepared to provide backup information including bank and other statements for the accounts disclosed in your statement of income and assets.

o Appraisal/Comparative Market Analysis

As part of the short sale process most lenders will require either that an appraisal be performed confirming the value of the property or in the alternative a current market analysis obtained from a real estate agent which will compare the suggested price of the home to that of similar homes that are either currently on the market for sale or have recently sold.

o Listing Agreement and Purchase Agreement

Many lenders also require a copy of a Listing Agreement with a real estate brokerage for the sale of the property together with a copy of the Purchase Agreement for the sale of the property as part of the short sale package. Obviously, any such Purchase Agreement should be carefully worded to include language that the sellers' obligations are expressly contingent upon lender approval. The lender may also require a preliminary settlement statement or net sheet which includes estimated closing costs and reflects the bottom line payoff to the lender.

In most circumstances after a complete short sale package is received by the lender it will take thirty to sixty days for approval and if granted sellers may move forward and close the sale of the house to the prospective purchaser.

CREDIT CONSEQUENCES

Selling a property by short sale will cause a hit on the sellers' credit report and in many cases the affect on credit and FICO scores could be the same as a foreclosure. As such, a short sale should only be considered, and in most cases will only be considered by your lender, to avoid a foreclosure. The good news for short sale sellers is that in most circumstances the wait involved before qualifying for a loan to buy another home is much shorter than if a foreclosure occurs. New Fannie Mae guidelines now require only twenty-four months seasoning before a short sale seller can again buy with a reasonable interest rate. In most cases a person who wants to buy another home after a foreclosure may end up having to wait as long as thirty-six to seventy-two months before a lender will offer a reasonable interest rate in relation to the current market.

One of the key areas that must be negotiated for sellers incident to the short sale is whether or not they will be subject to a deficiency judgment, meaning having to repay the difference between the loan amount and the amount paid to the lender at the short sale. In most cases it is up to the lender to decide whether to require a payback of some or all of the deficiency and as such the seller should discuss this matter with a real estate lawyer prior to finalizing a short sale. A lender's position regarding pursuing a deficiency varies from institution to institution and is greatly impacted by the hardship circumstance as well as the seller's income and assets. In many cases a good attorney can present the case to a lender and reach some agreement that is acceptable with regard to the deficiency.

TAX RAMIFICATIONS OF A SHORT SALE

While I am a licensed attorney, I am not a CPA and cannot advise on tax consequences. Generally speaking the cancellation or forgiveness of debt is included as taxable income. If a lender forgives that balance of a mortgage there is cancellation of that debt which could be taxed as ordinary income. Fortunately, tax relief has been enacted for such debts secured by a principal residence. Congress has passed the Mortgage Forgiveness Debt Relief Act of 2007 which is effective for discharge of indebtedness on or after January 1, 2007 and before January 1, 2010. The federal bailout legislation passed in October, 2008 extended this relief through December 31, 2012. In most circumstances, under this law, the forgiveness of debt incident to the sale of a qualified principal residence is excluded from taxable income.

CONCLUSION

Given the ever changing challenges of today's economy short sales are going to become more and more prevalent. With continued declining property values homeowners are in need of assistance and both lenders and the government are recognizing this need and enacting programs to provide for that assistance. While a short sale will have a negative impact on credit in many cases it is the only opportunity a seller may have to avoid foreclosure and will potentially afford the short sale seller the opportunity to qualify to purchase a new home sooner. The need to get out from underneath the negative equity is something that has been recognized by our government and the IRS but should only be considered after consultation with the appropriate real estate and tax professionals.

Always seek legal counsel before attempting to pursue a short sale. A real estate agent, although qualified in other aspects of real estate, is not qualified or licensed to give legal advice.

Nobody likes to have a mortgage hanging around their neck, but it's a fact of life when you buy real estate. This credit is the longest debt you'll ever face. It may seem like you'll be spending your life paying it back. But don't worry; there are some ways to get your real estate paid sooner. Then, in those years ahead, you can enjoy your money instead!

Refinance For A Shorter Term Mortgage

Wouldn't it be nice to pay that mortgage off in half the time? Well, with most lenders you can do just that. It involves refinancing your loan for a shorter term.

The first benefit is obvious-You're done with it sooner! But, you also end up paying less over the long haul with a short term loan. The interest rates will be lower, and you'll have that debt off your back. The only thing is to watch out for fees and penalties. Most lenders charge you something for making the change, so check this out before you refinance.

Toss A Little More Money

Paying extra on your credit is a great way to end it sooner. Instead of just chipping away at your finance, you can knock chunks off of it. It won't make as dramatic a difference as refinancing, but it will get you finished several months to a few years sooner, and we could all use that.

There are two ways to pay extra. You can make higher monthly payments or send an extra check for the month. Or, you can save it up and send a bonus check to your lender at the end of each year. The great advantage is that, instead of getting locked into these extra payments, it's totally up to you. If you're having a good year, pay more. If times are tough, keep the money for yourself.

Just a warning-Review your lender's pre-pay policies. Some will penalize you for being nice and trying to pay sooner! Others have a maximum extra payment. This means that there is a limit to how much extra you can pay.

Also, make sure these extra payments are going to the principal. This is a key part of the real estate debt game. Some sneaky lenders will apply it to future interest and other tricks that keep you from whittling it down. You can state this on the extra check that you send.

Renegotiate Your Mortgage

This is the most complicated way to cut it down, but it may save you lots of money over the long term. If interest rates go down, look into renegotiating your mortgage rate. Your monthly payments will go down and over the course of your loan, you'll end up paying less.

Talk to your lender about refinancing and see what they offer you. Real estate experts say that if you can't lower your rate one percent minimum, it's not worth renegotiating.

Wouldn't it be nice to get that all paid off sooner? These are just a few ways to pay your mortgage early, and then you can spend those later years enjoying your money. Before you do anything, check your real estate lender's pre-payment policies. Make sure they won't penalize you for paying early.

You don't want to jump into anything blindly or sign a real estate contract or home mortgage loan contract or any type of contract without giving it some serious thought. Watch out for anything that appears to be vague. You want to keep in mind when financing real estate that lenders will be able to tell you only what you might be able to afford based on your current not future salary and level of debt including your credit card debt. First of all you'll need to find a lender for your real estate financing and potential residential, home or other type of investment.

The real estate financing situation for each buyer is going to be different of course. A 20-year fixed rate mortgage term will mean higher payments, when compared to a 30-year fixed-rate mortgage. The advantages of a fixed-rate mortgage include consistent principal and interest payments, which will make this loan stable - your rate won't change; a good choice if you're likely to stay in the house for a long time.

And if you have less-than-perfect credit or a 'bad credit' credit report don't be too concerned about it. The disadvantages of an adjustable rate mortgage include the possibility of increasing monthly payments if interest rates go up and over the years this has happened many times and people have lost their homes. If you've applied to several lenders, when you finally do select a good lender you may have to explain why there are other inquiries from lending institutions on your credit report.

The disadvantages of a fixed-rate mortgage include the possibly higher cost. These loans are usually priced higher than an adjustable-rate mortgage. With adjustable rate mortgages the initial interest rate is usually lower than with a fixed-rate mortgage so the monthly payment would also be lower. An adjustable rate mortgage could be a good choice because on the average, most people move or refinance within seven years, but be aware of the fluctuating interest rate.

If the rates in the current market are high, you'll probably get a better price with an adjustable-rate loan. Any money you receive from a lending institution will show up on your credit report and your payments will factor into your debt-to-income ratio. And a good or bad FICO credit score is not a requirement for most conventional or government loans like FHA loans or VA loans.

Reminder - an adjustable-rate mortgage (called ARM) means that the interest rate changes over the life of the loan, according to the terms specified ahead of time. Your income and debts will typically play the biggest roles in determining what price range you can afford when buying a house. Insiders know that the advertised mortgage rates you find are not always what you'll get from the lender - it could be fluctuations in the market, good or bad economic news, any other of a dozen reasons, but interest rates can change even throughout the day.

A range of mortgage options are always available and some loans require little money down. And if you're on a fixed income, an adjustable rate mortgage, especially a short-term ARM, may not be your best choice.

Keep in mind that low credit scores do not mean you cannot buy a home or other real property; continue to explore the options and you'll come up with the best real estate financing. Ask other homeowners what real estate and mortgage problems they've encountered - everyone has stories to tell. Rates can change fast, one way or another, day by day; this is true for residential, commercial and investment real estate financing. Always get the most current interest rate quotes. The rate won't last long.

I already feel your skepticism. Buy commercial real estate? This year? Doesn't this guy know that vacancy rates are skyrocketing, unemployment is on the rise and market sentiment is that commercial real estate will be "the next shoe to drop"?

Actually, I do, and I want to be very precise with my strong buy recommendation. This article is specifically for business owners who are currently leasing space and who also intend to be in business for at least the next 10 years. If that's you, the remainder of 2009 may present the best buying opportunity you will see in your lifetime. Consider the following:
 
1)    You Need a Place to Operate Your Business
 
This may seem obvious, but unless you've set up shop in your home, every business needs space to operate. You've already decided to be in business, now you must choose to either rent or own your space.

Real estate rental costs are typically the third largest expense a business incurs (after payroll and taxes). On average, lease payments typically increase by 3% or more per year, every year. Finding an ideal location to purchase can convert this large, consistently growing expense into an investment that you will someday recapture, hopefully with a nice profit, when you eventually sell the property.

Furthermore, you will be the owner of all tenant improvements you make to the property and never need to worry about a lease not being renewed or having a property sold out from under your business. Don't underestimate the pride of ownership you will feel as the owner of your business and the place from which your business conducts its business.
 
2)      We Are in a Buyer's Market
 
This year is clearly a bad year for many commercial property investors; rental rates are down and vacancies are high. These investors, unlike business owners, depend on the rental income their property generates to pay the mortgage. The vast majority of investment property loans have balloon payments every 5, 7 or 10 years. In today's unstable market, banks are very conservative with property valuations and refinancing investment properties is harder than ever.

 Many investors need to sell properties, even ones with positive cash flow, due to a lack of available financing. As a consequence, there are a large number of attractive acquisition opportunities available at historically low prices relative to the cash flow they can generate.

The investor's challenge is your opportunity. As a business owner you will use your business' cash flow to cover the mortgage expense. There is a good chance that you are already spending most if not all of the mortgage payment as rent.
 
 3)     Short Term Value Fluctuations Don't Matter
 
The idea is not that your owner occupied real estate is somehow immune to down market cycles. The point is that as a business owner you don't particularly care because you have no intention of selling in the short term. Certainly all property owners hope to enjoy increasing property values, but for owner occupied properties it's not a day to day concern.
 
4)     Historically Strong Inflation Hedge
 
Commercial Real Estate has a long history of being an excellent hedge against inflation. Over the long term, commercial properties tend to increase in value at a rate approximately two percent higher than the rate of inflation. Large deficits combined with huge increases in the money supply are going to lead to high inflation at some point. It's already baked into the economic pie. When that inflation hits, your commercial property will become more valuable. Additionally, you will be paying your mortgage with dollars that are increasingly less valuable.
 
5)  Outstanding Exit Strategy Options
 
When you one day decide to retire, owning the property will provide several attractive options. You will be able to sell the business and lease the property to the buyer; sell the business with the property, increasing the business value and making the transaction easier to finance, or sell the business and the property to different buyers. 
 
6)   Make Your Accountant Happy
 
Property ownership provides many tax benefits and can help shelter business income. Interest deductions, depreciation, amortization, 1031 exchanges and other benefits will help you keep more of what you earn. Speak to your accountant to gain a better understanding on how commercial property ownership can help you keep more of your income and reduce your tax burden.
 
7)    Excellent Financing Options are Available
 
Outstanding financing options are currently available to help business owners purchase or refinance owner occupied commercial properties. Several underutilized loan programs can provide up to 90% financing for qualified projects. These loans are fully amortizing, so you never need to worry about facing a balloon payment either.
 
It's hard to get up the courage to invest in commercial real estate when the market is in turmoil, but I urge you to consider doing just that. The benefits of ownership are compelling and the timing is right.

You can find these claims all over late night television and the internet:

"You Can Become A Real Estate Investor with No Money and No Credit."

After hearing and seeing these ads, one would think that you can start buying real estate with no money out of pocket, that your credit never has to come into the picture and that three months from now, all of your financial problems are going to be over. It may sound crazy but that is exactly the attitude that many newbie investors come into this business with and it is the reason why most of them not only fail at this business, but also end up ruining their personal credit for years to come.

The fact of the matter is that investing in real estate is a business. To survive, you must treat it as such. Now what does it take to run a successful business? While there are many answers to that question depending upon the business that you are in, the one element that is required for any business is a good strong sense of financial responsibility. And what is the best indicator of your financial responsibility? The answer to that question is, of course, your personal credit.

As a businessman, mortgage lenders expect you to be more financially responsible than the average home buyer. This is why the credit requirements for investment property financing are considerably higher than those of a primary home borrower. You as a real estate investor are being held to a higher standard. An investor in today's market can expect to need to meet the following general credit requirements to get financing from a conventional lender: (keep in mind that these are general min. requirements and are not written in stone. Each lender will have its own credit and guide line requirements for financing.)

• Credit Score: a minimum 660 (a few lenders still offer programs down to a 620 score, but 660 is quickly becoming the new minimum credit score needed.)
• Credit Depth: a minimum of 3 open accounts on your credit report, in good standing and reporting for 24 months or longer
• Assets: 6 or more months PITI reserves plus funds to close.
• Employment: a stable 2 year job history (either in the same line of work or at the same company). If self employed, than you must be able to show 2 years self employment status before your income from that business can be used to qualify.

Now let's take a look at those internet and TV ads that says you don't need money or credit to buy investment real estate. Well those statements are 100% true. There are private lenders out there who will loan you the funds to purchase and rehab an investment property all in one loan. Most of these lenders will even allow you to roll the closing costs in the loan as long as the total loan amount is less than 65% to 70% of the appraised market value for that property. All of this can be done with no credit check and possibly no money out of your pocket. These lenders will offer high interest rates, high closing costs, and short terms (generally around 6 months) with a quick close and no pre payment penalty. So this makes it a good financing option for a quick "fix 'n flip" scenario.

But what happens after you purchase the property? Do you have an exit plan? What if your initial exit plan doesn't work out? Do you have a back up plan?
Let's take a look at the following example to see how this can play out:

Joe is a first time investor. He has found what he believes is a good first deal for him. Now Joe has had some problems over the years. His credit is in bad shape and he has almost no money in savings, but after reading a couple of books and maybe a real estate investment study course, he feels that he has all the angles worked out and that his lack of money and credit aren't going to cause any problems. So Joe finds himself a private lender who doesn't check his credit and he buys first investment deal without a credit check and without bringing any money to the closing table. He is a little concerned about the 16% interest rate on his new loan, but he figures he'll be able to sell the house within 90 days anyway so he can handle the extra debt for a few months. So Joe rehabs his house and puts it on the market and waits. After 5 months, Joe still has not been able to sell his house and his loan is due for repayment at 6 months. Now Joe has a real problem. He can't refinance the property and turn it into a rental because he doesn't have the credit to get the permanent financing he would need and he certainly doesn't the tens of thousands of dollars needed to pay off his loan the following month. So what happens to Joe? Mostly one of couple of things, he'll either sell the property for what he has invested in it (and in doing so will make no money off the deal) or he'll be foreclosed on by the lender.

If Joe had cleaned up and taken care of his credit before getting into the business of investing in real estate, then he quite possibly could have done a cash out refinance and not gotten himself a much lower interest rate but also pulled some equity out of the investment property to help him out until he could sell it.

This scenario is one that happens all of the time in this business and it is a perfect example of why it is absolutely essential to clean up and maintain your good credit before you get into real estate investing. Trying to buy investment properties with no money and no credit leaves you with only one exit plan and that is to "fix 'n flip" the property. However to survive in the long term, you have to have a back-up plan; something you can do to get the property generating income if it doesn't sell quickly due to slow market, bad location, etc. And almost all of these back-up plans you can come up with require that you obtain some kind of permanent financing for the house. If your personal credit is bad, then you won't be able to obtain that permanent financing and your back up plans will all fly right out the window.

The bottom line is that the business of investing in real estate is not for everyone. If it was then many more people would do it and be successful at it. Don't get emotionally tied up by some advertisement telling you that you can get into this business without any problems. Only you know whether or not you have the financial responsibility to run and maintain a business. Only you know whether or not you already pay your bills on time and take care of your monthly debts like you should. And only you know if you are ready to make the life style changes you may need to make to become that kind of person. If you can't honestly and truthfully answer those three questions, than chances are good that you are not ready to become a real estate investor.

Most often, real estate investors are the ones who think ahead and have a vision for the long term that can recognize the importance of planning for their retirement. They also know that they cannot rely on Social Security for their retirement income. It simply is not sufficient and, by retirement age, who knows how that program will have altered?

Unless you have an superbly generous retirement program, you will need to plan for the long term. You will responsible for your financial freedom in your retirement years. It may turn out that real estate is one of the most excellent ways to plan, for 5 reasons:

1. Tax benefits encourage equity growth. The tax code encourages investors to use real estate to encourage equity growth. The like-kind exchange rule helps investors hold their capital invested and prefer cash flow over capital gains. None of your equity has to be relinquished in the form of taxes. Your rents are further sheltered by depreciation. In comparison with other retirement plans, such as individual retirement accounts (IRAs) and pensions, in which income is taxed as it is withdrawn, real estate is much more flexible, allowing you to borrow based on invested equity and enabling you to manage your capital without the rules of other plans restricting access.

2. You can time your debts. You have several control over the timing of mortgage debt. You can pay off a mortgage in coordination with a planned retirement date, and the longer you have to plan, the easier it is. With mortgage acceleration, you can calculate so far ahead that you can have your debts repaid in the exact year you want to retire. And you do not need to refinance. Simply calculate the payment you have to make each month to prepay your mortgage by the planned date.

3. Real estate values have surpassed inflation. With the exception of a few economic downturns, real estate surpasses inflation most of the time. On average, real estate is certainly ahead of the cost of living. The consistency of the long-term record is reassuring. The historical increase in prices, when compared to other popular ways to invest such as the stock market, has been predictable and stable. Inflation is a force that erodes an investment portfolio's value, often producing losses in real spending power above and beyond after-tax profits. Real estate, with its combined solid market performance and annual tax benefits, overcomes this chronic problem faced by many investors.

4. Real estate is a secure investment. Buying real estate is one of the most secure ways to use and protect your capital. Market and investment risks are slight compared to other long-term investments. Cash flow risks can be mitigated with larger down payments, or through seeking properties that produce positive cash flow. And the higher your tax rate, the better your tax benefit, meaning that after-tax cash flow is affected directly. Real estate is also safe because it can be insured. Homeowner's insurance is not only required, it is one of the ways that your investment is protected from risk.

5. Real estate can be used for retirement housing. Your investment can be maintained over the years with tenants paying your mortgage while you benefit from the annual tax advantages; and then, on retirement, with your mortgage paid off, the same property can be converted to a primary residence. Thus, you can live mortgage-free in your retirement.

You will probably not find any investments offering high safety and low risk that compare with all of the advantages of real estate. This point - valid comparisons of safety and risk - often is overlooked by investors and almost always ignored by financial planners. Whenever you hear the advice to forget about accelerating your mortgage and instead put the money in to some higher-yielding investment, always make sure the comparison is a fair one that includes relative risk levels. Make valid comparison before taking advice.

Mortgage is a term used to denote the pledging of a persons property (typically) as a security when a person borrows money from the lenders. In most countries and their jurisdictions, loans secured on real estate are called mortgages. But, there are a few exceptions and few restrictions as well. There might be some jurisdictions in which only a piece of land can be mortgaged. But on the whole, mortgage generally refers to putting up your real estate as security. Thus, it is a secured loan with minimal risks to the lender.

Suppose, you have an old loan and you want to repay it. Well, then you can take a new loan to repay the outstanding debt. This, in essence, is what mortgage refinance is all about. When a person goes for a refinance loan, he/she is actually going for a secured loan. Through this process people replace an existing loan that was secured by the same assets. The most common reason why consumers go for refinancing is home mortgage. Some of the other salient reasons why people tend to go for mortgage refinance are given below:

· Refinancing goes a long way in reducing the cost of interests. Refinancing is generally done at a lower rate as compared to the other loans.

· If a person wants to pay off other debts, the refinance is the mortgage to go for.

· At times, people take a long-term loan and reduce their obligations in terms of periodic payments.

· Mortgage refinance also aids in risk reduction. Sometimes people move from a variable-rate to a fixed rate loan when they choose the refinance option.

· Many a times, people want to liquidate their entire equity, which has assimilated in real property since the time they gained ownership of their house.

Believe it or not, in some types of refinanced mortgages, you have a penalty if you repay the loan early. This can be with respect to a part repayment or the repayment of the entire loan. You are also cautioned, as far the lower interest rates are concerned. Some refinanced mortgages expose the borrower to greater risk than done so by the existing loan.

While picking a mortgage refinance you must calculate the ongoing, up-front, and the potentially variable costs that are all a part of refinancing mortgage. All these points must be considered before making a decision to go for a refinanced mortgage. Refinancing quotes also vary from region to region and depend on your credit history and other aspects like employment, duration of employment, savings history, and number of years at the existing place of residence.

Like all mortgages, mortgage refinance gives a lot of importance to credit reports. But, don't fret if you have a poor credit history. There are numerous options available in the market today that allow you to pledge your property in order to borrow cash.

Hybrid mortgages such as interest only loans, adjustable rate mortgages (ARMs), and other non-conventional mortgages are causing many people to go into foreclosure. Hybrid mortgages were given to people from all walks of life. Hybrid mortgages were mostly used to allow people to purchase more expensive houses and have a smaller monthly payment.

One of the main causes for the recent increase in the foreclosure rate is monthly payment increases. Many hybrid mortgages came with teaser rates. Teaser rates are interest rates given at the beginning of a mortgage for a short period of time. Other mortgages such as ARMs are also affecting the foreclosure rate with their adjustments. Many ARM interest rates are changing and people can not afford the new higher monthly mortgage payment.

President George W. Bush recently proposed policies designed to help slow the foreclosure rate in America. The proposal will allow people who could not qualify for FHA refinancing, to meet the FHA qualifying standards.

You can be sure that this is not the last legislation we will see that is designed to stop the foreclosure rate from increasing. Real estate is very much a part of our national economy. Excess foreclosures affect our national economy in a negative way. House prices decrease and that causes people to stay where they are and not purchase more or larger houses. It also affects the number of second homes being purchased. If people thing their property value is going to go down after they purchase, they will wait until they think the market is at its lowest point before buying.

The new proposed legislation is expected to help the real estate market and most importantly people who are falling into foreclosure and losing their homes. The problem is the proposed legislation will not help everyone losing their house to foreclosure. If you are in a situation where you need to sell your house fast to stop foreclosure then contact your local FHA office. If you do not qualify for their current refinance standards then contact your local home buyer.

It is important you know each state foreclosure laws are different. If you are getting foreclosure information from websites or magazines, you need to know that the information you are reading is relevant to the state you live in. It is much safer to contact your local home buyer and find out your options.

Local home buyers purchase many houses before they are lost to the bank and the foreclosure process. Selling your house fast will stop the foreclosure process and save your credit. Local home buyers will also let you know your options when it comes to foreclosure. It is important to know your states foreclosure law, because each state is different.

Lenders and mortgage businesses pushing low rate mortgages. Ads on the radio, print ads in the Business section of newspapers tell customers: 1 percent mortgages, $500K mortgage loans only $1,500/month, get into your dream house, etc.

Above sounds very attractive to get a mortgage loans, but now with the adjustable rate much higher & value of houses declining, these people are defaulting! The default rates are rising, the financial institutions who made these loans are in trouble, but realtors are to blame. The radio ads don't mention that the real rate gets added to the back of the
loan every month, for example a $500k mortgage loan can end up being a $700k mortgage loan after a certain time because the interest is added to the end of the term instead of the beginning, that's the reason why rate loans are low in the first place!

Mortgage loan is the generic term for a loan secured by a mortgage on real property; the "mortgage" refers to the legal security, but the terms are often used interchangeably to refer to the mortgage loan. Mortgage loans generally refer to a loan secured by residential property, often for the purpose of acquiring the residence. Mortgage loans may be lower priced than other forms of borrowing because the value of the property reduces risk for the lender. There are many benefits of Mortgage Loans.

Home owners get into their house they always dreamed of today, but what happens in five years from now, when the adjustable rates starts? Maybe they have to sell their home lower than what they paid for it and owe more than they think! There are lenders who explain this to customers at time of closing, but those things are often not explained in their radio ads, print ads, etc. Lenders try to close the deal from there!

LendAdvisors.com - Blog that helps you with Real Estate, Mortgages & Refinance.

Florida mortgage refinance can be beneficial for property owners within the Sunshine State. This state has witnessed a high level of foreclosure rates which resulted in plummeting property values and left many borrowers owing more than their home is worth.

Entering into Florida mortgage refinance can help homeowners reduce monthly loan installments through the reduction of assessed interest. This can be particularly helpful to investors offering rental properties.

Many investors can no longer charge the high rental rates often associated with vacation rentals and beachfront property because of economic conditions. A large percentage of investors are now charging less than their mortgage payment in attempt to generate cash flow through investment properties.

A recent report published by industry expert, Zillow, states of the 13,000 plus homes for sale in Florida nearly one-quarter are bank owned properties. Once banks regain ownership of foreclosure real estate they often list houses for sale below market value to recover losses incurred by the repossession process.

Due to the abundance of discounted properties many Florida homeowners and investors are holding onto properties because they cannot obtain fair market value. Combined with fewer buyers and tightened lending criteria those who are buying houses often turn to bank foreclosures as a way to save money.

Refinancing real estate loans lets mortgagors obtain reduced payments so they can keep their property until market conditions improve. Reduced payments also let investors' lower rental rates without incurring a financial loss.

Multiple factors should be considered before applying for Florida refi. The first consideration is to determine current rate of interest vs. reduced rate of interest. Borrowers should be able to reduce interest by at least 1.5- to 2-percent for this to be a viable option.

Another critical element is determining if the current loan includes a prepayment penalty. This information is provided in the Truth in Lending (TIL) statement attached to loan documents. Mortgage lenders often assess penalties when borrowers' payoff loans early. This can amount to several thousand dollars.

Prepayment clauses vary by lender. Some are in place during the first 5 years. Others reduce the rate of penalty over the course of the loan. Florida property owners who obtained financing through chartered credit unions or hold VA or FHA loans are exempt from prepayment penalties.

A third consideration is the amount of refinance rates. In Florida, the average cost of mortgage refinance ranges between $2500 and $6000. This includes the cost of loan application, loan origination, real estate appraisals and inspections, legal fees, and various closing costs.

Lastly, Florida property owners must determine if they hold sufficient home equity to qualify for refinancing. Within the Sunshine State, lenders require a minimum of 5-percent accrued equity before even considering review of loan applications.

One program that can be helpful to borrowers owing more than their property is worth, but need refinancing help to reduce loan installments, is Making Home Affordable. This program is sponsored by the U.S. government and offered to mortgagors with Fannie Mae or Freddie Mac loans. Program details are provided at MakingHomeAffordable.gov.

It is always best to consult with a tax accountant or mortgage consultant to determine if Florida mortgage refinance is a financially-sound decision. Take time to calculate the true cost of refinancing to prevent placing personal finances and property at risk.

Borrowers looking for Mortgage Refinance has created somewhat of a phenomenon during uncertain economic times. Mortgage rates have dropped after the Federal Reserve announced its plan to buy mortgage-backed securities to loosen the tight hold on consumer lending.

With the U.S. Government initiating the purchase of mortgage-backed securities this has reduced rates even further. All of this activity has contributed quite a bit to the mortgage finance business and has added to the struggle lenders were experiencing not long after the financial downturn forced lenders through a layoff period.

It has been reported that consumers contacting lenders for mortgage refinance have been unable to speak to a live person and are only left with the option of leaving a message for a return phone call. Some frustrated consumers are unable to simply leave a message as lender mailboxes and voicemail are unable to handle the call volume, not to mention the mortgage refinance agents. As things are starting to cool down in the mortgage industry we see the lenders starting to even out as far as their work load goes.

The mortgage finance surge has found lenders under-prepared during a time when they could really maximize on the opportunity to make up for the lull in previous months. So I wonder if it is possible to be prepared for such an event in the future. With unexpected delays in applications following up with prospective customers, understaffed lenders scurry to service consumer requests for mortgage refinance. We see this could not have been a pleasant time for lenders.

Lenders had to pull staff from other departments to handle the demand for mortgage refinance. Consumers are worried about the possibility of rates going back up before they can lock in. The history of fluctuating rates proves there is great chance this could happen again as rates did change from one hour to the next.

I believe the best advice to give in this situation would be to contact as many lenders as it takes. Be in touch with someone that can get to the point of locking in the rate quicker than the rest, without compromising everything that encompasses processing the loan.

Some prospective customers were told to apply on the internet after getting through to a live person. For consumers that do manage to reach a lender it would be wise to know the most recent rates available. Some online lending sites do not post the best rates for fear of being bound even as rates increase.

Now is a good time to be in touch with connections directly related to the lending industry or connections with a real estate agent that can act as a liaison between the lender and customer looking for a mortgage refinance. Keep in mind there is a good possibility the lender may not reply at all to the message or when the online application was submitted. With business booming for lenders, it would be smart to pursue and secure that magic number before it is lost whether they are as busy as they were at the beginning of the year or not.

While many economists are focused on the unemployment numbers, residential foreclosures and the growth of the US economy, there still remains a possible near replay of the housing bust. I'm talking about the commercial real estate and commercial real estate mortgage markets.

While the factors that led to the housing bust have and continue to be front and center in the news, news coverage of the commercial real estate market is receiving little press. What many don't know is that while to a lesser degree, the commercial real estate and commercial mortgage markets (an over $6 trillion market) have gone through a very similar phase, as did the residential housing market.

The similarities were
1) The commercial mortgage market was sliced and diced by Wall Street to the tune of $700 Billion,
2) Commercial property values jumped dramatically due to easy financing and the resulting demand and
3) Commercial mortgage loan qualifications were eased significantly (but less than residential loan requirements) during the boom.

The differences are
1) A lot less speculation was done in commercial real estate and
2) Nearly all commercial mortgages are short term loans. While less speculation, often in the form of flipping or attempted flipping is a good thing, short term loans is a bad thing so commercial real estate owners don't have the luxury of time to wait out the market or economical swings. On top of that, many of the banks are not making commercial real estate loans except for the really big companies and those with perfect transactions.

Fortunately, there are a few private lenders who are filling some of the void left after the big banks deserted this market but even so, there are a lot of stressed out business owners needing a commercial mortgage refinance loan. Many, however have neither the value and equity or sufficient income for debt coverage to allow them to get a loan. Many others are getting hard money commercial loans to bridge the financing gap. If as many gurus project, the commercial market busts anywhere near to what happened in the residential market (and early indicators, such as delinquencies are for this), it could be a huge hit to an already fragile economy. Time will tell.

July 3, 2009 - As I gaze out my window at the vast expanse of Northern Colorado real estate, I ponder what lies ahead for this great region. How will the effects of this global economic meltdown translate into commercial real estate for an area that, while not isolated from past slowdowns, certainly has been insulated from them? Where do the problems exist and what will it take to get us back on track?

Too much debt

Let's start with a broader perspective. By some estimates commercial real estate debt totals $1.4 trillion nationally, backed by everything from strip malls to apartment complexes - and it is set to mature over the next several years. Much like residential mortgages, these commercial loans were packaged and sold as complex financial derivatives known as Commercial Mortgage-Backed Securities. In recent years, the CMBS market has satisfied a whopping 40 percent of credit demand in the commercial mortgage sector.

Our friends on Wall Street have effectively turned off the spigot, leaving a massive gap in the refinancing needs of borrowers. This could lead to a flood of foreclosures and a considerable amount of supply for years to come.

Already in the first quarter of 2009, payoffs for maturing loans are at a meager 55 percent. This means that 45 percent of loans maturing are either being transferred to special servicing or are unresolved.

Recently the Fed announced plans to include legacy CMBS as collateral under the TALF (a credit facility to stimulate lending), but the stringent requirements to qualify may leave many borrowers standing around like the child who has just realized that the music has stopped and there are no more chairs. Trying to solve the problem of too much debt by creating more debt is akin to telling the guy who exceeded his three-margarita limit at the Rio the night before to just keep drinking. Eventually one has to face the hangover, as painful as it may be.

I have often said the only difference between pricing real estate and stocks is that you can see where your stock prices are every day by simply opening up the newspaper. If property owners could see where their real estate prices were by such a transparent measure, reality would likely replace denial. A valuation gap still exists between what buyers are willing to pay and the price sellers think their properties are worth.

Such a gap has led to a significant decline in activity. In Northern Colorado the numbers are staggering. For Larimer and Weld counties this year, through May 31 according to CoStar, there have been 74 commercial real estate transactions totaling $54,714,791, compared to the 203 transactions totaling $263,016, 509 for the same time period in 2008 (which was down roughly 50 percent from 2007). This translates to a nearly 80 percent decline in year-over-year dollar volume.

The denial promises to set in when the refinance wave hits. Let's take for example a property purchased for $1,000,000 with 25 percent down and a five-year term. If the value of that property erodes by 25 percent (highly probable in the current market), the owner's equity has been wiped out. When that owner goes to refinance the property the lender will require not only the 25 percent equity but possibly as much as an additional 15 percent, as lending standards are becoming more rigorous.

The owner is faced with the choice of bringing $300,000 to the deal to keep the property or walking away. This is the sobering reality.

Going forward

As we look forward, the picture remains cloudy. Northern Colorado is a hub for creativity and innovation. The area generates patents at the rate of 11.45 per 10,000 people a year, nearly four times the average U.S. city. We will continue to see the collaboration of cutting-edge research in renewable energy and businesses as new technologies in wind, solar and biofuels transfer to the marketplace.

While the region will likely remain insulated from the broader market, the macro environment will continue to weigh us down. Not only are we in a recession, but it is one caused by de-leveraging - a phenomenon most of us are still trying to figure out.

We recently learned the region shed some 3,700 jobs over the past year, the most on record. No real estate will recover without stabilization in the job market. Transaction volume will continue to be light as participants continue to probe into price discovery and get more realistic. Remember, there are no bad markets, just bad prices.

Both wealth building and wealth erosion for many will hinge on accurate and timely analysis of the commercial real estate market.