Utah Real Estate Investor

We're Moving Our Blog

2009-09-12T00:04:00.002-06:00

We have decided to relocate our blog. We hope that you will still be interested in following our real estate market as you look to invest in Utah. Please check out the new home of
Utah Real Estate Investor blog at http://khayyamjones.com/blog

For Rent: 199 S 1680 W, Provo, UT $685/mo

2009-08-22T15:00:00.003-06:00

I have an apartment for rent in Provo, UT for only $685/mo. This apartment is in a side x side duplex with a nice, large back yard. It also has central A/C, double paned windows and was just repainted. The apartment is available immediately and starts with a 1 year contract (through July 31). Please contract me if you would be interested in renting this apartment.

Evaluating a Lot Split Property in American Fork

2009-08-20T08:51:00.003-06:00

In this video I walk through a brief property analysis to evaluate the potential of a property in American Fork, UT for subdivision (lot split) possibility. This property has been on the market for about 1 year because the asking price does not justify what the property can become.

This property needs 150 feet of frontage to subdivide into 2 lots. Many people have approached the neighbors about buying the missing land but the neighbors do not want to sell. Using Highest & Best Real Estate Investing techniques we uncover another option.

This video goes through the steps of the initial property analysis to determine if there is enough potential to pursue this property (and move to the next step in the evaluation process).

Free Housing for 1 Year

2009-08-18T15:25:00.004-06:00

The average renter in Provo, UT is paying $685/mo to live in a 2 bedroom apartment. That means that over the next 12 months this renter will spend over $8,200 just for housing. But what if there was a way to save that $8,200, would that make a difference in your life. What could you do with an extra $8,000?

Right now there is an opportunity for this renter to qualify for a special program that is currently being offered by the government. In order to help stimulate the economy the Obama administration has passed what is commonly known as the Obama Tax Credit for first time home owners. The tax credit is available to people who have not owned a home in the past 3 years and buy (and close) on their home before December 1, 2009.*

Imagine that you are currently looking to rent a 2 bedroom duplex apartment for $685/mo but instead you buy that same duplex for $200,000. Using the current FHA loan program you could buy the duplex with 3.5% down payment ($7,000; which is a little more than first and last month's rent and a security deposit). You would then have a loan at 5.5% interest for 30 years (fixed rate) which would give you a principle and interest payment of $1,095.83. Now here is how you live here for free for the 1st year...

A duplex will have a renter in the other unit which is paying the same $685/mo that you were willing to pay. So after you receive your rent payment your $1095.83 payment becomes $410.83! Right there is you save about $275/mo just by buying the duplex you were going to rent. But there are more benefits!

Next, as a first time home owner you receive the Obama $8,000 tax credit which is money that is refunded back to you as soon as you file you 2009 taxes. $8,000 averaged over 12 months is like getting $666.67/mo. So your $410.83/mo is effectively reduced to -$256.84/mo (which means that you are being paid $256.84 a month to live in the duplex apartment that you were originally going to rent). But wait, there's more...

As a home owner you also receive a tax deduction for the mortgage interest that you are paying on the duplex. Over the next 12 months you would expect to pay about $10,500 in mortgage interest. This $10,500 is subtracted from your income before you pay taxes which could eliminate up to an additional $3,000 from your taxes! That $3,000 tax saving is effectively another $250/mo paid to you. Now you are effectively receiving $256.84 + $250 = $506.84/mo because you are buying the duplex instead of renting it.

So the average renter could effectively be paid $506.84/mo to live in their duplex OR the can pay $685/mo simply to rent it. Not only does the renter become a home owner, they receive the monetary benefit of home ownership AND they will also receive the equity from the property appreciation. The best part is that this renter now owns a cash flowing property that will continue to pay them as long as they want the income!

*Some restrictions apply.

How to Find Property with Lot Split Potential

2009-08-17T15:33:00.005-06:00

Below are the images of the properties used in the video. Click on each image to see a larger (more readable) picture.

Home For Sale: 236 W 800 N, Spanish Fork UT

2009-08-16T08:02:00.001-06:00

This lovely period home has been updated and remodeled multiple times. The recent remodel updated the bathroom, new carpet & paint, heating & A/C, electrical upgrades, and wiring through out the home (with CAT-5 internet wiring to each bedroom).

The home is conveniently located close to the new retail development project (coming soon) in Spanish Fork. It also has easy access to I-15 and Main St. And this home is close to schools.

The list price on this home is $164,900. The seller is open to a convention purchase or various seller financing options. This home is available for immediate occupancy. A first time home buyer could purchase this property with an FHA loan. The buyer would need 3 1/2% down payment ($5,775) and could obtain a 30-year fixed rate loan at 5.5% for a principle and interest payment of $908.75/mo. Plus the first time home buyer can get an $8,000 tax credit if they buy before November 30, 2009.

An investor could buy this home with 20% down payment ($33,000) and get a 30-year fixed rate loan at 6.5% for a principle and interest payment of 749.48/mo. We had previously rented the home for $1,250/mo but at a conservative $1,100/mo the investor would have at least $300/mo in positive cash flow ($3,600/year) which gives more than 10% ROI!

Click for Complete Property Details

Approved Short Sale: 20 E Maple Lane, Pleasant Grove, UT

2009-08-14T11:10:00.005-06:00

I have listed a home in Pleasant Grove, UT that is an approved short sale. The home owners originally bought this home for about $175,000. According to the lender's BPO the property is now only worth $150,000. However, the lender has already indicated that they are willing to sell the property for $135,500! A buyer on this property would start of with nearly $15,000 in instant equity. That is absolutely fantastic in this market.

The home has 3 bedrooms, 1 bathroom, 2 family rooms, 1,210 square feet and central A/C. This home is conveniently located with easy access to Main St (Geneva Road), State Street and I-15 (at the new Pleasant Grove exit). It is also located near shopping (including Wal-Mart) and schools.

The lender has approved a price of $135,500. A buyer (who would live there) could get an FHA loan with 3 1/2% down payment ($4,750) and have a 30-year fixed rate loan at 5.5% giving a principal and interest (PI) payment of $742.38. Not only that, as a first time home owner this buyer would also get $8,000 tax credit (refund) next year; that would make the first year's payments effectively only $75.71/mo!

An investor could buy this property with a 20% down payment ($27,100) and get a 30-year fixed rate loan of 6.5% with a PI payment of $685.16. A 3 bedroom home average rent in Pleasant Grove is $1,000/mo. This gives the home at least $200/mo positive cash flow ($2,400/year) or a 9% ROI on the invested money, not including tax benefits.

View Complete Property Details

Maximum LTV for Obama Administration's Refi Program Increases to 125 Percent

2009-08-05T08:52:00.000-06:00

On July 1, 2009, Federal House Finance Agency (FHFA) Director James Lockhart joined Treasury Secretary Timothy Geithner and HUD Secretary Shaun Donovan in announcing a major expansion of the Obama Administration's Home Affordable Refinance Program for Fannie Mae and Freddie Mac loans. The change will allow current borrowers with loan-to-value (LTV) ratios of more than 80 percent up to 125 percent (formerly 105 percent) to qualify if they meet other program requirements. This significantly expands eligibility for the program which allows borrowers to lock in today's lower rates or move into a fixed rate product. Higher fees will apply to loans with LTVs above 105 percent, but the program includes lower fees for borrowers who opt for a 20-year or 25-year term, to build equity faster and reduce interest payments over the life of the loan. The easiest way for borrowers to find out if they have a Fannie Mae or Freddie Mac loan is to go to www.MakingHomeAffordable.gov and click on "loan look up."

Reprinted from Realtor.org

Revised TILA Disclosure Requirements Take Effect on July 30, 2009

2009-08-04T07:45:00.003-06:00

Lenders will be subject to new disclosure requirements for mortgage loans under the Federal Reserve Board Truth in Lending Regulation (Reg Z). The new requirements apply to loan applications filed on or after July 30, 2009 (about two months earlier than originally planned). The new rules are complex and compliance will be a challenge for lenders. REALTORS® will want to learn the basics so they can advise clients of potential delays and the new procedures. Here are key highlights of the changes:

The new requirements apply to all mortgages secured by a borrower's home, including primary and second homes and refinancings. Investor loans continue to be exempt.
Lenders must give good faith estimates of mortgage loan costs within 3 business days after the consumer applies for a loan (early disclosure). The lender may not collect any fees before the disclosure is provided, except for a reasonable fee for obtaining a credit report.
The closing may not take place until expiration of a 7 day waiting period after the consumer receives the early disclosure.
Consumers may shorten or waive the 3-day and/or 7-day waiting periods for a "bona fide personal financial emergency," but only after receiving an accurate TILA disclosure. In the final rule's preamble, the Fed stated that it "believes waivers should not be used routinely to expedite consummation for reasons of convenience." The Fed decided not to insulate lenders from liaibility even where a consumer modifies or waives the waiting periods.
If the annual percentage rate (APR) changes by more than 0.125 percent, the lender must provide a corrected disclosure to the borrower and wait an additional 3 business days before closing the loan. The APR includes not only the interest rate on the loan but certain other costs related to settlement, so it will be important for any fees that affect the APR to be as accurate as possible, as early as possible, to minimize the need for a corrected TILA disclosure.

Information reprinted from Realtor.org

New Rules Give Buyers More Protection at Closing

2009-08-04T07:40:00.001-06:00

(Original Article) by Kenneth R. Harney

If you're applying for a loan to purchase a primary or secondary home, or planning to refinance, you should be aware of a little-publicized new set of federal consumer-protection rules that takes effect July 30.

Among other key changes, the new Federal Reserve guidelines require lenders to give you initial disclosures of your mortgage costs within three business days of your loan application. If you don't get them, you can pull the plug.

The rule also prohibits lenders from collecting any fees, except a reasonable charge for checking your credit, until you have been given the loan-cost disclosures. This means no more out-of-pocket, upfront application charges until you have received the truth-in-lending disclosures and an annual percentage rate (APR) calculation of those loan costs.

Since many mortgage brokers and lenders traditionally have collected fees covering appraisal, credit and various other charges at the time of application -- sometimes amounting to hundreds of dollars -- this will be a significant change in procedure for the lending industry.

The rule also prohibits quickie closings on loans by requiring a seven-day waiting period after applicants are handed their early disclosures or the disclosures are mailed. You will now have up to a week to think about the transaction and decide whether it's right for you. Final truth-in-lending disclosures are due three business days before closing.

Here's an even more sweeping change for applications on or after July 30: The new Fed rules require lenders to deliver a copy of the real estate appraisal to you three business days before the scheduled closing on the loan.

In the past, even though federal regulations guaranteed that consumers could request and obtain a copy of the appraisal, lenders and home buyers frequently ignored that right. In fact, many consumers had no knowledge of this right because no one in the home purchase, financing or settlement process told them about it.

Now, the timing of the loan closing itself -- which is the financial ballgame for loan officers, real estate agents, and title and escrow officials -- will be dependent upon your receipt of the appraisal in advance. The exception will be that the three-day rule can be waived if you don't think receiving the appraisal is necessary.

Another significant change under the new rules: If the APR on the early truth-in-lending disclosure increases by more than one-eighth of a percentage point (0.125), the lender will be required to "redisclose" -- provide you a corrected version and allow you an additional seven business days to consider the transaction before settlement.

What might cause the APR to increase following the initial, early disclosure? Lots of things. If you allowed your initial rate on the loan to float with the market but rates increased, you would need to get an amended truth-in-lending disclosure. Or if the lender got inaccurate estimates of costs from a third-party participant in the transaction such as the settlement or escrow company. Or if unexpected, 11th-hour junk fees materialize.

All of these events, which have been frequent sources of consumer complaints this decade, could force the lender to redisclose loan costs and set back timing for the settlement.

What are some of the likely repercussions of the Fed's new mandates? First, the traditional approach of aiming in advance for a date-certain settlement target for home loan transactions almost certainly will be affected. Actual closing dates will be more closely tied to lenders' and settlement agents' accurate estimates and their ability to deliver disclosures and appraisals by the required dates. For example, if appraisers are backlogged and can't produce valuation reports quickly enough, settlements will have to be postponed.

Second, the purposes of the rules are to afford consumers better access to and more time to consider key elements of what, for most people, are major financial transactions. There might be fewer instances of last-minute closing-date surprises on fees, where buyers are slammed with hundreds of dollars of charges they never expected. But nobody can say that for sure.

Finally, the rules may well trigger new waves of litigation if lenders and their business partners are not scrupulous in their compliance. There is an aggressive segment of the legal profession that specializes in going after banks and mortgage companies for truth-in-lending violations. Don't be surprised if you hear of lawsuits seeking cancellation of mortgage deals because timing deadlines were not met or appraisals were not received.

As David Berenbaum, executive vice president of the National Community Reinvestment Coalition, put it in an e-mail comment: "Consumer advocates will closely monitor" compliance with the new Fed regulations, and the lending industry can expect "civil litigation against bad actors."

Kenneth R. Harney's e-mail address is kenharney@earthlink.net.

Why Buying is Better than Renting

2009-08-03T13:52:00.005-06:00

I want to briefly summarize why it is better to buy a home (especially today) instead of renting one! Listed here are 3 major reasons why you should consider buying a home...

Cost:
Buying a home is actually less expensive than renting! Here’s why…

Renting a home for $1,000/mo for 5 years is $1,000/mo x 5 years x 12 months/year = $60,000

But buying a home for the same $1,000/mo for 5 years is less than $60,000!

When you buy a home the government gives you a tax deduction for the mortgage interest that you pay. While the exact amount may change let’s just assume that your tax deduction equals only $1,200/year or $100/mo. That means you get $100/mo x 5 years x 12 months/year=$6,000

Right now, you also may qualify for $8,000 First Time Home Buyer Tax Credit (2009). That means if you haven’t owned a home in the past 3 years you can get an additional $8,000 from the Government just for buying a home in 2009!

That means you can get ($8,000 + $6,000 =) $14,000 cash when you buy your home over the next 5 years. So you will pay $60,000 in housing payments over the next 5 years but if you own a home you will get $14,000 cash back. This means you only spend $46,000 for housing over the same 5 years which is only $766.67/month!

Dollar for dollar it is cheaper to buy a home instead of rent one.

Equity:
The owner of the home is entitled to the equity in the home. Equity is the difference between how much the house is worth and how much you owe. (If a house is worth $200,000 and you owe $150,000 then the equity is $50,000.) If you are renting then the landlord is the owner and they get to keep the equity in the home.

When you buy a home you have a mortgage payment each month. Generally, each payment has a principle amount, an interest amount, property taxes and hazard insurance. The principle amount of the payment reduces the amount that you owe on the property. (If you pay your mortgage payments for 30 years you will not owe anything on the home because you will have paid off the mortgage.) If you buy a home then your monthly payment reduces how much you owe so it is like paying yourself. But if you rent, your monthly payment reduces how much your landlord owes and it’s making them richer!

Every time there is a repair on the home, if done correctly, that repair can increase the value of your home because it will be worth more. If you upgrade old windows, replace the shingles on the roof or remodel the kitchen, that will make your home worth more money. When you own a home you have to pay for these repairs. When you rent, the landlord must pay for these repairs but they don’t mind because it makes the home worth more money!

Making regular payments on a home mortgage will increase your credit score. Better credit means better financing for your next home purchase, a refinance of the first home and for a vehicle purchase or any other credit purchases saving you thousands of dollars in interest over the years to come.

Timing:
Right now is the best time to buy a home. The home values in the area have bottomed out and the interest rates on loans are at all time lows.

We are seeing homes that used to be $200,000 that are now selling at $150,000 or less! The experts say that we are at the bottom of the housing cycle and prices for homes will never be this low again. You can buy a home that used to be worth $200,000 for only $150,000. Then, as the market cycles back up you will be able to capture the new equity in your home.

With interest rates dropping below 5.5% (30 year fixed rate) you could buy that $150,000 home for payments starting at only $825/month (principle and interest)! And that’s before you figure your $14,000 savings over the next 5 years.

Requirements:
The qualifications for buying a home are nearly the same qualifications for renting a home. You need to have okay credit, a deposit and a decent job.

If you have a credit score of 580 (or better) then you can qualify for a FHA loan. A 580 FICO score is not considered good credit and may even be low enough to prevent you from renting. But it is a good enough credit score to buy a small home. If you have better credit then you can qualify for better interest rates with other types of loans.

The deposit for a house purchase with an FHA loan is 3 ½% of the purchase price. This amount is nearly the same as first & last month’s rent and a security deposit. One of the little known “bonuses” for buying a house is that you essentially get the first month FREE! The reason is because the home’s mortgage interest is charged at the end of the month while rent is charged at the beginning of each month.

Having a decent job is essential for qualifying for any type of housing. Generally you need to have been in the same line of work (preferably the same job) for the previous 2 years to show stability in employment. You also need to be making at least 3-4 times your payment on a monthly basis. So if your mortgage payment is going to be $1,000/mo then you need to be making $3,000/mo or more (as a household) to qualify to buy the home.

Homes that Qualify:
To get a list of homes that qualify for an FHA loan or
To get a list of homes that qualify for the special $8,000 First Time Home Buyer Tax Credit
please contact:
Khayyam Jones
(801) 787-7797
mailto:Khayyam@KhayyamJones.com?subject=Home

Mortgage Qualification:
To find out which loan you can qualify for please contact:
Rick Anderton
(801) 414-8055
mailto:rick@lendutah.com?bcc=khayyam@khayyamjones.com

Understanding the Credit Crisis

2009-07-20T09:40:00.000-06:00

I saw these 2 videos that help to explain the "credit crisis" of today's economy. It also helps to explain why it has become increasingly difficult to get a mortgage, even for good borrowers with great credit.

15 Rules of Negotiation

2009-07-16T16:00:00.000-06:00

The following is an excerpt from an article written by Harvey Mackay about how to negotiate. Since this list was so simple and straight forward I wanted to share it.

1. Never accept any proposal immediately, no matter how good it sounds.
2. Never negotiate with yourself. You'll furnish the other side with ammunition they might never have gotten themselves. Don't raise a bid or lower an offer without first getting a response.

Here are some more rules of the road:
3. Never cut a deal with someone who has to "go back and get the boss's approval." That gives the other side two bites of the apple to your one. They can take any deal you are willing to make and renegotiate it.
4. If you can't say yes, it's no. Just because a deal can be done, doesn't mean it should be done. no one ever went broke saying "no" too often.
5. Just because it may look nonnegotiable, doesn't mean it is. Take that beautifully printed "standard contract" you've just been handed. Many a smart negotiator has been able to name a term and gets away with it by making it appear to be chiseled in granite, when they will deal if their bluff is called.
6. Do your homework before you deal. Learn as much as you can about the other side. Instincts are no match for information.
7. Rehearse. Practice. Get someone to play the other side. Then switch roles. Instincts are no match for preparation.
8. Beware the late dealer. Feigning indifference or casually disregarding timetables is often just a negotiator's way of trying to make you believe he/she doesn't care if you make the deal or not.
9. Be nice, but if you can't be nice, go away and let someone else do the deal. You'll blow it.
10. A deal can always be made when both parties see their own benefit in making it.
11. A dream is a bargain no matter what you pay for it. Set the scene. Tell the tale. Generate excitement. Help the other side visualize the benefits, and they'll sell themselves.
12. Don't discuss your business where it can be overheard by others. Almost as many deals have gone down in elevators as elevators have gone down.
13. Watch the game films. Top players in any game, including negotiating, debrief themselves immediately after every major session. They always keep a book on themselves and the other side.
14. No one is going to show you their hole card. You have to figure out what they really want. Clue: Since the given reason is never the real reason, you can eliminate the given reason.
15. Always let the other side talk first. Their first offer could surprise you and be better than you ever expected.
-- Harvey Mackay

Cover Your Assets with Seller Financing

2009-07-15T09:17:00.001-06:00

Equity Only Financing

How would you like to know a way to sell your home using seller financing but have no risk in the transaction. This can be accomplished through “equity only” financing. This means that the owner can sell their home and only seller finance their “equity” in the property.

While “seller financing” may sound like a scary term to most people it is actually a very powerful tool for increasing the value of your property. The main reason that seller financing will add value to your property is that you increase the number of people who can qualify to purchase your property because you control the qualification standards. The more people who can buy your home the more valuable it becomes (the basic law of supply and demand).

“Equity Only” financing is exactly what it says, the owner only finances the equity they have in the home. The way this works is the buyer is required to secure their own financing equal to (or greater) than the owner’s underlying mortgage. The loan proceeds from the buyer’s loan will pay off all indebtedness of the owner and remove the owner from future liability. The balance of the purchase price is then financed by the owner to the buyer.

Why would this be a great deal for everyone? The owner is able to sell a home more quickly than other comparable homes on the market and for full market value (sometime more). The owner is also able to dictate the terms of the financing to meet their needs. The buyer has an easier time to qualify for their conventional loan and may even qualify for better rates (depending on the LTV of the loan). The mortgage broker gets new business and a lender gets a new loan to service. Any real estate agents involved with generate commissions. The wheels of the economy turn and everyone is happy.

While there is no such thing as “no risk”, the owner in this situation has very little risk. If the buyer pays as agreed then the owner collects interest on their equity and will still preserve all of their equity too. However, should the buyer fail to pay, the owner is in a powerful position to take the house back (through foreclosure) and then sell it again. The foreclosure costs would be paid by the 1st mortgage and the original owner is in a strong position to simply buy back the property. And should the home be bought by someone else at the foreclosure auction, any dollar amount over the 1st mortgage is paid to the previous owner, thereby allowing them to collect their equity at the foreclosure auction.

Example:
Let’s assume the home is worth $100,000 and the owner has 20% equity ($20,000). By offering seller financing the owner could probably sell the home for $105,000 but we’ll assume that it is sold for $100,000. The buyer would then get a loan for $80,000 and the seller would finance $20,000 (for a $100,000 purchase price). Because the conventional loan amount is only 80% there would be no mortgage insurance which reduces the mortgage costs to the buyer (making it an even better deal).

The seller was going to use the $20,000 as a down payment to buy the next house for $200,000. With 10% down payment the seller would have had a loan for $190,000 at 6% interest with a mortgage payment of $1,140/mo. Without the 10% down payment the seller gets a loan for $200,000 at 6.25% for a payment of $1,230/mo. So the seller offers the $20,000 seller finance note of the sale of the first house at 7% interest only which gives $115/mo payments to off-set the difference for the second house payment. In the end, the seller is better off by $25/mo.

But what if the seller is able to sell the home for $110,000 instead of $100,000? Then the buyer still gets a loan for $80,000 and finances $30,000. $30,000 at 7% interest only payments is $175/mo which is $85/mo better than an outright sale. And when the buyer sells (or refinances) the property the seller will net an additional $10,000 of equity. Over 5 years this would equal an additional $15,100 for the seller ($10,000 additional equity and $5,100 additional payments). So the seller makes an additional 15% on the sale of their home using this form of seller financing.

What we must learn and remember is that seller financing is better for the seller than it is for the buyer.

ARC Fault Circuit Interrupters (AFCI)

2009-07-14T11:26:00.001-06:00

Annually, over 40,000 fires are attributed to home electrical wiring. These fires result in over 350 deaths and over 1,400 injuries each year. Arcing faults are one of the major causes of these fires. When unwanted arcing occurs, it generates high temperatures that can ignite nearby combustibles such as wood, paper, and carpets.
Arcing faults often occur in damaged or deteriorated wires and cords. Some causes of damaged and deteriorated wiring include puncturuing of wire insulation from picture hanging or cable staples, poorly installed outlets or switches, cords caught in doors or under furniture, furniture pushed against plugs in an outlet, natural aging, and cord exposure to heat vents and sunlight.

How can this risk be reduced? For about the last 5 years builders have been required to install Arc Fault Circuit Interrupter (AFCI) breakers for all bedroom circuits in new construction. In 2010 most circuits in the house must be protected. For more information check out the AFCI Fact Sheet.

Perpetual Income Through Seller Financing

2009-06-15T08:54:00.001-06:00

Free and Clear Seller Financing

The average homeowner in America already holds the secret to perpetual income and endless cash flows in their hands and they don’t even realize it. There are some real estate investors who grasp the concept of cash flow and will spend large amounts of money to purchase these income producing properties. The fact is that anyone one who owns a piece of real estate is already in possession of the most important ingredient in the cash flow formula. Now they just need a little education.

According to the 2005 census nearly 33% of homes in the United States were owned free and clear, meaning that they no longer have a mortgage that encumbers the property. These homeowners certainly have achieved a certainly level of financial maturity. But how are these great investments benefiting these owners?

Consider this hypothetical example. John Homeowner bought his home for $100,000 at 7% interest which gave him a monthly payment of approximately $700/month (PITI). By the time John paid off his home mortgage the value of the home has gone up to $200,000. Now John has an asset (his home) worth $200,000 but that investment isn’t a great performing asset because he is making $0 return annually on this investment.

Now consider this cost/benefit analysis for John’s situation. By doing nothing but living in his home John is saving $8,400 each year (12 months x $700/mo mortgage payment) because he has no mortgage payment. But if John were to make the same $200,000 (the current value of his home) and invest it into an investment that had a return of just 4.5% he would make $9,000/year (better than his savings by over $600). And if he were to make a smart and safe investment of that same $200,000 at 6% ($12,000/year), 8% ($16,000/year) or 10% ($20,000/year) his return would be far better than the $8,400 savings that he has by owning his property free and clear.

Here is how this scenario relates to seller financing. Let’s say that John has to move to another city and he is forced to sell his home. John understands the power of seller financing and he decides to sells his home to a buyer using “free and clear seller financing”. Because John offers seller financing he is able to sell his home quickly and for slightly more than average market value. Imagine that John sells his home with the following terms: 1.) 5% down payment ($10,000), 2.) $200,000 principle balance, and 3.) 8% interest only payments ($1,450/mo, $16,000/year).

John can now move to a new city and find himself a home for about $200,000. He is able to purchase the property with 5% down payment and can borrow the balance of the purchase price at a 6% interest rate. So John now has a principle balance of $190,000 at 6% which gives him a payment of about $1,140/mo. John now has a positive cash flow of over $300/month (the difference between his investment payment and his current mortgage payment). Not only does he have a positive cash flow but the principle value of his asset stays at $200,000 but the principle value of his new home will amortize and eventually go away giving John additional value (a second asset of significant value). Now his original house is actually paying for his new house with additional cash flows.

What happens if John doesn’t want to move? Because John is savvy he knows that he can do this same process without leaving his home. Imagine that John pulls the equity out of his home through a traditional refinance at 6%. He now has roughly $200,000 to invest in another house. John pays cash for the next house and then he sell that house to a buyer using “free and clear seller financing.” The buyer pays 5% down with a $200,000 principle balance and 8% interest only payments. Without leaving his home John and just created his $300/month cash flow and the monthly income is now paying off the refinanced mortgage.

What happens when the buyer eventually refinances or sells the property and John’s seller financed mortgage is paid off? John will find another home to buy with the cash and sell it using seller financing. This is how John can create perpetual income through seller financing. In fact, any home owner can create perpetual income through seller financing following this cited example.

Let’s consider the risks to “free and clear seller financing”:

Risk 1 – What happens if the buyer stops making payments? When the buyer purchased the property they gave a $10,000 down payment. In addition, the seller was saving $8,400/year because the property was owned free and clear. If any of this money was saved then there should be more than enough money to hire an attorney to foreclose on the property. The owner takes the property back and sells it again. The new buyer will give a new $10,000 down payment and if property values have gone up then the owner will be able to increase the principle balance and possibly the interest rate which will increase the cash flow. In most typical situations the original owner is actually in a better situation after the foreclosure and 2nd sale.

Risk 2 – What if the buyer destroys the property? The purpose of home insurance is to protect the lender (the owner) in case of property destruction. So if the buyer destroys the home the owner will make an insurance claim and have the home professional restored (paid for by the buyer’s insurance premiums).

Risk 3 – What if the property values go down? It doesn’t matter. The buyer is still obligated to make the mortgage payments regardless of market conditions.

Risk 4 – What if the buyer defaults in a down market? Then the owner can foreclose using the buyer’s down payment money (or personal savings) and then resell the property. The owner may end up sell it for less because of the market conditions. Or, the owner can invest the positive cash flow into private mortgage to protect the investment (principle balance). Or, the owner could take the property back and then rent it until the market recovers and at which point the property will sell at the market higher values. Or, the owner could invest their money in a partnership with a trusted real estate investor who will buy the property and assume most or all of the risk for a slightly lower return on the invested money but with a guarantee on the investment (principle).

Risk 5 – How will I know if the buyer’s payments are being made? A good practice is to use a third party escrow company to receive the mortgage payments from the buyer. The third party escrow company will then send the owner a receipt of payments along with the payment money. This way all the money is being tracked for financial and legal reasons.

Seller Financing: 8 Types of Seller Financing

2009-06-10T09:47:00.001-06:00

Seller financing is extremely powerful because the buyer and the seller have control over all the terms of the transaction. That means that there are virtually unlimited applications for seller financing. However, all of the options for seller financing fall into just a 2 major categories: financing after the closing and financing before the closing.

The following 4 types of financing occur after the closing:

1. Free and Clear Financing – When a seller owns a property “free and clear” there are no liens or encumbrances on the property. In this situation the seller and the buyer are free to make any terms they want to in order to make a deal successful.

2. Equity Only Financing – This type of financing means that the seller only finances their equity in a property. The buyer is responsible for getting new financing to pay-off all of the seller’s encumbrances and liens. The seller is then free to finance the equity in the property.

3. Wrap Financing – This is also known as “subject to” or “blanket” financing. In this situation the buyer takes the property “subject to” the existing mortgage. The buyer is responsible for making mortgage payments to the seller and the seller is responsible for making mortgage payments to the original lender.

4. Combo Seller Financing – This type of financing is a combination of the financing options #2 & #3. The buyer can “wrap” the underlying mortgage and finance the seller’s equity.

The next 4 types of seller financing occur before the closing:

5. Purchase Option – Any time the buyer gives money to the seller (option payment) for the right to purchase the property at a given price (option price) and within a given timeframe (option period) the buyer has a “purchase option”. This is a form of seller financing because the seller still is responsible for the property and any payments until the buyer purchases the property (exercises their option to purchase) or the option expires.

6. Extended Closing - An extended closing is similar to a purchase option except that the extended closing is done with a Real Estate Purchase Contract (REPC). In the extended close the closing deadline is extended or put into the future significantly further than a typical real estate purchase.

7. Open-ended Closing –The open-ended close is also done with the REPC except the closing deadline is tied to a future event (such as the completion of an addition or remodel). The closing only occurs after the future event has occurred or has been completed.

8. Seller Partnerships- In this situation the seller may sell the property or may retain ownership. In either case, the seller contributes the property (and possibly some capital) as their contribution. The buyer would contribute the work and knowledge (and possibly some capital) to create or enhance the property value. The property would then be refinanced by the buyer or sold to a third party. The seller would get his equity and capital contribution plus an agreed partnership split of the additional profits on the transaction.

The great thing about these 8 types of seller financing is that every option can be used to benefit both the buyer and the seller. Using these seller financing options a seller can actually get a buyer to come in and improve their property, do all the fix-up and repair work at the buyer’s expense, and the buyer is excited about doing the work! I’ll explain how this can be in my next article…

Seller Financing: Better for the Seller than for the Buyer

2009-06-08T16:51:00.002-06:00

One of the most misunderstood topics in real estate is “Seller Financing”. This is probably because the topic of seller financing is usually discussed from the perspective of the buyer. And in most cases the buyer is a beginning investor who is trying to get a “good deal” or they are starting to buy property with “no money down”. But all too frequently the deal falls apart and the stories explode about the problems of seller financing.

It is time to unfold the power of seller financing and the simple secrets and techniques to keeping the transaction a positive experience for everyone. While most people can explain the benefits of seller financing for a buyer what most people don’t understand is that seller financing is actually better for the seller than it is for the buyer. Here are several ways that the seller can benefit from offering seller financing on their property:

1. Timing – The seller has complete control over the timing of the sale when they are offering the financing. The seller can determine just how long it will be before the sale closes. The seller can determine how long they can stay in the house after the sale closes. The seller can determine exactly how long the buyer must pay on the mortgage and when they have to refinance and pay off the loan. And by offering seller financing they can get their home sold more quickly because of the appeal of seller financing to the market in general.

2. Higher Sales Price – Market value is based upon “supply and demand.” Most sellers are not offering seller financing so there is a limited supply but there is a huge demand. As a result, the price of the home in higher than the other comparable homes in the neighborhood. Also, because the traditional costs of mortgages are no longer in the equation you can collect that money too (as much as 3-5% of the value of the home) as part of the sales price.

3. Cash at Closing – There is nothing that says a seller must finance the entire purchase price of the property. The seller can require a down payment which will provide some cash at closing. (There are more advanced way to collect cash at closing which go way beyond a down payment but can still result in a “zero-down” for the buyer.)

4. Payments over Time – When the seller finances the equity in their property, those payments become a steady stream of income for the seller. This becomes a fantastic income stream for someone who may be down-sizing or who does not want their property for any reason (this is especially great on investment properties).

5. High Return on Investment – Considering the equity as an investment, the payments received from seller financing are better than one can expect from a savings account, CD or mutual fund. Even if the interest rate on the seller finance mortgage is small, the principle balance of the investment is larger than the seller could have received through a traditional sale.

6. Difficult Properties Sell Easily – Sellers who have properties that are difficult to sell can sell them with seller financing. Again, the demand for any property increases as more people are qualified to buy them.

7. Collateralization – The seller controls the terms of the mortgage and can require additional collateral to secure the loan. This additional collateral can come in many ways. Of course the seller can require a large down payment. However, some other options include additional co-signers on the loan or equity in a 2nd property. If the buyer owns another home or an investor own additional property, the seller can attach their seller finance note to the other property. This will make it more painful for the buyer to default because the seller can claim the additional property in the event of a foreclosure.

In selling a property it is the owner who has control over the entire transaction when they offer seller financing. The seller controls all the aspects of the sell including the timing, the price, the terms, their return on investment, and security and protection of their equity. Since the seller has the flexibility to craft a sell the meet all of their needs, why would you sell it any other way?

How would you like to offer seller financing but remove all personal liability for the property after the sale? How would you like to increase your income from your rental property and get rid of ALL property management? How would you like to get paid twice what your property is worth? How would you like to sell your investment property and never pay capital gains taxes? Stay tuned for some practical examples of seller financing tips and techniques that will keep you out of trouble when you sell your property.

The SpiderWeb Marketing System

2009-06-05T09:49:00.000-06:00

I just stumbled across an amazing opportunity. It's called the SpiderWeb Marketing system. This system is a way to create "viral" marketing, getting people to tell people who tell people about you and your website, product (to sell), etc. The amazing part about it is that you can actually make money generating these leads for yourself!

I found this system while investigating ways to market and advertise on the Internet. After all, this economy hasn't been the greatest and the real estate market has made headlines with a lot of bad news. However, those of us still in the real estate game know that this is the best time to buy real estate in years. With falling prices and record low interest rates there may not be a better time to buy in your lifetime. So I'm trying to find as many buyers who would be interested in a home and recognize today's opportunity. In my search for better marketing methods I stumbled onto this SpiderWeb Marketing system that will market on autopilot!

As I researched this system a little more I found out that there is a business opportunity as well. Did I mention that the entire system is free with online tutorials to help you set up the marketing system? Amazing! Since there are 2 major opportunities here and since I just discovered this system I thought I would seek some feedback from you.

Please take a minute to check out my new marketing website and then let me know what you think. My website is http://kampspider.ws/. I appreciate your perspective and look forward to your comments.

Obscure Ruling May Slow or Stop the Foreclosure Process

2009-06-03T10:25:00.000-06:00

"A Las Vegas bankruptcy judge has dealt a blow to an obscure but critical piece of the mortgage enforement machinery that could slow foreclosures.

"After a rare hearing in front of three judges last year that initially encompassed 27 cases, U.S. Bankruptcy Judge Linda Riegle has ruled that the Mortgage Electronic Registration System (MERS) could not represent lenders seeking to foreclose on delinquent homeowners already in bankruptcy unless it could produce the actual loan note. This goes to the heart of how home lending has evolved over the past two decades, with a loan rarely staying on the books of the originator but often being sold several times to other institutions or investment groups. As a result, producing a loan document is far more complex than opening a drawer in a filing cabinet." (Tim O'Reiley)

Essentially the court ruling means that a lender must be able to produce the actual mortgage note in order to foreclose. While this case has been appealed, it awaits to be seen what the ultimate ramifications are for all the mortgage notes being serviced by someone other than the lender and what rights they maintain through the foreclosure process.

HUD Announces Approval of Tax Credit "Bridge Loans"

2009-06-02T16:03:00.003-06:00

"On Friday, the U.S. Department of Housing and Urban Development (HUD) announced that first-time home buyers using FHA-approved lenders can now get an advance on the $8,000 tax credit created by the stimulus package and apply it toward their down payments or closing costs." (CNNMoney.com)

First time home buyers can now utilize their tax credit toward the purchase of their homes. But this money comes with some stipulations. FHA still requires that the buyer bring 3.5% of the purchase price as a down payments, however, the tax credit can be used to lower their principal balance, closing costs, buy-downs, etc.

The tax credit money is utilized through a bridge loan (a short term loan). Some other states have already implemented plans to help these first-time home buyers to utilize their tax credits. These states include Colorado, Missouri, New Jersey, Pennsylvania, Tennessee and Washington. Each of these states has created a different plan for utilizing the credit but it has allowed many new homeowner buy their homes without completely depleting their cash reserves.

FHA Mortgage Limits

2009-06-02T09:45:00.000-06:00

The FHA loan limits for Utah County are as follows:
Single Family Home - $323,750
Duplex (2-family) - $414,450
Triplex (3-family) - $500,950
4-plex (4-family) - $622,600

The FHA loan limits for Salt Lake County are as follows:
Single Family Home - $729,750
Duplex (2-family) - $934,200
Triplex (3-family) - $1,129,250
4-plex (4-family) - $1,403,400

These limits were effective as of Wednesday, February 25, 2009.
For more current info check at HUD.gov

Many US Taxpayers Will Have To Pay Back Their Tax Credit From President Obama

2009-06-01T11:17:00.003-06:00

President Barack Obama's "Making Work Pay" massive economic recovery package enacted in February, might be more appropriately names "Making Workers Pay" after American's enjoying these tax credits discover they may have to pay them back next April.

Obama has boosted the tax credit as one of the big achievements of his first 100 days in office, stating that 95 percent of working families will qualify in 2009 and 2010.

The tax credit pays workers 6.2 percent of their earned income, up to a maximum of $400 for individuals and $800 for married couples who file jointly. Individuals making more than $95,000 and couples making more than $190,000 are ineligible.

The tax credit was designed to help boost the economy by getting more money to consumers in their regular paychecks. Employers were required to start using the new withholding tables by April 1, 2009.

So what's the problem with the plan? Most workers started receiving the credit through small increases in their paychecks in the past months. But the new tax withholding tables issued by the IRS may cause millions of taxpayers to get more money than they are entitled to under the credit, and this money will have to be repaid next April.

The Internal Revenue Service (IRS) acknowledges these problems with the withholding tables but has done little to warn average taxpayers to date.

Problems for Single Workers with Two Jobs:

A single worker with two jobs making $20,000 a year at each job will get a $400 boost in take-home pay at each of them, for a total of $800. That worker, however, is eligible for a maximum credit of $400, so the remaining $400 will have to be paid back at tax time - either through a smaller refund of a payment to the IRS.

Problems for married couples with spouses who both work:

A married couple with a combined income of $50,000 is eligible for an $800 credit. However, if both spouses work and make more than $13,000, the new withholding tables give them both a $600 boost - for a total of $1,200. (There were 33 million married couples in 2008 in which both spouses worked. That's 55 percent of all married couples, according to Census Bureau data.)

Problems for college students:

A single college student with a part-time job making $10,000 would get a $400 boost in pay. However, if that student is claimed as a dependent on a parent's tax return, they don't qualify for the credit and would have to repay it when they file next year.

Problems for retirees:

The Social Security Administration is sending out $250 payments to more than 50 million retirees in May as part of the economic stimulus package. The payments will go to people who receive Social Security, Supplemental Security Income, railroad retirement benefits or veteran's disability benefits. The payments are meant to provide a boost for people who don't qualify for the tax credit. However, they will go to retirees even if they have earned income and receive the credit. Those retirees will have the $250 payment deducted from their tax credit - but not until they file their tax returns next year, long after the money may have been spent.

Retirees who have federal income taxes withheld from pension benefits also are getting an income boost as a result of the new withholding tables. However, pension benefits are not earned income, so they don't qualify for the tax credit. That money will have to be paid back next year when tax returns are filed. (More than 20 million retirees and survivors receive payments from defined benefit pension plans, according to the Employee Benefit Research Institute. However, it is unclear how many have federal taxes withheld from their payments.)

Tax Tip: Check your federal withholding to make sure sufficient taxes are being taken out of your paychecks. If you are married and both spouses work, you might consider having taxes withheld at the higher rate for single filers. If you have multiple jobs, you might consider having extra taxes withheld by one of your employers. You can make that request with a form W-4. The IRS has an online withholding calculator to help you check your withholding amounts. You can find this calculator at www.irs.gov or you can call your accountant or tax attorney to ask for assistance with adjusting your withholdings.

This information is provided by the tax professionals at Kingman Winslow LLC

Bridge Loan with Tax Credit May Still Become Reality

2009-05-29T10:15:00.000-06:00

President Obama's administration has helped to create an $8,000 tax credit for first time home buyers. Eager lenders are trying to capitalize on this tax credit by creating a "bridge loan" based upon the buyer's eligibility to receive the credit. Essentially the buyer would borrow 100% of the money to purchase their home. The lender would provide a short-term $8,000 loan to the buyer for their down-payment which would be repaid as soon as the buyer received their $8,000 tax refund the next year. This would provide first-time home owners a great way to get into a home today (at record low fixed-rate mortgages) using their tax credit from next year. However, there have been some issues with the bridge financing and HUD.

According to a recent news article in The Arizona Republic, "HUD says bridge-loan program hasn't been killed." There are still some details to be worked out before this program becomes official but it will be a fantastic program to help first-time home owners utilize their tax credit to buy their first home and capitalize on the record low interest rates of today's market.

$6,000 Home Purchase Grant (Utah Home Run Grant)

2009-05-27T10:00:00.003-06:00

Earlier this year the Legislature approved funds to help stimulate Utah's housing market. The "Home Run Grant" is designed to help sell (and reduce the inventory of) newly constructed homes.

The Home Run Grant is a mortgage assistance program that grants $6,000 to home buyers who purchase a newly-constructed, never-occupied, primary, single-family residence in Utah. The Home Run Grant is funded by the Housing Relief Restricted Special Revenue Fund, Established by Utah Governor Jon Huntsman, The Utah State Legislature, and Utah Housing Corporation.

Who is eligible:

Home buyers who

make less than $75,000/year ($150,000/year if a married couple)
it's the buyer's primary residence
financing is a fixed rate 30-year (or less) mortgage
and apply before the grant money has run out

There are some other requirements for the grant. Please check the official website for more information. As of this posting only 520 grants remain (of the original 1,600 grants available).