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The Real Estate Investors Creative Financing Ideas

April 28, 2009

by Gino Napolitano

Finding Financing – Creative Ideas

For many years, the way to finance real estate was to make a 20% down payment, and get a loan for the remaining 80%. Of course you could make a higher down payment, but 20% was typically the minimum. Luckily, this standard has changed.

There are now several finance options available to the real estate investor. One popular way to finance your purchase is to have a second mortgage. The buyer makes a 5% down payment, and borrows the remaining 15%, usually at a higher interest rate, on a different loan.

Even though it’s nice to invest less on a property, the higher interest rate isn’t the only drawback. Usually, if the buyer does not meet the 20% minimum, they are required to get costly private mortgage insurance (PMI).

You are able to remove PMI when the loan-to-value (LTV) ratio reaches 80%. This is achieved by paying down the second mortgage and appreciation of the property value. This does not happen often because the property is usually sold or the buyer refinances before PMI can be removed.

For creative investors, other financing sources exist. Manufacturers of homes in planned developments are often willing to provide financing to early buyers.

Another risky and rather complicated way of financing a property is called ‘sub2’ which stands for ‘subject-to’. This type of deal is when the seller gives you the deed to the property, the loan stays in place, but the buyer never legally takes over the loan, just the payments. There are many different versions of this kind of transaction. Because of the complexity and risk, this method of funding an investment is not recommended for beginners.

You can also consider forming a limited partnership to finance your real estate investment. There are many different arrangements on this method. Some types involve each person in the partnership contributing in a portion of the cost, usually 50% each. However, sometimes the profit is distributed relative to the original amount invested. Another arrangement is that one half of the partnership contributes the capital, and the other half provides the needed services, such as repairs on a home that needs to be fixed. There are many different variations of this method.

How about the Lease Option? The lease-option allows a potential investor to lease the property and have some, or all, of the lease money applied to the purchase price if the potential buyer exercised the option to purchase. The investor then sub-leases the property with the option to buy or just rent it out.

In a conventional lease with option to buy, the seller charges the buyer a nonrefundable fee for the option to purchase the property at some agreed-upon point in time. The amount can vary depending on how eager the seller is to sell and the size and quality of the house. Typically, the higher the fee, the better the buyer maintains the property.

Because the lessee has made no down payment, the monthly rental fee is typically higher than prevailing market rates. The two parties agree on what portion of the rent will be applied to the down payment. Any amount can be credited.

Government loans are available to low income investors, or buyers who have served in the military. These programs are usually only available for primary residences.

Did you ever think about buying a home on a credit card? This is another method of financing your real estate purchase, although it’s usually not recommended. Obviously, the interest rates on most credit cards are substantially higher than loan rates. Another drawback is that lenders determine your creditworthiness based on your outstanding debt, and if you use credit card cash advances to cover the 5-20% down payment that you need, you’ll probably get turned down for a loan. This is also true for money borrowed from friends or family, unless you can show that the money is truly a gift.

About the Author

Gino (NapoGino) Napolitano is a Real Estate Investor, Owner of the NapoGino Group LLC, A Chicago Real Estate Investment Co. Seller and Buyer of Chicago Wholesale Investment Properties.

http://www.ChicagoWholesaleDeals.com
http://www.NapoGinoBuysHouses.com

Filed Under: other

Where Should I Invest In Real Estate

April 26, 2009

by David Cowley

Do a search on the internet for real estate investing and you will find hundreds of ways to get rich quick through real estate investing.  And it’s true, if you are selling books, DVDs or real estate seminars you can become wealthy in a short period of time.  If you are investing in real estate it is just not going to happen without the proper up front research.

Investing in real estate is one of the few ways for the average person to gain wealth.  Can you become rich overnight?  Not very likely.  Real estate investing should be considered a long term strategy that can gain you tremendous amount of wealth over time but you must do your homework first.  The majority of people that are getting into the real estate investing market are simply purchasing a home in an area that they are familiar with and then wonder why they are not rich after a couple of years.

Do a search on the internet for real estate investing and you will find hundreds of ways to get rich quick through real estate investing.  And it’s true, if you are selling books, DVDs or real estate seminars you can become wealthy in a short period of time.  If you are investing in real estate it is just not going to happen without the proper up front research.

There are three main points you must consider before purchasing your first property and they are location, location, location.  This is a rather simplistic view of real estate investing but it has never been more true than today.  Thousands of people are getting into the real estate market, and yet many of the foreclosures in the market today are from non owner occupied homes.  This means that people that have purchased a vacation home or purchased a second home for investment purposes have gotten into financial trouble.  This Usually happens because they did not purchase that asset in the correct location at the correct time.  So the question is, how do you find the correct location to invest?

Any locations can be the correct location to invest in real estate as long as the timing is right.  There are four cycles of real estate investing and the cycles can run from 7 to 40 years depending the the intelligence of the local government.  These cycles are Buyers Stage 1, Buyers Stage 2, Sellers Stage 1 and Sellers Stage 2.

Buyers Stage 1 – strategy buy and hold.

1.  Oversupply of properties on the market. 2.  Prices and rents are falling. 3.  You will see a spike in the properties time on the market. 4.  Unemployment is at its highest. 5.  New construction is overpriced and sales are stagnant. 6.  Construction jobs are at an all time low. 7.  Foreclosures are at its highest rate. 8.  Investment properties are not being purchased or being purchased at a slow rate.

Buyers stage 1 is a declining market and you will need to shop around for a good investment because you do not know how low the market will go.  If the local government is not taking action at this point then the market turnaround will be delayed and more care will be needed taken.  Always purchase a new property with a lot of equity and a good cash flow to help minimize your risk.

Buyers Stage 2 – strategy buy and hold – also known as the Millionaire Maker.

1.  No new construction. 2.  Demand for housing is increasing sharply. 3.  Properties time on market is decreasing. 4.  Rents and Prices for property are at its lowest. 5.  Foreclosures are starting to decrease. 6.  Job growth is increasing. 7.  Rehabbers are purchasing an increasing number of properties. 8.  Fewer properties are getting on the market. 9.  Demand for properties is increasing because buyers are able to qualify at the low prices.

Buyers stage 2 only happens after the local government is starting to attract new business into the area.  For every one new job brought into the area three new jobs are created.  These newly created jobs are the butchers, bakers and candlestick makers.  In other words the support jobs that are needed to service the new people in the area.  I believe that the most important thing to watch for in this market is the job growth rate.  New people coming into the area will require housing which will drive up the price.  Your local economic adviser counsel is a good place to look.

Sellers Stage 1 – strategy buy and sell quickly.

1.  Demand for property is increasing. 2.  The time on market for properties in decreasing. 3.  Property taxes are on the rise. 4.  Unemployment in decreasing.

Sellers stage 1 is a very risky time to be investing in property because you do not know how long before the sellers stage 2 will occur.  Be sure you know the signs of the next phase so you can get out of the market at the best time.

Sellers Stage 2 – strategy sell, sell, sell.

1.  Supply of properties has sharply increased. 2.  Time on market is increasing. 3.  Construction of new homes is increasing. 4.  New job growth is slowing. 5.  New real estate investors are jumping in. 6.  First time home buyers are increasing.

One of the ways to watch for new construction of new homes is to check with the local building permits department.  You will be able to pick up some good deal from the new first time real estate investors that jump in during the sellers stage 2 market.  Always do your home work prior to investing in real estate.

About the Author

David Cowley has created numerous articles on real estate investing.  He has also created a Web Site dedicated to real estate investing. Visit http://www.rgvre-team.com

Filed Under: articles

Understanding the Benefit of a Loan-to-Interest Table

April 18, 2009

A loan-to-interest table is a very useful finance resource for anyone about to buy real estate or working with real estate buyers because it concisely shows various combination’s of monthly payment based on a range of loan amounts and rates of interest. In just one sitting, you (or your customer) can quickly see hundreds of monthly payment amounts for various loan amounts with differing rates of interest.

For example, if the table is constructed with loan amounts ranging, say, from $230,000 to $470,000 and interest rates from 5.5% to 6.5%,  you could just as easily see what the monthly mortgage payment is on a $350,000 loan at 5.75% as you could a $300,000 or $400,000 loan at 6.0% or 6.25%.

Here’s how it works.

A loan to interest table is a spreadsheet with columns and rows that intersect. The column headers show differing interest rates and the utter-most left column rows of differing loan amounts. The appropriate monthly payment is shown inside the cells where they intersect.

You can use Excel to make your own loan-to-interest table and can include as many columns and rows as you wish depending on how many payment variations you want in the table. The loan to interest table created by my real estate software program, for instance, includes a total of six columns and fifty rows with two hundred and forty five payment calculations.

Your next duty is to decide upon the range of interest rates and loan amounts you want included. To do this, you would want in your spreadsheet a form where you can make an entry to “step” the rate of interest and the loan amount. In the example above, for instance, I stepped the interest rates in increments of .250 and the loan amount in increments of $5,000. But I could have easily stepped the interest at .125 or 1.0 and the loan amount $100, $10,000, or more. The choice is yours.

Here’s the benefit of using a loan to interest table.

It’s concise. With just two simple entries, you (or your customer) can quickly determine the monthly payment on a variety of loan amounts at differing interest rates without having to use a financial calculator to make each computation yourself.

This is not only saves time, the table also makes it easier for you (or your customer) to decide which combination of loan amounts and interest rates provide an acceptable (or desired) monthly loan payment: a real benefit when purchasing real estate.

Preview a sample here => http://www.proapod.com/PDF/loaninterest.pdf

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