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Q. I have this deal
and I would like you to tell me if I should do it or
not. If I should, how do I do it to maximize my
profit. Here are the details:
Purchase: $154,400
Down pmt: 7720 5%
L/A: $146,680
PM: $977.12
Tax+ insurance: $193
Monthly PM: $1120.12
Tenant willing to pay: $1295
Approx value of the house in 1 year: $169,900
This house is in South GA and I'm going to do this
with my self-direct Roth IRA.
Please let me
know what you think ASAP if you can.
Thanks,
Christine
A. It
looks
like a good deal because you already have a lease
option tenant that gives you a positive cash flow.
You realize that if you have the title to the home
in your IRA you will have UBIT or a penalty tax to
pay. Basically, to the extent you used
borrowed money to make a profit you will pay tax on
that portion of the profit.
There are several ways to keep that from being so
bad. I am assuming you are buying the house
“subject to,” but you might consider buying it with
a lease option. Have your IRA pay for the options
then have a different entity sign the lease.
If
you can only do it "subject to," and you have a with
whom you partner, they can own the property and you
put up the money as a shared appreciation mortgage.
If
you are putting on a new loan on the house, I don’t
have any suggestions. If you do, I’d like to hear
them.
Now remember, I am not a tax attorney or CPA.
But, all in all, it sounds like a good deal and you
should do the deal in a flash!
BZ |
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Q.
Mr. Zick, I know you are not an attorney nor
would anything you provide me qualify as legal
advice. I was listening to my “Hidden Profits” CDs a
few days ago and I learned about the clauses
mentioned. They were “Substitution of
Collateral” and “Right of Subordination”. My sellers
have agreed to accept both on the seller financed
note we are creating as part of a deal.
Do you have any boilerplate paragraphs for those
clauses that I can insert in the security deed?
Thanks a bunch! Brian
A.
You really need to
get a properly written clause, which means paying a
lawyer.
The general idea is:
Borrower retains the right to subordinate this note
to a note that is paid in full in no longer than
__x___ months from ___(date)______ and has a total
loan amount of no more than _______ initially.
And,
Borrower retains the right to substitute x property
(name the specific property)…. (or) a property that
fits this description ___(spell it out)…. (or) any
single family house in ___x___ county with at least
___x___ dollars in equity and ----
Hope this gives you
the basic ideas. None of these examples are intended
to be the words you use.
Also, I need to tell you that some states have
special laws that cover these clauses. California is
one of them. They give you rules regarding the
placement of the clauses in the document and the
size of the type, etc. This is just one more reason
to get a local lawyer to draw it up. I would.
BZ |
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GETTING THE MOST OUT OF A DEAL
Q.
I've
got a prospective mortgage client who's looking to buy
his first house, but has an interesting situation. My
prospective client, Frank, is the foreman of a
contractor working for me to rehab one of my houses.
Frank is currently renting a house, and his landlord has
offered to sell it to him for $150K below market value,
primarily because it needs a lot of fix-up. You can
probably see this coming -- he'd like to get
institutional purchase financing based upon market
value, not sale price, so he can afford to fix it up. I
told him that normally you have to wait a year to
refinance to take advantage of the real market value.
But I said I'd see if I could help him out on his
request.
The purchase price is $250K, market value is $400K. The
seller is apparently willing to cooperate in any way to
help the client buy it in the manner he wishes.
I have an idea on how he can do it, but I'd like your
comments on its efficacy, or perhaps another suggestion
that would work better.
Here's the idea: Use a title holding trust intermediary.
Frank can set up the trust with his boss, Fred, as
trustee, and Frank as beneficiary. The trust signs a
contract (executed by the trustee, Fred) to buy the
house from the seller for $250K. Frank then signs a
contract to buy the house from the trust for $400K (the
home's appraised value), with 20% down. A simultaneous
closing is then executed. Because the bank sees a
purchase price of $400K, they give him an 80% LTV loan
at $320K. Frank's "cash" down payment to the trust is
only on paper. Because Frank is the beneficiary of the
trust, he receives back the $80K down payment, plus the
$70K excess loan proceeds. Frank now has $70K to work
with to fix up the place.
My major concern is finding a title company that will
not balk at these shenanigans. Of course we also need to
work with a lender that doesn't require verification of
funds for the down payment (easy enough to find).
Do you have any other suggestions that might work
better?
Thanks for your help!
A.
Since
the trust will not have been in existence over a year,
you have the same seasoning problem with your solution
as you have with no solution. Secondly, since most
lenders want the borrower to take the property out of
the trust and get the loan in their own name, you may
not be able to use the trust (Now I hear that All Fund
Mortgage is developing a product that will not make you
take the property out of the trust, but that may not be
possible for a couple of months.) Let’s talk down
payment. Lenders want 5% minimum. So many more programs
open up with 5% minimum. It would be good to figure a
solution to that. Lastly, if the only reason for the
trust was to pump up price, that is fraud.
Let’s look at another concept just to get the idea on
the table...
Frank buys for $400,000, paying the seller a $150,000
note due in five years and a new first for $250,000. He
can get that first from a “C” or less credit lender with
no pre payment penalties and a fair amount of points.
Maybe from Argent. The second note is held in escrow
with the seller signing a list of things that need to be
done for which, if all completed, the seller will give a
$150,000 credit. Think retail repair costs.
There might be 100 changes and modifications to this but
this is the core plan. It will be hard to find the first
lender but not all that hard. It will be very hard to
find anyone to refinance for $400,000 but he does not
need the full $150,000.
I have
checked this out with others in the industry and if done
for good reasons, it will fly. Still check it out for
yourself.
This is like playing pool. Most of the problem will be
picking the first shot that will leave you set up
correctly for the second shot.
If I was doing it, I would go with a hard money loan for
the first and close the second out of that escrow and
concentrate on who our lender will be and what will they
want.
BZ
++++++++++++++
My loan officer replied…..
Hi Barney,
Hmmm.... How about this:
Sale price $400K, buyer gets a purchase loan for $200K
and a seller carry-back note for $200K. The note terms
would be 30 years, 1% interest, payments $643.28.
Now, if the seller were to sell that note on the open
market a year later to a note buyer who wanted to yield
15.25%, then the remaining 348 payments would fetch a
note price of $49,993.87.
So the buyer executes an option (for $1) with the seller
to purchase back the $200K note 12 months later,
discounted to $49,993.87, to yield 15.25%. The buyer
then exercises that option in a year (now being
obligated to pay himself $643.28 for the next 29 years
;-). This has the advantage of being an ironclad
contractual guarantee that the seller or his heirs won't
have a change of heart in a year. The option can be a
separate but simultaneous transaction, never seen in the
original escrow.
Of course, that assumes that the seller doesn't owe more
than $200K on any existing liens. If the seller owes the
full $250K that he's willing to sell for, then this
won't work. Of course, the numbers could be adjusted a
bit: a yield of 21% on $150K for 348 months would be a
note price of $27,515.64. Thus, the buyer's extended
purchase price would be $277,515.64. Not that great of a
difference. Obviously, this concept can be adjusted to
work with whatever the actual current lien total is on
the property.
How's that sound?
++++++++++++++
Keep working on it. I
like the direction. Shows you are thinking. Let me know
how this works out.
BZ
The easy way to look bad
It is easy to make
mistakes and to do things wrong. I've been under a
heavy schedule of medical procedures, reducing me to a
few hours of work time each day. (And, by the way,
the last set of tests show major improvement, so keep up
the prayers – they are working!)
This newsletter is
being published a few days late this month and it
happened with no help from us! It seems our
Internet Service Provider did hardware upgrades the end
of last week just as I was finishing the newsletter. We
have two email accounts and the main one
(bernard@zick.com)
generates over 100 emails a day. I use the second
account to communicate with my staff and I did not
realize it was not working properly. This impacted
the completion of this issue of our newsletter by our
deadline of May 1st. We're sorry about the late
delivery. I figure one day late is okay but this
extended delay is not. We apologize.
BZ
IRA assets are protected from creditors
4/11/05
Supreme Court Rules That Creditors May Not Seize IRA
Assets in Bankruptcy Proceedings
In a huge victory for managed and self-directed IRA
owners everywhere, the U.S. Supreme Court recently ruled
that IRAs receive Federal Creditor Protection. This
means that creditors cannot seize assets in an
Individual Retirement Account.
The Supreme Court ruled unanimously that IRAs should
join pensions, 401(k)s, Social Security and other
benefits tied to age, illness or disability, that are
afforded protection under federal bankruptcy law and
thus shielded from creditors in bankruptcy proceedings.
Until recently, IRA protection was covered by state
laws, which varied to a great extent on coverage
provided. This ambiguity led to a great deal of
confusion and uncertainty for IRA owners wondering how
their assets were protected from creditors.
The case before the Supreme Court was heard because of a
lower court ruling against IRA protection based on the
faulty notion that since investors can make IRA
withdrawals at any time, IRAs are similar to savings
accounts, which are unprotected from creditors under
bankruptcy law.
Justice Clarence Thomas, writing for the Court, said a
bankrupt Arkansas couple was entitled to keep more than
$55,000 in retirement savings from creditors. He
reasoned that IRAs are benefits tied to a person's age
under the federal statute because a tax penalty is
imposed if a person makes withdrawals before age 60.
Interestingly enough, the court did not choose to
address the topic of whether very large IRA accounts
would be protected under the federal bankruptcy code.
The code has a provision stating that certain assets
(such as retirement plans) that are deemed to be
“reasonably necessary” to support a debtor and his/her
family are protected from creditors.
The uncertainty of what is “reasonably necessary” means
some assets in extremely large IRAs might not be
protected. Having said that, this issue will surely be
brought to the court's attention in the future. However,
for the time being, the vast majority of Americans will
not have to worry about creditor attachment of their
IRAs.
The ruling comes at a time when IRA assets are set to
reach the $3 TRILLION mark and, for many Americans, the
IRA has become their most significant retirement asset.
Having the same protection in bankruptcy that workers
receive for their 401(k) plans and company pensions
shields a nest egg relied upon by millions of Americans
and provides another layer of financial protection.
To view a copy of the Supreme Court ruling, and for more
information on investing in real estate with a
self-directed IRA, please visit
http://www.trustetc.com/ruling.pdf.
About the author:
Richard Desich is the Chairman
and CEO of Equity Trust Company, the nation's leading
provider of self-directed real estate IRAs, and has been
personally investing in real estate for over 35 years.
Nationally recognized as a pre-eminent authority on real
estate investing in self-directed IRAs, 401ks and other
retirement plans, Mr. Desich is also the author of the
how-to book, "Proven Wealth Building Secrets for You and
Your Children."
With over 32 years of experience, and
tens of thousands of clients in all 50 states, Equity
Trust Company is the leading provider of real estate
IRAs, 401(k)s, and other retirement plans. Find more
information on real estate investing with IRAs at
http://www.trustetc.com/.
Go to
Barney's Website for more information about
educational events and materials.
Go to
Karen's Website to
apply for a 1-4 family loan or join us as a mortgage
loan originator.
Go to
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to sell us a property or get a web site to sell your
properties.
Go to
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Funding for more information about financing.
Register for an Options Boot Camp at
http://www.zick.com/speventreg.html.
Register for a "How to Finance ANY Deal!" Boot Camp at
http://www.zick.com/FinanceAnyDealBCreg.htm.
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Register for a
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Questions?
Send us an email
or call 800-677-3253.
Would you like to
read past newsletters?
Click here
Scroll down to the
bottom of the left-hand column to find links to all of
our archived newsletters.
Remember: You may be my student, you may
be my best friend and I MAY love you…but, I am not a
lawyer. I am not YOUR real estate broker. You are not
my client. This e-mail is not intended as legal, real
estate or accounting advice. |
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Upcoming Events
“How to Finance ANY Deal!”
Three-Day
Boot Camp in
San Diego
IMPORTANT!!
Due to the
overwhelming response we've received for this event, we
moved it from the original location in Carlsbad to the
following location:
Holiday Inn Select
595 Hotel Circle South
San Diego, CA 92108
619-291-5720
Click here
for more information or to register for the “How to
Finance ANY Deal!” Boot Camp.
May 20th, 21st &
22nd we are presenting a new Boot Camp called "How
to Finance ANY deal!" We will cover Lease Options,
Owner carried financing and Conventional and Hard money
loans. Two new topics will be “Making Money Referring
Commercial and Investment Loans” and “Getting Cash from
Passive Investors – Structuring the Deals.” This
Boot Camp just keeps getting better and better! We may
need to go to evening sessions to get it all in!
HAVE
YOU ALWAYS WANTED TO LEARN ABOUT SHORT SALES???
Here's your opportunity to learn
from the best. Lloyd & Sara Story (who are students of
Barney’s) have become very successful doing short sales.
They've been known to do 5-10 deals in a month!
They have graciously agreed to do a one-day seminar
called
"Navigating the Short Sale." They will be
teaching all their secrets to the lucky attendees. It
will be held in Orlando, Florida on Saturday, May
14th. For the discounted price of $199.00, please
click here or go to
www.zick.com and click on the calendar to
register through Barney. Don't hesitate....the room will
fill up quickly!
All new
for 2005! Learn it all in one place at one time.
“Barney” Zick can show you...
“How to Finance ANY Deal!”
Announcing the most
in-depth, intensive three-day Boot Camp you can imagine
on real estate financing designed for people who are
successful, aggressive real estate investors (or aspire
to be someday soon)! Investors know CASH IS KING and
owner financing is the QUEEN!
As a real estate
investor, there is nothing like having the ability to
know what investing approach to use, know how to
structure it, and know how to present it to the seller
and get it closed. Being able to cash out properties is
the “grease for the wheels” of this cash intensive
business. The three roads to financing will be
taught...Lease Options, Owner Carried Loans and
Conventional and Hard Money Loans. You will also get an
opportunity to sign up and receive hands-on training
about becoming a loan originator in order to add another
cash flow stream of income.
SIGN UP TODAY AND PAY
ONLY $695 of the $2,195 fee. The balance will not be
due unless you complete a successful deal from what
you have learned! How can we do this? We strongly
believe that you will learn what you need to know for
success and that you will easily do a profitable deal
right after attending! This way we have more at
risk than you.
That’s right; if you
don't make money we don't get paid the balance of the
training fee. The entire program can be self
funding! You will make money from what you learn…paying
you back more than the cost of training. All you have
to do is USE these ideas and we will show you how!
At the three-day “How
to Finance ANY Deal” Boot Camp we will send you out to
investigate deals and sign them up. Then when you come
back, we will fine tune your presentation to make
getting more deals easier.
Click here
for more information or to register for the “How to
Finance ANY Deal!” Boot Camp.
Questions?
Send us an email or call our office at 800-677-3253.
YET ANOTHER SATISFIED
STUDENT!
Hi Barney,
I just want to say thank you for the Real Estate
education I received from you!! I closed on a sale of a
single family home and took home a check of $158,000!!!!
I am convinced this happened because I learned the right
question to ask. It is a very simple question and a very
unique question that you taught me. I was the ONLY
person/investor to be allowed to enter the property and
present my offer which resulted in my purchase. All
other investors were turned away because they did not
know to ask the question I asked.
This property was bought 100% no-money-down and without
my credit or any type of new loans. It really makes a
difference when you are trained by a truly professional
real estate investor who is not only very successful but
also has years and years of experience. Just goes to
show that if a person like me, with no real estate
experience at all, (my only experience was stocking
chicken!) can do it, anybody else with the right
training can also do it.
Sincerely,
Ernie Vargas
http://ratrace.usana.com
The Fine Print...
We will
do one newsletter like this one (Advice for the
Impatient Investor) and one called the Zick Home
Loans & Realvest Funding Mortgage Report,
approximately once a month. (However, keep in
mind, our newsletters are free so don't get upset if we
skip one occasionally!)
Advice for the Impatient Investor
has been published for fifteen years (but
not in a row). The next issue should be out about June
1st. The next Zick Home Loans & Realvest
Funding Mortgage Report will go out on or about May
15th.
Folks smarter than us told us to say: We
take no responsibility for the accuracy of the postings.
All contents of the postings are the responsibility of
the posting party. The foregoing material is strictly
for informational purposes only and does not provide
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Copyright © 2005 by Real Estate Investors
Training Corporation.
ISSN # 0272-8559
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