Tridentinv's Blog

I have recently read an article which may surprise you.  Not everyone who walks away from their home loan are actually in any kind of financial hardship.  Many people, including some investors, seeing that home prices have plummeted have made the decision to walk away and find other accommodations.  This may be the idea that it would take many years just to get to a break even level.

Here are some statistics for your review (these numbers come from Money magazine May 2010 issue).

Questi0n:

“Would you ever consider walking away from your home loan?”

• 42% said they never would
• 38% said only if they had to
• 16% said Yes
• 4% said they already have walked away.

This shows a potential 1 in 5 walking away due to today’s markets.  That is a full 20% willing or have already walked away AND a potential additional 38% to come.  That makes an almost 3 in 5 people walking away.

Some other statistics you may be afraid to hear which was also published in the same article.

• 26% of homeowners who defaulted said they could afford to maintain the payments.

Now another scary tactic if your credit score is vital for you is that if you maintain your payments it will be until 2015 before your home values may be equal to your current loan balance.  This means only a 5 or so year wait (on average across the nation) before you will start seeing some equity again.

Thus, if you are the average homeowner, consider keeping your loan current and bare through these hard times.  Real estate is cyclic and good times are just ahead of us.  If you can get a loan modification then the light at the end of the tunnel will be a lot closer than not.

Kevin Dunlap at Trident Investments Group has been in real estate since 2002 and has owned multiple types of real estate.  Creative forms of real estate investing is his forte and has helped many people get on the path of home ownership over the years.

With so many people losing their homes to foreclosure what are the chances these people or families want to become homeowners again and quickly? What I have discovered over the past several months is that many people want to remain the status of homeowner even though they may have lost their most prized tangible possession. They may be too proud to become renters or they just have that ownership feeling and want to get back into asap.

What can they afford? Affordability, is the same as if they were going to buy. What is the family’s income and how much will the local market support should be spent on housing. On average housing should be no more than 35 to 40% of a family’s net income.

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What about credit? Obviously, the person(s) who had the loan in their name will have poor credit. This may be the time to use the credit of the other spouse assuming the loan was only in one person’s name. If not, then credit repair will be required. I am affiliated with a national credit repair company and you can find more info on our website at: http://www.tridentinvestmentsllc.com/credit/index.html.

For more information on lease options feel free to contact me.

Kevin Dunlap

Trident Investments Group

702-591-1784

kevin@tridentinvestmentsllc.com

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 18^th 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

Info@tridentinvestmentsllc.com

http://www.tridentinvestmentsllc.com

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

Email: Info@TridentInvestmentsLLC.com

Web: http://www.tridentinvestmentsllc.com

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!

A question that I am beginning to get asked a lot is what I should do with my homes after I have bought them.  Let’s assume you did buy in bulk from a REO package or simply found them through a Realtor or other personal contact.  For the purposes of this article, let’s assume you bought them at 70 cents on the dollar.

There are always two schools of thought on the debate of should a person flip or hold onto a property or group of properties.  Also, if you are going to “hold” a property, then what will you do with that holding time.  If you “flip” a property then you need to be aware of any additional charges that you will acquire with the flip.

There are benefits to both strategies and there are cons to each as well.

In this article we are going to explore both and other potential “exit strategies”.

What exactly is an “Exit Strategy”?

An exit strategy is a term used to determine what you will do with a property once you have acquired it.  This is a critical part of doing any type of real estate investing.  If you know what you will do with a property (long-term or short-term) depends greatly on how you buy.  As an example, if your plans are to flip a property then you will want to buy using a Title Binder.  This will save you money on title insurance on the sale.

Some of the most common exit strategies include buying a home or group of homes and then:

• Renting them out.
• Flip or sell quickly for profit
• Rehab and flip
• Rehab and rent
• Lease Option
• Seller / Owner Financing
• Seller / Owner Financing and then selling a Performing Note

Let’s discuss the basics by using a simple mathematical example.  Repairs are included in purchase price. He will assume the following information is accurate and purchase was in cash.

Purchase Price: $100,000

Market Rent: $1200

Purchase Price to Value: 70%

Actual Value: $143,000

Equity Value: $43,000

Local Appreciation Rate: 3%

Estimated 1 Year Future Value: $147,300

Short-Term Strategies

Only a few of the exit strategies are short-term.  These would be:

• Flip or sell quickly for profit

• Seller / Owner Financing

• Seller / Owner Financing and then selling a Performing Note

In the first scenario of “flip or sell quickly for profit” you are seeking an End User who will purchase your home from you at or near market value.  With the new FHA guideline of holding onto a property for over 90 days before selling to someone using a FHA loan being temporarily lifted can make this a very desirable solution.

Here is a link to the FHA website showing this.

http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-011

Pros & Cons for Short-Term Strategies

Flipping

The biggest advantage of flipping is that you are getting all of your money back and a profit, almost immediately.  Thus, you can use your original monies and buy that same type of house again and do the same over and over again.  Thus, within a short period of time you have flipped a few homes and made a decent profit.

Of course, in a down market you can sell at below market value and still come out ahead.  The holding time should be less because you are offering a lower price than your competitors.  For example you can list at 90 cents on the dollar and sell the home for $128,700.  This is a profit of $28,700 minus closing costs.  Not bad for a few months work.

The biggest con is that since you held onto the property for less than one year you are subject to short-term capital gains tax.  The normal American is taxed for long-term capital gains tax at 15%.  Short-term capital gains tax is at 33%.  Of course this may vary and you should consult your CPA for more information.  We will use these numbers for ease of use.

Your profit now becomes only 67% of your total profit (33% in taxes).  Thus, the incredible $28,700 you just made is reduced to $19,200.  Not too bad, though.  You still made a 19.2% return on your investment or if you annualized this three month deal over a year it becomes four times this or 76.8% annualized return.

You may be asking what about the other two short-term strategies?  Well, I am glad you asked.  The remaining two actually may give you more profit AND more potential buyers.

Seller / Owner Financing (keeping the note)

As we all know in today’s worldwide recession many people have been stricken with poor credit, job losses, divorce and even foreclosures are commonplace.  Who are these people suppose to turn to when banks are being very strict on lending practices and requiring substantial down payments.   The answer can be you the investor.

Seller Financing (aka Owner Financing) is a common way investors can buy properties without having to use their credit or worry about having too many loans in their name and not qualifying for a new loan due solely to a high number of loans.

The average buyer can also participate in a program like this, but only wanting 1 home for them and their families.  A family who was hurt by the recession will need help in getting back into a home either as a first-time buyer, or one who lost their home to short sale or foreclosure and wants to become an owner again.

Here is how it works.  Since you are buying the property with cash you have a lot more options available to you (this still does work if you have a loan on the property but you need to really know your numbers first).  You buy the home for $100K (repairs included).  Then you shop around for home buyers who have bad or no credit.  They put down at least 10% to 20% and they move into the home.  The home is deeded to them.  I would suggest you keep the deed in the name of a trust or LLC for your protection in case of missing payments.  Sometimes you can do a Land Contract or AITD.

The purchase price will be set at today’s value, not a discounted value.  Thus, in this scenario they are buying the home at $143,000.  You will also charge the 20% down payment and now you are getting an interest rate on the unpaid balance.  Try to keep the interest rate competitive to a low credit score conventional loan.  Maybe 9% to 12%.  This should make this deal very attractive to both you and the buyer.

Notice that 20% of $143,000 is $28,600.  You have already surpassed your profits from the flip deal and you pay none of this on taxes because you are still owed the remainder of the $100,000 out of pocket expense from buying the home.

The remaining balance on the home is now $114,400.   At 10% interest only rate comes to $1000 per month positive cash flow and they pay all interest, taxes and HOA payments since they are the owners.  You are the bank.  $1000 over 12 months comes to $12,000.  In your first 12 months you have made $40,600!  Thus, you have exceeded your profits from simply flipping the deal.

When creating the note you should put in a balloon payment so you are not carrying the note for 30 years.  The most usual is 5 to 7 years.  This means the family will have to sell the home or refinance the home in that allotted time.   You can even put in an extension clause in case they do need more time.

Now let’s assume they have made all of their payments and they are ready to buy after 5 complete years in the home.  Remember the bulk of your taxable income comes at the time they buy since they are paying off the loan.

This calculation is quite simple (we will ignore taxes on interest earned):

Down Payment + 5 years * $12,000 + remaining balance – 15% taxes on $43,000

$28,600 + 5 * 12,000 + $114,400 – 0.15 * 43,000

= $28,600 + $60,000 + $114,000 – $6,500

=  $196,100 return

Subtract off your original $100,000 investment and that gives a $96,100 PROFIT

Seller / Owner Financing (selling the note)

You may also want to sell the note.  Maybe you keep the note for one year to show good performance history and then sell the note to a note buyer.  This will be a Performing Note and you can get top dollar on it.  You will sell at a discount maybe 90% of face value but the note buyer is gaining all of those future interest payments, too!

Let’s maintain the same example and sell the note after 12 months of ownership.

The buyer still follows the same example as in the above subsection and this is only for 1 year instead of 5.  Let’s see how the math works out.

You still sell at 10.5% interest with 20% down from the buyer (thus the note is secured by 20% equity position).  You receive twelve payments of $1000 from the buyer.  Then let’s say you sell the note at 90% to face value because it is a performing asset with equity.

Face value of the note is: $114,400 (we are using an interest only note)

Discounted by 90% gives a note purchase price of: $103,000.

Your profit will be the sum of all monies which came in over the year.

Down Payment + Interest Payments + Sales Price – (Purchase Price)

= $28,600  +  $12,000  +  $103,000  -  $100,000

= $43,600

Don’t forget you are paying taxes on the principal gain which is the above value minus Interest Payments and Original Purchase Price.  Thus,

$28,600 + $103,000 – $100,000 = $31,600 for capital gains tax.

Your tax rate of 15% says you will pay 0.15 * $31,600 in taxes = $4740.

Your total profit would be $43,600 – $4,740 = $38,860

In theory all three of these short-term (or near short-term) techniques can be very beneficial to the investor.  The first technique explains the Flip Process.  It may appear that the money is not too great in this average deal, but one can not forget that you can do multiple deals.  Thus, it comes down to the Flow of Money.

This can be summarized in saying that once you close a deal you already have another deal coming along.  You simply buy another property and repeat.  Although this does require a lot more effort the actual reward can be astounding.  It can also be equally detrimental when you make one or two bad moves.

For a quick sale you must have multiple Exit Strategies.  In our next article we will discuss Long-Term Strategies.

Happy Investing!

I hope this helps everyone in explaining the Basic Exit Strategies. For more information visit us on the web at: http://www.tridentinvestmentsllc.com.

Kevin A. Dunlap
Mgr. Trident Investments Group,
Office: (702) 516-5698
Cell: (702) 591-1784

Email: Kevin@TridentInvestmentsLLC.com

Kevin is a real estate investor for 8 years with specialties in lease options, creative investing, bulk bank purchases & sales, apartment complexes, and buying outside your region of residence. He has operated over 4 investment companies over this time and is currently residing in Las Vegas, NV.

We have just come across a huge number of new bank REO deals.  These range from $1000 homes in Michigan to commercial and residential deals in California.  Some of these bank REO deals allow cherry picking while others are take the entire package.  Visit our inventory page for details.  The ones listed below will be posted on their too.  http://www.tridentinvestmentsllc.com/reos/inventory.html.

SunBelt Package – Dec 2009 – Package 10 (2 small packages)

• Purchase price for 20 buildings: $682,000
• Cherry picking allowed
• Homes are in AR * 1; AZ * 3; CA * 2; LA * 2; NV * 1; OK *1; TX * 1; UT * 1; MA * 1; NJ * 4; NY * 2
• Plus 3 points

Chicago, IL – Dec 2009 – Package 11 (11 homes in Chicago, IL)

• Asking Price for all 11 homes: $139,100
• Most homes are 3 to 6 bedrooms
• Cherry Picking allowed.

Texas Package – Dec 2009 – Package 12 (18 homes in various major TX cities)

• Asking Price for all 18 homes: $482,800
• Cities include Dallas, Ft. Worth, San Antonio, Waco, Greenville, etc.
• Cherry Picking allowed.

Georgia Package – Dec 2009 – Package 13 (10 homes in various major GA cities)

• Originally 16 homes, down to 10
• Average asking price for each is in the mid $30,000s
• These have sold for mid $100,000s to lower $200,000s.
• Must be in contract by Dec. 29, 2009
• Cities include Decatur, Atlanta, Lithonia, and Stone Mountain
• Cherry Picking allowed.

CA Package – Dec 2009 – Package 14 (many packages including Land, Commercial, and SFR deals)

• 9 Page document showing 70 different deals.
• Average deal is around 60% LTV
• California areas include: San Diego, San Bernardino, Orange County, Los Angeles, Riverside
• Nevada areas include: Las Vegas
• Arizona areas include: Maricopa County, Phoenix
• Georgia areas include: Atlanta
• Texas areas include: Houston
• You can pick any deal out of the 70

Michigan Package – Dec 2009 – Package 15 (122 homes for $1000 each)

• 122 homes in Michigan
• Only $1000 each for a total purchase price of $122,000
• Quit Claim Deeds
• NO CHERRY PICKING. This is a take all deal.

Contact us today on these Bank REO deals.

Name: Kevin Dunlap

Company: Trident Investments Group

Phone: (702) 591-1784

Email: Kevin@TridentInvestmentsLLC.com

Main Web: http://www.tridentinvestmentsllc.com

Inventory List: http://www.tridentinvestmentsllc.com/reos/inventory.html

I just received an update on the email I sent out a short time ago.

Add 2 points for brokerage fees.

You may be able to pick out or select smaller numbers than buying the entire 371 allotment.  My contact is direct to this private / individual seller.

One exit strategy my contact mentioned is either doing a flip on these or putting minimal work into them and putting Section 8 tenants into them.

Read the below email for more information.

Kevin A. Dunlap

Mgr. Trident Investments

O: 702-516-5698

M: 702-591-1784

F: 866-900-7452

---

From: james
Sent: Monday, December 07, 2009 3:29 PM
To: kevin@tridentinvestmentsllc.com
Subject: 371 package

Kevin,

Thanks for taking the time to talk with me.  The details of the package are as follows.

371 homes from coast to coast, they are the med to heavy rehab, in not the best neighborhoods.  The homes are selling with no work around $10k per door with work or cash flowing you could get more.  These are from a private seller.

Total purchase price before any other fees or title work is $1,484,000.  I have the tape, contract and wiring instructions in hand.  The seller is looking for someone to close in the next 24 to 48 hours at this price.

The seller wants these gone is why they lowered the price.  If you find a buyer that is ready and willing to move forward I can provide additional information.

Also as we discussed about your other buyers just get me some additional information as to what they are looking for and ill put together some things.

Sincerely,

James

I received this email today for you serious cash investor buyers.

“I am now direct to a Seller Rep.  I have been working diligently on this for weeks.  Minimum REO transactions $10M. Buyer/buyer rep can speak to seller rep.  LOI and SPOF to be submitted either prior to or immediately following conf call.  Product is coming from large packages being acquired and broken up to sell to smaller buyers.  Good pricing.”

Call Kevin for more details… 702-591-1784

Or email: kevin@tridentinvestmentsllc.com

If you are seeking a creative way to buy a home in Las Vegas, NV then the Lease Option strategy may be the right path for you.  There are no credit checks so we don’t really care if you have a foreclosure or medical collections on your credit report.  We understand that you may have issues with your credit.

We also can possibly have the owners of the home carry financing for you.   This would occur after a few months in the home so that trust and rapport is built between you and the owner.  Thus, you can get into ownership even with bad credit by merely paying your rent and mortgage on time.

If this sounds appealing to you then give us a call.  We have been doing this process for over 5 years and have many home in our inventory.  Call now for details.

Phone: 702-591-1784

Email: Kevin@TridentInvestmentsLLC.com

Web: http://www.tridentinvestmentsllc.com