Archive for February 2010
What to Look for in Bulk Bank REOs
After over a year on and off in the Bulk REO business you do learn a thing or two and what to avoid or trust. There are many things to look for in both finding the seller with product or the buyer with funds. Connecting these two can be as difficult and frustrating as anything you can do.
Let’s first talk about Sellers. When I first got started in this business and the main reason I got out of the Bank Bulk REO business is people who say they have product actually don’t have anything significant. Many of them are merely intermediaries who may have a few addresses and then are pretending or posing as Seller Representatives. Regardless of the reason that they are doing this almost never does a deal actually close. Many times the product which they are representing has already been shopped around so many times that anyone in the business has already seen the list, thus making the list useless.
Other problems are people (often Realtors) who simply take a list of homes on the MLS which are short sales or REOs and compile a list this way. Obviously, they will not shop it locally but someone in another state won’t realize the list is simply off the MLS until they start doing their due diligence.
Regardless of the reason, if you want to play this game you need to check the sources of the sellers.
Now let’s move to the buyers. There are a lot of cash buyers out there who are legitimate, but there are more false buyers out there posing as real buyers. You will need to learn how to quickly determine if a buyer is legitimate or not. Asking for bank statements is one way (this is also called a Proof of Funds) to verify they are legitimate, but many real buyers will not provide this to a middle man in fear that the middle man will use the POF and pretend they are the buyers and falsely prove themselves as buyers. I can attest that almost any buyer who has been in the business for more than a year will tell you horror stories where some intermediary was using the buyer’s information to try to secure product.
Why would an intermediary do this? Obviously, they won’t be able to close on the deal. Well, closing on the deal with the false bank information is not that important to this poser. They are actually looking for another buyer and will attempt some form of simultaneous closing. Rarely will this be effective and usually is just a waste of time and reputation.
Another false buyer is a buyer who is attempting to buy with no money of their own. They will attempt to use a transactional funding company who will provide the buyer a Proof of Funds letter. In most cases when the seller begins the verification of funds process they will find out that the buyer is using this third party and then reject the offer or order and may even blacklist the buyer from any future business.
The reason banks don’t like transactional funding, in my opinion, is that the transactional funding company will say yes to anyone who asks them to, but when push comes to shove and the closing is about to take place they will often reject the deal, regardless if the would-be buyer wants to move forward. Thus, like any loan process, the lender will decide on the deal. The banks are not in the Bulk Bank REO business for buyers to get a loan. They want cash buyers.
Here is what to look for when you are attempting to put a deal together with a buyer and a seller.
1.) Be as close to both parties as you can be. The more people involved, (i.e., a daisy chain of middlemen/women) the less likely it will close.
2.) If you are not direct to either party, ensure that your contact is direct to either party.
3.) Sellers may be an actual bank, a private seller, or a hedge fund. Make sure they can put together real product.
4.) For buyers, verify upfront that they will have to show proof of funds to the seller before any product will be released. Those funds will also be verified. If the buyer is using any type of transactional funding, you will blacklist them forever.
5.) Never ask for a Master Fee Agreement until a deal has actually started. You may get some type of Non-Compete/Circumvent & Non-Disclosure agreement (NCND) between all middle people. After the NCND is signed then put the buyer into direct contact with the Seller or Seller Rep.
6.) NEVER be greedy. There is plenty of money to go around even if it is only a fraction of a percent. The biggest issue in this game are the intermediaries. More deals have gone south due to greed or laziness of the middlemen. Let the big boys play and don’t get in the way.
7.) The best way to keep everyone legitimate is to use an attorney or a Vetting Company. This is a middleman that simply verifies that each party is real. They will get the POF from the buyer and verify the funds are there. They will also get a Letter of Authorization (to represent), also called an LOA, and verify the seller can represent this package. They will only let the other party know that each side is true. A small problem with this is when a buyer is ordering a custom package the LOA won’t exist at the onset.
If you can successfully put two legitimate parties together in this wonderful game of Bank Bulk REOs then you are well on your way to eventually become the buyer yourself.
Happy Investing!
Kevin A. Dunlap
Trident Investments Group
O: 702-516-5698
C: 702-591-1784
Sandwich Lease Options — Pros and Cons
Sandwich Lease Options
Today’s topic will be the use and how to use a Sandwich Lease Option to your investment portfolio. To my knowledge this is the only technique where you are guaranteed a positive cash flow without actual ownership of a home. It doesn’t matter if you are buying in San Francisco or in a medium sized town in the Mid-West.
Over the past 6 years of helping owners find lease option tenant/buyers for their investment homes, I have strongly considered doing a “Sandwich Lease Option” on some of these homes. Let me begin by explaining the basics of a lease option and then the sandwich variety.
When a buyer wants to do a lease option with an owner the buyer is ideally saying he wants to buy the rights to buy a home at some later time frame (i.e., do a lease with the option to buy). This is not a transference of ownership; it is merely buying the rights to buy within a time frame, much like options in the stock market.
When this buyer does a lease option with an owner then the buyer has to provide some form of consideration (usually in the form of money) and a contract is drawn up between the two parties. Frequently there will be a monthly rent credit paid out of each of the monthly rental payments. This credit is considered an incentive for the buyer to buy.
The term of the contract is open to whatever terms the two parties will want but is often set on annual terms. In strong appreciating real estate markets the term can be one year or less and weaker non-appreciating markets the terms can be two to three years or longer.
Prices can be negotiated within an infinite number of ways. The most common is to set a specific price and that is the price. The second way is to set it at some appraised value (or appraised value minus some percentage discount) in the future. Either method or a combination of the two can be desired. A combination would be at an appraised value with a minimum or maximum value also placed into the pricing terms.
Thus, as you can quickly see there are a lot of variables when doing this rent-to-own process. Adding in a Sandwich Option takes everything stated above and then doubling the complication.
In a sandwich lease option there is an additional investor thrown into the mix as a forced middleman. This investor not only does a lease option with the owner of the home, but he also does a second concurrent lease option with a tenant/buyer. Of course the first option must allow for assignments or subleasing.
This is how it works. The investor goes into contract with an owner with very specific set of terms. These terms will include: 1.) A set purchase price; 2.) A set timeframe which is as long as possible; 3.) A set amount to be paid monthly; 4.) The best rental credit she can get; and 5.) The lowest option payment possible.
Then the investor enters into a similar agreement with the end user (tenant/buyer). Except in this case she is doing the exact opposite terms as she had with the owner. This means the tenant/buyer gets terms that are not as favorable as she made with the owner. The reason for this is that the difference is where the investor makes her profit.
Thus, in relation to the terms with the investor the end user’s terms are:
1.) A set purchase price – but higher than what the investor agreed upon with owner.
2.) A set time frame but shorter than with the owner. This way the investor can have time to find the end user or another client if the first tenant/buyer does not exercise their option.
3.) A monthly payment. This can be set $100+ higher than what the investor has with the owner.
4.) The rental credit needs to be equal to or less than what the investor has with the owner. This term will greatly depend upon the aforementioned monthly payment. Ideally, the rent credit should be less.
5.) The highest option payment the investor can get from the tenant/buyer. This is how the investor gets reimbursed for her option payment and where she can make some initial profit
Obviously, the terms will widely vary depending upon the part of the country the home resides. Monthly rents and purchases prices in Mississippi will not compare to Hawaii or California.
Let’s show a basic Las Vegas, NV deal.
Terms between Owner and Investor
Set Purchase Price: $145,000
Option Payment: $3,000
Monthly Payment: $1,100
Rental Credit: $200
Length of Contract: 3 years
Terms between Investor and Tenant/Buyer
Set Purchase Price: $155,000
Option Payment: $4,000
Monthly Payment: $1,200
Rental Credit: $150
Length of Contract: 18 months or 1.5 years.
Assuming the Investor is savvy and finds a tenant/buyer prior to actually initiating the contract with the owner then this is how the cash flows at the time the contracts are signed.
Tenant/Buyer pays $4,000 to Investor which pays $3,000 to Owner and pockets the $1,000 difference.
First month rental payment collected from Tenant/Buyer is $1200 and Investor pays $1100 to owner. This will continue for the next 18 months. I would suggest only giving the tenant/buyer a 3 day grace period while the Investor has a 5 day grace period with the owner.
If the tenant/buyer does not buy after the 18 months and decides to vacate then the investor can either find another tenant/buyer for the remaining 18 months or less. OR the investor can cancel the deal and walk away. Assuming the latter case then the investor made $1000 + 18 * $100 = $1000 + $1800 = $2800 on a property she never owned.
If the tenant/buyer were to buy in this case at the 18th month then the investor made:
$1000 credit on the option payment + 18 monthly payments cash flow of $100 per month + 18 months of $50 difference in the saved rental credit + $10,000 on the price difference. This becomes $1000 + 18 * $100 + 18 * $50 + $10,000 = $1000 + $1800 + $900 + $10,000 = $13,700. Not bad for never owning a property.
The dangers of a sandwich option comes mainly during the vacancy periods. If your first tenant/buyer vacates how quickly can you get the second one in there? Granted, you will be getting a second full option payment which you keep for yourself. What if it takes 3 months for you to do so. In the above scenario you paid three monthly payments of $1100 to the owner and thus paid out $3300 to get the second $4000 option payment. This means you only received $700 and you still have to credit the full $4000 if they were to buy. This can be dangerous if the new tenant/buyer exercises early.
If you are wanting to get into an unique method to invest in real estate with no money out of pocket and a guaranteed positive cash flow then the sandwich option may be your ticket. Make sure you know your numbers, though.
Happy Investing!
Kevin A. Dunlap
Trident Investments Group
Office: (702) 516-5698
Cellular: (702) 591-1784
New Lease Option Home in Las Vegas
We have another home available for our lease option (rent-to-own) program in Las Vegas, NV.
Our rent-to-own program works like this. There will be an option payment due upon taking occupancy of the home. This entire option payment will be applied toward the purchase of the home if you decide to exercise the option.
There is also a rental credit which is applied toward the purchase of the home, again only if you decide the exercise the option.
Here are the basic details on this new home.
It is located in the heart of the city, very close to many strip malls, restaurants, and parks. Very easy access to Hwy 95 which is only walking distance away. The major cross streets would be Lake Mead and Hwy 95 / Tenaya.
Address is 7209 Sun Cove Cir., Las Vegas, NV 89128.
Details of the home:
4 Bedroom / 2.5 Bathroom / 2 Car Garage
1641 square feet
2 story
Built in 1991
Financial Terms on this Home
2 year lease option, extensions possible
Purchase Price: $180,000 (2 year locked price)
Option Payment: $4,000 (this is the payment to secure your right to buy and is not a down payment)
Monthly Payment: $1,450
Rental Credit if you decide to exercise the option: $200
The owner of this home will be moving out around Valentine’s Day 2010. The home will then be ready for immediate occupancy.
New landscaping will be put in prior to Valentine’s Day. Touchup painting and other minor repairs will be finished soon.
Call Kevin Dunlap with your questions.
Office: (702) 516-5698
Cell: (702) 591-1784
Lease Option Home — Beautifully Renovated Home in Las Vegas.
We have just received a freshly renovated home for our lease option (aka, rent-to-own) program in the Las Vegas, NV market. This home has brand new paint, new 16” and 18” flooring throughout the entire home. New carpets overlay this new tile in the bedrooms and the new owner can go either way. Stove and refrigerator come with this lovely home. It also has an entertainment gazebo in the back yard with desert landscaping in both front and back yards. Countertops are granite tile. Brand new kitchen cabinetry also abound.
Terms are quite simple:
Address: 1017 Magnolia Ave.., Las Vegas, NV 89108
Purchase price locked for two years at $99,000.
Lease Option Payment: $4,000 (which is fully applied toward the purchase)
Monthly Payment: $1,395
Rental Credit: $200 (which is also applied toward the purchase)
Home Details:
3 bed
1 bath
1386 square feet
Built in 1954
0.16 acres
1 story
To see our marketing page for locations, pictures and further details:
http://ifindproperties2.fmgateway.com/trident/details.php?id=14080
Our lease option program has been assisting to connect owners with qualified tenant/buyers for their homes. Trident Investments Group has been assisting people since 2004 and have successfully helped a number of people become home owners again or for the first time.
Contact us today:
Kevin A. Dunlap
Trident Investments Group
Office: 702-516-5698
Cell: 702-591-1784
Fax: 866-900-7452
kevin@tridentinvestmentsllc.com
http://www.tridentinvestmentsllc.com
Happy Investing!
