Sam and Pam

Blair Poelman Real Estate Expert

Hey, want a cool way to buy property with no money down and no closing costs? Even for an investment property? Did you think that such loans were long gone after the housing downturn? Well, they’re not. At least not for a specific type of no money down loan. Meet SAM and PAM.

SAM stands for secured asset mortgage and PAM stands for pledged asset mortgage and they both work the very same way. A SAM or PAM allows a buyer to pledge certain assets as collateral to the lender in order to finance real estate. How do they work?

Say a buyer sees a property he wants to buy for $500,000. The buyer also has a stock portfolio worth $200,000 and CDs with a $50,000 current valuation. A SAM lender will finance 80 percent of the $500,000 sales price, or $400,000 and the buyer then pledges as collateral the remaining 20 percent of the sales price, or $100,000.

This pledge is a form of a legal assignment of ownership from the buyer to the lender. Should the buyer default on the $400,000 loan, the lender can not only foreclose on the property but will also take full possession of the pledged asset. In this example, the lender gets the property as well as $100,000 in stock the borrower previously pledged.

Such loans have some quirks, the most noticeable one is a type of margin call. The pledged asset must always maintain the original value pledged. For instance, if the $100,000 pledged was in the form of Apple shares and the price of Apple stock dropped 20 percent, the PAM lender will require the borrower to provide additional assets to make up for the lost stock value.

PAM and SAM loans are only available through securities dealers that manage stock investments for their clients and can have slightly different requirements for this type of loan. But for those with such assets available, it is indeed a way to finance any type of real estate with no money down.

To learn more about investing in Real Estate, including what to look for in homes, investing in the current economy, and other industry information visit http://incomepropertyusa.com. For opportunities to invest visit http://buypd.com.

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Overcoming Shortfalls

Blair Poelman Real Estate Expert

Overcoming Shortfalls

Conventional loans for investment real estate follow specific lending guidelines and all lenders follow them. Requirements for a down payment or a credit score for instance need to be met or the borrower’s tax returns have been reviewed to show sufficient income in order to qualify. Private money lenders also follow lending guidelines but most have their own internal lending criteria. Some private money lenders have easy qualifying standards while some are more stringent. What can you do to help make sure your private money application will be approved?

Know the Rules

First, understand exactly the loan program you’re applying for and the qualifications for a loan approval. Private lenders can tell you how much is required for a down payment or if a minimum credit score is needed. Different property types will have different down payment needs, depending upon the investor. For example, a real estate investor might have to have a 30 percent down payment on an existing apartment building but a 50 percent down payment for raw land. Before you apply, make sure your project fits the rules set by the lender. There are, however, exceptions that can be made when applying for a private money loan; after all, the private lender makes their own rules.

Exceptions

For example, a private money loan to be used to buy and rehabilitate a duplex might require a 25 percent down payment. What if the borrower doesn’t have 25 percent down, what can he do? He might ask for an exception and ask the lender to consider a 20 percent down payment instead of 25.

When a lender considers an exception to their loan, other factors will be evaluated. For instance, a lender might accept a 20 percent down payment because the credit profile is excellent. Or that the borrower already has a buyer lined up.

Another exception can be made when a borrower’s credit is less than perfect. A private loan requiring a credit score of 600 might be approved if the borrower provides a larger down payment.

Private lenders have their own rules and as such they can approve loans that others will not. Sometimes though a project doesn’t quite fit the loan profile; when it doesn’t, ask what the lender needs in order to get the deal done.

To learn more about investing in Real Estate, including what to look for in homes, investing in the current economy, and other industry information visit http://incomepropertyusa.com. For opportunities to invest visit http://buypd.com.

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Your Treasure Find? or Not?

Blair Poelman Real Estate Expert

Let’s say you just closed on your fourth investment property, a cute two -bedroom home that was three blocks from an elementary school. Perfect! After all, households with children are more likely to be young adults just starting out and haven’t yet bought their first home. The property is one of your best properties yet. And it just got better: in the attic the seller left a box full of old comic books, some of them in protective plastic sheets, completely preserving them. Bingo!

But do those comic books belong to you? You bought the house. The stove came with it along with all the other appliances. There were some other items in the storage shed that were left behind such as some old paint cans and some gardening tools. So the comic books are yours, too, right? Maybe.

When real estate changes hands, only the permanent property, called “real” property is transferred, or conveyed to the buyer once the sale takes place and is officially recorded. But state laws will trump any assumptions and will vary depending on locale.

In the instance of comic books, potentially rare ones with a “who knows how much they’re worth” value, it’s possible that the sellers didn’t want to hand over their collection and they forgot about them. It’s also possible the sellers never knew about the find when they originally bought the house several years ago. But what if you did take those comic books and found you could sell them all for $5,000?

If you find such an time with potential value being left in the property after the sale, you’ll want to contact the sellers via certified letter and let them know they have three days to retrieve any unclaimed property. If after those three days have expired, you can assume anything left behind belongs to you. However, it behooves you to check local laws first before taking any action. It’s possible that sellers have a recovery period for items of value left in the home. And if you’ve sold those comic books and they want them back, well, you may have another “issue” on your hands.

To learn more about investing in Real Estate, including what to look for in homes, investing in the current economy, and other industry information visit http://incomepropertyusa.com. For opportunities to invest visit http://buypd.com.

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Interest Reservations

Blair Poelman Real Estate Expert

When buying property to renovate and flip and you need financing, you can find loans from a variety of places all with various terms. Some loans are issued by banks for construction from the ground up. Other loan programs allow you to buy as well as remodel a property either to keep or to flip. Some loan programs give you the ability to do either as well as finance the monthly payments during the term of the loan. These are called interest reserves.

Interest reserves are funds issued by a lender to be used to pay the interest accrued when building or buying an existing property. In the course of a construction loan, as construction funds are disbursed, interest will begin to accrue. You, the borrower, have the choice of paying the interest as it builds or borrow it from an interest reserve fund established by the lender. In essence, it means no payments during construction.

At the end of the construction period, however, you will not only need to replace the construction loan with cash or a permanent mortgage but also replace your interest reserve funds used to pay the bank.

Private lenders can also provide an interest reserve account and it doesn’t have to be confined to a construction loan. Buyers who need private money need funds for unique properties in a short period of time to acquire, rehab and sell real estate. A private lender can establish a reserve fund in addition to the loan needed to finance the purchase.

Most private loans with interest reserves will require that the loan plus the reserves be paid in full at a future date, say 30 days from now or 1 year from now. These loans will require an equity position of the buyer of at least 20 percent or more in the form of cash or other property. These loans will have higher rates compared to conventional financing so they need to be used with care. But if you find the perfect real estate deal that needs a short term financing solution, having an interest reserve account can free up needed working capital.

To learn more about investing in Real Estate, including what to look for in homes, investing in the current economy, and other industry information visit http://incomepropertyusa.com. For opportunities to invest visit http://buypd.com.

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Back and Forth

Blair Poelman Real Estate Expert

Part of your strategy for successful real estate investing starts with how much you pay for a property. That makes perfect sense, right? Simply put, flipping real estate is dependent upon buying low and selling for more than what you have invested. But what can you do to help get your offer accepted and streamline the negotiation process?

Know your Market

Because you’re one of those savvy real estate investors that know your market like the very back of your hand, you can identify a potential deal right when it hits the market based upon the initial asking price. If homes in the area are selling for $100 per square foot and the new property is listed at $80 per foot, the likelihood the seller is highly motivated is clear. Either that or the property is in such poor shape it has to be priced under the market.

Your Offer

If after inspecting the property you determine that $80 per foot is a bargain, what do you offer? The listing price? Or could you start out lower, hoping the seller will meet you halfway? That’s always a gamble but a gamble worth taking. To help leverage your situation, find out from the owner why the property is for sale. If the homeowner has recently lost a job or perhaps facing financial difficulties you have the advantage. However, many homeowners will keep such information close to the vest when asked, keeping you in the dark. If you feel the price is fair and you can turn it for a profit, make the offer just below the asking price. It’s almost expected in today’s real estate world.

The Renegotiation

After your initial offer is accepted, you still have more time to get an even better deal. Your offer is contingent upon an inspection and all properties have some issues, large or small, that can affect the final price of a home. If your inspection turns up some caulking issues or the kitchen cabinets are worn and the backyard fence is leaning in areas, then you can reduce your offer reflecting the items discovered in the inspection. The seller who has already accepted your initial offer and listed the home as “pending” they’ll be more likely to reduce the sales price instead of placing the home back on the market and starting all over with a brand new buyer.

Knowing your market better than any other buyer is one of the key ingredients to successful real estate investing. Your knowledge of the area lets you differentiate between a good deal and a great deal and while a seller expects you to make an offer just below the list price, remember that an inspection can help you drive down the sales price even further.

To learn more about investing in Real Estate, including what to look for in homes, investing in the current economy, and other industry information visit http://incomepropertyusa.com. For opportunities to invest visit http://buypd.com.

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Land Contracts

Blair Poelman Real Estate Expert

There are loans of all stripes. Loans for cars, student loans and loans for trips to the beach. Regardless of the type of loan, most loans fall into two categories; revolving and installment. Revolving debt is the debt incurred by using a credit card or line of credit where the loan balance rises and falls as payments and charges are made against the account. An installment loan is a loan with preset payments that gradually pay off the loan over time. In real estate, there’s another type of installment loan; a land contract.

A land contract is a loan used to purchase real estate but unlike a mortgage, the borrower does not own the property until the loan is paid in full. For example, a traditional mortgage will show that the buyer purchase the house and financed the purchase with a mortgage from a lender. The lender will have a legal interest in the property just as the buyers do. This interest is in the form of a recorded lien. And the lender will continue to have an interest in the property until the loan is paid off or otherwise retired. In the instance of a mortgage, all buyers will have a legal right to the property in addition to the lender’s legal interest.

A land contract on the other hand finances real estate but the buyer has no interest in the property until the loan is paid off. A land contract is often used by private individuals to provide financing to borrowers having difficulty financing a home through conventional means. For instance, the buyers don’t have money for a down payment, they can’t prove their income or their credit is substandard. A land contract can provide financing to the buyers with an additional layer of protection; none of the equity built over the years belongs to the borrowers- the property belongs to the individual financing the contract.

As a buyer, finding someone to assist in a land contract can be a way to help acquire property and re-establish credit. As a seller, a land contract provides a way to sell and finance real estate with you as the only owner until the loan is ultimately retired.

To learn more about investing in Real Estate, including what to look for in homes, investing in the current economy, and other industry information visit http://incomepropertyusa.com. For opportunities to invest visit http://buypd.com.

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It’s Always Insured

Blair Poelman Real Estate Expert

When borrowers obtain a mortgage to buy real estate, they make certain promises to the lender. They confirm that they’ve completed the mortgage application in good faith and didn’t knowingly provide false information. Borrowers agree to make their payments on time and pay the property taxes when due. They also agree to keep the property insured; if they don’t, the lender can issue what is called “force-placed’ insurance.

Mortgage companies not only require you to have a homeowner’s insurance policy on the property but also ask for a specific, minimum coverage. If the mortgage on the home is $300,000 the lender will require that your coverage be at least that amount. Other coverages and minimums should be discussed with your insurance agent but lenders do have a say in the amount. Lenders want to be assured that if the property burned down or otherwise destroyed, the insurance covers the amount owed.

Lenders are also interested in how much it costs to reconstruct the home from the ground up. This figure is derived from the cost approach on the appraisal as well as the current market value of the home.

Sometimes however borrowers have their policies cancelled. This most often happens when an insurance premium isn’t paid and the insurer cancels the policy. When insurance coverage is dropped, the lender is notified by the insurance company. If you don’t have replacement coverage, the lender will issue an insurance policy on its own. It’s forced upon you; you don’t have a choice.

Force-placed policies are also expensive; lenders don’t like to be in the insurance business and they price their insurance policies reflecting that. The lender will then send you a bill for the missed coverage which you must pay. If you don’t keep insurance on the property, the lender can take the property from you. Most force-placed policies are very short term; when borrowers find out how expensive they are, they quickly look for replacement coverage.

To learn more about investing in Real Estate, including what to look for in homes, investing in the current economy, and other industry information visit http://incomepropertyusa.com. For opportunities to invest visit http://buypd.com.

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Underwater Help

Blair Poelman Real Estate Expert

Even though right now may be one of the best times to invest in real estate in decades, there are investors today who might be holding rental property that’s worth less than what is owed. During the wild and wooly housing debacle in the last decade, many amateur real estate investors got caught up in the frenzy and bought rental properties without making a reasoned evaluation. But for those that did purchase real estate with a conventional loan and the property is a rental, the federal government has issued lending guidelines to help owners refinance into today’s rates, without any equity in the property.

The program is the Home Affordable Refinance Program, or HARP and lets homeowners quickly and easily refinance their current conventional loan into today’s low rates. How does HARP work?

The first requirement is the loan must be owned by either Fannie Mae or Freddie Mac. Even though you send your monthly payments to a bank for your rental, either agency may currently own your mortgage. Further, you must have taken out your existing conventional loan prior to June 1, 2009.

The HARP program is unique in that similar programs require the owner to occupy the property but not with this new program. As long as the borrower has no payments more than 30 days past the due date over the previous six months and no more than one payment more than 30 days rate over the past year, the borrower is eligible to refinance to a lower rate. This program is available not only for single family homes but also for duplexes and 2-4 unit properties.

Most all conventional lenders who underwrite loans to Fannie and Freddie standards offer the HARP refinance. And for investors who want to refinance their mortgage rate to lower their payments and increase their cash flow, the HARP loan might just be the answer.

To learn more about investing in Real Estate, including what to look for in homes, investing in the current economy, and other industry information visit http://incomepropertyusa.com. For opportunities to invest visit http://buypd.com.

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By The Manual

Blair Poelman Real Estate Expert

Mortgage loan approvals are all automated these days. When a borrower completes a loan application, the information is digitized then submitted to an automated underwriting system (AUS). Within seconds after receiving the electronic application, the AUS presents the decision; approved or not approved.

In order for an AUS to work properly, the loan submitted must conform to previously established rules in order for the loan to be submitted. This information includes name, social security number, income and assets among a host of data points. If the borrower’s social security number is entered incorrectly or the income section is left blank, the AUS will return the electronic application with no decision and tell the lender what additional information is needed to complete the underwriting process.

Sometimes all of the information is indeed there but the loan is declined for other reasons. For example, the borrower has limited credit and there is no credit score available. Or there is a recent bankruptcy and the loan cannot be approved.

For whatever reason, a lender can decide to forego the electronic approval and decide to manually underwrite the loan file. This process is called, simply, a “manual underwrite.” When loans are approved in this fashion, a lender documents the loan file entirely

One of the most common reasons for a manual loan approval is when credit is an issue. A borrower with a recent bankruptcy will most often be declined using an AUS. Or a credit score is below a specific level but is still eligible to be sold in the secondary market.

When a lender manually underwrites the loan, the lender assumes an additional level of risk. Without an AUS approval, the lender makes the case for why the loan should be approved. For example, the borrower filed for bankruptcy four years ago but since then has re-established a pristine credit record. Or the credit scores are temporarily low due to an isolated event.

Every conventional loan today is first submitted to an AUS. If the loan is declined, there’s still an opportunity for an approval if the lender makes the determination the overall loan file is a good risk.

To learn more about investing in Real Estate, including what to look for in homes, investing in the current economy, and other industry information visit http://incomepropertyusa.com. For opportunities to invest visit http://buypd.com.

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Buying For The Market

Blair Poelman Real Estate Expert

Part of being successful in the real estate investment business is knowing what to buy and what to sell. That sounds obvious at first glance but by examining the issue a bit further it makes even more sense. You want to buy low and sell high but if you can’t sell the property it doesn’t matter what you paid for it, right?

When analyzing a potential real estate investment, look first at what the market is doing. If you’re interested in a single family home and want to rent it out for income and appreciation, what does the local market look like for a single family rental in the area you’re exploring? Are there other similar rentals in the area? If so, are any of them vacant? If there are no rentals in the area, would you be able to rent it quickly? And if so, why do you think that?

For example, in a neighborhood with an abundance of suburban-style, single family real estate, are there schools nearby and if so, are they good ones? A consistent draw in real estate is the quality of schools in the area. People will buy homes based upon the quality of education and people who can’t afford to buy can also rent. A single family rental in a neighborhood with quality schools is a sure bet to be rented, especially if it’s one of the few if not the only rental in the area.

Another way to buy for the market is determining who typically rents and what do they rent? Most renters fall into the category of single folk. Single people can be recent graduates or college students, divorcees or those who are retired. Such renters don’t need large real estate or otherwise can’t afford a three bedroom house. Real estate for this category means condos in a college town or one-bedroom units that cater to the single renter.

In other words, don’t try to invent a market. Determine ahead of time what people are buying and renting and cater to that audience.

To learn more about investing in Real Estate, including what to look for in homes, investing in the current economy, and other industry information visit http://incomepropertyusa.com. For opportunities to invest visit http://buypd.com.

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