Why use Hard Money?

Most borrowers who use hard money do it for the following reasons:

• They personally cannot qualify or the real estate does not qualify for a regular bank loan.
• They do not have time to wait for a bank loan to be approved.
• They want to borrow money with a business entity and/or do not want to personally guarantee a loan.

Even though the rates can be high, hard money can be quite useful when an investor has an opportunity to buy a property for a low price and sell it for a profit. Simply put, hard money even with its drawbacks can be a great tool in providing the capital necessary to facilitate a Real Estate Investor.

How do I find Private Money Lenders and get a Hard Money Loan?

Please review the real estate Private Lending section of www.invesdoor.com where you can learn more about the process and get your hard money questions answered.  With the opportunities that today’s market affords, it pays to know all of your options so that you ultimately can get the deal done!

Contributed by:

Russell Roesner,Financial Director Invesdoor™

So, what can’t you invest in?

The IRS defines a prohibited transaction as follows: “Generally a prohibited transaction is any improper use of your IRA account or annuity by you, your beneficiary or any disqualified person. Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of lineal descendant).”–Source IRS Publication 590 In other words, you can’t make loans to yourself, your family, or buy real estate for personal use.

Why use a self directed IRA?

The number one reason for a self directed IRA is to provide private funding for real estate deals.  The funds from a self-directed IRA can provide private lending for the real estate deals of others.  Your money can be secured in first position on investment properties at a safe loan-to-value ratio like 60 or 65%.  You can buy rental property to hold and rent, make high yielding loans to real estate investing professionals (Deeds of Trust), and of course join the millions of others in America making high returns in the fix and flip market.

How do I choose a Self-Directed IRA Company?

Although there are many to choose from in today’s crowded market, I still prefer to go with companies that have been doing this the longest and offer the lowest fees. The annual fees and per-investment fees can really get you so it is important to do your own research. I’ve found the following companies to be the best in my experience.

Equity Trust: http://www.trustetc.com/

Pensco: http://www.penscotrust.com/

Sterling Trust: http://www.sterling-trust.com/

How do I find good investment options for my-self directed Ira?

To learn more about self directed Ira’s, I suggest going directly to one of the 3 IRA company links I posted above. There you will find lots of explanations and tutorials on self-directed IRAs.  Once you have settled on a custodian for your account, review the private lending area on http://www.invesdoor.com to get some good ideas.

Contributed by

Russell Roesner, Financial Director

Invesdoor™ Corporation

I guess my perceptions about banks may have been molded, in part, by the classic 1946 film: “It’s a Wonderful Life” with Jimmy Stewart.  Here we saw a sincere man driven by a true concern for his fellow man seeking a solution through honest business practice under the basic principles of teamwork and trust.  Today, though, kids grow up with an entirely different view of banking.  They see extremely large, cold, complex and insensitive Wall Street-driven institutions that make business decisions with little regard for their customers.

There was a time when a community bank would care for the money of its depositors and wisely lend to local businesses and families wishing to buy a local home for their family.  Over the years this very simple concept has become so large and complicated that the individual small business or homeowner has been squeezed into a very uncomfortable position.

Since the new millennium, most large banks chose to hop on the housing “bubble” and financed homes for families they knew couldn’t afford them.  The resultant U.S. foreclosure crisis is evidence of a policy gone wrong.  Nonetheless, losses must be sustained as families leave their homes either by choice or necessity.

How are the banks dealing with this widespread problem?  They promptly accepted federal aid and yet, still get a failing grade on modifying the mortgages for most of the families who needed it.  They have also tightened up new lending criteria so that new homeowners, businesses and landlords must look elsewhere for funding their transactions.

And this is just what is happening.  A new trend is sweeping the nation:  A move away from traditional banks and towards private lenders.  With private lenders the terms are considerably different than banks…often much higher interest and points.  Nevertheless, with 20-year low purchase prices, one needs the ability to act quickly without a lot of bank “red tape.”

This is especially crucial if you make your living with a real estate home business.  Whether you buy foreclosures, short sales or other distressed investment properties, the real “deals” won’t wait for the bank to get around to your file.  Most real estate investment experts have shifted their paradigm of how they finance their deals.  Thank goodness for competition!

It’s been said that “necessity is the mother of invention.”  Banking will never be quite the same again, ever.  Opportunities, however, continue to arise and one needs to be able to take advantage of these in a reasonably short period of time.  I will talk more about private money in another article soon.

In the wake of the economic crash of 2008/2009 we look ahead to 2010 bracing ourselves for what may come.  Unemployment is around 10%….and that number reflects only those jobless claims that are reported, so will the number continue to grow?  Has the housing market found the bottom?

Questions like these plague many regardless of their economic status.  Workers can’t find work and employers are reluctant to hire until some important questions get answered.  Also, prospective home buyers are needed while supplies of unoccupied homes remain high.  All the while, existing homeowners are in a quandary about what to do about their home that is worth much less than what they owe on it.

A new study published by the Federal Reserve Bank of New York recently commented on the sad reality of typical loan modifications these days.  The study revealed that when a borrower’s monthly mortgage payment is cut by 25% by only reducing the interest rate, the borrower is 11% less likely to default within the year.  However, if the monthly payment were to be lowered by reducing the principle 25%, coupled with a small interest rate reduction, the chances of the borrower defaulting in 1 year drop by almost 27%!

The conclusion of the study was that borrowers that have a LTV of 115%+ (meaning they owe 15 or more percent more than their homes are worth), run a 51% higher risk of re-defaulting after the loan modification.   At the end of the 3rd quarter of 2009, 10.7 million or 23% of all U.S. homeowners owed more on their home than it was worth.

County Treasurer for Cuyahoga County, Ohio, Jim Rokakis, comments:  “Things are not getting better, they’re getting worse.  Vacant foreclosure properties not only impact the homeowner, they harm entire neighborhoods and communities.  The situation we find ourselves in is akin to the 1930s.  This is our Dust Bowl.”  Bottom line, unless the government steps in and forces lenders to lose money, we can expect a FLOOD of foreclosures in 2010!

The intelligent answer to this problem is for lenders to come to grips with the inevitable loss and work with homeowners to short sell their homes.  This will avoid further expenses associated with foreclosing and perhaps save the costly repairs that come with vacant houses.  As an experienced real estate investor and landlord, I can assure you that the cost of maintaining a vacant property will only cause lenders to suffer even greater losses.  So, it behooves lenders to aggressively seek successful short sales in 2010 and stop the bleeding now.   It is unrealistic to wait for the market to reverse itself and the longer banks and other lenders remain in denial, the housing situation will simply fester like an open wound.

As you may already know, I have been a wholesaler of real estate opportunities for quite a few years now.  One thing you may not know, however, is my secret key to consummating deals.  Today I am going to reveal this well-guarded secret to the world.

Let’s take an example from the many sincere folks losing their homes and selling them short.  It’s no secret that their credit will take a hit broadside for no less than 2 years…and they will be required to work hard to heal the damage done during that ensuing 24 month period.  No one wants to talk to them.  Landlords are skeptical about renting to them and banks refuse to acknowledge their very existence.

The gnawing question is:  Is there any hope for the millions of homeowners nationwide in this predicament?  Thanks to the ingenuity of some highly savvy, creative entrepreneurs, the answer is:  “probably.”

The grim truth is that without good credit, institutional lenders have traditionally turned their proverbial noses up at folks like the foregoing.  Therefore, the answer lies outside of the traditional “box.”  Yes.  Banks are not the answer.  Rather, they are the problem.  If a sincere family wishes to become or even remain a homeowner, with the subsequent tax advantages, they must break convention and seek financing elsewhere.

Tighter restrictions on bank lending have crimped the styles of real estate investors as much as they’ve hurt wannabe homeowners.  Nonetheless, the investment-capital vacuum has sucked in a strong stream of private money, including the retirement funds of ordinary people.

The best of both worlds – upside potential and a healthy interest rate – is the reason for a hybrid investment vehicle that will be offered by Invesdoor Corp. after the first of 2010.  For te most part, money is coming in from private investment accounts known as IRAs which many Americans have, but don’t manage to their benefit.  These funds, while filtered via a 3rd party custodian, cannot be physically handled by the owner.  They can only be allocated to their designated use in which a much higher return is enjoyed, thus growing the retirement account at an accelerated rate.

If you have tried to get your mortgage note modified and opted to short sell the family home, this may be for you.

In the case of a short sale two facts remain constant.  First, you will sustain damage to your credit rating for at least 24 months.  Second, you will have to move.

There has traditionally been a third inevitability and that is that you would become a renter again.  The latter is least preferable as it means the loss of some distinct tax advantages that come with home ownership.  These will be discussed in a later article.

In the meantime, the question is whether it is possible to maintain homeownership status with severely handicapped credit?  The answer is: “possibly.”  With private money many doors can open up to families with a solid household income.

Financial loans are financial opportunities in disguise.  It can provide the private lender a great return on their money while securing their funds with a note in first position on your new home at a loan-to-value of 65-70%.  In this down market property values present a terrific opportunity for securing retirement funds as well.  Free information on that subject can be obtained by calling 1-888-380-INVEST and requesting a CD on self-directed IRAs.

Private funds also allow for flexible terms.  Maybe your “sweat equity” and a partner’s cash can make a winning combination together.  Either way, the sky’s the limit.

Don’t underestimate the power of the human heart.  People have a nearly inborn need to feel as though they are making a difference in the lives of others…especially those whom they care about.  You may be surprised to find others are more than a little enthusiastic to help you realize your dreams.  Why not share these hopes and dreams with those in your life?  It may prove to be the best financial move you make this year!

Be prepared to provide the “complete picture” for any prospective investor.  Make sure you have accurate numbers and all available facts about the new property.  This will make their decision much easier….and you look better.  As with any business transaction:  Put it in writing!  Provide your lender with a Note and Deed of Trust and have it recorded with the county.  It is best, too, to have your lender named as “additional insured” to protect them against any catastrophic losses.

In conclusion, as the banks get weirder and weirder, it will become increasingly more necessary to get creative with financing.  Private money is a great vehicle to make deals happen.  You will likely pay a higher rate of interest but it may make the difference between having the deal and not having it.  Here’s to home ownership!