Alternative Financing Strategies

Here is the replay of the live teleclass on November 12, 2008.

“Your experience and preparation showed.  I bought your program, and after hearing you, I’m looking forward to getting into it.  This is an area of relative ignorance for me.  If there is a complaint, it is that you put too much content into the hour.” — Steve Rensch

“So much great content. Thank you.” — R. James Weiss

Great Resource WITH Forms

Alternative Real Estate Financing

This is the definitive course on these creative financing strategies. Written by my friend and teacher, Bill Bronchick, it has all the forms and state rules necessary for this type of investing. Click HERE to take advantage of the special offer from Bill.

Tags: alternative financing, bill bronchick, lamd trust, land contract, wrap mortgages

Earlier this week, I was interviewed by my friend Trevor Mauch over at the REI Brain. He’s putting together a Private Money course and has invited me to be a contributor and coach. (Watch your email to learn how you can participate.)

Anyway, he recorded the interview and was gracious enough to send me a copy to share with you.

Here’s the link to download and mp3 of our interview:

Susan on Private Money

In this 20 minute Private Money interview I reveal:

• That it’s EASIER to get private money today than 5 years ago and I tell him WHY!
• How to find the people with money (and exactly what to say)
• The best ways to market

IRA’s

• How to work with investors with IRAs
• The process to help your investors roll over an IRA into a self-directed IRA

Pooling Money

• I discuss my thoughts on pooling money
• The benefits and drawbacks
• The best structures
• How to deal with equity partners
• How to structure LLC’s for raising money

Susan on Private Money

Tags: equity partners, pooling, private money, self-directed IRA

There is an element that truly separates the successful from the unsuccessful. It differentiates those who dream their lives away from those who live their dreams. For years authors have been writing about it, but few people put it into practice. What is it?

It’s how you think.

What you do IS important. But how you think drives what you do. Napoleon Hill said it best in “Think and Grow Rich” — “Success comes to those who become success conscious.”

How success conscious are you? If you knew it meant the difference between success and failure, how success conscious would you become?

Here are some tips to help take you to the top, from the inside out:

FOCUS REGULARLY ON A CLEARLY DEFINED DREAM

Success doesn’t just happen. If your thoughts have power (and they do), directing them towards what you want is critical to creating it. What’s your dream? Where do you want to be in a year?

If you don’t have this question answered fully or have an actual written plan, you are not yet success conscious. There’s an easy remedy – meditate. And spend at least 10 minutes a day meditating on that dream. It doesn’t have to be time you take away from other things – but while taking a break or when you wake up in the morning, think about where it is you really want to be.

THINK OF YOURSELF AS ALREADY POSSESSING IT

The advice: “fake it till you make it” has merit. If it is your goal to be a real estate investment superstar, it is critical to think as if you are already there. It will help you to make superstar decisions, clarify your goals, and handle yourself as if you were already that successful.

FEED THE DREAM NOT THE NIGHTMARE

So many people say they want to succeed, yet sabotage themselves with negative thoughts, people and habits. A great quote from Napoleon Hill, “Both success and failure are largely the result of HABIT!” Surrounding yourself with like- minded people, books, DVDs, etc will feed your success and support you in changing your habits.

And be careful of your self-talk. The way your talk to yourself is a self- fulfilling prophecy. As you go through busy days, do you tell yourself, “I am SO disorganized, and pulled SO many ways, I will NEVER be able to finish everything this week!”

OR, do you tell yourself, “Yes, I am very busy, but I will focus clearly on one thing at a time. I will list my priorities, and I will find time today to do all that is essential. Each person, no matter how successful, has the same number of hours in every day. I will discover ways to run my business more efficiently and productively.”

DO WHAT YOU NEED TO DO ON THE OUTSIDE

There is much written, on what to do to become successful. You don’t have to reinvent the wheel.

Simply begin to do what you already know to do – what others in your niche have done and are still doing that they attribute to their booming businesses.

CELEBRATE YOUR SUCCESSES

Take time to really let in and enjoy the achievement of your goals along the way. This accomplishes two very important things that will create future success: first, it gives your subconscious mind the message that you ARE in control of your destiny and you DO choose that future to be a successful one, and second, when you make time to enjoy the journey, to celebrate and have fun, both at the end of a milestone and all along the way, you will bring even more success and fun into your life.

And really, isn’t it just as much about enjoying the journey as enjoying the destination?

Tags: self-talk, success

There’s a saying that I like - “Fail fast.”

As an entrepreneur, it means that I need to constantly try new things but if something isn’t working I would rather that it fail fast. It’s less expensive and I don’t expend as many much needed brain cells.

In my main business, the conventional residential mortgage broker business, things are very volatile right now. I built my business to work exclusively with real estate investors in 2002 and the “pool” of investor clients back then was huge.

With the new Fannie and Freddie rules the pool of investors that I can work with as a conventional broker has shrunk by 80%.

Plus, the number of lenders left that I can broker loans to has been reduced by more than 80% and the lenders that are left are scrutinizing investor loans harder than a father screens his daughter’s prom date.

It doesn’t mean that I can’t still place financing for my investor clients. It means that I have to place the loans with lenders that don’t traditionally work with OR pay mortgage brokers. Lenders that are “off the grid”, so to speak.

Private Lending
In 2004, I began raising money from private lenders to broker to local rehabbers. The lending business model was great. We would loan up to 70% of the as-repaired value and roll in all the closing and constructions costs, too.

The lenders made 14-15% return on their investment and the loans were usually paid off within 4 months by either the investor refinancing to keep it as a rental or the rehabber selling it to a retail buyer.

And we always had another deal to put the money back into as soon as we received a payoff.

I went 4 years and funded $24,000,000 in loans without a single default in that program.

Since September we have had 4.

The rehabbers either couldn’t qualify for refinances themselves or their buyers couldn’t qualify for financing because of the new conventional mortgage rules.

We took the properties back deed in lieu of foreclosure and the lenders say they are fine with being landlords now instead of lenders, but it forced me to take a long hard look at that lending model and the liability that comes with it.

Especially since my state, Colorado, recently adopted a rule that mortgage brokers who are raising money from individuals to broker to borrowers must have a Series 63 securities license. I don’t have a Series 63 and am not particularly interested in pursuing one.

I have always run my businesses on two important precepts:

1. Don’t go to jail
2. Don’t lose the house

There are a few more but those really are the main ones.

My Decision
It seemed like no matter how hard we tried to conduct “business as usual”, it just wasn’t working. Albert Einstein said that insanity is doing the same thing over and over again and expecting different results. And he was a pretty smart guy.

Based on the volatility of the conventional mortgage markets and the difficulty in getting the short-term rehab loans “taken out” with refinances or new loans from conventional lenders, I made an executive decision that opened a major rift with my loan officer employee, Kevin.

I sent a letter to all our private lenders saying that I was discontinuing the rehab loan program as I feel that the loan model is obsolete. Because I cannot reasonably guarantee the loans they make will get paid back, I cannot ethically continue to broker them.

Kevin was offended and will continue to broker the loans through his own newly-formed company. He will continue to contribute to The Investor Insights but will chart his own course as a loan officer.

The Lessons
Here’s the thing…

Just because something has always worked and has been extremely profitable doesn’t mean that it will always work.

Things happen. Rules change.

In September I found myself with a million square pegs when all the holes were round. Nothing was working. And the stress was brutal; keeping me up at night pacing and worrying about the loans that we couldn’t get approved with conventional lenders.

The rehab loan model started to fail FAST and I made an equally fast decision to protect myself, my lenders and my company.

Does that mean that I’m out of business?

Hell, no.

Like many foreword thinking entrepreneurs before me I change the model. I adopt a new strategy that DOES work in the CURRENT environment.

And I already have.

The New Model
Real estate investors need financing help now more than ever.  So, instead of being a commoditized mortgage broker, I am an investment real estate consultant.

With this model, I deliver even MORE value to my clients than ever before and I don’t rely on a third party (bankrupt lenders or underwriters) to “allow” me to earn income.

I can work with thousands more lenders – portfolio lenders – to get the tough deals done and save my clients money in the long run.

Private Money
Now, instead of BROKERING the private money I raise, the private lenders partner with me in acquiring undervalued properties (apartment buildings mostly) and discounted, performing mortgage notes.

Because I am an active partner and not just a broker I have a more active role in the partnership. I, again, don’t have to rely on a bankrupt lender or underwriter to determine the success of the investment.

Now I have round pegs to fit into the round holes. And less stress because I took control of the situation and reconciled it with my values.

The Fallout
Will everyone be on board if you make a decision like this in your business?

No.

If you change course as quickly and as drastically as I did, you will experience fallout in your organization just like I have. Some people hate change. That’s life.

But you know what? My vision is strong, I can sleep at night and my instincts have never failed me. I am certain I made the right decision.

A poor decision would have been to do nothing, try to fool myself into thinking that I could conduct “business as usual” and that things will get better. Fortunately, that’s not my style.

So, let’s raise a glass.

Here’s to the next phase of success and record profitability in the ever-evolving and crazy life of a real estate investor!

Tags: business model, entrepreneur, investment property financing, Private Lending, real estate investment consulting

Real Estate Coaching - Case Study #1

Let me tell you about my coaching client Al.

Al owns two investment properties - a duplex and a single-family house in Oregon. He is working out of the country so he is managing the properties long-distance.

Here are the issues as Al described them to me:

• The house is currently on the market. It’s been listed for several months and the Realtor keeps telling him to drop the price (drastically) and he has.
• The house is still not selling even though he has dropped the price by $50,000.
• The rental income on this house is $700/mo and his mortgage payment is $1,000/mo so he’s ponying up $300 a month to keep this rental.
• The feedback from the showings is that the house is filthy and needs work - paint, new carpet, etc basically all cosmetic.
• The renters are three men who are on a month to month lease

Some Interesting Info Came Out During the Coaching Call:

Market rents for this area are $1,200 a month. I told Al to raise the rent immediately to solve the cash flow problem and he said, “I tried that and the renters refused to pay more than $700 a month.”

Al is afraid to raise the rent for fear the tenants will move and he will lose $700 a month income.

Al hasn’t performed any cosmetic improvements based on the feedback from potential buyers because “the renters said if someone wants the house they will buy it even if it’s ‘dirty’.”

Al thinks he should pull it off the market and relist it when the economy improves. According to him, “It should sell with no problem then.”

OK, Al, here we go.

You have a rental that is filthy with tenants refusing to pay more than $700 a month and trying to justify the fact that they have wrecked your house AND are causing you to potentially lose $50,000 in profit?

Here is EXACTLY What You Do:

• Present the tenants with a new lease for $1,200 a month. If they refuse to sign and pay the increase - GOOD!
• If they pay the increase - GOOD! You are now positive $200 a month.
• Begin eviction proceedings if they refuse the new lease. I provided a referral to a landlord’s attorney in Portland to do the job for cheap.
• Once the house is vacant, hire a handyman to perform ALL the cosmetic improvements required - new paint, carpet and clean up.
• Have your Realtor stage the house and bump the price up to 10-15% below the comps in the neighborhood.
• Your house will sell and the $700 a month you “lose” will be more than made up for with the increase in the listing price.

Lessons

• NEVER be bullied or intimidated by tenants. EVER. You own the property, not them.
• Correct problems with the house based on the feedback BEFORE just dropping your price arbitrarily.
• If a filthy house isn’t selling in a down market, it sure as heck won’t sell in a good market so in the words of that financial analyst on Saturday Night Live’s Weekend Update - FIX IT!

Need Real Estate Coaching?

I have a few spots left.  Call the office at 303-534-7078 and let Deanna know. I’ll give you a call to discuss. Spots are filling up fast, so call ASAP if you are interested in affordable, real estate investing in the real world coaching.

Tags: market rent, real estate coaching, real estate investing, tenants

Apartment Investing Teleclass

Here’s the replay of the Apartment Investing Teleclass that happened live Tuesday, October 21st.

Susan, I’ve listened to several “Gurus” including Lance Edwards, David Lindahl, Peter Conti, et al, and I think your presentation was equal to if not better than any I’ve heard - that includes presentation and content, esp. content.” Thank you — Marshall Werry

“Susan, Good conference call the other night - I was expecting fluff and a hard sell of over priced courses and instead I received good sound financial information that I can use to evaluate real estate. I am a newbie and this was very helpful.” — Frank Starosciak

Here are links to the resources and offers I mentioned on the teleclass:

Red Capital Group’s 2008 Guide to the Multifamily Markets

Red Capital Group’s Research Report Index by State

Susan’s Crazy Multifamily Consulting Offer

Finance It Right Commercial Financing Module

** Having trouble viewing the video? Make sure you have the latest version of your browser installed as well as Macromedia Flash.**

Tags: apartment investing, commercial consulting, commercial financing, multifamily

So, I sell a course online called the Portfolio Loan Blueprint. It’s a course that teaches real estate investors how to get around the new and very constrictive conventional financing guidelines.

Hundreds of investors all over the country have bought the course and are using it successfully.

Yesterday, I got an email from a buyer and it really got me thinking about the true reason why so many real estate investors struggle to make any money in this business.

Here’s the email:

Hi, I watched a video, called a few Credit Unions, they said they use the pretty much the same lending guidelines as banks do. I don’t think this is working in my area. -King

Wow.

First of all if King only watched one of the six videos, then he had no idea what he should even be asking a portfolio lender. And the fact that he says that they use “pretty much” the same guidelines as the banks do tells me that he has no idea what the guidelines actually are.

I bet I have a good idea just from this email exactly how much money King makes from his real estate investing business.

People, guess what?

Real estate investing is a business. It requires actual work and more importantly it requires PERSISTENCE.

I am what my friends and family refer to as an overachiever. For some reason I am completely driven, self-motivated and can accomplish anything I set my mind to (except quitting biting my fingernails). Every time I come up against an obstacle, I find a way around OR through it. Every time.

This is a persistent kid.

Not everyone has this ability, but if you look closely at your kids, I bet you will see it in action.

This past weekend, I took my 4 year old nephew Ronin to the circus.  We had second row seats and it was an amazing show. There was one part when they rolled out a steel mesh ball and seven guys on motorcycles actually got into the ball on their motorcycles and rode like maniacs.

Ronin loved it.

He immediately turned to me and said, “Can I get a motorcycle guy, Aunt Susan?” (They had little replicas of these guys in the circus lobby.)

I said, “Sure, as soon as the show is over, we’ll get you one.”

Unfortunately this was at about the one hour mark of a two and a half hour show and he proceeded to ask me “Now can I get my motorcycle guy?” precisely every 1.5 minutes.

Well, as annoying as it was, he accomplished his goal. He is now the proud owner of not just one but two “motorcycle guys.”

How many times in your real estate investing business have you given up after the first try? Maybe after your first offer was rejected by the bank on a rehab you wanted or after a motivated seller told you there was no way he would consider lease optioning his house?

Did you give up and decide that the strategy doesn’t work or worse yet, it just doesn’t work in YOUR area?

That is a surefire way be the biggest real estate investing loser on Earth.

If you’d rather actually MAKE money in this business then try something for me.

The next time someone tells you “no” start taking it as a personal challenge. Find 20 ways that you can keep asking the same question or making a slightly different offer. And DO IT 20 times if you have to!

Trust me, one way or the other, you will end up getting what you want. Remember, one guy’s motorcycle guy is another guy’s ticket to success in real estate investing.

Tags: circus, persistence, real estate investing, Ronin

Just got an email from one of our favorite “investor-friendly” conventional lenders (yes, it’s an oxymoron), Vertice. Effective yesterday, they are reducing the max LTV on all investment properties to 80%.

They say this is “in response to changes made by Industry partners” but they are going even more conservative than the recent Freddie/Fannie rules which caps the max LTV on investment properties at 85%.

One of the problems we have run into is that even though the Fannie/Freddie guidelines go to 85%, you can’t find mortgage insurance that goes higher than 80% so I suspect that the Vertice announcement is a reflection of that.

I’ll keep you posted…

Tags: 80%, Fannie, Freddie, LTV, Vertice

I’m Making THEM Angry

As you know by now, Freddie Mac and Fannie Mae announced that they are virtually denying all loans to real estate investors. They have come up with a whole bunch of new ridiculous rules including:

• Eliminating stated income loans to self-employed borrowers
• Reducing the maximum number of properties you are allowed to have financed to 4
• Eliminating cash out refinances if you have owned the property for less than 6 months
• Eliminating refinances if you have the property titles in an LLC

If you’re an Insights subscriber, you (hopefully) know by now that I think these rules are complete crap.

As a result of this, I have been letting investors in on a secret that I have been using for years – portfolio loans.

The portfolio loan strategy is one that I feel so passionate about, I have been visiting the REI forums answering financing questions about the new rules and educating real estate investors about the alternatives that are out there to conventional loans.

In doing so, a couple of *very* interesting things have happened.

GB Mortgage Terminates My Broker Approval

First, I received a call from a lender that I have done business with for a couple of years, GB Mortgage. GB is a Fannie Mae lender meaning they underwrite to Fannie rules and sell their loans into the secondary market. GB told me that they were terminating my broker approval.

Apparently, an underwriter got bored while she was underwriting a file one of my loan officers submitted and she Googled me. She found my ebook, Mortgage Secrets for Real Estate Investors and the forums where I regularly post.

According to GB, they suspect that what I am teaching real estate investors is suspicious and in their words “we don’t think anyone should be teaching investors how to get loans.”

I Get Flamed By Mortgage Brokers on the Discussion Boards

The second thing that has happened is a *wave* of backlash from my fellow mortgage brokers around the country.

And they’re mad because I am spilling the beans on portfolio loans.

Here’s the scoop on portfolio lenders – they don’t work with mortgage brokers like other lenders do.

When I (used to) send loans to GB Mortgage, I would get wholesale rates and they would charge zero origination or other loan fees. I charged 1% origination, a processing fee and it was a good deal for all since the rates that I passed on to my investor clients were cheaper than what they could get by going to GB Mortgage directly.

Portfolio lenders don’t have “wholesale” channels to accept third party originations. Sure, I work with a some great portfolio lenders that I can refer you to but if I actually broker the loan, you will get charged DOUBLE origination and processing.

Not a good deal, in my opinion.

Well, brokers are very protective of their territory I guess because here is one example of a “battle of the brokers.” This guy was mad because I shared that one of my Portfolio Loan Blueprint customers got a term sheet offered to refinance her properties into LLC loans at 5.5%.

I wrote:

Mortgage brokers can’t broker portfolio loans for investors. They don’t have wholesale channels so if a “mortgage professional” claims they can broker portfolio loans chances are good they are not being truthful. Unless they have negotiated a master loan commitment with a local lender but even then I would proceed with caution because you will probably be paying double origination.

This is obviously a touchy subject for mortgage brokers since we are being shut out by the conventional lenders and can’t profit on portfolio loans. But the misconception that portfolio loans have higher rates than conventional loans is forcing a lot of investors to stay in conventional loans instead of considering a portfolio refi strategy that would once again make them “financeable” in the eyes of Fannie and Freddie.

And one of the angry brokers replied:

Susan, The above statement is partially untrue. I have brokered plenty of my customers to local banks for lines of credit as well as construction loans for investors. Many times the documentation that the bank requests is above the heads of the regular investor, and having a mortgage broker that is familiar with an executive summary, a profit and loss, and other documents can make things a whole lot easier. And you are correct in the fact that many times you will end up paying two points origination versus one point but because of the value of the service provided I have never had a customer complain about fees that I had previously disclosed.

Ei yi yi.

This broker just called us dumb and said we’d be fine paying double for him to “broker” our deal to a portfolio lender.

I don’t think so.

So, back to my (somewhat rhetorical) question: why are *they* so angry?

Because *they* are getting squeezed out and we real estate investors aren’t as dumb as *they* think we are.

Tags: mortgage broker, portfolio lender, portfolio loan, real estate investor forum

Well, the much anticipated $700 billion bailout was signed into law last week and so far, I’m not impressed. It obviously has done nothing to improve market confidence (quite the opposite in fact) but it does ensure that you can still deduct your solar panels.

I was reading up on the new law over at cnn.com and one of my fave analysts, Meredith Whitney, was interviewed.  In the video she was explaining that she didn’t think the bail out made any sense and that it did nothing to restore confidence which, in her opinion, is the real issue.

Meredith is pretty cool and I’ve followed her for quite a while as she always seems to be right. And I really like that in an analyst.

She’s also married to a professional wrestler and you just don’t find many Brown educated Wall Street analysts married to professional wrestlers so it’s interesting in a National Enquirer sort of way.

In addition to Meredith’s interview, there’s a new article up at cnn.com reporting some comments by Warren Buffett that outlines HIS bailout plan.

One of the biggest issues that I’ve been railing against over the last couple of months is that the Feds seem to be doing everything they can to shut investors out of this recovery when in my opinion (and now in Warren’s too) they should be inviting us to participate. AND giving us incentives to participate.

Here’s an excerpt:

He described a plan he thought of Thursday morning on the way to the Summit that would allow Treasury and private investors to buy assets together. He said his proposal would kickstart demand for mortgage-backed securities, help find a market price for these troubled assets and make it more likely that taxpayers would be made whole or even come out ahead in the bailout.

Under Buffett’s plan, Treasury would lend hedge funds, Wall Street firms or any other investors 80% of the price for distressed assets. Investors would benefit from borrowing at lower rates available to the Treasury. But the government would get first claim on the sale of those assets, which means it would get its loan back plus interest and possibly turn a profit. Only then would investors see a penny.

“Now you have someone with 20% skin in the game,” explained Buffett. “Believe me, I won’t be overpaying if I’m buying with that kind of leverage. And you have someone [the investors] to manage the assets to the extent they need to be managed.”

There you go!

Imagine if we could all get 80% money on the cheap from the Feds to buy up real estate at deep discounts without having all these ridiculous rules such as “no more than 4 financed properties” and “no refinancing out of an LLC.”  We might actually get some economic recovery.

And if I could get my money that cheap, I wouldn’t even mind splitting some of my profits with the government.

Tags: bailout, economic recovery, meredith whitney, warren buffet