Seller Financing and Land Contracts

The housing market, which took a considerable hit as a result of the 2008 recession, has rebounded in the past few years, in part due to an increase in seller financed residential housing transactions. A significant portion of seller financed transactions has utilized the land installment contract to make residential housing available to the credit poor buyer unable to obtain conventional financing. The land installment contract is becoming a useful tool in the seller financing housing market, and its use is expected to continue to increase as the housing market expands and improves.

Private seller financing currently requires that the parties involved not only consider, but also comply with the Dodd-Frank Act, as well as other federal and state requirements. The Dodd-Frank Act adopted new laws that expanded previous regulation issued by the Board of Governors of the Federal Reserve System, among them licensing and regulation of loan originators, and rules governing installment contracts. The Consumer Financial Protection Bureau (CFPB) is empowered by the Dodd-Frank Act to implement and enforce rules and regulations issued in accordance with the laws passed under the Act.

Seller financing will certainly become more prevalent and significant as interest rates

Borrowers will find it more difficult to obtain conventional financing in light of the ability to repay guidelines which are required to be met for certain loan transactions pursuant to the Dodd-Frank Act. As a result, investors and lenders with REO properties who will want to sell them will find it useful to understand the rules and regulations governing private seller financing.

As previously stated, a signi ficant and growing portion of seller-financed residential housing transactions are being closed with land installment contracts. These agreements, known also as a contract for deed and land contracts, provide an opportunity to buyers with poor credit

that are unable to obtain conventional financing to purchase and own real estate.  This segment of the seller-financed market includes individual and small companies that complete a handful of transactions and firms that purchase hundreds or thousands of homes that are resold under land installment contracts. For example, Battery Point Financial has purchased hundreds of homes located in smaller cities with backing and suppo1i from Kohlberg Kravis Roberts & Company, a well-known private equity company. New York Mortgage Trust has a portfolio worth about

$760 million of performing and re-performing contracts. The large volume of contracts are purchased from sources such as Harbour Portfolio Advisors, a Dallas, Texas investment firm known for selling homes to low er income buyers us ing land installment contracts, and from Fannie Mae.

Pursuant to the land installment contract, a buyer will agree to sign a purchase agreement that requires regular payments over a period of time, up to 30 or even 40 years. Legal title to the real estate remains with the owner financer. The title is transferred to the buyer upon completion of the term of the contract. Land installment contracts come under the purview of the Dodd-Frank Act, and the CFPB is empowered to regulate such contracts.  In addition, land contracts have been used in various forms for a considerable period of time, throughout the United States.  States have dealt with such transactions in different ways but have generally stated that they are contractually enforceable. As a result, many states have passed consumer protective legislation that governs transactions using land installment contracts.

Several articles that appeared in the New York Times in 2016 focused negative attention on land contracts and suggested that the CFPB may be investigating this segment of the seller financed housing market. The authors of the articles emphasized that this market “cries out for federal oversight.” There is fear that there are too many unscrupulous sellers ” looking to make a quick and easy buck on the sho uld ers of vulnerable , unsoph ist icat ed  buyers.” Contrary  to  the claim that this market lacks oversight, land in stallment contracts are subj ect to CFPB scrutiny tlu·ough the authority of the Dodd-Frank Act, and many states have passed laws that gove rn transactions using  land contracts.  There may be unscrupul ous se llers in this  market, as there are in all markets, however the great majority of sellers and  buyer s are interes ted in completing  fair and enforceable  transaction s so that each party obtains  what  they  bargained  for.   If the objective is to permit credit poor buyers to purchase residential ho us ing, the la nd installment contract is a valuable and  useful  tool that may be utilized  to achieve  this purpose.

As a result of the recent presidential elect ion, and the change in political philosophy and policy that is expected to ensue, many are skeptica l about the future of cons um er financial protection.  While it may be diffic ult to determine  what policies the new  admini s tration, and

Co ngress will emphasize and implement (as Yogi Be1Ta once quipp ed, “it is dif ficult to make predictions, espec ially about the future.”), some have pointed out a recent comment from the Federal Trade Commiss io n that stopping fraud is a sig nificant part of its consumer protectio n program. A large part of the CFPB’s work also include s cha llenging fraud that harms

cons umers .  There are more than a few in the financial services  indu st ry that  will welcome the upc oming change s that are meant to curb the power of the CFPB, which in their view has been overly  aggressive and  exceeded  its authority.   While  there  ca n be  no  doubt  that change is forthcom in g, the work of protecting cons um ers from being subj ected to fraudulent practices will cont in ue. Also expected to persist, in light of the increase  in interest rates, and the continued fallout from the recent recess ion, is the continu ed  and  increasing use of the land installment contract in the seller-financed ho using market.

Too many potential home buyers have been shut out of the housing market as a res ult of the recent economic downturn. As banks and mo1i gage lenders have tightened lending requirements, private seller financing has step ped in to fill some of the demand for home buyers seeking housing. The land contract has, as a result, become an impo1iant and useful tool in achieving the objective of allowing buyers who cannot meet the mortgage bank’ s stringent loan requirements to purchase a home.

by

Farah W. Issa
President
National Lending Unlimited, LLC

(800) 630-1067 toll free

(216) 373-7740 fax

farah@nlunlimited.com

www.nationallendingunlimited.com

Member Benefit – Realeflow Internet Systems Updates Now Include MLS Comps

Have you had a chance to check out Realeflow’s brand new state-of-the-art Comping Engine yet?

If not, you’re going to want to take a few minutes to log into Realeflow and get your hands on it.

We recognized that our old Comping Engine had some flaws, so we worked really hard to make it a tool that’s easy to use, accurate, and vital to the success of your growing business.

One of the biggest changes we made to it is the data.

Realeflow has ditched Zillow so your comps are no longer limited by the listings that Zillow provides.

Comps are now run using MLS listing data, including Active, Pending, and recently Sold listings, providing more robust and accurate comparable searches.

Realeflow has also included additional search criteria to significantly increase the accuracy of your searches and comparable properties.

The interactive map provides a close up look at comparable and subject properties so you know you’re always choosing the best comps for every deal.

Realeflow automatically delivers the average price of all the properties you select for your comp report, along with an enhanced report with all the critical information you need to know about the subject and comparable properties.
See how it works in a quick video that we made for you here

REIA MEMBERS GET ACCESS FOR $7 Monthly 

GRAB THE DEAL HERE 


URGENT NEW FILING DEADLINES FOR PARTNERSHIPS AND C CORPS

URGENT NEW FILING DEADLINES
FOR PARTNERSHIPS AND C CORPS

March 15

Partnerships (NEW DEADLINE)
New deadline for calendar-year Partnerships to file annual tax returns (Form 1065) is March 15 and the 15th day of the third month following the close of the fiscal year (for fiscal-year partnerships). (Previously, these returns are due on April 15, for calendar-year partnerships.).

S Corporations: Deadline for calendar-year S Corporations to file annual tax returns using Form 1120-S or request a six-month filing extension and pay any tax due.

April 18

Individuals: File a 2016 income tax return (Form 1040, 1040A, or 1040EZ) and pay any tax due. An automatic 6-month extension of time to file through October 16, 2017.

Household Employers: If you paid cash wages of $1,900 or more to a household employee in 2016, you must file Schedule H (Household Employment Taxes) of Form 1040. If you are required to file a Federal income tax return (Form 1040), include Schedule H with your return and report any household employment taxes. If you paid total cash wages of $1,000 or more to household employees in any calendar quarter of 2015 or 2016, you must report any Federal Unemployment (FUTA) tax on Schedule H. Also report any income tax you withheld for your household employees. For more information, refer to IRS Publication 926.

C Corporations (NEW DEADLINE): File a 2016 income tax return (Form 1120) and pay any tax due. For C corporations, the new due date is the 15th day of the fourth month following the close of the corporation’s year. (Previously, these returns are due on the 15th day of the third month following the close of the corporation’s year.)

PLEASE NOTE:
If you are not able to provide your 2016 Business Income and Expenses before the March 15 deadline for S Corporations and Partnerships, an automatic six-month extension can be requested on your behalf.

Contact Ebere Okoye at 301-441-4538 (eokoye@acetaxes.com) to assist you with your tax preparation this year. Mention Duncan Wierman to get your discounts on services!

How To Raise Private Money


You need to raise money so that you can make money in real estate.

Other People’s Money

Your return on investment is higher when you use other people’s money. You can use less of your own money when you use other people’s money.

One of the best ways to raise money to invest in real estate is to get your family interested in investing with you. You can also sell your investments to invest in real estate. Lenders want to lend to you. If you can not get a loan from family or with a bank there are hard money loans. You can also use credit cards. Loans carry interest expenses that you need to budget for so that you can pay them back.

You can have a long career starting out with a few thousand dollars and a few profitable properties.

Pick great locations. You can invest in nearby neighbourhoods or pick hot markets.

You can raise money by finding and putting a few profitable properties under contract.

It’s hard to tell where you can find cash flowing real estate deals with capital gains. The internet has a lot of discount properties. The problem with most real estate on the internet is that you can’t go direct to the homeowner. I think direct mail is how to do it.

Build a trusted brand with repeat exposure to investors and sellers.

Investors are excited by the real estate that you have under contract and present to them. It is smart to have a telephone script when starting out. Create a cash flow statement outlining expenses for each property so that investors can decide whether they want to take the risk.

Some real estate professionals talk a lot to try to confuse you. Make sure they aren’t Tire Kickers so that they don’t waste your time. Tire Kickers:

  • Don’t answer the phone
  • Don’t show up for appointments
  • Don’t close a deal when you have what they want

Raise Money Online

When you have a property under contract, you can list the seller online and raise money.

Have a Website:

Blog and have a landing page for investors to fill out their information.

Strategies of Raising Money:

  • Joint Venturing

Negotiate 50% of the cash flow and capital gains with the buyer.

  • REITs

Start a corporation that invests in real estate and issue shares.

  • Subject-To Financing

Use the subject-to financing escape clause in your purchase contracts to buy you some time to raise money.

Reinvest profits to make money in real estate. If you don’t want free and clear property, you can refinance your mortgage to reinvest cash. The rule of 72 tells you how quickly your money doubles. Divide 72 by your return on investment.
Michael Sadler is the Founder of Access The Flock Online Real Estate Marketplace where he helps Real Estate Professionals make money accessing cash buyers and motivated sellers. Follow on Facebook, Twitter, Google+, YouTUBE, LinkedIn Group, LinkedIn Personal.

Draft Your Real Estate Investor Dream Team

Being a “self-directed” investor doesn’t mean you have to go through your financial journey alone. In fact, very few high-net worth individuals would tell you that they reached their level financial success by themselves. Making sound financial moves consistently requires a high level of financial literacy and it’s difficult to master a multitude of investment, tax and legal strategies by yourself. If you are going to excel at the money game, it is essential that you identify an effective group of professionals that can add value to your retirement planning by sharing their knowledge and experience in their area of expertise. Let me be clear, I am not suggesting that you delegate your financial decisions to third party advisors. What I am stating is that you should surround yourself with a team of experts that can help YOU make the most informed decisions with your savings. You should still maintain total control at all times. Subject matter experts and advisors should be by your side to provide knowledgeable input, information, insight and options for consideration. Ultimately, they report to you and then you make the final decision based on your level of comfort, understanding and confidence resulting in the most suitable direction for you and your family. You may be thinking “I already have a CPA, Financial Advisor and Attorney, so I’m set. I have my team established already.” Wrong. That isn’t sufficient. You must go deeper…much, much deeper.

For example, let’s assume that you have decided to open a Vantage Self-Directed IRA to invest in real estate. Your dream team should include, but not be limited to, the following list of knowledgeable professionals.

1) Registered Investment Advisor (RIA)/Financial Planner: This individual is responsible for ensuring that your real estate IRA strategy is in line with your comprehensive financial goals and that the expected rate of return will help you achieve your defined retirement objectives. I encourage you to seek a fee-based or fee-only advisor that can prove that they embrace the methodology of incorporating alternative investments, such as direct real estate investments, into a well-diversified investment portfolio. If your Advisor seems allergic to alternative asset strategies, it’s probably a good time to re-evaluate his or her role on your team. You may have out grown them.

2) Certified Public Accountant (CPA): This individual is responsible for confirming that your real estate IRA strategy will not increase your tax exposure and that you’re prepared to cover any current and/or future tax liabilities. Should your real estate IRA strategy include leverage or active fix and flip transactions (i.e. potential for dealer status), your CPA should be able to educate you and analyze the potential impact of Unrelated Business Income Tax (UBIT) and Unrelated Debt Finance Income Tax (UDFI) to your IRA.

3) Real Estate Attorney: Having a family or general business attorney won’t cut it. You need legal counsel that specializes in real estate. Someone that can provide guidance on real estate contracts, debt instruments, eviction rules, leases, landlord laws, deeds, ownership structures, etc.

4) Self-Directed IRA Attorney: Identifying an attorney that specializes in Self-Directed IRA legal strategies is also critical. This individual is responsible for educating you about prohibited transactions, disqualified persons for your IRA, appropriate investment ownership structures (i.e. Limited Liability Companies, Limited Partnerships, Private Placements, Syndications, Investment Funds, Private Stock, etc.) Working with attorneys before you make an investment to help you minimize your potential liabilities is much more cost effective than hiring them to fix problems after the fact, so please do yourself a favor and don’t skimp in this area. A great attorney in this area is worth their weight in gold. I suggest you follow my personal mantra about attorneys… “If you can’t afford hiring the appropriate attorney(s), you can’t afford the investment.” Meaning, if you are seeking to save yourself $200-1,000 by not engaging an attorney to evaluate your investment legal strategy, you probably shouldn’t risk directing any higher dollar amount into any investment!

5) Estate Planning Attorney: A third Attorney? Yes, a third attorney. This individual is responsible for ensuring that your IRA investment is aligned with your overall estate plan. They will counsel you on your various IRA beneficiary options and suggest the most tax efficient structure given your wishes upon death. Even if you are not married or have children, you still have an estate and I suggest you make certain that your hard earned savings are inherited by your loved ones and not the Internal Revenue Service.

6) Real Estate Professional: This individual is responsible for identifying and negotiating the best investment property for you. Be sure that your chosen Realtor® specializes in investment real estate and isn’t a generalist. If investment real estate doesn’t make up at least 50% of their business, you should move on until you find one whose business reaches that minimum threshold. Many agents claim to work with investors but don’t truly have expertise and knowledge in this area. It is also preferable to work with someone that has Self-Directed IRA experience and has worked through an IRA funded real estate transaction previously. Visit Vantage’s home page to search for a Certified Real Estate IRA Agent in your area. If you are an experience real estate investor, you may be able to do this on your own.

7) Title and Escrow Officer: The title company and escrow officer plays a critical role throughout the real estate transaction so be sure you select a financially strong and credible company that can help you avoid delays, unnecessary expenses and pitfalls. There is a lot of paperwork involved in a real estate transaction. You need someone that has the patience to explain the purpose of each document and the responsibilities you are assuming by signing each dotted line. Yes, reading the fine print is super annoying and painful, but it must be done to avoid surprises later.

8) Property Manager: This individual or company is responsible for helping you protect and hopefully increase the value of your real estate asset. This is done by ensuring you identify a great tenant (if your strategy involves obtaining rental income) and providing credible service and maintenance providers (i.e. landscapers, pool maintenance, plumbers, handy men, home warranty insurance, HVAC specialists, insurance agents, etc.) for your investment.

9) Loan Officer: This individual is responsible with helping you analyze if using leverage with your real estate IRA strategy is viable. Be sure that this professional is knowledgeable about how non-recourse IRA loans work, has access to non-recourse loan programs and can educate you about the potential for tax liability associated with leveraging your IRA account savings (i.e. Unrelated Debt Finance Income Tax).

10) Insurance Agent: This individual is responsible for ensuring that your investment property is adequately insured for all potential risks. Be sure you work with an insurance specialists that has vast knowledge in investment protection policies. Just because a company or agent offers various insurance policies and products doesn’t mean they have the expertise and experience in providing sound advice for real estate investors. Again, be sure you read the fine print of the policies you purchase and that your insurance advisor has the patience to go over all the relevant policy language, terms, contingencies, exclusions, financial obligations and protections.

You may be looking at this list of ten professionals and thinking “OMG, that seems like a lot of work, meetings and costs. I don’t have enough time to meet with all of these advisors.” There is no denying it, it is a lot of work and there are various costs involved. No one said building wealth was quick or easy. The truth of the matter is that these are the steps needed to invest prudently. There are no shortcuts to attaining true wealth. Remember, this list is relevant to someone making an IRA investment in real estate. If your alternative investment appetite is something else, there will be a slightly different list perhaps but taking the step of drafting a dream team of experts in each key area shouldn’t be overlooked. As you gain more investment experience and you identify a group of experts you trust and feel comfortable with, this process will increasingly get easier and more proficient. Most investors already have a head start with this and already have a short list of these professionals on their side and only need to draft a few more to complete their power team. Regardless of whether you have a few or you are starting from scratch, you may be wondering “What is the best way to find the right professionals?” The best way is to get a referral from trusted source. Find someone that is already at the financial level you are seeking to obtain and ask them who they use. If they are wealthy, chances are, they have already built their dream team and can share their contacts with you.

The great news about being an Midlands REIA member is that you have many of these professionals, if not all, at your fingertips during monthly meeting. Good luck in drafting your real estate dream team and happy investing!!!

For more information about Vantage Self-Directed IRAs, please visit By J.P. Dahdah, Vantage Self-Directed Retirement Plans

www.MidlandsRealEstateInvestorsAssociation.com

 

By J.P. Dahdah, Vantage Self-Directed Retirement Plans