Robert Hand asked:


U.S. Gov’t, Architects of Hedge Funds Cause Collapse of America’s Real Estate Economy

By: Robert W. Hand

Designated Broker/Owner

Equity Alliance Properties



www.equityallianceproperties.com

Subprime Crisis? Heavens no, this is a complete collapse of the national real estate business sector of the U.S. economy, with the mortgage companies and the federal government right at the heart of the matter. The effects of the national real estate business enterprise breakdown with the subprime debacle well underway can be felt throughout every economic sector, including Wall Street.

Of course, there are still those on Wall Street profiteering on the broken back of the real estate business economy. These investors originated, and still draw huge amounts of interest on “interest only” loans, and are the beneficiaries of the federal government’s deliberately slow actions to remedy this fundamentally simple matter.

For most Americans, the most significant form of wealth we have is in the equity in our homes. Americans are losing their real estate endowments, and the effect of a broken real estate business sector has brought the general economy to its knees. The masses are feeling it while the rich get richer. That’s right, the guys still making money off of these high interest loan products make the headlines saying, “Just let time fix it”. You didn’t think they were out of the game did you? Who do you think these “interest only” loan payments continue to be paid to? The longer this thing takes to get fixed, the longer they will continue to draw huge dividends on their “interest only” loan products that by design were never intended to be paid back as no money ever goes toward principal. Strong lobby money representing those interests is slowing down the process in Washington where debts take time to repay, with a nod and a wink.

I released an article last month (http://paradisevalleyblog.com/2007/11/crisis-or-opportunity-truth-about.html)portraying the number of incidences of loans in default as a small fraction of the number of loans overall, a number which is steadily climbing. Nevertheless, keeping those numbers in perspective, that still leaves, by some estimates, 1.1 million Americans losing their residential properties over the next 6 years.

Yes, this is a simple matter and it can be fixed with cash money, go figure. Let’s put the numbers of dollars to fix this problem into perspective in a fashion to which we’ve all grown accustomed; comparing it to the money we spend on the occupation of Iraq. To continue our

military occupation in Iraq the U.S. Taxpayers pay: $270 million every day; $8.4 billion per month; a total of $600 billion spent and approved War-spending; another $200 billion requested for 2008 which would bring the cumulative total to $800 billion. There have been $10 billion mismanaged and wasted in Iraq per Feb 2007 hearings. There have been $1.4 billion Halliburton overcharges classified by the Pentagon as “unreasonable and unsupported”. 20 billion was paid to former Halliburton division, KBR for food, fuel, housing, and other items. Pentagon auditors deem that $3.2 billion of that is “questionable and unsupportable”. Some figures predict the cost of the Iraq war topping out at

over $2 trillion.

Just a small fraction of the capital Halliburton defrauded U.S. taxpayers out of alone would fix our mortgage crisis, would mend the broken real estate business sector of our economy, and would have a positive effect on the overall economy that would far exceed any amount of money we put back into fixing the system. So how much money are we talking about? Congressional Democrats led by Charles Schumer (D-NY) advocate spending just hundreds of millions (less than 1 billion) of dollars into nonprofits to help homeowners and the overall economy. A spokesman for the senator explains he

is not suggesting the government pay off borrower’s loans in full, but believes a mixture of counseling and restructuring of the loans would bring down the costs of the program dramatically. Even if we paid all the loans in full it would be a pittance in contrast to the overall federal budget, let alone the Iraq war budget (if you can call Washington’s fiscal policies budgeting). Further, we can spread the cash outlay to fix the problem over a period of 6

years, according to the rate schedules of the remaining loans in question.

Such a partial bailout is estimated to cost no more than a few hundred million dollars. Compare that to the $8.4 billion we spend every month bringing “Democracy” to Iraq with combat airplanes, helicopters, missiles, tanks, and troops. Even if we bail out everyone with a bad loan, what are we talking about in U.S. dollars…a month or two of what we spend rebuilding the Iraq we so surgically blew up? The top runners of the presidential race spill that much in a single weekend at their white tablecloth fundraisers! Appropriation of a relatively small amount of funds would pull our economy out of the tailspin we currently find ourselves in! But who’s suffering…lower middle

class, not the rich. The Bush Whitehouse neoconservatives were just this week exposed in lies and manipulation of intelligence data regarding Iran as a nuclear threat. This exposure shamelessly still has not thwarted Bush’s rhetoric to invade Iran and threats of World War III as he continues to terrorize citizens abroad and here in America. We had better just save our hard earned tax dollars to fight another war on terror in Iran and forget allocating any funds

to fix the U.S. economy which is, after all, only hurting the peasants. The war profiteers belong to the class of the super rich. George Bush should be impeached while he and his closest advisors, including Dick Cheney, should all be formally brought up on charges of international war crimes.

We have seen any number of articles written voicing the opinion, “Why should we pay our tax dollars to bail out some idiot that was just too stupid to know what he was signing,” or invoking such profound truths as, “It’s just a bunch of greedy investors anyway, they knew what they were

doing.” Perhaps those are fair characterizations in some instances, but who pays? We all do. Worse yet, this type of reaction is exactly what the profiteers of this debacle want to continue to hear, so the process remains

stalled by the indecision and lack of common platform by constituents. Profiteers continue to earn big returns on the money already loaned that is not yet in default. This has all been calculated to a “T” and has been executed as planned. Everyone at the top, the architects of the hedge funds, knew this was not designed to last! These were all interest only loans,

which by design, were never intended to be paid back, as nothing is paid to principal.

Most folks who have fallen prey were not stupid at all, but were just trying to secure their family’s future in real estate holdings. Mortgage brokers promised consumers that they could re-finance out of their nasty little adjustable rate 2nds or HELOCs in 6 months to 2 years depending on the loan program, pre-payment penalties, etc. No layperson could predict the market falling so far so fast. Refinancing out of these undesirable loan conditions quickly became a lost option as so many homes declined in value to far less than originally loaned on them. This has caught far too many people off guard, including seasoned investors and real estate

brokers, to write this off as some folks being careless or stupid. It is a more sophisticated problem than that. There are folks that not only predicted this, but calculated exactly what has transpired and are the beneficiaries thus: the major interests in and architects of the hedge funds that back these securities and continue to prosper from grotesque interest rates on “interest only” loans. Understand that they don’t want legislation passed that keeps them

from being able to charge insane amounts of interest as these “interest only” loans mature and reset.

You, the average homeowner pay the price, as do innocent individuals and families just trying to honestly buy their own ‘piece of the rock’. We are ALL losing equity in our homes, (whether you have a mortgage or not), at an alarming rate as property values across the nation continue to decline due to the huge surplus of homes for sale. Some markets are declining much faster than others and we’re talking about significant amounts of depreciation from every homeowner in some metropolitan areas in Arizona, Nevada, California, and Florida, to name a few. As more and more loans go into default, more and more properties go on the market in the form of short sales and foreclosures at well under market value. Increasing numbers of properties hit the market, putting ever more pressure on existing inventories, and dragging prices down further. We are getting to where we have so many short sales and foreclosures on the market that “under market” is the new norm. Our conventional methods for determining current market value and sales price now take into the effective average the

rising numbers of homes with prices slashed. Buyers, seeing the declining market values don’t want to catch a falling knife. Folks who want to buy are waiting until they see evidence of the “bottom” of the market. They won’t perceive any indication of the “bottom” as meaningful unless they see property values hold steady then raise again. This will not happen as long as more defaults, resulting in short sales and foreclosures, continue to flood the

market day after day, week after week, and month after month. Consumers keep asking, as do REALTORs®, “when are we going to see the bottom of this market?” The answer is so simple even a cave man can do it; WHEN WE STOP THE CYCLE!!!

Why then, if it is such a simple fix, are we not already on our way to enjoying the recovery as a result of taking these simple steps. The answer: Greed, and the power of lobbying money on capital hill have the process locked up and bogged down in red tape. Interest is earned over time, and with interest rates already in place for those making money from these “interest only” loans, they want more time to keep lining their pockets. This expresses one of the most frequently used relations in Algebra: Principal x Rate x Time = Interest Earned. Time is on their side; the super rich who invested in the hedge funds that back the mortgage securities we know as subprime loans. They are getting the time they want because this Republican Whitehouse favors big business, big money, and big campaign lobbyist

contributors, well represented in this group. Government is dragging their feet in spending the money to fix the problem at the pleasure of these predators.

So, folks, protect your equity, protect your interest in your own real estate holdings, protect your children’s chances of profitable

real estate holdings in America, and contact the congresspersons and senators whom preside over your districts. Give a positive voice to the budget to fix this problem. It will pay back huge dividends to our economy as a whole as we recover and stop the downward fall of the equity in our own homes.

This type of government subsidized economic recovery would not be without precedent. Consider the Savings and Loan crisis of the 1980’s, where the government bailed out S&L’s to the tune of 150 billion 1980’s dollars. We can fix our subprime crisis today for a fraction of that amount.

Currently on the hill, there is proposed legislation to impose new limits on the adjustable rate mortgages scheduled to reset.

Congress has been, and is trying to pass legislation to put a freeze on interest rates. These are band-aids for a bullet wound. Let your voice be heard. Put some pressure on politicians to get this subprime debacle resolved with swift and certain action! It is a simple matter, and the beneficiaries of this thing dragging out are the very entities who caused it in the first place. Together let’s end it, now!

Do you want to play hardball? All right, then let’s consider that the federal government does not want the average American to gain dramatically in personal wealth. Why would that be? Glad you asked. Since the years of Reaganomics and theories of a “trickle down” economy, (always reminds me of being pissed on), and deregulation, our country has moved ever more from the worlds’ shining example of Democracy to a text book example of a Republic aristocracy with the Center of Power no longer held by the masses, the common man. The Power Center is now with the elite, the upper class, the super rich, the multi-billion dollar corporate entities, the Texas based oil brokerage firms that ultimately determine tax code, foreign policy, federal budget allocations, and the decision to go to war, with whom and when, and whom have the power and influence to throw elections.

It does not serve the rich constituents of this elitist government entity strangling America to allow its citizens to amass wealth. No, my friends, that would pull too much of the Power back towards the center. Think Washington doesn’t give any thought to that dynamic? Of course they do. Washington is so paranoid of the power of its citizens that they are breaking constitutional laws or re-writing the constitution as they see fit to ensure “CONTROL”, threatening our basic civil liberties in the process. That’s right, even firefighters, (who can regularly in the course of their duties gain access into people’s homes without a search warrant), are now being trained to look for any signs that a citizen might not agree somehow with government policies and might thus be considered a threat to the government or even a terrorist. What a lot of bullocks. I’m a veteran of the U.S. Navy, whose job was gathering and disseminating intelligence, and have stood for protecting and honoring our nation. Now, it’s obvious I don’t agree with government policies. They would now view me as a threat! Sounds more like a Republic regime than a

Democracy. Sounds a lot like World War II Germany doesn’t it? Well, that’s America today, as we know it. Are you more comfortable with your head in the sand? That’s ok, go back to sleep, this article is about over. Germany went from a Nation of knowing to a nation of believing. Are we following in their footsteps as foolhardy, good-willed, ignorant patriots? Too often, we blindly

believe the lies told by the President and his government instead of challenging others and ourselves with the truth. I remember as a child learning of the atrocities in Germany under Hitler and asking, “How could all those people let this happen?” and “how could all those people have been fooled by their government?” In the words of Bob Dylan; “Patriotism is the last refuge to which a scoundrel clings; steal a little and they throw you in jail; steal a lot and they make you king.” This country has been preying on the good will of its unsuspecting citizens and it will be our undoing if we don’t wake up.

Many Americans were making big money during the real estate boom, in large part due to the ease with which funds were available to acquire primary and investment real estate. So many of us bought in to it, and for most, it has only benefited the lending institutions. Once the real estate investment game became profitable for the common citizen, it would self-destruct right before our eyes. The timing was calculated, planned, and the program executed by millions of exuberant homeowners and first-time real estate investors, not suspecting the falling axe. But those in the know, the architects of the hedge funds, knew exactly what would transpire. They didn’t bet their billions on a hunch! Oh no, they calculated every phase of the process and watched it deliver dividends.

Let me offer this challenge to other Real Estate Brokerage firms, Mortgage Brokerage Firms, Banks, and Title Companies: Equity Alliance Properties will pledge $1,000,000 of every $4,000,000 it brings in net revenue towards any program signed into law organizing such private funding. Let’s take back control of the real estate business sector for

the greater good of the American homeowner!



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Julian Lee asked:


Private funds and finding people who are able to provide private funding can have a dramatic impact upon your ability to succeed at building lasting wealth.  Many people find that without some assistance, taking the first step towards long term financial security can be difficult. Achieving your investment goals can be a complicated process and traditional lenders may shy away from individuals who have a poor or little credit rating. Many individuals find that securing the necessary funds to make a solid start to building can made easier when they approach private individuals for funding.

What are Private Funds

Private funds are those financial resources that are made available through the private sector or private individuals. For those who are interested in building a business, seeking venture capital or investing in real estate, there are a number of private funding opportunities available. Using private funds provides you with the advantage of lower costs, but more importantly, private funds are generally more flexible than other loans.

With daily living expenses, mortgages, credit cards, car loans and other loans eating into your income, using private funds can be one means of securing the money you need to start getting ahead financially.  If you use the private funding to begin building long term wealth, and you manage to create a solid profit margin through real estate investment, then private funds can really help you start to get ahead.  Private funds will let you stay in control of your finances and provide opportunities for achieving your goals when you may not be able to receive the loan through a regular financial institution.

Securing private funds from private individuals generally means that you borrow the money from these lenders who in turn want a return on their investment. Borrowing in this way is a lot more flexible than borrowing from lending institutions. This gives you the advantage of tailoring a loan to fit your unique investment goals and lending requirements.

Securing Private Funding

Getting private funding for your investment goals could be easier than you imagine.  You might find that you can secure funds through a family member, business associate or friend. One way to secure the funds is through simply letting people know that you are interested in borrowing the money.  If someone is familiar with the process it will be easier. If you need to look further afield to find the money you need, you might still find that this is simpler than you had thought.

One option for securing private funding is to seek out lenders through networking via investment clubs, real estate clubs and via contacts you make in these places. Many investors who are seeking private funding will recommend that you ‘prospect’ for investors willing to put up the cash for your planned investment. By regularly networking and building your contact base, you’ll find that you have a wider circle of people you can approach when seeking private funds. Once you have a solid group of contacts, you’ll also find this can help you learn of new opportunities for real estate investment and you’ll have a group of lenders who genuinely understand the investments you are making.

Another opportunity for finding potential lenders to provide private funding is via internet ads.  These can help you gain more information about how to secure private funds, as well as a wealth of additional information through educational opportunities and reports. It’s not advisable to advertise for prospective lenders online yourself. Instead, it is recommended that you attend networking events or investment workshops and similar to meet others who have an understanding of private funding and an interest in lending funds for profitable opportunities. The general rate of interest on private funds is fairly consistent with personal loans, sitting at about 9-15%. This makes the use of private funds a mutually beneficial activity for both the investor and the lender.

If you are seeking an opportunity to begin investing, then private funding for real estate investment is a chance to get started on the road to financial security and long term wealth. By using private funds, you can access the money necessary to carry out investment deals for mutual benefit. In securing funds where you may not have been able to if you had to go through traditional channels, you’ll achieve your goals for real estate investment faster.



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Ken Spohn asked:


The one question that always comes up from private money sources

“Am I writing a check directly to the real estate investor? Or do I write it to

an escrow/title company or attorney? “

This is an important question to ask BEFORE you trust your hard earned money

in a private lending transaction. Make sure that the company you work with has

you write your check directly to the escrow/title company or the attorney handling

the closing of the transaction. If the investor asks you to write them a check

directly… be wary and walk the other way.

If your an Investor and your looking to use a private money source.

Consider these points

1. When your first starting out, you’ll need a plan. If you try to wing this people with the money have money for a reason. They are coutious!

Trying to fumble your way through this will only get you disappointment.

2. Your plan should include things like a reputable title/escrow/attorney that has done transaction like this before. Most title companies will even

write up the note/mortgage for you.  Make sure you know what to look for in the note/mortgage. Beware, these are boilerplate documents and can have verbiage in

them that could burn you in the end.

3. Have a PowerPoint presentation or at least a script.  A 15 minute professional looking presentation can do wonders when recruiting new private money sources.

The key is learning what and what not to say in the presentation. Someone that says they need to think about it is probably confused and a confused mind will always say no.

If you would like more tips on private money like this one visit: http://www.investorsclassifieds.com/private-money



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Julian Lee asked:


One of the major hurdles in securing finance for real estate investment can be overcome using private money investors. To create opportunities for successful real estate investment, private investors can provide a more flexible financing option. Securing private money can help facilitate a more successful real estate transaction and allow the structuring of short sale deals, real estate flips and the management of necessary financing for those who might otherwise be precluded if seeking loans through traditional lending institutions.

Using Private Money

Private money can be used when you are seeking a source of funds that is more flexible than what is available through banks and similar lending institutions. There are a number of private funding sources around, and these often have the advantage of being available at a lower cost and provide the opportunity to work with investors who really know you and your investment needs and strategies.

Using private money instead of taking out a conventional loan is often much simpler, particularly when you have a private investor you work with time and time again. You can save yourself a massive amount of time and effort when you don’t have to prepare the mountain of documentation necessary for a conventional loan. With this option, there is still no guarantee the bank will provide the loan.

About Private Money Investors

The key difference between a bank and a private money investor is that the latter has a lot more flexibility than a bank.  When you borrow money from a private money investor, their main priority is whether the loan will make them a profit. While a bank will do extensive credit checks and look at your background in detail, the private investor will focus on the details of the deal that you have put together. Their focus will be what you’re plans for carrying out the real estate deal are and endeavour to understand what the property transaction entails. This generally makes it easier to manage the loan and the real estate transaction when dealing with short sales and REOs.

The other big advantage with a private money investor is the time frame for securing the finance. While a bank could take up to 30 or even 60 days to finalize a loan, a private lender can often provide finance very quickly. When you have put together a deal for a property to flip, using private funds allows a much speedier  finalization of the deal, so you can move on to the next transaction.

Sourcing Private Money Investors

Finding private money investors to assist with real estate deals is one of the first things you need to have under control. When you are managing real estate transactions, you want to have the necessary funding readily available to ensure the deal proceeds smoothly. Securing a quality private money investor means you can manage things more effectively, structuring real estate deals on terms that work best for the deal you have put together, rather than on the banks terms.

A good place to begin networking and finding potential private money investors is through your local REIA. With private investment, it’s often about who not what you know. With a solid network in place, you will often find that you can come into contact or receive an introduction to someone who has available cash they want to invest.

When you have found a potential private money investor, it pays to meet with them and discuss your deal, what your plans are and how you can help them profit. The private investor is looking to see what you can offer that is unique to other prospective investments. Present a clear plan of what they can expect in return for entrusting their money to you, outlining what your plan is and how secure the proposition is. The more solid your plan is, the more confidence they will have that you are the right person with home to invest their cash.

Using private money and borrowing from private money investors is a great opportunity, particularly in the current turbulent times. Banks are much more conservative about their lending these days and when you borrow from a private lender, the process can often be much simpler than when trying to get approval from a bank. Investment in real estate necessitates rapid action to secure the deal. Private money is the perfect choice when aiming to take action quickly and achieve a positive outcome from a real estate deal.



Commercial Loans to 65% of Value

Julian Lee asked:


In different areas of the country, real estate investors are having difficulty getting financing for their deals. Some hard money lenders have gone out of business and the funds that were easily available are no longer around. As a matter of fact the hard money lenders who actually still have cash available now require a down payment to use their private money. You have to put up more of your money plus credit and still have to pay up to fourteen percent plus other holding costs to flip properties. This process has stopped a lot of investors from doing deals.

There’s a great strategy out there that some investors have adopted because of the shortage of private money. They have found companies on the web that allow them to use private money to do double closings. The strategy I’m referring to is using private money to flip short sales and bank reo properties. Even though the market is suffering there are still “A” credit buyers out there that are looking for deals. They are intelligent to know that it’s a buyers market and so they are picking up properties with equity that’s twenty percent or more below market value.

By using private money you can pick up these properties cheaper than the average buyer because you’re using cash. So even though your end buyer with conventional financing may be able to pick up an property that’s twenty percent below the market you can come in and get it for about 40, 50 and in some areas 60 percent below market value as a cash buyer. You can then flip that property to your end buyer in a double closing transaction allowing you to make 10 to 50% profit spreads with Short Sales and REO’s. The double close is structured as an “A” to “B” then “C” to “D” transaction. The bank is the “A” seller; you the investor are the “B” buyer. This covers your transaction buying the property from the bank. The “C” to “D” process now makes you the investor “C” seller and your end buyer purchasing the property from you becomes “D”. This deal is structured so that if your end buyers financing doesn’t come through you are not stuck with the property. This protects you and the private money lender.

When you search the internet look for companies that provide private money with no up front costs. Most of these companies are charging up to four percent before they fund you the private money for deals. This can become very costly and eat into your profits. Things to look for are companies that allow you to use their private money and charge you about one percent plus a usual $300 admin fee with closing costs that is taken out of your profits at closing. This will allow you to work multiple deals at once.

Once you’ve found your private money funding source you can now start making deals to flip short sales. Here is an example of how a short sale flip with private money using the double closing strategy will work:

$100,000 Retail Value of Property

$50,000 Bank Accepts Your Short Sale Offer

$80,000 You Resale to End Buyer at this Price

$30,000 Your Profit at Closing

$800 Your Cost of Funds (1% Plus $300)

 

 



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Morgan Foreman asked:


A proof of funds letter can be referred to by many names in addition to the standard meaning of a letter that states you have funds available to complete a transaction. A proof of funds letter is often used in real estate short sale and REO purchases to provide explanation that an investor or buyer has the power to purchase the property they are making an offer on.

Understandably, the currently overworked loss mitigation or short sale negotiators wish to be certain that they are working with a buyer that may perform. They need to know the purchaser has the assets if an agreement can be negotiated on the estate property.

A “leased proof of funds letter” appertains to monies being deposited into a clients private or business account by a backer for a fixed fee. The bank “blocks” the money so that it is not permitted to be withdrawn by the customer ; however the money is in the account to show proof of funds. Extra terms used for this type of exchange are “standby letter of credit” and “blocked funds letter”.

The WSJ said that the U.S. Solicitor’s office claimed “persons who were looking to temporarily lease funds in order to enhance their creditworthiness when applying for loans were instead provided with false proof-of-funds letters on bank stationary showing the funds had been deposited in their accounts.”

Needless to say, it is critical to grasp the difference in the sort of proof of funds letter obtained. If you can access private funds, HELOC loans or funds that can be borrowed from buddies or family, then providing bank records would supply the required “proof of funds letter” paperwork.

If curious about legit “transaction funding” or “acquisition funding” for short sales or REO flips, a normal “proof of funds letter” can be obtained. Look for a lender or financier that is providing transaction funds for the total amount of the acquisition cost without regard for your money or credit situation. Typically a transaction funding fee is between 2-5% of the total of funds used to flip the property at a “double” or “simultaneous” close. This fee is taken from profits at the closing.



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Omar Johnson asked:


One of the most valuable abilities you can have at your disposal as a quick turn real estate investor is the ability to raise cash from private sources to meet any funding need. If you become an expert at raising private money you will have developed a skill that is highly valuable to you as well as to those you work with.

The potential uses of funds from private money are limited only by the bounds of your creativity, but there are some common scenarios where they can be applied to great effect. For rehab investors (you or your buyers) private funds can be used for purchase and repair costs and paid back when the property is sold or refinanced.

If a juicy deal is about to go down the tubes due to a premature foreclosure, you can use private funds to postpone the foreclosure and save the deal, paying the money back when it closes. Another instance where fast private funding can come in handy is any time you want to execute a double closing and the title company requires that you have the cash on hand for the purchase.

This money can be borrowed and paid back extremely quickly, perhaps within a few days. There may also be a circumstance where an individual who can’t qualify for conventional financing has enough equity in a property to convince a private lender to lend money for a purchase or refinance.

Who are private lenders? Basically they’re ordinary people, with the qualifying feature that they have some sort of substantial savings or assets that are not earning them a significant return. This might exist in the form of cash in a savings account or CD, in the form of low yield bonds or stocks, or it might be held in the form of a self directed IRA.

It is important to realize that your private lender does not necessarily have to loan you the cash themselves, but can use their assets to secure a loan on your behalf from a conventional lending institution. For example, if your private lender owns some municipal bonds earning 6% which she is willing to pledge to secure a loan on your behalf, you could offer her a 6% return on the cash you borrow and she would double her earnings, since her bonds would continue to earn 6% while you are using the cash.

Knowing who private lenders are is important, but so is knowing how to acquire their contact information. If you handle your business appropriately finding these individuals should happen on a regular basis.

There are three techniques to build your list of private lenders.

The first is networking; as you talk to your colleagues and others in the business, make a habit of asking what private lenders they use and granting favors in exchange for referrals. The second is canvassing your existing wholesale buyers by asking them if they lend money for real estate transactions. The third is cultivating new private lenders by asking “Have you considered investing in real estate?” whenever you encounter a qualified individual.

Negotiating with private lenders should not be difficult. Simply offer them security with a low LTV and guaranteed repayment and an interest rate that will be better than what they’re already getting, and ask for reasonable terms in exchange: long term or short term amortization, a balloon note at the date of your choice, no monthly payments; these are all reasonable things to ask for if your deal is solid.



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jeff rauth asked:


When is the best time to refinance a commercial loan? Factors such as prepayment penalties, goals of the borrower, market rates, and existing loan terms come in play. Of course there’s no exact formula, but below are some thoughts on how you might analyze your commercial loan refinance.

The Discounted Cash Flow method is the traditional system used, which essentially compares the existing loan vs. the proposed loan on a Net Present Value basis. However we have found that most commercial property owners are really interested in:

1. How the refinance will affect their monthly cash flow?

2. What the closing costs will be?

3. How much of the closing costs will have to come out pockets?

4. (If increase in cash flow) How many months will it take for the savings to “pay back” the owners closing costs?

5. What the principal pay down (amortization schedule) will be, compared to existing loan.

Cash Flow

Most borrowers are obviously interested in improving their cash flow situation when refinancing. There’s essentially only 2 ways to do this – reduction of interest rate and or increasing the length of the loans amortization schedule. That’s it. Reducing the interest rates is obvious however most borrowers are surprised to learn that by spreading out a loan from say 20 years to 30 years normally reduces the borrower’s payment by approximately 20%.

Borrowers that are facing a ballooning loan may find out, however that their situation will not improve. Their monthly payment may go up as markets rates change, loan programs change etc. It is often the case as well that the borrowers books are not as strong as there where when they secured their existing loan and they will not be offered the same program/rates that they previously qualified for.

Closing Costs

Borrowers are always very concerned about closing costs, and for good reason. For example with appraisals ranging from $2,000 – $5,000, environmental reports from $1,800, processing at around $1,000, title from $1,000 – $2,000, and the bank 1% fee, it makes a lot of sense for borrowers to be concerned. On a refinance, the borrower can normally roll most of these’s costs into the loan amount. In terms of out of pocket costs, the borrower should be prepared to pay the appraisal, and environmental report fees upfront. In addition, sometimes the funding bank will require the processing fee paid upfront as well.

Pay Back

Assuming there is a reduction in monthly payments, borrowers like to do a cash flow analysis to see how long it will take for the savings to pay back their closing costs. For example, if the new loan monthly payment is $2,000 lower and the total closing costs are $10,000 it will take 5 months for the borrower to “break even”.

Principal Pay Down

Principal pay down is obviously another important component of any commercial loan. However, for most owners, especially those with highly leveraged properties, cash flow is more pressing. High debt payments versus net cash after the expenses have been paid make it difficult for the borrower to look at this in any other way.



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Julian Lee asked:


If you are interested in purchasing Real Estate Owned (REO) or short sale properties, then you need to understand the basics of transactional funding and proof of funds letters and how they relate to your real estate interests and activities.  Essentially, the transactional funding refers to the funds borrowed for a very short period to transfer a property from the current owner, to the transaction coordinator, then to the new owner.  Proof of funds letters are used to help secure financing and smooth the way for the real estate transactions you are involved in.

Transactional Funding

The use of transactional funding allows the short sale process to take place smoothly.  The basic premise for the loan is that once the original owner is ready to sell and the buyer is ready to take over the property (usually with a standard mortgage), there is a short term loan needed to faciliatate the transfer period.  This means that the transactional funding is a loan that exists for just a few hours, before being recovered when the final property owner pays for the property.

The two separate transactions that place on the day of settlement create a unique situation known as a double closing. Lenders like these loans as the lending period is typically just several hours.  If the transactional funding lender ensures that all the other financing for the transfer of the property is in place, this makes this short term loan delivers a relatively low risk opportunity for a profitable outcome from the provision of the short term loan.

Transactional funding works not only for the short sale scenario described above.  A savvy investor can structure the use of a short term loan to easily carry out purchases of real estate owned (REO) properties, or any other real estate transaction that is based around a double closing.

Proof of Funds Letters

When purchasing property, the buyer must provide some form of evidence that they have the funds to cover the property acquisition – this is where a proof of funds letter becomes useful. This document that the investor can use to indicate to the parties involved in a real estate transaction that you have pre-qualified to purchase the real estate.

The proof of funds letters are used to demonstrate that investors have the financial resources or means to fund a property transaction. They indicate to the other parties that your funds are legitimate and can be used for the purchase of the property. This type of document is particularly useful if you are involved in short sale transactions and REO purchases that are structured with a double closing or when using transactional funding.  They can also be used for other transactions that require documented evidence of your financial resources.

To achieve success in real estate investment, it pays to fully understand the different options available to you and how to use them to maximum advantage. Transactional funding and the use of proof of funds letters are two added ‘tools’ in your investment toolkit.  Once you understand how these financial opportunities can be used to the best advantage, you’ll be on track to achieving financial security through real estate investment.



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Len Costa asked:


Unless you’ve got a few thousand dollars worth of excess cash, you will probably need to find a way to fund your real estate investment projects. There are a few ways to do this. It is important to know your financing options in order to determine which will work best for your unique situation.

Conventional Financing –This is your run-of-the-mill, standard fixed-rate loan that you get from a bank. The problem with these is that they require a lot of paperwork, qualifying, and therefore time. Not ideal for the investor.

Hard Money – Hard money loans are short-term, high-interest loans in which the loan is secured by the value of the property. The borrower’s credit score is usually not a factor, and are considered low risk to the lender due to the low loan-to-value ratio.

Creative Financing – The term “creative financing” refers to any type of financing which requires no money down. This includes subject to, lease options, and owner financing.

Private Lenders – These individuals have money that they are able to lend with the intent on making a profit on their investment. The advantage of private lending is that you are able to custom fit an agreement to meet both your needs and theirs

We’re here to discuss the last option. I’ll show you how to find a private lender and tell you why this is a trick you’ll want to have up your sleeve.

As with many things, you may want to start looking in your local REIA for people who are willing to be a private lender. This is where great networking comes into play. It’s all about who you know. Someone may know another investor or business owner with excess cash, which they want to invest. If you have a website, advertise on there as well.

Once you find a group of potential lenders, set up a meeting with them to discuss your plans and how you can put their money to work for them. After all, the reason they are interested in lending to you in the first place is because you can offer them a return that other investments cannot. Have a plan. The most important things they want to know are how much they can expect to get back, and how secure their money is in your hands. If you have a solid plan you will instill confidence in them and they will be more inclined to loan you their hard-earned dollars.

With the current state of the economy, it’s obvious how important private lending is. There are no banks to deal with, and your credit is not at stake. If you have bad credit, it will be easier for you to get funding with a private lender. You’ll get your loan fast without having to wait for the paperwork to come through and you won’t have to jump through the hoops of getting qualified for a conventional loan. Real estate investment requires quick action, and private lending is the perfect way to facilitate that action.



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