3 Keys to Seller-Financing: Key #3: What complications are there?

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Now that you have a basis of understanding for seller-financed transactions, the next step is to really understand the deal and learn what issues and complications might arise.

The first and most obvious is the due on sale clause when there’s an underlying mortgage. The key here is to reduce the red flags to the bank. Most banks, especially the big ones, do not routinely check title to see if the borrower has sold the home. They only check if there’s a reason to. You want to limit your conversations with the bank, try to do everything online, do not modify the underlying insurance as the bank will be alerted to that, and be careful about how you make payments. I could spend a lot of time on this as there are numerous ways to accomplish this.

Another issue that does come up (I’ve seen it many times) is when the seller misunderstood the transaction and then wants the mortgage paid off. This might be due to faulty (or lack of) communication by the investor, forgetfulness, or they just want it removed. They may even get a lawyer who doesn’t understand subject-to and claims that it is illegal to leave someone’s mortgage in place with the house is sold. Having really good documents and disclosures goes a long way in protecting yourself.

Then there are issues with the sellers. What happens if the seller dies? What happens if they file for a bankruptcy? What happens if they disappear on you? I always recommend keeping in great contact and a great relationship with the sellers. These deals are long-term partnerships with them. You can use family trusts to help here and get contact information on relatives or accountants or other professionals that might also have access to the sellers.
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A Tax On Your Labor (Or Lack Thereof)

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“Build your own dreams, or someone else will hire you to build theirs.” –Farraj Gray

This will be a bit of a scattershooting article, as there are a variety of things that I want to cover that all can be filed under the heading "labor".

As we all know, the "labor force" right now has been massively disrupted. And for those of my readers who are in that category, the word "disrupted" is far too tame. Let's call this for what it was: there was an unprecedented economic tsunami this spring and summer, and we have still to recover from it.

That said, recent data is encouraging. According to last week's DOL report, there was a 12+% decrease of seasonally-adjusted claims for unemployment compared to the week previous.
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3 Keys to Seller-Financing: Key #2: What documents do I need?

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In my previous four posts, I covered the three main ways to structure a deal with seller involvement. Each of those has their own unique set of documents. In this post, I will briefly explain what is needed.

In a traditional seller-financing deal (notes and deeds), you should always start off with a seller-financing specific purchase agreement, especially when there is an underlying mortgage in place. A typical state-approved REPC and certainly a simple 1- or 2-page purchase contract are not sufficient to cover the disclosures and terms needed in these deals. Sellers will come back and claim that they never sold the property, or that the mortgage was to be paid off, or, in the worst case, the note is called due. Having a really good contract that covers these possibilities is critical. If you are going to invest in these kinds of deals, you should work with an attorney or invest in seller-financing specific documents.

You’ll also need a promissory note (loan agreement) and trust deed (mortgage). The type of note and deed depend on the type of traditional seller-financing you’re doing. You should also get a power of attorney or borrower’s authorization so you can speak with the bank if necessary down the road. An authorization to speak with the seller’s insurance agent can be helpful.

In a lease option scenario, you’ll need a master lease, which is one that provides you the ability to sublet the house. You’ll need a good tenant lease agreement for your tenants. This can be the same one you use on typical rental properties. You’ll need an option agreement. When you’re leasing the house from the seller, you can put the option agreement in the same document as the lease.  When you’re leasing to your tenant, they should be in separate documents. You’ll also need to assign the option to your tenant/buyer if they also plan on eventually purchasing the home. How these documents work together can get a little complicated. So, you should study up if you’re going to do lease options.
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Use These Financial Reports For Business Decisions

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A lie has speed, but truth has endurance. - Edgar J. Mohn

Some business owners never like to "look under the hood" of their finances, and their accountants or financial partners can sometimes encourage that behavior by keeping them in the dark.

Well, I hope that won't be you.

In fact, you need the kind of insight into financials to make strong decisions.

One way I'd like to help YOU is by pointing out different reports and metrics that you can find in most accounting software, that business owners or their bookkeepers often neglect. Knowing these numbers will help you avoid an embarrassing flub in YOUR business.

Even if you are using some of these reports, I'm sure you'll find a few more to add to your repertoire. Of course, this is just a very basic introduction, but hopefully it'll spark some ideas.

1) Profit & Loss Summary and Previous Year Comparison:Most business owners rely on the Profit & Loss Summary report, but comparing your results to last year can provide quick insight into whether your revenue is growing or contracting--as well as how fast expenses are rising.

2) Balance Sheet and Previous Year Comparison:As with your income statement, it's important to compare where certain balances stand now versus last year (such as Cash, Accounts Receivable and Payable, etc.).
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3 Keys to Seller-Financing: Key #1 Part 4: What kind of deal is it?

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This final part of Key #1 discusses the contract for deed. As previously discussed, in traditional seller-financing, the investor takes ownership of the property. In a lease option, the seller retains ownership of the property. A contract for deed falls somewhere in between.

With a contract for deed, the seller retains “legal” title to the property. On county land records they will show up as the owner. The buyer gets “equitable” title to the property. This is the same as ownership and it’s not a tenancy like a lease agreement. The buyer gets partial ownership in the house, shared with the seller.

A contract for deed is an installment contract, just like you get when you buy a car with bank financing. The bank actually owns the car and keeps possession of the certificate of title, while the buyer gets to use the car. The buyer makes monthly payments and at the end of the contract, the bank transfers title to the buyer and mails the certificate.

In a contract for deed on real property, the seller keeps and owns the title while the buyer gets to use and occupy the property. The buyer makes some monthly payment and at the end of the contract, then the seller transfers legal ownership to the buyer by recording a transfer deed.

Even though the buyer does not own the house, she does own the equity growth. So, she does have more rights to the property than in a lease option, but not as many rights as she would get in traditional seller-financing deals.
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How Your Company Can Do More With Less Time

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To think is easy. To act is difficult. To act as one thinks is the most difficult." -Johann Wolfgang Von Goethe

Many businesses find themselves continually in "scramble mode", taking no chances to slow down and think of ways to get OUT of it.

As is often the case with money, it takes time to make more time.

And it takes the willpower to allow certain other things to (perhaps) fester, while you and your team focus on the most-important tasks.

So, I'm taking some of MY time to give you ideas for how YOU can take more of YOUR time ... to save more time. Got that? Here we go...(who's on first?!?!)

  1. Choose Your "Focus Times"
    Every employee, yourself included, has a different style they like to work in -- we all also have times of the day when we work best. Only your team will know when "focus times" should occur, but I highly recommend intentionally setting these blocks of time in place.

Discuss with your team about which blocks of time, throughout the week, can be blocked off for individual work and individual work ONLY. No meetings, just focus time.

  1. Time Tracking
    Your business might already have a time-tracking system in play.

There are simple tools likeTogglorNutcacheto help you and your team examinewheretime is going throughout the day. And rather than using these tools as a way to shame others for how they might be spending (wasting) time ... use time tracking as a way to GET BETTER.
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3 Keys to Seller-Financing: Key #1 Part 3: What kind of deal is it?

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Last week we talked about traditional seller-financing scenarios. In those cases, the buyer actually bought and owned the property while the seller became a lender. Lease options are the exact opposite. The seller retains ownership of the property and become a landlord.

Firstly, sellers will need to be comfortable with becoming a landlord. But once that hurdle is overcome, these are great deals. It starts with the seller signing a master lease with the investor. A master lease is one where the tenant (in this case, the investor) can “sub-lease” the property to a standard tenant in a standard lease who will actually occupy the home. Normally, there is a spread in the monthly rent where the investor is making some cash flow.

This takes responsibility for maintaining the property off the hands of the seller, which is the reason most sellers go for this deal. It also provides some cash flow to them, and may defer taxes in some situations.

The second half of this deal is the option to purchase. The option agreement gives the investor the right, through an option fee, to purchase the home sometime in the future. This can lock down a good price in an appreciating market.

A lease option “sandwich” is a deal where once the investor has a master lease and option, he then subleases the property and assigns the option agreement to the tenant/future buyer. Often the investor collects a bigger option fee than he paid to the seller, so he gets cash now in addition to the rent cash flow.
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How Businesses Get More Done With Less Time

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"If you look at what you have in life, you'll always have more. If you look at what you don't have in life, you'll never have enough." - Oprah Winfrey

Parents and employers take heart: could it be that a rhythm of working a little less might actually make you and your team more productive?

It's a pretty counter-intuitive notion, but the reality is that we business owners entered into this role for many reasons ... and I know that for many of us, prime among them was this notion of freedom.

But this could also be equally true for our team.

That's why the notion of "80/20" (the Pareto Principle) is something worth studying when you are looking at having to cut down your own time, or your team is needing to reduce hours for childcare reasons, etc.

There was a study done about a decade ago that offers hope.
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3 Keys to Seller-Financing: Key #1 Part 2: What kind of deal is it?

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Last week we discussed a situation in which an investor partners with the seller on the project, which is one way to have the seller help “finance” the deal. In this blog, I’m going to explain what I call “Traditional” seller-financing because it’s the more common way to structure seller-financing deals.

 Traditional seller-financing is any situation where the investor actually buys the house and takes ownership through a closing. Then, in some way, the seller is helping to finance that purchase. I break traditional seller-financing into 3 sub-categories. Note: These descriptions are how I speak about them. Other investors may use different terminology. I separate them because, structurally, they are different.

The important point to distinguish traditional seller-financing from the others is that the buyer will actually own the property! And, anytime a mortgage is staying in place, there will be due on sale clause risks.

  • True Seller-Financing: This is a deal in which the seller owns the property outright with no mortgage. In this situation, the seller simply becomes a bank and “carries” a note and deed (mortgage) by exchanging his equity for the promissory note. The money doesn’t change hands as it’s all on paper. The seller earns some extra money on the interest. The investor gets a better rate than other lenders. All you need is a good contract and then a good note and trust deed. Since there is no underlying mortgage, there is no due on sale clause issues.
  • Subject-to Seller-Financing: In this deal, there is an underlying mortgage that the investor is simply taking over. Think a loan assumption but without the bank’s involvement. The seller either has no equity or is cashed-out of her equity at closing. So, there is nothing left owing to her. The investor can obligate himself through the contract to make the monthly payments or through an all-inclusive note and deed (“AITD”) that mirrors the terms of the underlying mortgage. This AITD, while optional, is a cleaner way to structure this deal and provides the seller extra security that you’ll make the mortgage payment. The seller could foreclose on the AITD to take the property before the mortgage bank even finds out.
  • All-Inclusive or “Wrap” Seller-Financing: In this deal, the seller is financing an amount that is greater than the balance on the underlying mortgage. So, she’s helping finance some of her equity in the house. Because she is owed money after the closing, this deal always requires an all-inclusive note and deed or AITD. An AITD is a mortgage that “wraps” around the underlying one. So, let’s say the seller is financing $150,000 with an underlying mortgage balance of $135,000. The investor makes payment on the $150K note to the seller; and the seller makes the payment on the underlying mortgage payment, keeping the spread. At payoff of the AITD, the underlying mortgage must be paid off first (that’s the “wrap” part) and anything left over goes to the seller’s balance on the AITD.
You’ll see, that in each of the above three methods, the investor buys the house and the seller somehow “loans” money for part or all of the purchase. Next week we’ll cover the contract for deed.

For more information, please see my website link below!

Jeffrey S. Breglio, Esq.
Breglio Law Office and REI Mastery U
www.reimasteryu.com
jeff@bregliolaw.com
(801) 560-2180
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How To Market More Effectively In This "New Normal"

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"Creativity is inventing, experimenting, growing, taking risks, breaking rules, making mistakes and having fun." -Mary Lou Cook

I'll be honest ... I hate the buzz phrase "new normal".

None of us want this present reality to remain the permanent reality.

That said, I use it because I think you understand what I mean -- the ground has shifted under our feet.

So, what will we be doing about this?

I should state from the outset: I'm not a marketing guru. But, I keep my eyes open and notice what is working!

How do you do that?

1) Share Yourself
Chances are, you're not the only person selling what you're selling, right? But people will listen to what you're saying, not only because of your content or products, but because they enjoy hearing you share your actual experience.
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