This scenario has happened often enough in our office recently that it has become newsworthy and worth sharing with other real estate agents, buyers and investors: Our buyer clients are getting a competitive advantage in the 1st time home buyer and investment property markets because of a mortgage strategy, and by working with a specific type of financing company – FHA approved mortgage banker that underwrites and funds locally on a warehouse line.
Too many offers, too long to close
Fastest Loan, Lowest Rates
Are you shopping for a house in the Denver real estate market, or an agent representing a buyer, in the $300K and under price point? Are you experiencing stiff competition for good properties that are priced correctly? Here’s an explanation:
Moratoriums on foreclosure properties and REO inventory hold backs
Inventory is down to historic lows in the lower price ranges
1st Time buyer demand is high for remodeled houses and sweat equity bargains
Investor demand for flip and rental properties is feverish
The most common challenges we hear from our agents and buyer clients:
Multiple competing offers for good properties and losing deals
Challenging lending environment and changing rules
Very long underwriting timelines for loan approvals
An over correction on appraisal values that are below market price
How do you compete in this market for the best priced properties?
We have had success lately winning contracts by offering shorter closing times to the seller or listing agent. All things being equal, shorter escrow periods get attention. Most sellers are motivated to close quickly, especially investors who have remodeled a house for resale. Also, with the first-time homebuyer tax credit deadline fast approaching, it is doubly important to have confidence in your lender’s ability to get the loan done quickly.
Use a mortgage company that directly underwrites your loan
There are many articles online about the differences between mortgage brokers, mortgage brokers, and correspondent lenders, so I won’t go into detail in this post. But the key difference for buyer, seller and agent alike is the time-frame for underwriting and funding. In order to write offers for fast closes, you will need to work with a finance company that underwrites and approves loans in-house. The best companies are approved to sell bundled loans directly to FHA. Ask!
Brian Neufuss is the mortgage lender that we have worked with for the past several years. And he deserves some accolades for his work recently in building relationships and getting loans approved locally and quickly with far less “red tape” than any other that we’ve worked with. He has benefitted our clients and real estate investment business, but has also impressed listing agents whom our clients have purchased through.
Please know that this is a freely given endorsement and recommendation of Brian’s expert services with no intent other than to thank him. He has consistently pushed deals through for us with the lowest possible rates, whether for owner-occupant, first time home buyer, investment property or refinances. Please feel free to contact him to ask questions about his business and system at the following number or use our Contact Form on our website and I will forward to him (we don’t put email addresses on the website for the spam bots to grab).
Fastest Loan Approvals in the West
Brian Neufuss, Mortgage Banker
Denver, Colorado
303-250-1841 direct line
*Private and Hard Money Loans also available for Investors
Self Directed, IRA Loans, Property Types, Investment Groups
In 2009 we have had a lot more requests and questions from clients about using IRA funds to purchase investment real estate for fix and flip projects and rental properties. So I thought I would post an FAQ with answers. Here are the Top 5 Questions from 1st time investors using their IRA funds to buy income property:
#1 How do I get access to my IRA funds to buy a house?
In order to begin the process, you will need to establish a self-directed IRA account. It is unlikely that you will be able to obtain this type of IRA account with your current brokerage or bank. A quick Google search will retrieve many custodians who help investors open IRAs for real estate purchases. After comprehensive due diligence of many of these companies, we have selected Equity Trust Company for our own accounts and recommend that our clients include this company as part of their selection process for a custodian. Consider account and transaction fees, allowed structures, types of entities, consulting and customer service when selecting a custodian.
#2 Can I get a Loan in my IRA to purchase investment property?
Yes, you can get a loan for up to 65% of the purchase price of a property in your IRA using what is called a “non-recourse” loan. This type of loan is not personally guaranteed by you, it is only secured by the property within your IRA account. One of the leading lenders in Colorado serving IRA customers is First Bank. They have a specific and streamlined program that we highly recommend. You can read about all the plan and property qualifications at this link called Loans to Purchase Real Estate in your Retirement Account.
#3 What kinds of property can I buy using my IRA funds?
Within your IRA, you will have many options for real estate investments. The most common is purchasing property directly and getting fee simple title. The title will be held in the name of your IRA, not your personal or business name (with or without leverage or loans). Another option is buying into ownership of LLC’s or Limited Partnerships that own and operate income property. Your IRA may also be a lender that holds a mortgage on a property that pays interest to your IRA that is secured by real property. This is called investing in notes (promissory notes). In the first two examples, your IRA is the owner of a property, and the last example your IRA is a lender to an owner of the property. Any of these can be good investments for your retirements funds, all of them have risks and should be only be undertaken after careful consideration. After all, these are your life savings!
#4 How can I get the Money out of my IRA?
Well, here’s the bad news and the good news: You cannot pay yourself or take profits or cash-flow from real estate investments in your IRA and put them in your pocket today. Sorry. But, the good news is that you are doing yourself a favor by growing your net worth and savings and that will increase your borrowing capacity and ability to do deals outside your IRA accounts for current income or short-term capital gains.
What do I do First? Or How Do I Get Started?
Sometimes this is the first question, and sometimes it’s the last! I always recommend that investors (especially novice investors) begin the process by interviewing and hiring two experienced and competent advisors. First, an accountant and second an agent or real estate investment advisor. It is critical to choose real estate professionals that understand the benefits and risks of investing in real estate (whether in your IRA or otherwise). Be aware that there are many accountants and real estate agents that are very knowledgeable about normal transactions, but there are only a limited number that specialize in investment property, and even fewer who understand IRA rules and regulations. In other words, don’t just hire your brother-in-law! Seek out people who have been where you want to go. Find people who have an existing team that you can use; leverage other professionals who have paved the way for you!
NOW is the time to get started, Happy Investing!
If you or someone you know is interested in these types of IRA real estate investments, please us the Contact Form for additional information.
Bank Loans, Private Hard Money, IRA Funds, Syndication
UPDATE December 2009: The 11th Way to Fund Real Estate Deals is Transactional Funding. As title companies change double-closing flip rules, many investors are using what is called “Flash Cash” or “Transactional Funding Loans” to flip Short Sales, REO’s and wholesale properties. Check out the real estate flipping training videos at http://shortfunding.com.
Following are 10 most common ways to finance investment property for either a fix and flip project or long -term rental. They are listed in rough order of complexity and experience necessary.
The best preparation for meeting with a lender – especially a private or hard money lender – is to have your “docs in a row.” When I work with a new client that does not have a current personal financial statement, our first step is to get their complete financial picture onto an organized spreadsheet. Some are pleasantly surprised to learn their true Net Worth, some are disappointed (but motivated!). Everyone thanks for me for this exercise when we are finished. Creating a PFS is also beneficial for owner occupant buyers. It is just as fun to impress traditional mortgage bankers by uploading your loan application to his computer from your thumb drive. You get instant respect.
Don’t Believe “Pre-Qualification Letters”
Many real estate brokers will leave the process of organizing financials to a mortgage broker or banker. But consider the value to your client, and yourself, of working on this together as a first step. By assisting your client from initial financing to post closing follow-up, you earn higher respect as a real estate professional. Also, I prefer to know a clients credentials *before* I spend my valuable time with them shopping for properties. I have found over time that prospects who are unwilling to share financial information with me are far less likely to actually buy, so this one criteria is an excellent method of “separating the wheat from from the chafe.” This is especially true among people who call themselves real estate investors; there are lots of people who purchase real estate investment courses and attend the “guru seminars,” but never actually purchase any real estate.
Whether you are working with a traditional mortgage broker, local banker, or private equity lender, having financial documents organized and presentable at a moments notice is always impressive. So impressive, in fact, that with private lenders it even makes up for a certain amount of weaknesses that may be present in the statement itself.
“Do or Do Not. There is no Try” – Yoda
What’s the moral of the story? As an investor you should always have your financial statements ready to show mortgage professionals, bankers, private lenders, and potential partners. As an buyer agent or broker, you should review (and help prepare if necessary) financial information from your clients. You are asking for problems if you believe a “pre-qualification letter” means your buyer will close. I go so far as to carry mine on a thumb drive that is attached to my key chain. The password protected folder has following documents in .pdf format:
Color photo scan of driver’s license and SSN card
Excel worksheet of Personal Financial Statement
Excel spreadsheet of Real Estate Owned
(includes insurance policy numbers, loan numbers, rate, payment, etc)
Current personal and business bank statements
Current investment and IRA statements
3 Years of personal and business tax returns
Copies of Operating Agreements for all Partnerships
Completed 1003 Application
Everyone Starts ‘Somewhere’
Even if you do not have an “impressive” financial statement right now, you should create a PFS. It is important to know where you are in order to determine how to grow your assets and reduce your liabilities. There are investing programs for people of any current financial status. You can indeed get into the real estate business with “no money down and bad credit,” but you must be realistic about the process and the path. And you should not take advantage of the work of others by presenting yourself otherwise, like many novice investors do with agents and owners of property. On the other hand, if you have substantial assets, you will want to learn about programs that leverage and protect your assets to their fullest potential. This usually means finding and working with quality agents, operators and sponsors.
In our next segment on Financing and Capital we will be reviewing ratios of a financial statements, please stay tuned by getting our updates via RSS and/or email.
As the “apartment guy” in our real estate office, I field a lot of questions about income properties from residential agents. The most common question is “how do I value this building?” The agents are all very accomplished at running values using comparable sales for single family houses, and even duplexes. But when the valuation needs to be determined from income rather than sales comps, they ask for help and advice. Obviously there are several objective and subjective factors that determine the value of income property – location, condition, stability, unit mix, potential, etc. But here’s the 2 minute “quick check method” I teach them for running rough numbers to determine if a project is worth further research or investigation: Continue reading…
Due to increasing requests about using IRA funds to purchase investment real estate, our team has created new preferred relationships for clients that streamline this process. We now offer programs for direct IRA purchases of turn-key rental properties without or with leverage up to 65% non-recourse loans. We can also organize purchases for LLC’s that own investment properties and private lending notes and first deeds of trust for our clients. Continue reading…
One of the ways that I evaluate the level of sophistication of fellow real estate investors, and potential clients, is the answer to this question: “What is your acquisition criteria?” More often than not, the answer is “I just want a good deal,” which is usually a sign of a novice investor. Experienced investors know exactly what they are looking for, and can explain how and why that criteria fits into their overall investment strategy. If your new client is a novice investor, the best place to start is working together to establish an acquisition criteria.
The following is an example of an investor criteria that I use as a starting point for discussion. I work with clients to modify it to create and then meet their goals. This process helps me serve them better and saves lots of time for everyone during the search and acquisition phase. Continue reading…
COUGH!
Please excuse the dust while we remodel with an awesome new theme.
In order to begin the process, you will need to establish a self-directed IRA account. It is unlikely that you will be able to obtain this type of IRA account with your current brokerage or bank. A quick Google search will retrieve many custodians who help investors open IRAs for real estate purchases. After comprehensive due diligence of many of these companies, we have selected 
