Monthly Archives: May 2018

Real Estate Investing

I just went to a continuing education class in South Carolina and the topic was Mortgage Fraud. Having taught mortgage fraud I thought that it was going to be pretty much the same old thing.

Sure a lot of what they taught I already knew but I not only learned a few new things but it was also good to be reminded of a lot of things that you can forget about. I have talked to a lot of people that when they start explaining the transaction it is very evident that it is not legal.

The sad part is that they are usually fairly new investors that are relying on an experienced investor or seller to handle all of the details and they assure the newbie that the transaction is “totally legal”. Here are some basics that you can keep in mind when making investments even if you are just starting out to avoid questionable people and transactions.

1: Avoid deals that sound “Too Good To Be True”. If a seller (especially another investor) promises to sell you a property, manage it for free, handle all of the financing details, get you cash at closing and send your check every month I would be careful. If real estate investing was easy everyone would be doing it. I’m not saying that all sellers that do this are fraudulent but I am saying that you need to do your homework.

When you get involved in a transaction be sure to do some due diligence on your own. Do this by asking several people that are unrelated to the transaction about not only the transaction but the people. Also don’t take the word of your seller as to how much you can rent a property for, or what it will appraise for.

2: Make sure that the entire transaction is on the closing statement or hud1. Remember if there is money going back to someone or credits given to someone and it is not on the hud1 then it is considered fraud to the lender. I have even seen some investors that want to list an assignment fee as a consulting fee or some other fee. Just call a duck a duck!

3: Know the people you are dealing with. Ask for references and also seek and get your own. Remember to always go with your gut feeling. This may sound funny but you can always trust a woman’s intuition. If you are a married man let your wife meet the people you are doing business with. If you’re not married find a woman that you know and let them meet the people you’re doing business with. If you’re a woman you have it made. I like to use the philosophy of Ronald Reagan “Trust but verify”.

4: Be Honest. Don’t let anyone talk you into submitting anything on an application that is not true. Intentionally submitting false information on a loan application is fraud and is a federal crime. Just because the loan was closed does not mean that you will never get caught. Lenders and mortgage insurance companies re-verify items on applications as a standard procedure for quality control. They will look for patterns and inconsistencies throughout the application. It’s not a matter of if but when you will get caught.

5: Always be fair and honest in all of your transactions. Remember to make every transaction win win for everyone. We subscribe to a philosophy of full disclosure in our office. When we assign a contract to a buyer we tell the buyer how much we are paying and how much we are making in the transaction. Buyers don’t mind you making money as long as the deal works for them.

Always leave some profit on the table when wholesaling a property. I hope these things have helped. If you suspect any transaction to be fraudulent you can contact the banking commission in your state or the FBI as they investigate mortgage fraud.

Real Estate Investing Mortgage Brokers

As a real estate investor it only makes sense that you understand what a mortgage broker can do for you. A mortgage consultant, agent or specialist are all basically the same thing. Unless you are buying all cash or you are making a deal with the seller for 100% financing the mortgage process will probably come up.

A mortgage broker usually owns the company or franchise while the above work under the mortgage brokers license. Mortgage agents have access to the same mortgage products as his/her broker.

When you go to a traditional bank you are limited by the mortgage products that the bank offers. If you do not meet the lending criteria of that particular bank you will have to look elsewhere. What most investors do not realize is that every time they go to a different bank, a credit check happens. The result is that each time a credit check happens your FICO or Beacon score goes lower. This may affect the rate you could get or stop you from being able to get qualified for a mortgage at all.

A mortgage agent checks your FICO or Beacon score one time and can have access to 40 or more lenders and their products. Traditional banks are limited to only their own products.

A mortgage agent takes the intimidation out of the mortgage process. They will negotiate aggressively with lenders on your behalf. That is what they do every day. If you’re buying an investment property you should have a mortgage agent pre-qualify you. It’s a smart idea to know how much you could qualify for if this turns out to be your only financial option.

They will simplify the entire mortgage process; negotiate the best possible products and lowest rates on your behalf. They do the paperwork and provide you with the peace-of-mind that you are getting the best solution possible. You will be given an explanation of the entire process and have all of your questions from beginning to end answered. It is very common to have a mortgage agent show up at your house for a 9:00 p.m. appointment for your convenience (try to get a banker to come to your house). They will provide maximum flexibility in financing choices and counsel you on credit and mortgage qualifications.

A mortgage agent gets paid a finders fee from the lender that the mortgage was arranged with. Sometimes there is a brokerage fee which is paid by the borrower, depending on the circumstances. Mortgage agents also have access to profit lenders in which case a brokerage fee is added. More often than not the lender pays a finders fee and there is no brokerage fee.

Investment Mortgage Strategy

The “Dream” of Trump like investing. Your goals and plans require action! Perhaps the easiest way to implement your action could be in the area of “small” rental residential investing.

The mortgage will be the single biggest expense that you will incur. It’s critical to have the Best Mortgage Strategy evolving, to help minimize your expense and maximize your cash flow.

In this chapter, we are going to arm you with information that will help you both understand and also seek more professional guidance in this crucial step. I trust that you have begun to surround yourself with your professional “team” of trusted advisors, including a qualified mortgage broker or banker who has years of real estate investing experience themselves. It’s obvious, that aligning yourself with a team that has this investing experience is important in that they will better understand your needs and help you develop some of the strategies necessary for your success.

THE BENEFITS OF RESIDENTIAL INVESTING:

I often get asked, “Should I invest in residential or commercial real estate?” This often depends on one’s level of experience and sources of investment capital available. The quickest start in the real estate investing arena will be in smaller residential properties.

Essentially, less of your down payment capital is going to be required for a small rental. This makes the concept of investing more realistic for not only the first time investor, but also the experienced.

BENEFITS:

-It’s a wonderful place to engage in your first investment property and continue to learn from your experiences and gain that “track” record that can help you get to the “Next Level”.
-You can quickly become an Expert and duplicate your efforts for success.
-Once considered an Expert, you can attract Joint Venture capital that will give you infinite returns.
-Requires less investment (down payment) capital.
-Mortgage financing up to 95% is potentially available.
-Mortgage interest rates are often much lower than commercial, allowing for a lower mortgage payment and stronger cash flow.
-The government continues to provide “liquidity” into the residential lending marketplace, keeping lending capital more readily available.
-Management is fairly straight forward, whether personally or professionally managed.
-The pool of properties to buy is large.
-Conversely, the pool of buyers to buy your investment (after many years of ownership) is large, providing liquidity for you.

KNOW THE FUNDAMENTALS:

Having a solid understanding of the basics of terms of mortgage financing will help you strategize your current and future real estate purchases and refinances. Certainly your trusted mortgage professional is also there for advice and strategy development, but learning the principles of mortgaging will guide you in your initial Property or Cash Flow Analysis. Here, we will cover the basics to ensure you have a foundation of mortgage terminology. Some of this information may seem dry to some, but is really important in developing the Best Mortgage for your needs. Later in the chapter we expand on these basics and incorporate them into some of the advanced concepts and strategies.