Due on sale clause

Investing in Foreclosure, my number one concern has always been the due on sale clause from the lender.
I recently find out a way to avoid that problem and can sleep better at night instead of trying to refinance as soon as possible, mainly when I get pre-foreclosure properties and "assuming" a 10%-12% interest mortgage.
My last buy was in a very nice and quiet neighborhood in Sevierville, TN.
These owners have tried a business, which, unfortunately, didn't bring their expectations.
They soon faced hard time to pay bills, mainly the mortgage.
So, with a pre-foreclosure in place, this is how I proceed.
Owners have to provide me with mortgage back payments and all unpaid bills. In this case, they were 4 months behind and didn't pay their real estate taxes.
Paying the bank will probably bring a red flag somewhere. The big deal is the insurance though, when the insurance company send any change to the lender.
I decided to assume the mortgage and quit claim the property with a "leasing" shield.
So, we decide that the owners will "rent" the property to me and the rent is...the mortgage payment amount.
However, I don't want to give the payment to the owners, since I can't put my trust in them regarding money. So, I actually called the bank saying that I was the new tenant, but I wanted to pay them directly, since I know the owners have difficulties to pay and don't want to live in there for 2-3 months and then, they foreclose and kick me out...They seems to be happy to have the payment instead of foreclose.
We, then, have a "12 months lease", so I have plenty of time to shop around for refinancing.
I'm just avoiding the "due on sale" clause since it's rented and not sold, but I'm on the deed since the quit claim.

http://www.myforeclosuretips.com/

How to lose your shirt in foreclosure investing.

Cody THOMAS

http://www.myforeclosuretips.com

Last year was a record year for bankruptcies. Delinquent payments on mortgages, according to the Mortgage Bankers Association of America, reveal a coming wave of foreclosures on the horizon.

There's opportunity now for investors to step in and benefit from these properties that are about to hit the market. However, despite all the hyperbole, investors can lose money in real estate – a lot of money. If you have some cash itching a hole in your bank account and you're looking for positive cash flow and possible high returns on investment, be sure to avoid these pitfalls in the foreclosure investor field.

• Paying too much for a foreclosure. Many VA and HUD foreclosure buyers have found themselves getting caught up in the excitement of auctioning up on properties and watch, without even knowing it, their supposed cash cow die right in front of them. I have personaly seen happy investors bidding on a property in Malibu Bay, Pembroke Pines,Florida up to $158,250. I met them the next day and asked them why they just overpaid for a property with a market value of $150,000-$152,000. By the way, next door was on the market for an asking price of $154,900. If you must have a 20 or 25 percent spread to make money on the purchase, then stop bidding when the price gets below that spread amount.

  
  
  In simple terms, if you're bidding on a property with a $150,000 value and you intend to sell it for a 20 percent gain, then stop bidding when the price gets above $120,000. In a hot market, even foreclosures will sell at market price, but then the new owner must move in and most likely fix up a dilapidated property that has been neglected by the former owners. (Usually, when an owner is headed toward foreclosure, fixing the leaky roof or basement is the last thing on his mind, leaving it up to the 'bank' to fix instead.)
  
  

• Getting a house without clear title. Since I'm not an attorney, I won't go deep into this point, but make sure you can get clear title to a property before you put your $10,000 earnest money deposit into the deal. Order a title search by an attorney to find out if you're going to have any problems taking title to the property. If you can't get title, you can't sell the property.
  
  
• Negative or unprofitable cash flows. The whole idea behind buying a foreclosure is to buy low enough so that rent checks will cover the investor's mortgage payment, taxes, insurance and fees each month and then leave the investor some profit at the end of the month. Unless the property is in pristine condition and all the systems will last repair -free years, you're setting yourself up for financial hardship if an air conditioner breaks or the refrigerator has a compressor attack.

  
  
  The monthly cash flow should include enough to finance any breakdowns or repairs while the tenant lives in the dwelling. Negative cash flows are not deductible expenses.
  
  

• Not taking care of little problems before they become big problems.

  
  
  Don't take the cheap way out on being a landlord. A house starts deteriorating from the day the builder completes its construction. Your new investment property is creating cash flow – take care of it. Keep it painted regularly, clean carpets and floors between tenants, fix broken windows, repair leaks promptly, replaced rotted wood, etc. If you let the property deteriorate until you can't rent it out any longer, you've waited too long to fix these items. In addition, to fix defects early on will save you money if you wait and the bill doubles or even triples.
  
  

• Failing to educate yourself on tax benefits of owning investment properties. If you're going to invest in rental property, talk with professionals in the field who know how to maximize your financial benefits form this new form of investment. Accountants, attorneys and real estate practitioners are all worth their fees as they help you avoid pitfalls, increase your gain and keep you out of trouble.

Claude THOMAS, Realtor®

Moral Contingencies

Cody THOMAS

http://www.myforeclosuretips.com

A new investor entering the real estate investing market can be very intimidated. That’s why he is tempted to add contingencies to his purchase contracts that allow him to escape from an offer unharmed. Nothing wrong with this line of thinking. Protection is good and necessary. The mistake is found in the use, or should I say “abuse,” of these contingencies when the buyer uses false contingencies to secure his or her protection at the expense of the seller.

For those of you unfamiliar with the concept, weasel clauses say things like, “This offer is subject to the approval of buyer’s partner,” when the buyer doesn’t really have a partner. Lots of books on the subject show the use for this contingency. The real reason for these contingencies is to provide the buyer with a bogus reason to back out of a deal by later claiming that their “partner” didn’t approve of the purchase. The problem with these contingencies is that the buyer is deceiving the seller and, even worse, if the buyer exercises a weasel clause, other events in the seller’s life may be significantly delayed when the settlement doesn’t occur as expected.

Just the description of “weasel” never sat well with me. My unique condition was that I had to be able to obtain sufficient funds in order to settle. Such funds would either come from lenders, my own bank account, or a combination of the two. My standard contingency (certainly nothing new or magical) read as follows:

“This offer is contingent upon the buyer obtaining financing from ABC Lenders.”

The difference between this financing contingency and a “weasel clause” is that it discloses truthfully to the seller upfront that I am dependent upon my hard money lender to provide me with enough money to purchase their property. I’m not hiding anything or creating an escape hatch.

But I also use the inspection clause. An inspection is probably the best investment you can do buying a property. This contingency read as follows:

"This offer is contingent upon the inspection being acceptable by buyer."

I personally want to make sure there is no major problem with the property. Problems that can reduce my profit if it is a structural problem for instance. Should you tell your lender about bad structural problems, some lender won't get back from their promises to lend you the money. So in this case, if you had the only financing contingency, you'll have to close the deal. On the other hand, if you have the green light from your seller at the price you wrote on your offer and no major repair problem, you'll be happy with your contract and you'll feel comfortable at the closing table.

You don't want to destroy your reputation on weasel clauses. Be fair dealing and keep in mind that you are there to help people facing hard time in a foreclosure situation. The deal is to construct a win-win situation. Double satisfaction will erect as making some money and feeling good helping people, using true contingencies.

Claude THOMAS, Real Estate investor & Realtor©
http://www.myforeclosuretips.com
http://www.isellsevier.com
http://www.prestigecabins.com

Buy with 'Zero Down'

Cody THOMAS

http://www.myforeclosuretips.com

Turning paper into profits

Hello,

As seen on TV, but without to pay for the tapes, here is a good way to make money buying real estate with no money down.
Let me show you how you can achieve this objective. There are a few pre-requisites. First, the property has to be free and clear. Next, the seller must be willing to carry back a note that is secured by the property.
So, let suppose you have found a good property. Here are two methods:

Method 1:

You have found a free and clear single family home that is selling for $200,000. The seller wants $40,000 or 20% down.The terms of the note are:
Length of the note: 30 years
Interest rate : 10%
Value of property : $200,000
Monthly payment : $1755

What you do now is create a note for the full purchase price of $200,000, due in 10 years. The balloon payment at the end of 10 years is $181,875.
You explain to the seller that you can give him the $40,000 down payment, but he will have to agree to go without the first 30months of payments on the note. He agrees to this after you illustrate additional financial benefits that he will realize from your creative financing.
Next, you are going to sell the first 30 payments to a note investor for $44,208, which will result in a 14% yield to the investor.
You pocket the $4,208 difference between the amount the investor will pay for the note and the $40,000 you have to pay to the seller as down payment.
After the 30 payments are received by the investor ( which you as the buyer will be making), the payments will revert back to the property seller.Using your financial calculator, the present value at that time will be $196,752, with 90 payments remaining. Remember the seller received a $40,000 down payment, so he actually makes $236,752, over the 10 years financing period, plus ongoing interest on the remaining balance.
The results are that the seller gets $40,000 cash at closing. You purchase the property with no money down and keep $4,208 at closing.
Make sure that when you sign the purchase agreement the contract states 'this agreement is contingent upon the buyer selling 30 monthly payments of $1755 for a minimum of $40,000.' Furthermore, you should have the note sale close at the same time as your real estate purchase.

Method 2:

Let create 2 notes on the same property and sell the first one. Here is one way of doing it:
Create a first mortgage for $125,000, at 10% interest, amortized over 30 years with a monthly payment of $1,097.You will sell this mortgage to an investor for $100,000, or at a discounted yield of 13.8%. You will also create a second mortgage for$100,000, at 10% interest, amortized over 30 years, due in 15 years. The monthly payment is $877, and the balloon is $81,664. The seller will keep this second mortgage.
You will give the seller $80,000 down payment from the sale proceeds of the first note and keep the remaining $20,000 difference. Your benefit is that you get the property with no money down, all the appreciation, and the $20,000 at the closing of the transaction. Yes, you are paying $5,000 more for the property ($125,000 + $100,000 - $20,000 = $205,000), but you will be paying for it over 30 years.
The seller gets a larger down payment of $80,000 and a monthly payment of $877 for 15 years of $157,860. After 15 years he gets a balloon of $81,664.
So the total amount the seller gets over 15 years is $288,024. Of course, you can give less to the seller and gets more in your pocket, depending on your negotiating skills.

Claude THOMAS, Real Estate investor & Realtor©
http://www.myforeclosuretips.com
http://www.isellsevier.com
http://www.prestigecabins.com