Real Estate Glossary Part Two

Deed of Trust: A legal document that conveys title to real estate to a disinterested third
party (trustee) who holds the title until the owner of the property has repaid
the debt. In states where it is used, a Deed of Trust accomplishes essentially
the same purpose as a Mortgage.

Down Payment: A percentage of the cost of the home that is paid up front.

Earnest Money: The deposit you make on the home when you submit the offer. This
money is intended to show the seller that you are serious about wanting
to purchase the property. Earnest money goes into an escrow account,
and if the offer is accepted, the earnest money amount will be applied
to either the down payment or closing costs. If the offer is not accepted,
you will get the money back.

Escrow: An account where money is held, either for earnest money or by the
lender for fees due for taxes or insurance.

Equity: The difference in what you owe on the home and its fair market value.

FHA: Mortgages that are extended by private lenders, but insured by the
Federal Housing Administration, often requiring a significantly lower
down payment and lower incomes to qualify.

Fixed Rate: The interest rate stays the same for the mortgage term.

Foreclosure: The legal process by which an owner’s right to a property is terminated,
usually due to default. Typically involves a forced sale of the property at
public auction, with the proceeds being applied to the mortgage debt.

Hybrid: A loan that starts with a fixed rate period and then converts to an
adjustable rate.

HUD: U.S. Department of Housing & Urban Development

Interest: The payment you make to the lender for the money you borrow.

Interest-Only: A loan in which the borrower pays only the interest on the principal
balance for a set period.

Mortgage: The written instrument used to pledge a title to real estate as security for
repayment of a Promissory Note.

Mortgage Insurance: Insurance written in connection with a mortgage loan that indemnifies the lender in the event of borrower default. In connection with conventional
loan transactions, this insurance is commonly referred to as Private
Mortgage Insurance (PMI).

Mortgage (Promissory) Note: A written promise to pay a sum of money at a stated interest rate during a specified term. It is typically secured by a mortgage.

Net Income: The difference between effective gross income and expense including
taxes and insurance. The term is qualified as net income before
depreciation and debt.

PMI: Private Mortgage Insurance – may be required for first-time buyers.

Pre-Approval: A process in which a customer provides appropriate information on
income, debts and assets that will be used to make a credit only loan
decision. The customer typically has not identified a property to be
purchased, however, a specific sales price and loan amount are used to
make a loan decision. (The sales price and loan amount are based on
customer assumptions)

Pre-Qualification: A process designed to assist a customer in determining a maximum
sales price, loan amount and PITI payment they are qualified for. A pre-
qualification is not considered a loan approval. A customer would provide
basic information (income, debts, assets) to be used to determine the
maximum sales price, etc.

Principal: The amount of your loan that you actually borrow.

REO: Real estate (bank-) owned properties.

Short Sale: When the seller’s lender accepts less than the amount owed to
release the mortgage.

Title: The evidence to the right to or ownership in property. In the case of real
estate, the documentary evidence of ownership is the title deed, which
specifies in whom the legal state is vested and the history of ownership
and transfers. Title may be acquired through purchase, inheritance, devise,
gift or through the foreclosure of a mortgage.

Underwriting: The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower’s creditworthiness and
the quality of the property itself.

VA: Loans administered by the Department of Veteran Affairs for Americans
who have served in the armed forces.

Real Estate Glossary Part One

Some Real Estate terms with which every buyer, seller or investor should be familiar:

Adjustable Rate Mortgage (ARM) :The interest rate is tied to a financial index, and the monthly payment
can go up or down over time.
APR: Annual percentage fee (interest and fees you’ll be charged).
Appraisal: A report made by a qualified person setting forth an opinion or estimate
of property value. (Appraisal also refers to the process through which a
conclusion on property value is derived.)
Balloon Payment: A long-term mortgage that has a large payment due at maturity.
Closing: The final meeting, usually with your real estate agent, sellers and a
closing agent or attorney (although the sellers may complete paperwork
separately) where you sign the necessary paperwork, make the monetary
transaction and take possession of the house immediately, or in a
designated time period shortly thereafter.
Closing Costs: The fees associated with processing the paperwork necessary to
complete the transaction.
Comparables: Homes with similar square footage that recently sold in the area.
Contingencies: Conditions which must be met for the purchase contract to be executed.
Counteroffer: The counteroffer is the seller’s response to your offer.
Credit Report: A document completed by a credit-reporting agency providing information
about the buyer’s credit cards, previous mortgage history, bank loans and
public records dealing with financial matters.
Debt to Income Ratio: Compares the amount of monthly income to the amount the borrower will
owe each month in house payment (PITI) plus other debts. The other debts
may include but not limited to car payment, credit cards, alimony, child
support, and personal loans. This ratio is commonly used to see if the
borrower has the capacity to repay the debt.

Risks of Being a Credit Partner

What if I partner with an investor who fails to fulfill their promises?

Whenever I lend or borrow money, I try to secure my financial pledge with a promissory note and some collateral, in this case a lien on the subject property. If my partner defaults on their payments, then I have a legal right to foreclose on the property. When I work with a credit partner, they have paid nothing out of pocket, but have the right to foreclose on a property should I fail to make payments as promised.

If your partner is promising to cover payments through rental income, then it would be important to ensure that there is a legitimate long-term lease on the property, or that your partner has a good track record of property management. If not, you may want to hire a property manager, or seek their opinion on the potential rental income on the property. I find that rentometer.com does a pretty good job of estimating median rents for property.

But what if I have to foreclose?

If you have to foreclose, hire a good real estate attorney and have them handle the details. Expect to spend $2000-4000 in Washington state (a non-judicial state) to handle the foreclosure. This may not be a bad price to acquire a property for which you originally paid nothing. Make sure you have access to funds should this become necessary.

In working with a partner, be sure to always do your own due diligence. Hire an attorney to draft and/or review any legal documents; and be sure to get references on your partner, especially if you have not worked with them before. Most investors are small business owners and entrepreneurs who are looking for venture capital to expand their business. And ideally, your deal is structured in such a way that makes lending money or credit a win-win for both of you!

Why doesn't this buyer get a mortgage?

In today's lending environment, there may be many reasons why an investor could not or chooses not to qualify for a mortgage without a credit partner (or co-borrower). It may be because they are not a W2 wage earner, cannot document earnings (which may be invested in their company as opposed to being paid out as wages), or simply because of the difficulty in today's lending environment of receiving a stated income loan. There are new limits on the number of mortgage loans that an investor may have in their name, or requirements for debt to income coverage on their investment properties that limit their access to conventional financing.

However, with access to today's historically low mortgage interest rates, a savvy investor can generate enough rents and income to create cash flow on properties that may be expected to appreciate in value as the real estate market recovers. A solid investor partner should have no trouble covering costs of obtaining a mortgage for their credit partner, as it is much less expensive than obtaining hard money or other short-term financing.

In the next blog, we'll talk about the risks that a credit partner faces in working with an investor.

"I work full-time, but want to invest in real estate"

Think you don't have enough time, knowledge or resources to invest in real estate? Get started as a credit partner with a seasoned investor, using your good credit and documented income to co-borrow on a mortgage. Partnering with a full-time investor allows you to learn while you earn a stable income, until (or if!) you decide to become a full-time investor. Credit partners often pay NO MONEY out-of-pocket; their investor partner pays all fees and closing costs. The partners then split monthly income and proceeds from the sale of the property at some point in the future.

How does this work? How can I afford another mortgage?
Many people think that if they already have a mortgage, they could not possibly afford to take out another one. This may be true--if they are buying a second home or vacation property that generates no income. However, if they are buying an income property, lenders will consider the rental income in qualifying the borrower for a new loan.

If you already own property, you may be able to free up some cash for investment by taking out a second mortgage or a home equity line of credit (HELOC). A second mortgage at a fixed rate may allow you to invest in a long-term loan as a credit partner; while a HELOC may allow you to do some short-term private lending. Either option gives you experience working on real estate investments with a more seasoned professional.

How can I learn more?
Send for my free report on "Equity Partnerships in Real Estate Investing for the Full-Time Employee" by emailing HomeLandInvestment@gmail.com

Waterfront Bargain Property Bus Tour

Come join us on a Sunday afternoon bus tour focusing on Kitsap waterfront properties at great prices, including distressed properties, foreclosures, bank-owned properties and properties we consider to be bargain waterfront deals! More miles of shoreline than any other county in Washington State, with waterfront property at surprisingly affordable prices and within easy proximity to Seattle and Tacoma, Kitsap County offers some of the most picturesque scenery in the Puget Sound. The next bus tour is scheduled for Sunday, February 28th from 1-4 pm. This tour begins at 2525 Rocky Point Road in Bremerton. Please RSVP to HomeLandInvestment@gmail.com as space is limited for these tours.

King County Real Estate- the Year in Review Part 2

Here's a very nice graph showing statistics from the NWMLS on single family home sales in King County in 2009.

King County Real Estate - The Year in Review

I am not sure how best to format this information on my blog, but it is a great compilation of 2009 statistics on real estate sales and listings by month from the Northwest Multiple Listing Service. Prices are in thousands (000s), except for average price per square foot.


Date 9-Jan 9-Feb 9-Mar 9-Apr 9-May 9-Jun 9-Jul 9-Aug 9-Sep 9-Oct 9-Nov 9-Dec
For Sale 8651 9711 9822 9426 10041 10079 10019 9761 9718 9256 8484 7545
New Listing 3110 2735 2923 3062 3251 3296 3089 2921 3112 2811 1992 1489
Sold 584 686 957 1125 1307 1728 1727 1546 1662 1729 1558 1404
Pended 874 990 1302 1688 1828 1885 1805 1809 1874 1873 1357 1191
Months of Inventory based on Closed Sales 14.8 14.2 10.3 8.4 7.7 5.8 5.8 6.3 5.8 5.4 5.4 5.4
Months of Inventory based on Pended Sales 9.9 9.8 7.5 5.6 5.5 5.3 5.6 5.4 5.2 4.9 6.3 6.3
Absorption Rate based on Closed Sales 6.8 7.1 9.7 11.9 13 17.1 17.2 15.8 17.1 18.7 18.4 18.6
Absorption Rate based on Pended Sales 10.1 10.2 13.3 17.9 18.2 18.7 18 18.5 19.3 20.2 16 15.8
Avg. Active Price 731 729 729 752 741 744 742 732 719 706 693 684
Avg. Sld Price 451 477 428 440 452 486 463 457 455 450 451 456
Avg. Sq. Ft. Price 204 215 197 202 206 213 209 208 209 206 205 203
Sold/List Diff. % 95 95 96 95 95 95 96 96 96 96 96 96
Sold/Orig LP Diff. % 89 89 90 90 90 90 91 91 92 92 91 91
Days on Market 92 85 85 81 84 79 78 74 76 76 77 79
Avg CDOM 141 149 146 136 135 129 119 112 115 115 117 118
Median Price 380 379 365 380 380 396 380 376 385 374 378 380

PS. Please let me know how to publish an Excel spreadsheet to a Blogger post, if you know how to do that. Thanks!

Seattle Foreclosure Tour

You'd have to be asleep to have missed the fact that home foreclosures are on the rise in Seattle, as in other housing markets. Some 400 properties go into foreclosure each week in King County. That represents a huge opportunity for investors and for homebuyers looking for even greater deals on already depressed home prices.

Several local companies offer home foreclosure tours, and they provide a fine first-hand overview of the type and variety of properties that may be bought before, at, or after the foreclosure auction (more on when to buy foreclosures in a subsequent blog).

One such tour is being offered by Ballard Partners tomorrow, and it is open to anyone interested in joining us. I will be there - just be sure to let them know that Wendy Ceccherelli of Home Land Investment Properties referred you. You may just show up, no reservations necessary, but feel free to contact me in advance if you wish.

This is a bus tour which begins at 12noon at Romio's Pizza on Lake City Way this Thursday (tomorrow) and is scheduled to conclude by 3 pm. There are six properties that will be featured on the tour. Should be fun!

I'll be blogging more about buying foreclosures, but in the mean time, leave a comment below to let me know what kind of information on foreclosures might be of most interest to you.

HUD's Proposed Rules Eliminate Seller Financing!

If this is true, it would be a disaster for buyers, sellers, homeowners, and investors. In an attempt to better regulate the mortgage industry, HUD has apparently decided that it is in America's best interest to eliminate the possibility of seller financing for individuals!

If you are as concerned about this proposed regulation as I am, you must make your concerns known BY TOMORROW! Here's how:

1. Logon to www.regulations.gov You will see two white boxes for searching
2. On the left box labeled "Document Type", pull the menu down and select "proposed rules"
3. On the right box labeled "Enter keyword or ID", enter "safe mortgage". Then, press search
4. Locate the blue search result "FR-5271-P-01 Safe Mortgage Licensing Act: HUD Responsibilities..."
To read the rules: click on the blue title FR-5271-P-01 You will be taken to another page. You will see "views". You can click on PDF file or another symbol which will show you the rule document online. If you want to submit a comment after reading the document, use your back button to return to the search results and then move on to #5 below.
5. To submit a comment: On the right of the screen, across from FR-5271-P-01, click on "submit a comment"
6. Complete the form providing required information with blue asterisks and your comments and then submit. (Note: you do not need to fill in the blanks for organization name, government agency type, or government agency)

Here's what I had to say in my comments to HUD:
Please do not limit the opportunity for a buyer of any house or property to negotiate a seller-financed mortgage! There is nothing wrong, immoral, illegal or inherently wrong with seller financing! this is a method that has been used by buyers for decades--particularly in periods where interest rates are very high. In today's economy, many sellers PREFER to carry a note, as it generates a steady and predictable income stream for them. This works especially well for senior homeowners who have owned their property for a long time, and do not want huge amounts of cash to worry about having to invest, or that would disqualify them from receiving Medicaid. Also, in this economy, it allows more houses to be bought and sold--rather than leading to foreclosure! It generally results in a quicker sale for motivated sellers, and more opportunity for a motivated buyer. So why in the world would anyone want to limit the ability of a willing buyer and a willing seller to use this time-honored system of acquiring and selling property?

Stock Market? or Real Estate?

This article is written by my good friend Joe Gibson, President of the Carolinas Real Estate Investors Association:

I was at a Christmas party with good friends who are also investors. The question arose: what to do with the money in the stock market? We had discussed this question before but never arrived at a good answer, which to me means an answer supported by sound reasoning.

Within weeks of having this conversation, I came across several articles that provided the reasoning. One article listed the 5 best performing mutual funds in the world for the last decade, another listed the mutual funds that had out performed the S&P 500 every year, and the last analyzed the volatility of the stock market in the last 15 years (links to the articles are at the end of this blog). The S&P 500 is composed of the 500 largest companies, is weighted by capitalization and is a common measure of stock market performance.

The 5 best performing mutual funds in the world for the last decade and their returns are:
1) East Capital Ryssland – 1,524% or 131% per year
2) Russian HQ Ryssland – 962% or 125.4% per year
3) FIM Russia – 906% or 124.7% per year
4) Baring Russia – 839% or 123.7% per year
5) Odin Maritime – 832% or 123.6% per year

Those are pretty good returns. Let’s take the best one. A 1524% return over 10 years means that if you had initially invested $10,000 you would now have $152,400 or you would have an average profit each year of $15,240. As a side note, I don’t think these funds are readily available to the average investor in the US.

Now let’s take a look at US Equity funds. There are around 8,000 mutual funds in the US. Guess how many of them have out performed the S&P 500 every year since 1999? If you guessed more than 1, you would be wrong. Now guess how many have done it every year since 2000. The answer is 7 and 2 of those have a minimum investment of $250,000 and 2 have a minimum of $1M. Think about that for a minute. Only 7 funds out of around 8,000 total mutual funds or 0.0875% have out performed the S&P 500 every year since 2000. How does the average investor make a decision with those kinds of odds?

In the last 10 years the return of the S&P 500 Index has been -0.78%. That’s right, it is negative! If you had invested $10,000 ten years ago today you would have about $9,922. If you had put your money in a money market account at any positive interest rate for the last 10 years you would have outperformed the S&P 500.

The 3rd article looked at the S&P 500 Index over the last 60 years. The conclusion is that for the first 45 years there was little volatility and an average 10% growth rate. When you hear people talk about stock market investing they commonly refer to an average growth of 10%. This is the source. However, the last 15 years has been a period of extreme volatility. There have been 2 periods with losses of 46% and 56%. Keep in mind that if the market drops 50% you need a 100% increase to get back to your starting point.

The conclusions I draw from the last 2 articles is that it is difficult to outperform the market in general, it is difficult to pick funds out of the 8,000 available that will outperform the market, and that we are in a period of high volatility in the stock market. If the professionals have these difficulties, what chance does the average person have?

Let’s take a look at the returns from real estate and compare it to the best performing fund of the last 10 years. What would you have to do in real estate to take $10,000 and make $15,240 per year? Is it possible? Do you think you could do that?

Here are 2 strategies that would meet or beat the best returning mutual fund of the last 10 years. I am sure there are others.

Strategy 1
If you did 5 wholesale real estate deals a year and made $3,050 per deal that would equal $15,240 which matches the best performing fund. You could probably do it with a lot less than $10,000 so your return would be higher. Let’s assume you started with $1,000. That is a one year return of 1524% versus the fund’s average annual return of 131%.

Strategy 2
Buy and flip 1 house a year and clear a minimum of $15,240. This is more work than strategy one, requires more knowledge, and may have higher cash returns. You would take the $10,000 and use it for the down payment, rehab costs, etc. Depending on the deal and how it is structured you may not need any additional money. If you did need more cash you could use a private investor or other financing.

My friends do a lot of deals with doublewide mobile homes. It is not uncommon to buy them for $15 - $20,000, put $5,000 or so into it and sell it for $60 - $90,000. So, making $15,000 on a doublewide is very doable.

Why should you be able to get better returns in real estate than you can investing in stocks or mutual funds? I think it boils down to 2 factors:
1) source of information/knowledge that is the basis for decisions
2) security of your investment

Information for decision making
With stocks/mutual funds the decisions are typically based on advice from a financial advisor, a report by an analyst, information released by the company, or general news stories. It is very difficult for an individual to get the complete, unbiased story in order to make a decision. There is a great deal of information needed to make good decisions and much of it is not readily available. Given the returns that most of the professionals generate, it seems they have a hard time getting the story right also.

With real estate investing you can learn a market, history of recent sales, market trends, zoning, etc. that allows you to make an informed decision and allows you to calculate, with some degree of confidence, your return. With real estate, you have greater control over the possible returns because of the knowledge you have or can gain and the work you put into the project. This is not possible with stocks or mutual funds.

Security of your investment
With stocks or mutual funds there are no tangible assets backing your investment. When you buy a stock you don’t own a piece of equipment or a building or anything tangible. You can lose all of your investment quickly and you have little to no say on the decisions the company makes that can affect your investment.

With a real estate investment you have a piece of property that backs up your investment. Done correctly, your investment is a percentage of the value of the property meaning that you have equity. For example, the property may have a market value of $80,000 and your total investment is $50,000. The property could lose $30,000 and you would still break even. There is a margin for error that does not exist with stocks/mutual funds.

Conclusion
It is pretty clear to me that it is possible to earn much better returns with real estate than with mutual funds. Personally, I have been making the shift from the stock market to real estate with the money in my IRA. The major requirement is that you first invest in your knowledge so that you make better decisions concerning real estate investments. With the proper knowledge you can earn good returns investing in real estate, returns that exceed what you would earn in the stock market.

Links to Top Mutual Funds Worldwide
http://articles.moneycentral.msn.com/Investing/top-stocks/blog.aspx?post=1498909&_blg=1,1498909

Mutual Funds that out perform S&P 500
http://news.morningstar.com/articlenet/article.aspx?id=320669

S&P 500 Volatility
http://articles.moneycentral.msn.com/Investing/top-stocks/blog.aspx?post=1500025&_blg=1,1498909

Sell first? or Buy first?

This is a classic dilemma for today's homeowner, hoping to take advantage of the move-up homebuyer tax credit before the deadline of April 30, 2010. If the homeowner sells their existing house now, they may end up with no house until they can buy a new one. Or they may not be able to sell in today's market, and then they might end up with two mortgages. Certainly a deferred closing date might help, in the event their current house sold quickly, but a prospective buyer might back out before the homeowner could close on their new home.

My Move-Up Purchase Program addresses this problem by guaranteeing the homeowner of a sale on their existing home, so that they can purchase their new home and take advantage of the move-up homebuyer tax credit, and today's low interest rates. The Program is available to clients who buy their new house through me as their Buyer's Agent. For more details on how this program works, please email me privately at HomeLandInvestment@gmail.com, including your name and the address of the current property you own.

Forecast for Seattle Housing Market

from Money Magazine:
Rank: 48
Home price forecast: -4.8%
(one year, forecast through March 2010)
City stats
Population:
(2006) 2,496,619
Median family income:
(2008) $81,400
Home prices
Median home price:
(2008) $400,000
Affordability index:
(2008 median home price/family income) 4.9
Prices peaked in: 2007:Q2
Total climb during the boom:
(2000 to peak) 86.2%
Total decline so far:
(Peak through 2008) -11.1%
One-year change:
(Q4 2007 to Q4 2008) -9.7%
Forecast
Price change :
(from peak to bottom) -17.9%
When they'll hit bottom: 2009:Q4
At bottom, prices will drop to levels last seen in: 2005:Q3
Notes: The 100 largest markets determined using 2006 Census population figures; metro areas are generally labeled by the largest city in that area. Price data are for single-family homes through the third quarter of 2008, the most recent data available. Forecast change from first quarter 2009 to first quarter 2010. Figures for Q42008 are estimated
Sources: Fiserv Lending Solutions, Moody's Economy.com, Dutchess County Association of Realtors, Illinois Association of Realtors, Real Estate Center at Texas A&M University.

Seattle Rent-to-Own Option

This is an unlisted property that I am currently marketing for a client located at 9959 14th Court South in Seattle:

Use your sweat equity and imagination to make this cosmetic fixer your dream home! Instant equity! Purchase price of $220,000 is below today's tax-assessed value of $229,000 and Zillow's Zesstimate of $231,500! Low down payment of just $5000!

Purchase Terms:
Purchase Price: $220,000
Lease Term: Two years
Non-refundable option fee (applied to purchase price): $4500
Refundable security deposit (applied to purchase price if option is exercised): $500
Monthly rent: $1450
Monthly rent credit for on-time payments (applied to purchase price): $100

Lease option buyers must be pre-qualified with our lender, but may use any lender of choice. For more details on how you can own this home, contact me at HomeLandInvestment@gmail.com or call 888-621-4999 x3 or by leaving a comment below. For more information, see

http://www.postlets.com/res/3360381

College Investing 101

College Level Investing

Most parents approach the college years with the age-old strategy of ripping their hair out and screaming as they hold garlic and crosses over the tuition bills. As if rising tuition costs were not enough to ensure premature aging due to despair, housing costs can often exceed other educational expenses. A very clever investing strategy that may result in profit from those college years is to buy your student a house in his name where he will be going to school. He can rent out the rooms and live there himself. That alone might pay for tuition, but if he resides there two of five years, the profits are not taxed when the house is sold.

Additionally, since your student needs to learn there is no free lunch, you can open a second mortgage and advance them the money to buy the home. It is thereby secure and due upon sale. You have the option to forgive the note if the property value doesn’t rise as hoped, but if it does, your wisdom will earn you a profit, and just possibly your student’s respect...which is priceless.

My Lead Referral Program

This is how I can pay marketing associates who refer qualified leads to me for the purchase of any of my properties, including the one at 2525 Rocky Point Rd in Bremerton. I will pay $25 for each qualified lead. "Qualified" means that I have contact information, name, address, phone and/or email; that they have expressed a genuine interest in the property; and that they have sufficient financial resources to close a transaction at the listed price. People who refer leads to my company become team members that I consider to be "marketing associates," and it is my desire that they continue to procure warm leads. I also offer marketing associates 3%equity in the property, should it successfully close with a lead that has been referred to me by that associate.

Contact me for more details on how to become a Marketing Associate with Home Land Investment Properties Inc.

Rental in Seattle

Here is a one-bedroom Lake Washington view rental that is available March 1st, just 2.5 miles from downtown Seattle. This is another property managed by my company:

Elegant top floor unit on corner lot in beautifully-remodelled vintage brick triplex! Lots of architectural details, hardwood floors, new appliances, old world charm with up-to-code conveniences, and an awesome view of Mt. Rainier, Cascades and Lake Washington in a desireable Leschi location. Unit comes with its own off-street garage; and plenty of free street parking for visitors. Walking distance to Lake Washington, stores and restaurants in a quiet residential neighborhood, convenient to downtown Seattle. All this for $1395, most utilities included.

Updated energy-efficiency reduces tenant's utility costs for electric heat. Landlord pays for garbage, water, sewer, exterior lighting, regular yard maintenance, and professional property management. Tenant just pays electricity (and additional desired services such as phone, cable and/or internet).

About this Seattle neighborhood: Neighborhood is close to Capitol Hill, Central District and the Madrona restaurants area. It is walking distance to wooded trails to Lake Washington. Douglass Truth Library, Red Apple grocery store, a couple of coffee shops, Madrona and Leschi restaurants, and Walgreen’s. Transportation: Easy access to I-90, highways, and bus lines. Several bus routes nearby go to various areas including Capitol Hill, downtown, Queen Anne, south Seattle, University District, etc. (#2, 3, 4, 8, 14, 27 and 48).

Wendy Ceccherelli Designated Broker Home Land Investment Properties, Inc. HomeLandInvestment@gmail.com or 888-621-4999.

For more information, see
http://www.postlets.com/rts/3283646

Choosing a Real Estate Mentor

So how do you choose someone to coach or mentor you in your real estate career?
The level of expertise you will require in a mentor will depend very much on your own level of knowledge and experience. Your mentor should have more experience in your particular focus area than you. Be clear about the knowledge or expertise you seek, and you will have a better experience working with a mentor.

If you are brand new to real estate, you will want a mentor who can provide you with a general overview and who can help guide you toward a direction that makes sense for you. An individualized coaching program with regular assignments and meetings will help you progress more rapidly than a generalized program without built-in accountability. For generalized information, you should be pursuing your own education through books, networking, and online research - whether or not you work with a mentor. A great deal of information is available for free, or for a limited investment of funds, such as joining your local real estate associations or clubs. Meetup.com is another great resource for finding or creating a group of like-minded individuals.

Working with an experienced mentor is a proven way to advance more rapidly in your career. Someone who is investing time and training for you will expect to be compensated, and mentorship programs vary in terms of price, quality, and benefits. Ask around for references and referrals. Find out who is successful in your area of interest, and chances are you will start hearing the same names. Which of these people are willing to provide training or mentorship?

Talk to potential mentors about their background and qualifications. What is their education level? Have they made a commitment to their own education? To what clubs and associations are they members? What is their level of experience in your field of interest? Do they enjoy teaching and do they have any experience working as a trainer?

For example, I offer a mentorship program for real estate investors (described in my previous blog). I have an MBA and over 25 years of executive experience in the public and not-for-profit sectors. I have earned a license as a real estate broker, which requires several years of full time real estate work, continuing education credit hours, and passing state and national examinations. I am a member of several real estate associations, and serve as volunteer membership coordinator for the Real Estate Association of Puget Sound where I train other investors and provide educational materials. I write monthly articles for new investors on doing their first deals in the REAPS newsletter. I have expertise and experience in property management, real estate sales and transactions, rehabs and remodeling, lease options, creative real estate acquisition, negotiation and finance. I own rental properties in two states, including single family homes and multifamily property. I worked as a personal assistant and real estate manager for a local builder, developer and investor who is a national speaker on real estate investment. I have decades of experience as a public speaker, licensed trainer and facilitator in the non-profit sector, as well as aviation and fitness. I work best with investors and agents who are just getting started in real estate. I can provide references and testimonials as to my abilities, and best of all, I offer a money-back guarantee of satisfaction on my personal services as a coach, mentor or sales agent.

Know what you want and what you need, then seek it out from people you believe will be able to help you achieve your goals. Be sure they have the time, interest and inclination to serve in this capacity, and good luck with your real estate career!

My Real Estate Mentorship Program

Several new investors have approached me about offering mentorship, coaching and training to help them get started in real estate. The way my mentorship program works is generally this: I charge $1500 for three months of professional real estate coaching and consultation, customized for your specific real estate investment focus. I will meet with you in person for an hour twice a month at my home office here in Seattle; I will be available by phone and unlimited email during that time. If within that 3 month time period you buy a house and close a transaction through me, I will rebate your entire $1500--which will give you added incentive to be doing deals.

I also offer a 100% satisfaction guarantee. If at any time during our three month agreement, you do not feel the fit or the benefits meet your needs, I will refund your investment on a prorata share of the time expended since our agreement began.

This customized approach to investment guidance and assistance was developed to maximize both my time and that of my students. If you are interested in being considered for this mentorship program, feel free to leave a comment below or email me privately at HomeLandInvestment@gmail.com

Equity Partner on Lease Option Deal

So how would I approach an investor to partner on the lease-option deal described in the previous blog?

In my previous blog, I talked about how I would structure a lease-option purchase for a waterfront property listed for $325,000. In this blog, we will look at how this agreement would appeal to an investor and equity partner.

A conventional mortgage of $250,000 would be needed to replace a hard money loan currently in place on the property. So an investor/equity partner would be someone who was able to qualify for a $250,000 mortgage. As owner of the property, I would be listed on the loan with my equity partner.

The loan would be a conventional, non-owner occupied, interest-only loan, as we expect our lease-option buyer to be able to purchase the property from us in 2-3 years. We could also take out a fully amortized 30-year loan, if we had doubts about the ability of our buyer to exercise their option to purchase, or if we wanted to build in flexibility for future exit strategies. A fully amortized loan would cost us more, but interest only, with taxes of $308 and insurance of $50, would cost us $1800 per month.

If our buyer is paying us $2500 per month (see previous blog), then my investor and I are splitting $700 per month for three years ($25,200 total over three years).
I will cover all the costs of the loan out of the down payment provided by the buyer, so there is no cost to the investor to take out the mortgage—and they are making $8400 per year. In addition, as my equity partner, they get to deduct mortgage interest from their taxes and depreciation on our investment property. Since we are paying interest only, approximately $1440 per month of interest is tax deductible. In addition, they get to depreciate the value of the house (but not the land) over 27.5 years, further reducing taxable income.

As added incentive, I agree to split the net profit on the house over and above my basis of $325,000. So if the house sells for $337,000 ($357,500 less $12,500 as option fee and $18,000 in rent credits), we split another $8000.

So my investor/partner earns a total of around $29,000 over three years for their ability to take out a mortgage, an infinite return on their initial investment of $0. Not bad, eh?

Lease Option on Rocky Point Waterfront Home

Here is a case study of how I might work with a lease-option buyer on the purchase of the property highlighted in the last few blogs. In my next blog, I will discuss how an investor would profit by underwriting the mortgage for the lease-option buyer.

On a lease option, I typically pay the selling agent 1% of their commission up front, and the remainder when the option is exercised. So the down payment has to cover commission costs, option fee, and other related costs. I typically like to see 3 1/2 - 5% down as a non-refundable option fee. I used to bump up the purchase price by about 10% per year for seller financing and future value on an option, but in this market I'd be okay with $357,500 as a purchase price in three years for the house parcel.

Monthly payments should be equivalent to what monthly payments would be on the take-out loan, including taxes and insurance. Lenders like to see this too, as it demonstrates ability to repay.

If the buyer went FHA with a loan amount of $345,000, the FHA funding fee would be $6,000 so the loan would be for $351,000 then the payment with a 5.50% rate would be $1993 plus $161 for Mortgage Insurance (MI), and $308 for taxes and $50 for a total of $2512 a month.

Assuming the buyer put $12,500 down as an option fee (applied toward the purchase price), then monthly payments on the loan amount above would be roughly $2500 with taxes and insurance. I would be willing to apply $500 of the monthly rent as rent credit towards the purchase price, assuming payments were made on time.

At the end of the three year term, the house would be purchased for $357,500 less the option fee of $12,500 and rent credits of $18,000. The loan amount would actually be for $337,000--and payments would be even less per month. This is a good option for a buyer who cannot qualify for a loan today, but may in 2-3 years.