Investment Opportunities FAQ
Q. What is a Short Sale?
A. A Short Sale is a legal, lender-approved solution assisting financially strapped homeowners to get out from under their mortgage commitment quickly. A Short Sale can be accomplished by negotiating with your bank or lending institution to accept a purchase price for your property to a third party buyer for less than what you currently owe on your mortgage balance.
Q. What is a Real Estate Investment Trust?
A. A real estate investment trust, or REIT, is an unincorporated association of investors who pool their resources to invest in real estate projects and share the associated profits and losses. REITs are managed by at least one trustee or board member who oversees decision-making and manages the trust's assets and liabilities.
Q. What is the process of buying REO'S from the bank?
A. Just about all banks are requiring you to go through Realtors to submit offers. They do not have the time or resources to service millions of requests to sell direct to consumers. Check the banks web sites for lists of foreclosed properties and contact information. All Realtors should be able to provide you with lists of homes in foreclose or bank owned.
Q. What Is A 1031 Tax Exchange And How Can It Help Me? ?
A. IRC Section 1031 provides that neither gain nor loss is recognized if property held for investment or productive use in a trade or business is exchanged for property held for investment or productive use in a trade or business. What that means is when you are ready to sell an investment property, you can use the gain on it to re-invest in “like kind” property(s) without being taxed on the gain if you use a qualified intermediary and follow the 1031 rules..
Q. What are the Dangers of Investing in Foreclosed Properties?
A. Banks selling foreclosed properties make every effort to provide clear title to the property, but most lenders’ disclosures include legal wording to the effect that no guarantees are made and the property is sold “as is.” This is the reason why a buyer must carefully study and understand all conditions included in the documentation issued by the financial institution, before signing and submitting it. A buyer should consult an attorney to review the documentation and pursue options such as title insurance.
Q. When Should I Buy Foreclosed Properties??
A. The time to buy is before the property is foreclosed on. When a foreclosed property is not sold during auction , the title automatically reverts to the lender holding the lien, this process can cost the bank a lot of money. Knowing the timing of foreclosures can result in a great advantage to the savvy investor. We begin to negotiate with a lender before a property goes to foreclosure or auction providing you with the best opportunity to buy properties at the deepest discount.
Q. Where Do I Get The Money To Invest?
A. There are many choices and you will want to consult a wealth building coach to guide you, and help you make the most appropriate decision for your lifestyle. Initial consultations are free, and they’ll have financial products available for you to choose from. Some possible areas to consider taking a loan against or liquidating if deemed appropriate: 401K, IRA, 1031 Exchange (existing real estate), short term investments (stocks, bonds), or your home equity (which is only recommend under the right circumstance).
Q. When acquiring a loan for investment property, what is the percentage I can finance on the property?
A. Up until recently 100% financing was available on up to a 4 unit investment property by means of an 80/20 Mortgage. Due to the new credit environment the guidelines have changed dramatically. Currently on a two unit or Single Family investment property we are financing up to 90% of the cost. On a three unit property, 80%, and a four unit 75%. I would suggest putting more money down, the more units you purchase. This allows you to maximize cash flow by not paying a higher interest rate on a higher risk loan.
Q. Do I have to tell my mortgage company that I am renting the property?
A. If you buy a property and plan on buying it as an investment, i.e. a rental or a "fix-and-flip" you have to tell the mortgage company. In fact, the mortgage application asks specifically whether the property will be a primary residence, a second home or an investment property.