Welcome and Congratulations!

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2 Welcome and Congratulations!

3 What s Coming 14 Fast Financing Formulas Creative Financing Combos Creative Financing Do s & Don ts Replays (with corresponding documents, forms and bonuses) posted in members area within 24 hours at FastFinancingFormulas.com/members Interactivity!

4 Liberate. Negotiate. Create. Captivate.

5 Last Session Liberate You (and potential partners) may have HIDDEN cash. Self Directed IRA (including Synergistic Seconds ) Stock Loans Cross Collateralization Home Equity

6 This Session Negotiate and Create Part II! Transactional Funding Hard Money Lenders Land Contract/Land Trust Lease Option Master Lease Option (bonus!)

7 Transactional Funding VERY short term funding (1 to 3 days) used to fund non-assignable flip deals such as Short Sales HUD s Bank REO s

8 The Players Transactional funding involves 3 parties and 2 stand alone closings. "A" - Seller "B" - Investor "C" - End Buyer "A" sells to "B" (AB Closing) and "B" sells to "C" (BC Closing)

9 How it Works The lender offers you (B) a 1-3 day bridge loan to buy Seller s (A ) property. Typical rates are 1.75% -3% No qualifying and no down payments! On the same closing day or up to three days, you sell the same property to End Buyer C. These closings take place on the same day or up to three days and use the same title company or closing agent. The C end buyer's funds must already be in escrow when AB closing takes place.

10 Proof of Funds Verifiable Proof of Funds Proof of Funds

11 Hard Money Lenders Asset-based financing. No or low qualifying. Typically short term bridge financing (6-24 mos) High points, fees and rates. Usually 65-70% loan to value. Sometimes 100% loan to cost!

12 Relationship Financing If you can develop a relationship with a LOCAL hard money lender, you can get funds within a couple days, and sometimes with no appraisal or other costs (except for origination fees). Hard money is NOT private money.

13 When to Use Short Term Rehabs Flips Creative transactions

14 Sample Terms

15 (Almost) Nationwide Lender

16 Land Contract Also known as an installment land contract or contract for deed is a financing tool where the seller and buyer agree upon the sale of a property under installment payments. The property remains titled in the seller s name until the buyer completes all payments under the contract. This arrangement is also known as a contract for deed or installment land contract.

17 Here s How it Works The Seller agrees to sell a property by financing the purchase for the Buyer. The Seller retains legal title. The owner-carried financing can include an existing mortgage balance or the property can be free and clear. Upon payment in full, the Seller hands the Buyer a deed to the property.

18 The Details Sign the land contract, notarize and record it Set up an escrow account with an attorney or title co with a warranty deed from the seller and a quit claim deed from you Set up a 3 rd party loan servicing co to collect the payments and remit to lender Make sure property taxes and insurance is paid if not escrowed

19 Heads Up Check your state laws with a good real estate attorney, because the legal interpretation of the Installment Land Contract (ILC) varies widely. Upon default, in some states the buyer can be evicted just like an ordinary tenant. In other states, the buyer has the right to due process for a judicial foreclosure, which can take months while the deadbeat stays in the property making no payments.

20 The Due On Sale Clause When title transfers on a property but the financing does not, the lender has the right to call the loan due. If the loan is being paid on time and the interest rate isn t SIGNIFICANTLY lower than market rates this is highly unlikely. Most lenders find out only when they get a notice of a new owner on the hazard insurance policy Keep seller s hazard policy in place and get your own hazard policy naming the seller as loss payee instead of lender OR just add buyer as an additional insured on the policy.

21 Land Trust A revocable, living trust primarily used for privacy purposes in estate planning and asset protection. Used to take title to real estate to provide anonymity for the owner. Also used with a trust assignment where the seller deeds the property to the trust, making himself the beneficiary. The beneficial interest (ownership) of the trust is then assigned to a third party, such as an investor/buyer. This is known as a land trust assignment.

22 Lease Options Lease Option is a lease and an option to buy the property. Sandwich lease option is where you lease option a property FROM a seller and then RE- LEASE it to a tenant buyer on a lease option. Title stays in SELLER s name.

23 Sandwich Lease Option You found a seller that is moving out of state to be with a sick parent The seller has not been able to sell the house and needs to move fast The home is worth $145,000 Rents in the area are about $1,100

24 Motivated Seller Tenant Buyer Option Payment $0 $3,000 Monthly Payment $1,000 $1,200 Purchase Price $130,000 $155,000 Term 60 months 24 months

25 Motivated Seller Tenant Buyer Profit Option Payment $0 $3,000 $3,000 Monthly Payment $1,000 $1,200 $4,800 Purchase Price $130,000 $155,000 $20,800 Term 60 months 24 months Total $28,600

26 Motivated Seller Tenant Buyer Profit Option Payment $0 $3,000 $3,000 Monthly Payment $1,000 $1,200 $4,800 Purchase Price $130,000 $165,000 $35,000 Term 60 months 24 months Non refundable Option payment $3,000 Monthly Cash Flow $200 $42,800

27 Tenant Buyers What is a tenant buyer? How do we find them? Bandit signs Referrals Yard signs Flyers Ads Always get an application fee and a deposit.

28 Dodd-Frank Act In 2010, The Dodd-Frank Wall Street Reform and Consumer Protection Law was signed into law. The Act includes rules about the financing of primary residences that anyone extending consumer financing (ie a homeowner selling a primary residence, real estate investor, or private lender). The Act doesn t specifically address lease options BUT Here are a few updated best-practices for lease options

29 Dodd-Frank Act Best Practices Courtesy of Bill Walston see the full post at theinvestorinsights.com/tangled-web-dodd-franklease-options Keep your monthly lease amount near or at fair market rents. NO rent credits! The option strike price should be at or near fair market value. (And we suggest you document how you arrived at this price.) Do not attempt to pass on SUBSTANTIAL repairs and maintenance to you tenant/buyer. (Leaky faucets and stopped up toilets would be okay roof repair and furnace replacement would not.)

30 Master Lease Option (Bonus!) Almost exactly like the sandwich lease option strategy except with commercial property. You lease a property as a master tenant and then sublease it to tenants for a higher amount and you pocket the difference. That s monthly cash flow. J

31 The Steps You get owners of income properties in good condition to let you lease their entire building for no more than it s currently renting for each month. You get an option to buy the property in the future at the current value. Then, you improve or replace the management and get the property performing to its potential by increasing the income. After that, you exercise your option to buy the property for pennies on the dollar, because it s now worth much, much more than your option price.

32 Benefits No foreclosure or bankruptcy risk if the project doesn t work out. No credit or large cash down payment needed. Not subject to consumer protection laws such as Dodd-Frank.

33 Property Types Must be income producing with short to midterm leases. Retail/Shopping Office Multifamily/Apartments Mobile Home Parks Warehouse Self-Storage Senior Living Avoid rehabs! This doesn t work with rehabs.

34 Pitching it to Sellers First, notice I said pitch to SELLERS. This won t work with a seller that needs cash, unless you have some. They will have a problem they need solved due to poor management, marketing or both. I like old guys. J What if I could guarantee your net operating income, be your single tenant and take over the property management. Would that be of interest to you?

35 Due Diligence Part One Critical Calculate NOI and CAP rate. CAP rate is a gauge of income relative to the price. Higher CAP means higher income. NOI = Gross Income Expenses CAP Rate = NOI/Purchase price Assume NOI = $200,000 and Purchase Price is $2MM CAP rate = 10% See more in the Is it a Good Deal bonus video in the member s area.

36 Due Diligence Part Two Current rent roll 2-3 years operating statements (P&L) and tax schedule E s from the seller Leases Loan documents Title report Tax bills Utility bills and service contracts Inspections/Surveys/Appraisals/Phase I Environmental (optional)

37 Structuring the Deal Goal is to lease property for break even or positive cash flow for as long as possible. Check loan docs to see when the balloon happens. Lease for Current NOI (Gross Income Expenses) Try for no down payment or option consideration.

38 Increasing the NOI We want to increase the value so we must increase the net cash flow. Filling vacancies Increasing income Raising rents Lowering expenses All accomplished with good marketing and good property management.

39 Forms Letter of Intent Non-Binding (after due diligence) Binding Master Lease Agreement Option Agreement

40 Exit Strategies Surrender the Option Sell the Option Exercise the Option and Sell Exercise the Option and Hold

41 How to Flip an MLO Contract This is my favorite strategy for fast cash. Find, analyze and get a MLO on a property. Make sure your option is assignable! Flip your MLO to a buyer I usually charge 1% (or more) of the purchase price. $500K property you make $5,000!

42 How to Exercise Your Option You ll need financing lined up. Seller Financing Assumption Private Money Hard Money Conventional Portfolio Lenders

43 Next Session Create Part II! Subject To Wrap Mortgage Shared Appreciation Mortgage Seller Financing

44 Questions?