LEARN

Crazy Markets

Most people try to trade the stock market with little to no success. You need a consistent plan for receiving monthly income from alternative assets. Here are some alternative asset examples:

  1.  Mortgage Notes – secured by real estate.*
  2. Private Lending – secured by real estate.*
  3. Single and Multifamily Rentals – secured by real estate.*
  4. Private Equity – funds used to buy private companies.
  5. Direct Investment in Start Ups – angel investing
  6. Commodities – oil, gold, grains, etc.
  7. Hedge Funds – differ from private equity and venture capital in that more liquid since invest in public companies.
  8. Private Placement Debt – debt used to finance a private company, while giving investors a steady stream of cash flow.

Do you really want to trade this? Graph shows first 10 months (through Oct 25) of 2018 S&P 500.

Make Everyday A Friday

This is a quick rant about how you should not live your life for Fridays. If you hate 5 of the 7 days in a week then you seriously need to rethink everything. Take action and pursue a new career or start a new business.

I was in the corporate world for 18 years and the last 4-5 years I really did not enjoy it. Therefore, I took action and starting working on my real estate business by burning the midnight oil and working at nights and the weekend until I felt comfortable leaving my job.

I hate to think that people spend 70% of their life doing something they dread and just waiting for that one day…Friday to come around again. Sure weekends are fun with family and friends but you can have that feeling everyday when you get up doing what excites you.

My goal was to build passive income and continue to add a new passive income stream each month. Yes it takes work but once you get the machine running and you dollars working for you things start to snowball.

Top 9 reasons to seller finance your home

Seller financing is a powerful way to maximize your returns and to build passive income. He are the top 9 reasons to seller finance your own home versus selling outright.

Top 9 Reasons To Seller Finance Your Home:

  1. You can sell home faster since 51% of adults in US have poor credit.  Bigger pool of potential buyers.
  2. Reduce tax burden.  Pay taxes only on interest income for that tax year.
  3. Steady income stream which last for years.
  4. Yields are higher than putting money to work in a bank, money market, CD (certificate of deposit), or bonds.
  5. Command a higher price since people with less than perfect credit cannot get traditional financing. 
  6. Less liability versus renting home.
  7. Buyer maintains and improves the property.
  8. Buyer’s have homeowner mentality and not rental mentality.
  9. Better liquidity….
    • You can sell the entire note faster than selling property.
    • You can sell a partial note for super fast cash.

Difference Between Fannie Mae, Freddie Mac and FHA

Most people hear the terms Fannie Mae, Freddie Mac and FHA but have no idea what each GSE (Government Sponsored Entity) does and their role in the mortgage note business. Here is a clear concise explanation of what these GSEs do and what they do not do.

  • Fannie Mae was a result of 1938 Great Depression to encourage home ownership.
  • Freddie Mac  was a result of government trying to increase liquidity and provide a secondary market for loans.
  • Fannie Mae and Freddie do not originate loans. 
  • Fannie and Freddie only buy loans from banks, credit unions, etc which conform to their guidelines
  • They provide liquidity by buying mortgages from banks and investors and bundle into mortgage backed securities (MBS) and sell to investors on Wall St.  
  • Without Fannie Mae and Freddie Mac the rates for buying a home would be much higher since not enough private sector demand for mortgages.
  • Fannie Mae and Freddie Mac also buy FHA loans and not just conforming loans.  Ginnie Mae the name given to the security backed by FHA loans.

 

FHA Explained:

  • FHA is an office of HUD which insures mortgages for single family residences (SFR). 
  • FHA does not originate loans and FHA does not buy loans like Fannie Mae or Freddie Mac.
  • FHA loans are loans written by bank using the guidelines set forth by FHA which are typically much looser and more flexible a Fannie Mae or Freddie Mac “conforming” loans.
  • Loans meant to help less well off borrowers.  However, no income limits and you don’t have to be a first time home buyer.  Lower down required but mortgage insurance (PMI) issue.  

Why Write A Book?

SEVERAL BENEFITS TO WRITING A BOOK:

  • Share message with others!
  • Passive Income Stream.
  • Sets you apart – 1% of the population ever publishes a book.
  • Instant Credibility Booster. Helps you become an authority on a particular topic.

3 BASIC SELF PUBLISHING METHODS:

  • DIY: You do nearly everything yourself, from copy, editing to formatting to marketing.
  • Assisted: You do some of the work yourself, but you also hire a team of editors, designers, publicists, etc. to help in the skills you don’t currently have.
  • Hybrid Model: You hire a publishing company to take on the complete “publisher” role but allowing you to retain full ownership of your project and earnings.

METHOD USED AND ROYALTIES

  • I used Wasteland Press for my first book.  It was not perfect but got my book up and published quickly. You pick a plan and get anywhere from 15-30% royalty for paperback and they will add on a Kindle, Nook or Apple version for a small fee and you get 70% royalty.  I would probably do it differently next time like using CreateSpace.
  • My book paperback is priced at $12.00 and Kindle priced at $7.99.
  • Traditional Publisher: You ONLY get 5–15% royalty, don’t control art, pricing, slow process, less control, don’t own print license. 
  • A simple and quick way to self-publish is to go to CreateSpace (owned by Amazon), check the box that you want to be both paperback and Kindle, pick a cover, upload your manuscript, and in a few days you will be published on Amazon and people can start buying your book.
  • Amazon has a self-publishing service called Kindle Direct Publishing (KDP) at https://kdp.amazon.com
  • Amazon gives you 70% royalty if you price your e-book between $2.99 and $9.99. You can do whatever you want creatively.

BOTTOM LINE – Just get started writing and there are plenty of platforms to help you get it published and printed and distributed.

FYI – Chandler Bolt has a great blog about self-publishing at Self-PublishingSchool.com

New Tax Rules and 2017 Tax Lessons

DISCLAIMER: I am not a CPA or Tax Attorney!  Please consult a qualified and trained CPA or Tax Attorney or better yet both.
This presentation is simply to increase your awareness that there has been some recent tax changes that may effect you.

2017 LESSONS

  1.  Take advantage of the LONG TERM capital gains tax rate when selling a property.  Holding a property (1 year and 1 day) before you sale it can save you bundles.  You can see from the table below you can save anywhere from 7-20% depending on your income tax bracket.   
  2.  Mortgage Note Tax Tip
    • Mortgage note servicing company sends you 1099-INT which is interest income for tax purposes.
    • However, if note purchased at discount then remember to include the principal portion of the PI payment to be taxed.
        • Example:  Buy note with Unpaid Principal Balance (UPB) of $50,000 for $40,000.  You get payments of $500/month PI and until the UPB gets down to $40,000 you have to claim both  the principal and interest portion of PI as income.  

NEW TAX RULES

  • Tax Cuts and Jobs Act (TCJA) Updates
    • Bonus depreciation – The new tax law increases bonus depreciation from 50% to 100% for assets with useful lives of less than 20 years. If you buy personal property for your rental, such as carpet, appliances and equipment, you can now immediately write off the entire cost of those assets.
    • New rules allows you to deduct the entire cost of eligible property effective for property placed in service and acquired after Sept. 27, 2017.
    • Depreciation on the entire property hasn’t changed, with the life remaining 27.5 years for residential rental property.
    • The Tax Cuts and Jobs Act (TCJA) imposes new limitations on deducting personal residence mortgage interest and state and local taxes BUT those limitations do not apply to rental properties.
    • In addition, you can still write off all the other standard operating expenses for rental properties such as depreciation, utilities, insurance, repairs, maintenance, yard care and association fees. 
    • 1031 exchanges remain in effect for real estate.
    • Pass-Through Deduction
      • Most investors fit into the pass-through category, as they operate as sole proprietors, S-Corporations or LLCs.  
      • Without some other forms of income complications, the simplest application of this is that you can write off 20% of income after expenses from your rental property.
      • There are limitations and rules if you have capital gains or dividend income and only a CPA can sort those out. 

Introduction To Partial Notes

Overview of Partial Notes

  • The partial purchase of a note is an extremely powerful tool available to note buyers and sellers.
  • Both buyers and seller can benefit from this technique.
  • It is a great option to the “take it or leave it” mentality with a typical full note purchase.  
  • It is a great way to recapitalize for the note seller and a low risk high return opportunity for note buyer.

What Is A Partial?

  • This is when someone purchases only a portion of the note and NOT the full note.
  • For example, the note has 300 payments remaining and instead of buying the entire 300 payments you buy only the next 60 payments for a set dollar amount.
  • After those payments are made the note reverts back to the original note seller for the remaining 240 payments.

Types Of Partials

  • Straight Partial (front partial) – purchase of next payments and seller keeps the “back end” or remaining future payments or balloon.
  • Split Payment Partial – The purchase of a portion of each payment for a specified time period and amount with the seller receiving the remainder of each payment.
  • Balloon Split Partial – The purchase of immediate payments up to and including a portion of the balloon payment with the seller retaining a portion of the balloon payment.

Benefits To Seller:

  • Gives seller choices based on needs.  If only needs $30,000 and has a $100,000 note does not have to sell full note.  
  • Minimizes discount to the seller.  The discount is larger when selling a full note versus a partial note. 
  • Can participate in future payments since note reverts back to the seller when buyer collects their designated number of payments.
  • Opportunity to sell another portion in the future since established a relationship with the note buyer.
  • Shared risk for buyer and seller

Benefits To Buyers:

  • Lower ITV (investment to value) reduces the risk and exposure to the buyer.  
  • Residual income opportunity.  The note seller may become a repeat customer.
  • Typically can structure higher yields since seller is happy to get back end of note.
  • Limits amount of money invested.
  • Shortens term for the buyer.  Not “stuck” in one note.  Spreads buyers risk among more notes.

Example Full and Partial:

  • FULL – A note has a balance of  $80,000 at 9.0% interest payable in monthly installments of $1,013.40 with 120 months of payments remaining.  When the seller sells all 120 remaining payments of $1,013.40 to an investor it would be considered a full purchase.
  • PARTIAL – If the investor only purchased the next 48 monthly payments of $1,013.40 each then it would be considered a straight partial purchase.  Once the investor received the next 4 years of payments, the note would be reassigned to the seller and the seller would collect the remaining 72 payments.

Super Liens Explained

What is a super lien?

  • If a homeowner does not pay homeowners’ association (HOA) fees and special assessments then the HOA can file a lien that will attach to the property. 
  • In certain states however, homeowners’ association liens are given “super lien” status.
      • A super lien is a category of lien that, pursuant to state statute, is given a higher priority than all other types of liens.
      • A super lien is given higher priority than even the first mortgage holder, placing the interest of the HOA in front of the first mortgage.

How many states have super lien laws?

  • 22 states have laws that give HOA or in some cases COA (Condo Association) assessment liens a super lien status under certain circumstances.
  • Alabama, Alaska, Colorado, Connecticut, Delaware, District Of Columbia, Florida, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, Nevada, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Washington, and West Virginia.
  • Every state has different statues.

What happens when the 1st mortgage forecloses?

  • Florida – if obtain title through foreclosure or DIL an amount of 12 months of HOA dues preceding the date of the sale or 1% of the original loan amount whichever is less.
  • Pennsylvania – an amount equal to 6 months preceding the date of the sale.
  • Maryland – lien priority is given to any HOA or COA that holds a lien on the property for 4 months worth of unpaid expenses or $1,200, whichever is less.
  • In contrast 28 states like NC, SC, etc – the HOA gets wiped when the 1st mortgage forecloses (i.e. they get nothing).

Unlock Your Retirement With Self Directed IRA

SDIRA = SELF DIRECTED IRA

  • There is NO legal distinction between self directed IRAs and any other IRA except that self directed IRA allows the broadest possible spectrum of investment choices.
  • SDIRAs have been around since the IRA was established in 1974.
  • When setup correctly or when using a proper SDIRA custodian you are allowed to investment not only in stocks and bonds but also in real estate, notes, private placements, tax lien certificates and much more.
  • The potential benefits of a Self-Directed IRA is that you are able to invest your tax-advantaged retirement dollars in investments you know and understand.
  • Be assured that self-directed IRAs are allowed under IRS rules as long as you follow the rules.
      • Prohibited Investments
        • Can’t invest in collectibles such as antiques, cars, art, etc.
        • Can’t invest in life insurance.
      • Prohibited Transactions
        • Selling Property To IRA You Already Own – Self Dealing.
        • Buying Property For Personal Use.
        • Borrowing Money From IRA.
        • Can’t Use IRA as Collateral (i.e. security for loan).
        • No Personal Guarantee – For example, no signing personally for a loan.
  • What Can You Invest In?
      • Single Family Homes
      • Apartments and Commercial RE
      • Raw Land
      • Tax Liens/Tax Deeds
      • Mortgage/Deed of Trust Notes 
      • Private Equity
      • Precious Metals (Gold/Silver)
      • Commodities (Oil, Gas, Grains, etc)
      • Currency Trading (Forex)
      • LLCs and C Corporation
      • Car Paper
      • Commercial Paper
      • Private Placements and Stock Offerings
      • Equipment Leasing
      • Factoring
      • Structured Settlements
      • And yes stocks, bonds and mutual funds as well

Seller Finance and Dodd Frank Rules

What is Dodd Frank?

  • 2010 – Barack Obama signed into law the 2,314 page Dodd-Frank Wall Street Reform and Consumer Protections Act.
  • Dodd-Frank Act (DFA) restructures the oversight of financial regulation and amends the TILA (Truth in Lending Act).
  • These laws effect seller financing deals originated on or after January 10, 2014 and occupied by buyer as primary residence. i.e. Owner occupied.
  • Commercial transactions (which includes rentals, fix and flip, etc.) and the sale of raw land are not effected by DFA.

What is Dodd Frank and how does it effect seller financing?

  • Part of DFA is requirement that a licensed mortgage loan originator (MLO) must oversee originations in which the buyer intends to occupy the property as their own residence. 
  • However, 2 exemptions to this rule are:
      • 1.  “Single property exemption” 
          • Any nature person, estate or trust who provides seller financing to an owner occupant only one time in any 12 month period.  Cannot be a LLC, corporation, etc.
          • Loan can include a balloon and seller does not have to prove borrowers ability to pay.
          • “Single property exemption” restrictions:
                • Interest rate fixed for first 5 years and no negative amortization.
                • Adjustable rate allowed but cannot adjust more than 2% per year or more than 6% over life of loan.
                • Seller must not be the builder.
                • Seller must have owned the property.
      • 2.  “Not more than 3 properties exemption”
          • Any person or entity cannot provide seller financing to an owner occupant more than 3 times in a 12 month period without using a MLO.
          • The loan cannot include a balloon.   Seller does have to prove borrowers ability to repay.
          • “Not more than 3 properties exemption” restrictions:
                • Interest rate fixed for first 5 years and no negative amortization.
                • Adjustable rate allowed but cannot adjust more than 2% per year or more than 6% over life of loan.
                • Seller must not be the builder.
                • Seller must have owned the property.
  • More than 3 loans you MUST have a MLO and comply with all the regulations such as:
        • The loan cannot include a balloon.   
        • Seller does have to prove borrowers ability to repay.
        • Interest rate fixed for first 5 years and no negative amortization.
        • Adjustable rate allowed but cannot adjust more than 2% per year or more than 6% over life of loan.
        • Seller must not be the builder.
        • Seller must have owned the property.

Free Car With Note Purchase

BUY CAR WITH CASH

  • Buy new car with cash – $30,000
  • 6 years later car is worth $9,500 
  • 6 year loss $20,500 in depreciation
  • 12 years later car is worth practically nothing.
  • First 5 years cars depreciate 15-25% each year.
  • See graph below published on Edmunds website.

FINANCE CAR PURCHASE AND PAY FOR WITH MORTGAGE NOTE

  • Buy car with financing – $30,000 car loan
  • Car loan $440/month for 72 months (6 years)
  • Buy MORTGAGE NOTE for $30,000 which is paying $450/mo for 144 months (12 years).
  • Use income from note to pay car payment for first 72 months (6 years).  
  • Next 72 months have an income of $450/month or $32,500 at end of 6 years.  
  • The $32,500 is enough to pay back you initial $30,000 or use to buy another car (free car).

PAY FOR YOUR HOME WITH MORTGAGE NOTE INCOME

  • Buy home with financing – $300,000 home loan
  • Home loan $1432/month at 4% and 360 months
  • Buy note for $300,000 at 10% paying $2632/month for 360 months.
  • Use income from note to pay house payment  
  • Have $1200/month excess cash flow per month for 360 months or 30 years. 
  • This is $14,400 extra passive income per year and over life of loan is a whooping $432,000!