Pasadena Note Queen

Owner Financing Helps High End Home Avoid Foreclosure

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Fri, 11 Dec 2009 22:07:56 -0600

Hey, I just got this audio file put together, and I think anyone interested in preserving their real estate asset by transferring it with the existing financing in place might be interested in listening in. It’s a little long… about 9 minutes or so, but I think it’s worth checking out:

You can read other articles on the Title Holding (Land) Trust here:

Abundance is Right Around the Corner

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Wed, 09 Dec 2009 13:18:59 -0600

I’m not sure it’s really smart to post videos where I show up with morning face and bedhead, but I’ve never been one to have a keen sense of propriety.

It’s just that this is one of my favorite rituals of the whole year . . . and the timing’s great. I’m sure Santa will be good to me, but Mother Nature always beats him to it.

Have any of you read Catherine Ponder? It was kind of funny . . . I re-remembered her after talking to a real estate agent in Palm Springs that was trying to put a deal together for Ms. Ponder’s son.

In 1983 she published a book entitled, “Open Your Mind to Receive.” On page 2, she recounts:

“A businesswoman was once despondent over financial conditions. Her affairs continued to be out of order so she went to the beach and sat there all day and most of the night. During that day on the beach, she realized that the grains of sand are countless on the beaches of the world.

That night she looked up and realized that the stars in the heaven are also beyond counting. She realized that the fish in the ocean lay so many eggs that if they all hatched, the waters would overflow over the lowlands. She thought of how leaves on trees continue to multiply year in and year out.

She became so aware of the abundance of the universe that she finally said, ‘Yes! The universe is lavish, abundant, extravagant, and it is all meant for my use and enjoyment!’ As she began to feel unified with universal abundance, her thinking changed from limitation to bounty, and her affairs quickly responded.”

As crazy as things may seem sometimes, most of us can find evidence of beauty and abundance that conspire to make us feel safe and overflowing even as cultural constructs are crumbling and reorganizing all around us.

Getting a Bear Hug Tracking Down Market Leader Active Rain at NAR San Diego 2009

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Sun, 15 Nov 2009 20:07:16 -0600

I really wasn't prepared for what a gift it would be to meet very Active Brad in person. When I dropped by Saturday morning, he was actively giving out bear hugs and 'Safe SEO' advice to anyone who could come up with a good bear story . . .

You see, when Brad was but a wee lad of 12, he was camping out under the stars when he was awakened in the deep of the night by a bear performing a lice check on his noggin. Fortunately, he's found a way to transcend the terror of that encounter by facilitating a support group he calls "Bearly Recovering" for folks, like me, who have been through a Major Ursa ordeal.

OK, obviously I'm having some fun here, but that's what it was spending almost 45 minutes there on the couch with Brad . . . fun.

I felt self-conscious of the fact that I was taking up so much of his time and attention, but he wasn't very good at projecting an awkward vibe, or darting his eyes about, or anything that would suggest he was ready for me to get lost. He was extremely present and generous with his time . . . I basically got Rain Camp 101 accelerated (if you miss him at NAR, you'll have to make it to Rain Camp at Inman Connect 2010 in NYC next January).

As a special bonus, he made me cry when he shared what it was like dropping off his son at college for the very first time. With 4 teens at home ranging from 16-19, his words shot straight through my heart. Empty nest syndrome is right around the corner for me, and I'm excited and dreading it at the same time.

Brad is passionate and real, and embodies what it takes to be an effective blogger and social networker.

"Write like you would talk to someone over a frothy cappuccino. Share, don't sell, use photos and videos, and put in 3-4 links to other sites for every 1 taking someone back to your outside blog... " [Quotation marks used recklessly]

I was touched and inspired by my visit with Brad and the vision of Active Rain that I really hadn't been able to get my head around before. And guess what? The point of Active Rain is not to get points (but all the same, you're going to use your God Console to grant me a few extras, right, Brad? ;-)

I'm grateful to Bill Exeter and the Deferred Sales Trust for getting me to the conference . . . making that personal connection has made all the difference.

P.S. I really did get a nice bear hug from Brad . . . anyone else score this year?

Lack of Financing #1 Barrier to Recovery

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Mon, 09 Nov 2009 13:27:17 -0600

According to a poll released recently by LoopNet, an online commercial real estate marketplace, 46% of commercial real estate professionals say the commercial RE market will not rebound until 2011.

Fifty-three percent (53%) expect further price declines of 11% or more. “Lack of access to debt financing” was the No. 1 cited barrier to recovery. No one can get loans these days.

That’s why my whole conversation is about putting buyers and sellers together without the need for new bank financing. Intelligent, legal, ethical non-traditional ways of putting real estate transactions together is all I talk about.

We just need to choose the right strategy and engineer the transaction in such a way that it addresses the short and long term interests of both buyers and sellers.

Sometimes price is the most important thing to a seller, sometimes monthly income, sometimes capital gains. But one way or another, it’s about quality of life and creating desired outcomes.

What does the seller want to be doing with their time and energy?

Do they have health problems?
Are they tired of managing property?
Are they moving out of town?
Would they like the freedom to relax and travel and enjoy their retirement?
Would a little more cash each month make all the difference?

A few days ago, I was talking to an agent that was trying to put a commercial real estate transaction together. His client owned a desirable 9,000 sqft property free and clear on historic El Camino Real in Northern CA.

A couple years ago, the property would have fetched close to $3 mil. Now it was listed at $1.6 mil, and there was one lone buyer who wanted it, only he couldn’t get traditional financing.

He would pay the $1.6 mil if the seller would take $400,000 down and carry the rest at 6.5% over 30 years.

Well, because the seller didn’t want to pay ANY capital gains, his agent was exploring the possibility of selling the note so all the proceeds could go towards a 1031 exchange.

Good idea, except for this…

The discount on a green 75% LTV (loan-to-value) commercial note, even with good down payment and credit, would be so high that it just wouldn’t make sense, especially with that low interest rate!

Here’s what I might say to the seller:

Just carry the dang note and be happy that you get to defer MOST of your capital gains through the installment sale . . . you’re getting your price, for heaven’s sake! And after some seasoning, you can sell the note for a smaller discount!
Drop the price 20% and hope for a cash buyer (or one that can actually get a loan) so you can do a 1031 Exchange or set up a Deferred Sales Trust.
Lease the property out and be prepared to wait AT LEAST 10-15 years before you find someone willing to offer $1.6 mil again.

I think this particular seller ended up leasing the property to the prospective buyer instead of selling it to him . . . which is fine, if he’s truly happy owning the property.

Just because the financial markets are in a mess doesn’t mean we can’t put savvy, potent real estate transactions together. And the economy needs us to do just that.

Be sure to sign up for: Seller Financing on Steroids: Pumping Paper for Power, Peace and Profits. Defer capital gains & sell fast for top dollar, regardless of market conditions (and have a note that's worth something!)

Bear Legal Title - a Title Holding (Land) Trust Minute . . .

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Thu, 05 Nov 2009 05:01:05 -0600

[Also included below as a random tangent and not related to business at all (except I did make it here to write this post): Bare to Bear - a True Tale of Grim Survival and Wobbly Knees] . . .

A title holding (land) trust is a great way to hold title to property, and personally, I will never again hold title to any piece of property in my own name, or even in an LLC or Corporation.

First, it'll go into a land trust, and my entity of choice (LLC vs. S Corp) will be the beneficiary.

When the trustee is deeded the property, the trustee is said to hold bare legal title. The trustee holds legal and equitable title, but does NOT have the power of direction . . . that resides only with the beneficiaries.

The trustee does not have the ability to take any action with regards to the property or related paperwork without the express written consent of all beneficiaries. This is why, in most states, there is unparalleled asset protection:

not only do you have killer anonymity and privacy in ownership,
but your ownership is consider personal property, not real property (which means it's usually protected from partition, judgments, probates, divorce proceedings, IRS tax liens, etc)

Judges, police officers, politicians . . . these people never want to show up on public record, right? They don't want anyone to know what they own or where they live, and no one should in a society where lawyers are looking for a reason to snatch away your net worth. Hey, wait a minute . . . are they working for the government???

Contrastingly, BEAR legal title refers to that right that a large mammal, known for its prodigious strength, has when it wants your property . . . or at least to get in for a snack . . .

It usually doesn't ask for written or even verbal permission . . .

Broke or Broker? Realtors Turned Note Brokers

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Tue, 13 Oct 2009 18:38:40 -0500

I had an especially exciting conversation with a Realtor recently . . . one of the few that totally gets how a little knowledge of the discounted note business helps put more real estate transactions together.

Instead of going broke with many of her colleagues, she's a real estate broker, turning note broker as well.

So here's what she's doing . . .

She's taking all these good buyers who can't qualify for bank financing, and hooking them up with FSBOs who are willing to carry paper (of course, she does a lot of educating in the process).

She collects a consultation fee from her buyers after she qualifies them, and knows they have a decent down payment.

Then, she goes out and finds FSBO sellers who are having a hard time competing with all the short sales and REOs. She shows these sellers how they can carry paper (offer owner financing) and still walk away with cash when they let their note season for 1-12 months, and then sell it.

And guess who will most likely be brokering that note?

So, she may not make a big commission selling the property, but she'll make a commission when she helps those sellers/note holders get cash for their note. And because she understands the note business, she knows how to help those sellers create a note that will sell for a decent price on the secondary market.

Fun, huh? She's a visionary and a leader, and she's passionate about helping the economy, and preserving the dream of home ownership for her clients.

Real estate brokers should be note brokers, as well. These markets dovetail nicely, and the specialized knowledge can make the difference between a broker going broke . . . or not.

Tsunami of Foreclosures - Will You Be Collecting Shells When It Hits the Beach?

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Sat, 12 Sep 2009 13:23:20 -0500

I’ve never witnessed a tsunami first hand, but I’ve been told that before the devastating wall of water devours everything in it’s path, like a hungry sea beast coming in for a glorious feast, there are a few moments in time that seem quite magical to the innocent and unsuspecting.

The water line temporarily recedes, making it excruciatingly tempting to prance delightedly along the shoreline collecting shells, fish and other treasures that have suddenly become accessible.

And apparently, it can be such a fascinating and engaging activity that you might fail to notice the darkness forming on the horizon as you fill your goodie bag to overflowing. By the time you do . . . well, it’s usually too late.

I recently read the following from John Mulkey:

“If the economy is improving, do we really have millions more foreclosures coming? According to the U.S. Treasury, the answer is yes. In written testimony to Congress, Assistant Secretary for Financial Institutions, Michael Barr said that, regardless of the success of mortgage modification efforts, we should still expect millions more foreclosures.

Mr. Barr’s testimony is certainly not welcome news for those anticipating a significant recovery in the housing market. In fact, it is an indication that significant recovery is still years away.

And there are other factors that confirm the fragile state of both the economy and the housing market. Recent reports have indicated that there are almost 3 million active, interest-only loans with a total value of almost $1 trillion, with loans of about $500 billion set to reset within the next 30 months. Then we have a large group of Option Arm mortgages set to recast during the next 2 years. These loans have a combined value of more than $125 billion.

The rising number of bankruptcies, up 36% in the second quarter over last year, with wealthy families filing at double that rate, creates a ‘perfect storm’ of disastrous consequences for the housing market. With the likely prospect of millions more foreclosures coming, home prices and home sales will remain depressed until the market can achieve stabilization. And achieving stabilization will be a slow and painful process.”

Of course, certain areas of the country will be hit harder than others. Even here in California, (one of the hardest hit together with Florida and Arizona) there are pockets that are devastated, and pockets that seem almost immune.

And I don’t especially care for being a Prophetess of Doom . . . my brand is ‘Note Queen,’ which is rather harmless and mostly silly, really.

It’s just that I feel strongly about helping people triage (can you tell I used to be an RN?) their financial lives carefully. The real estate market may be fine where you are, and it may get even tougher. And if it does, how will your quality of life be affected?

If you’re holding on for ‘just a couple more years’ until the market ‘recovers,’ then stop it. Sell now, especially if you’ve got negative cash flow and your net worth is less than $5 million.

If you’re happy owning your property for the next 12-20 years no matter what happens, then fine. Hold out for your price and terms. But if your emotional and financial well-being depends upon the successful sale of a piece of property in the next 10 years, then quit dawdling.

And if deferring capital gains is important to you, download your free copy of a report I created entitled “How to Avoid Paying One Red Cent to Uncle Sam When You Sell Your Property” at www.AvoidCapitalGains.net.

There are a lot of investors out there picking up pre-foreclosures and REOs like sea shells before a tsunami. Prices seem good now, but they could get even better, despite all the government’s shenanigans in the ‘free’ market.

Be sure to sign up! (you’ll get the inside scoop)

When you opt in to ‘Seller Financing on Steroids,’ you get a Decision-Making Guide for FREE!

When Your Soul is On Fire - Sierra Madre, the Station Fire, Chantry Flats, Sturtevant Camp and the Big Santa Anita Canyon

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Sat, 05 Sep 2009 19:33:04 -0500

Perhaps our souls are burning along with the forest as we experience the shock, sadness, anger, fear and confusion of watching the mountains, once rich with life, turn desolate moonscape.

In a stupor of smoke, we watch homes evaporate, and wonder if ours might be next. With ravaged hearts, we mourn brave heroes, and imagine the innocents . . . thousands of creatures with nowhere to go, but up in flames.

When I was young, I used to take my Golden Retriever up Santa Anita to Chantry Flats. From there we’d wind our way down to First Water, then Hermit Falls to spend lazy afternoons jumping into the frigid pool and thawing on granite by turns.

Other times I’d hike up to Sturtevant Falls and let the mist moisten my face as well as my sandwich.

In 1994, we formally joined the historic canyon community above Sierra Madre known as the Big Santa Anita Canyon. We bought a cabin when the oldest of our four children was barely out of diapers.

We spent hours upon hours in front of the fireplace, mesmerized by the flames, roasting marshmallows, happy to be warm in the middle of winter. By candle and lamp oil, the children played with wooden blocks and formed clay wonders as we read “The Lorax” and “The Pokey Little Puppy” for the 89th time.

Over the years, it’s been one of those places where we can step out of time. Without TV, XBOX, cell phones or internet, we’re free to experience the pure joy of being together, and the simple pleasures of slow and thoughtful food preparation, chopping wood, talking, laughing and telling stories.

And we can travel from our city life to our ‘real’ life in under an hour. Door to door is usually about 45 minutes, which has been an unparalleled gift to us over the years. Rural, peaceful, turn-of-the-century living within minutes of the madness.

Our small little space is a regenerative refuge by itself, but we’ve also grown to love, adore and belong to the crazy, eccentric, generous and loving community of cabin owners. The canyon has a life of its own, but it’s definitely become increasingly rich and colorful as we’ve built relationships and shared experiences with our friends up there.

If you’ve lived in this area for any length of time, it’s likely you’ve taken the opportunity to experience the beauty of the canyon first hand.

Perhaps you’ve noticed how your cares unwind with each step you take down the road from Chantry to Roberts Camp, where you’ll decide whether to explore Winter Creek, or continue on to the Falls and beyond.

A walk through Nature’s playground is one of the most powerful ways to ground, clear and balance ourselves.

Perhaps you’ve had the good fortune to stumble upon Sturtevant Camp where you can pick up the Mt. Wilson Trail, or head over across Newcombs Pass. If you haven’t, and if by some miracle you ever get the chance to again, you must make a trek there.

Historic Sturtevant Camp was established in 1893, and is the only camp from the Great Hiking Era which is still in operation in the San Gabriel Mountains. Surrounded by the largest virgin stand of Big Cone Spruce trees in the United States, Sturtevant’s setting provides the perfect opportunity to experience the local wilderness.

You’ll be absolutely enchanted by Chris and Joan Kasten, the gentle on-site caretakers. Sturtevant (www.sturtevantcamp.org) is an oasis of generosity where thirst is quenched, the lost are found, and the curious are met with polite helpfulness. Chris . . . he’s the most egoless man I’ve ever met. He’s a unique, Woodstocky blend of Stephen Hawkings, Mr. Rogers and Jesus.

And perhaps you’ve refreshed yourself with an ice cold beer at Adam’s Pack Station after a long, hot assent up the hill, while your kids squeal with delight at the goats, chickens and mules (that are still used as pack animals serving cabin owners up and down the canyon).

By the time this is published, we’ll know if the part of our Collective Soul known as the Big Santa Anita Canyon will remain a haven for local residents and cabin owners . . . . or not.

As of this writing, we are forced to prepare to surrender to forces beyond our control . . . to surrender our way of life for a very, very long time. It’s humbling. We’ll pray and give thanks for assistance both earthly and otherwise.

But perhaps while dead brush accumulated over decades goes up in walls of furious flame, we can invite a fire of renewal to burn away the tired baggage we’ve been dragging along in our souls over the years.

What is it time to let go of? Are we ready to forgive ourselves and each other? Are we ready to receive a renewed sense of gratitude for life and each day that we’re given to live it?

Paul Bowles, near the end of his life said,

“We get to think of life as an inexhaustible well, yet everything happens only a certain number of times, and a very small number, really. How many more times will you remember a certain afternoon of your childhood, some afternoon that’s so deeply a part of your being that you can’t even conceive of your life without it? Perhaps four or five times more, perhaps not even that. How many more times will you watch the full moon rise? Perhaps twenty.”

When we get older, or when we experience events like the Station fire, life takes on a special poignancy precisely because we realize that time is limited. We realize just how fragile life can be.

It becomes more important than ever to spend time with the people we love . . . to create and savor simple, precious moments.

Take Over My Payments - Published in the Pasadena Independent, and the Monrovia, Sierra Madre and Arcadia Weeklies

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Sat, 22 Aug 2009 18:34:43 -0500

“We just don’t want our property any more . . . it’s too much stress. We’re tired of being soaked by the bank, and we’re not going to send them another dime.”

This frustrated woman and her husband bought a penthouse condo in Pasadena just above Cal Tech for $510,000 2-3 years ago. It’s in a great location and has beautiful views of the San Gabriel mountains, but the mortgage payments are draining the life out of them.

In fact, they’re in the process of getting a divorce.

They bought because their broker promised them that it would be a good investment and definitely be worth over $600K in no time at all.

Whoops . . . that crystal ball thing can be kinda tricky.

In today’s market, it’s probably worth somewhere between $425K - $450K, and they owe about $470,000.

The $408,000 first is a 5.7% fixed, and the $60,000 second is variable but capped at 9%. The payments on both mortgages plus the HOA comes to about $ 3,700 a month (this does not include taxes and insurance).

They didn’t want the hassle of listing the property, but wanted to ask me what they should do. They’d like to preserve their credit if they can (they both have 775+ FICOs), but mostly they just want out.

I advised them that they might have a couple of exit strategies. There may be a buyer out there who can afford the payments, but can’t qualify for a loan for some reason.

This type of buyer may be willing to take over the payments on this slightly over-encumbered property in exchange for ownership (a beneficial interest in a land trust) without having to obtain their own bank financing.

I continued,

“I have already sent out feelers to buyers I know that are looking for some sort of ‘lease-to-own’ scenario, so perhaps I will have a lead for you in the near future.”

“However, as you are likely upside down, you may want to simultaneously get a short sale process started. I have an all cash buyer that is expert at negotiating with the banks.”

“All she would need is your short sale package filled out, and she will take it from there.”

“I don’t think you can lose attacking the disposition of your property from both angles. In either case, you will have the weight of it off of your shoulders in a relatively short period of time.”

“Please feel free to call if you have any questions or concerns. For more information on how the land trust works, visit: http://notequeen.com/trust-transfer-system/“

“Also, even if your credit ends up taking a hit, it won’t necessarily affect your ability to acquire property down the road should your objectives change.”

“The last 2 properties I purchased were closed with seller financing. I make a point of closing most of my transactions without the need for new bank financing.”

If any of you readers out there know of someone who would be interested in taking over the payments on this fully furnished Pasadena penthouse, be sure to contact me as soon as possible.

Be sure to sign up! (you’ll get the inside scoop)

When you opt in to ‘Seller Financing on Steroids,’ you get a Decision-Making Guide for FREE!

FSBO - For Sale By Owner - Asked to Carry a Note

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Wed, 29 Jul 2009 19:24:24 -0500

This is a typical scenario for FSBO’s and if they’re willing to be flexible, they can often create a winning transaction in today’s market:

Hi, Dawn:

Thank you for the wealth of information in your website. I’ve learned a lot, but I still have so many questions.

I’ve been trying to sell my rental property in California for a few months now. It has 2 houses in 1 property, about 2/3 ac, in a good neighborhood, built around 1940s, great rental income ($1,775/month), etc. I have it listed at Craigslist for $299,000 and I have an FSBO sign in front.

I’ve been getting a lot of interest, but almost all of them ask if I will carry the note. I don’t know much about this, only that it sounded really scary. When I tell them that I am not interested in carrying the note, I never hear from them again.

What should I do?

My current mortgage on it is about $256,000 (about $1,600/month not including property taxes and insurance). I’ve only been paying the interest and the interest will be increasing (I think) next year.

I listened to your 9-minute video, but I’m still undecided what I should do. How does seller financing work? Should I modify my loan to a 30-year fixed before I do seller financing? If the buyer gives me a down payment, what should I do with it? If I sell the note, will I need to pay my current lender the entire amount that I owe? So should I keep the down payment just in case I’ll need to pay off my entire loan or can I use it to purchase another property? How long should I hold the note?

How much do you charge to handle the seller financing transaction? I appreciate your advice. Thank you.

Regards, Flor

Hi Flor,

Yes, offering seller financing is really a powerful way to move a property in today’s market, and you need to seriously protect yourself and use the right strategy.

It sounds to me like you should probably get good long term financing in place (especially if it’s †easy for you to do), then you can pass that on to a potential buyer through the Title Holding Land Trust.

You should get some cash at closing, and a perhaps some positive cash flow each month. It depends on how we structure everything.

You would start by hiring me as a consultant.

Dedicated to help you empower yourself in today’s market,

Dawn

Be sure to sign up! (you’ll get the inside scoop)

When you opt in to ‘Seller Financing on Steroids,’ you get a Decision-Making Guide for FREE!

Seller Uses Seller Financing to Sell Quickly for the Highest Possible Price

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Mon, 20 Jul 2009 16:35:41 -0500

To hear the entire recording, be sure to sign up for Seller Financing on Steroids

Best Financing - Small Down Payment - for Canadians Looking to Buy U.S. Real Estate

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Sun, 19 Jul 2009 14:56:49 -0500

Seller financing strategies work especially well for non-U.S. residents wanting to buy property here. I recently received this email:

“Hello,

We’re Canadians interested to purchase residential and/or commercial properties in the US (Florida - Kissimme/Orlando/Ft. Lauderdale or Boston areas) with the least down payment. We’re looking for the best financing option. We’re based in Toronto.

We’d appreciate it very much if you can help us on this.
Thanks very much.

May”

Dear May,

There are many ways to put a deal together without conventional financing, however, you must understand that you will have to stick with properties that are NOT corporate owned… no short sales or bank REO foreclosures. They always want cash or cash to new loan in exchange for a low price.

Statistically, one-third of residential properties in the US are owned free and clear, or have very small mortgages. There are many more that have attractive long term financing that they could potentially leave in place for you.

The particular strategy that will be most effective for you will be determined by the unique circumstances of your transaction. There is no ‘one size fits all’ approach.

A straight seller carry back with a note(s) and deed(s) of trust (which the seller can sell at some point) may work. But in many instances, using the Title Holding (Land) Trust will give you the best options for getting in with the lowest down payment possible, and give you the ability to take over existing financing without risking negative repercussions.

I am available on a consultation basis. If you choose the comprehensive option for $495, then I will be available to help you negotiate the opportunities you will be interested in until you are able to consummate a successful transaction.

You may want to sign up for ‘Seller Financing on Steroids,’ to become more familiar with seller financing, and to have access to specific details of transactions that I am helping other sellers and buyers put together.

Best wishes,

Dawn

Owner Will Carry - Seattle - Woodinville Estate

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Sat, 18 Jul 2009 17:37:51 -0500

This will be on the market in a few days.

When You Can’t Sell Your Note, Do a Little Rain Dance - Published in the Temple City Tribune

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Thu, 16 Jul 2009 15:42:41 -0500

As a note broker, I’ve had my share of notes that I simply couldn’t do anything with. Here’s one I was presented with recently:

A delinquent seller carry back note secured by commercial property in West Palm Beach, Florida.

The original deal looked like this:

Purchase price: $510,000
Down payment: $76,500
1st TD: $433,500
Interest rate: 7.5%
I/O monthly payment: $2,709.38
Due in: 60

The seller/note holder had received payments like clockwork for 2.5 years, and then, the tenant of the 3,000 sqft warehouse started defaulting on his lease. In the interim, the property buyer/owner had lost her job, so she had no way of making the payments on the note.

The note holder no longer lives in Florida, she lives in Southern California. This was a headache she just wanted out of . . . if she could get at least 50% of the loan balance.

Most commercial property is heading toward a world of hurt. Even assuming that once the defaulting tenant was evicted, another tenant paying $3,000 a month could quickly be placed, the maximum value of the property at a 12 cap was something like $300,000.

So, I told the note holder that she would be very lucky to get 50% of the value of the property, or $150,000, and asked if she still wanted me to keep working on finding a buyer. She said ‘yes.’

I sent the note profile out to several buyers, and got virtually no response. No one wanted a commercial note in Florida that was in default.

So, I decided to give up . . . NOT.

I started thinking about other ways that the problem could be solved. If the seller would be willing to put the property on the market and sell, I could negotiate a short sale on behalf of my client, the note holder, and she would walk away with more than she could possibly hope for on the secondary trust deed market.

So, I posted a referral on Active Rain (a social networking site for real estate professionals). I communicated with 3 or 4 agents in West Palm Beach, and told them about the situation. As it turned out, one of them happened to know the owner personally.

They went to their friend about putting the property on the market, with a guaranteed short sale approval that would leave some money on the table for her. Nope . . . she wouldn’t do it.

Somehow, without personal or rental income, she was going to find a way to keep the property. Hmmm.

OK, let’s go with the flow . . . what if I could find a private lender that would give the owner a hard money loan? Then I would simply negotiate a short refinance (say around $150,000?), and still get my client what she wanted, leaving the owner in possession of her precious commercial property.

I don’t have the final word on this deal yet . . . I’m still waiting for the story to play out, but it’s fun to realize how many different ways there can be to create a solution. Note brokers and real estate brokers can often help each other out.

If you’re interested in notes in the Southern California market, feel free to sign up here. If you’re on this list, you’ll be notified of the local deals in property and paper that I come across.

Be sure to sign up!

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Seller Financing on Steroids & the Seller Financing Decision Making Guide

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Wed, 08 Jul 2009 19:22:52 -0500

I’ve been working on developing an ezine (’Seller Financing on Steroids’) as well as a simple decision making guide for people to use. I finally got the first draft up, and I’d really appreciate any feedback, especially on how I can improve the Decision Making Guide.

The reason I started developing it was because I was spending a lot of time communicating with people by phone or email. I finally realized that most of them would have 75% of their questions answered before they ever got to me if they just had a simple tool to help them filter out all the possibilities and narrow it down to a few tools that would probably help them with their specific real estate situation.

Sign up for ‘Seller Financing on Steroids’ and the ‘Seller Financing Decision Making Guide’. It will answer many of your questions before you write or call. It’s a great way to get some of my expertise without paying for my time!

I’d love to keep you up to date on the most powerful Seller Financing Strategies, including when and how to implement them. The Note Queen’s Seller Financing Decision Making Guide will help you sort through your options and find the strategy that’s right for you as a seller in today’s market.

People subscribed to Seller Financing on Steroids will hear details about some of the real life deals I’m working on that you just won’t find in my regular blog posts.

Dedicated to helping you Unplug and Power Up,

Dawn Rickabaugh (The Note Queen)

Simultaneous Clothes - the Simultaneous Note Sale for Real Estate Investors - Published in the Pasadena Independent

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Sat, 04 Jul 2009 01:27:54 -0500

It’s hard to keep covered against the chill winds of the market sometimes. Perhaps it’s possible to get a nice, thick sheepskin warming the front half of your body, but investors, builders and developers are increasingly finding their backsides completely exposed to the elements . . . brrrr!

If you’re a real estate investor, investing in shorts sales and REO’s, how can you keep clothes on both sides of your body simultaneously? Is there a way around the seasoning issues that hang these deals up?

What in the heck am I talking about?

Here’s a typical scenario:

Investor buys REO bank foreclosure for 50 cents on the dollar or less. They get a great price (that’s the sheepskin in the front), but they’ve used hard money at 12% with a 1 year balloon, so they need a quick exit strategy.

That’s where they start to feel a bit naked, because it’s harder and harder to pull off a quick exit for full asking price these days. Investors/rehabbers are often left exposed on the backside because they can’t flip the property around in a timely manner due to seasoning issues with conventional lenders. This lag time eats heavily into profits.

This leads to a flash of inspiration. The investor thinks to himself:

“Ah hah! I’ll buy cheap with all cash, and just use seller financing to sell this property quickly for the highest possible price, and then I’ll simply turn around and immediately sell the note to a trust deed investor, grab my profits and be out of the deal.”

It’s just that simultaneous clothes aren’t as fashionable as they used to be. There just aren’t a lot of investors lined up to buy these types of notes any more, and the ones who’ll buy them want steep discounts.

Seasoning is an issue. In general, note buyers want to see that either,

the seller owned the property 12 months before selling it, or
he has received at least 12 months’ worth of payments from the buyer before trying to sell the note

So is the ‘simultaneous close’ really dead?

Yes and no . . . there’s a niche product that circumvents the traditional seasoning issues and acts as a true simultaneous close, paying .85 cents on the dollar.

How can they possibly do this? Most note buyers are only paying 70 to 80 cents on the dollar, starting with a note that is no more than 80% loan-to-value (LTV).

They underwrite the deal from the very beginning.

The prospective buyer fills out a 1003 (loan application) and pays for a credit report, and the investor reviews the file. Some buyers will qualify (FICO 600+) for the program, some won’t (credit scores below 600 are not impossible, but will require some seasoning before the note can be sold).

If they do qualify, here is a sample of what an average deal might look like:

•    Only offered on owner occupied SFR’s (no mobiles or row homes)
•    5% cash down payment
•    Seller carries a 15% second
•    Seller creates and immediately sells an 80% first at .85 cents on the dollar
•    Face interest rate on the 1st note will be somewhere between 8.5% - 10%

So, here’s what the numbers look like:

•    Purchase Price: $100,000
•    Down Payment: $5,000
•    Seller Carry 2nd: $15,000
•    Seller Carry 1st: $80,000
•    Proceeds From Selling 1st to Note Buyer: $68,000

The seller/investor/builder walks away with $73,000 ($5K + $68K) cash and a note for $15,000 that will get paid off when the buyers refinance, so they snag $88,000 total for their $100,000 property.

It’s not a golden hammer and won’t make sense for everyone, but it is an option that’s out there if the seller can absorb the 15% discount and wait for the 2nd to pay off down the road.

And even though the buyer will have what sounds like a high interest rate, most of the time they still come out ahead owning instead of renting on an ‘after tax’ basis, and it’s a way for them to get around the cracks of conventional financing that some buyers fall into.

When the financing machine is rusty, we need to look for ways to lubricate the system and get those creaky parts moving. Buyers need to buy and sellers need to sell.

The simultaneous clothes is just another way to dress it up.

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Check out this page for more info on the ’simo’

Canadians Buying US Property Have Financing Options - Even With REO’s

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Thu, 25 Jun 2009 20:09:59 -0500

Seller financing is a great way for foreigners to pick up property in the U.S., as getting a traditional loan can be even tougher for them than us nationals. Usually seller financing is only applied to non-corporate owned properties (i.e. anything besides short sales or REOs), but there are some options when it comes to bank owned properties. I recently got this email:

“Hi Dawn,

Just read an article about Canadians purchasing property in the US and saw your name.

We want to buy a 2nd home in Palm Springs that is owned by the bank. Unfortunately in this situation we cannot get the vendor to finance. We have a great credit rating. Can we get a mortgage? Look forward to hearing from you.

Kindest regards,

Janet”

Hello Janet,

How much of a down payment could you put down? And what is the purchase price of the property? Would love to help if I can.

Sincerely,

Dawn

“Hi Dawn,

This property was purchased in 2005 for around 1.7 and the owners did a real number on it. Then they rented the property and tried to sell it for around 2.6. The bank foreclosed and it is soon to go on the market. We know the current market value of the property is 1.4.

We were hoping to put down 10-20% and are hoping to purchase it for less than 1 million. We have owned a condo in Sandpiper, Palm Desert for around 10 years. It has a mortgage. We have a great credit rating. Hope you can help.

Kindest regards

Janet”

Hi Janet,

If you can acquire the property for that much below market value, then you may be able to get a private money loan if you put the 20% down. You could refinance out of the 12% loan at your earliest opportunity once the lending environment supports it.

Alternatively… we may be able to get a private investor to purchase the property, taking title in the name of a land trust, and then beneficial interest would be transferred to you. Obviously, your purchase price would be higher than the price the investor would pay to acquire the property to create some profit in the transaction for the investor(s).

For instance, investor buys it for $900K cash, and then ’sells’ it immediately to you for $1.1mil through a land trust, carrying the financing for you, that would last for 5 years or so.

To pursue your hard money options, contact Steve Aranda @ 323.868.6242. If that option doesn’t look feasible, then let’s explore option #2.

Sincerely,

Dawn

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Should We Sell Now or Next Year? When Even ‘Free and Clear’ is Too Much

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Thu, 25 Jun 2009 02:03:34 -0500

I recently received this email:

“Dear Dawn,

I saw your recommendations in the Tribune article on waiting for Recovery. My question to you is should we sell our home now or next year?

We bought this home 7/2007 for $950,000. We have spent $150,000 plus. The last project is to have the outside of the house painted, which is scheduled for July.

We have been told that we could probably sell for $950,000.
The lot is about ¾ acre, the house is about 2500 sq feet.

We realize we are losing money and our proposition 60 taxes. But the lot has proven too much for us. We would expect to buy a replacement home for about $850,000.

Our property taxes will increase ($6,000 to about $11,000 a year). We will look for the same size house, but a smaller piece of property in the same city.

If we wait, replacement house prices could rise and the property taxes could also rise. We do not have a mortgage. We are retired.

Thanks so much for any help you can give us.”

First off, it’s encouraging that they have a realistic view of the market and the value of their home. Too many sellers these days would insist that the value of their home is $950K + $150K = $1,100,000.

This couple seems to understand that the market doesn’t care how much you put into it. The market is just the market. A stock is worth what Mr. Market says it is, whether you’re making money or losing it.

[But wouldn’t it be great if the government would step in and make sure we don’t lose money in the stock market any more? Maybe they could set up a special fund and buy GM shares at $30 a pop for anyone who paid that much or more for them . . . it’s only fair]

And then those property taxes . . . it makes my stomach churn to think of this couple losing their Proposition 60 base year value transfer.

If they could somehow manage to become ’severely and permanently disabled’ they could transfer the tax basis one more time . . . but, um, that’s probably going a little too far.

The market is not going to be better next year. Of course, I could be excruciatingly wrong, but I don’t buy the ‘green shoots of recovery’ story.

If you can wait 7-10 years, maybe, but in a year we’ll still be unwinding, and things could be the same . . . and they could be much worse.

What happens if interest rates have a sudden change of heart? Jumbo loans are already difficult for many people to qualify for.

So back to the couple at hand.

Because they own their property free and clear, they have more options than the average seller. If they are willing to offer terms, they could get top dollar regardless of market conditions.

My guess is that they could easily inch up to $1mil if they agreed to finance a buyer who just couldn’t qualify for a conventional loan for some reason.

They could:

take a $250K down payment,
carry a $750K first at 7.5%,
due in 5, for a
monthly cash flow of $5,244.11

(If they wanted to preclude the possibility of foreclosure, they could put the property in a land trust first. This would also preserve the existing tax basis on the property just in case they ever got it back again).

And if they have other cash reserves to buy their replacement property outright, then they’re set, because cash is king, and they should be able to get the lowest possible pricing.

But what if they don’t have $600,000 sitting around to polish off the cost of their new home?

What if they could find someone with a nice 5.5% fixed and ask them to leave it in place?

Purchase price $850K,
Down payment $250K,
Take over the existing financing at $600K (or less), for a
Monthly liability of $3,406.73 plus taxes and insurance, so $4,000 (for an overall positive cash flow of about $1,200 per month).

If the replacement property is also in a land trust, then the existing loan cannot be accelerated by the lender, and the existing tax basis (probably lower . . . $6,000?) could also be preserved to give this couple the equivalent of their Prop 60 base year value transfer.

I call the title holding (land) trust “Seller Financing on Steroids.” Especially in the jumbo markets, this strategy is empowering buyers and sellers and putting deals together where they otherwise wouldn’t be possible.

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Can I Sell a Business Note?

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Wed, 17 Jun 2009 15:18:51 -0500

Yes! It’s very common for business owners to carry a portion of the sale when selling a business, and frequently, the note can be sold after 6 months of seasoning (this can be less in certain circumstances).

People selling business notes need to understand that typically, there are significant discounts involved, so if you’re not prepared for a 20%-50% discount (depending on all factors involved), then you’d be better off waiting out the term.

To set up your note and transaction ahead of time so you have a note worth as much as possible, you’ll want to consider hiring me to help you put your deal together.

The basic info I’ll need to start working on your business note:

type of business
location (city & state)
sale date
how note created (seller carryback?)
sale price
down payment
original note balance
interest rate
term
payment amount
lien position
payor onwership structure
payor credit rating (D&B if applicable)
personal guarantees
value of hard asset collateral (tangible and intangible)
value of intangible ’soft’ asset collateral
goodwill value
if real estate included (zoning factors, usage, operation history including NOI past 5 years, any other liens and their rate/term/balance, debt coverage ratio)

These are the documents I generally need to get started and that help me put together the above:

copy of the note (front and back, or allonges) - be sure you keep the original note handy
copy of the security agreement - you’ll need the original
copy of the purchase agreement if purchase-money note
copy of the bill of sale
copy of closing statements related to creation of the note
copy of the appraisal, if any
copy of the payor’s original credit application and credit report
documentation of payment history

Additional documentation requirements before closing (where applicable):

copy of the UCC-1 financing statement
copy of any UCC search done by Buyer prior to sale of note
lease (or assignment of lease) documentation as well as landlord approved sale and landlord verification rent is current
fire/hazard or EPA liability insurance policy Declaration page showing you as “Loss Payee”
evidence of down payment (must be cash out of pocket, not financed)
bill of sale, covenant not to compete, bulk sales compliance or waiver
business/corporation/liquor/gambling license(s) and proof sales tax was paid
franchise agreements, if applicable, and proof that fees are current
payor’s operating banking information including bank name, address and account number
copy of the check from a past payment
financial information (financial statement) on payor and description of payor’s previous experience in this type of business
if note seller is a corporation, Certificate of Secretary of Corporation showing that the person signing the documents is/are duly qualified to act on behalf of the corporation
copy of Dept of Corporations Certificate of Status showing the corporation is in good standing
note seller’s books, corporate or proprietorship tax returns for 2 years prior to sale
note seller’s operating bank name, address and account # (if a simultaneous closing)
social security numbers for note seller and payor, or tax ID# if corporations
pictures of business and location map
any previous names of the business when note seller owned it
equipment leases, if any, plus name and address of lessor on any open leases
authorization from note holder (note seller) to pull credit or D&B report on their behalf
names, addresses, phone numbers, fax numbers, account number of: seller, payor, landlord, franchisor, escrow agent who closed the sales of the business, underlying lien holder(s) to be paid, insurance agent, appraiser of business, account servicing agent)

Potential fees that the note seller MAY be required to pay in order to sell:

UCC search fees
credit report fees
appraisal cost
corporate records search fee
legal research cost
background investigation cost
field research cost

Let’s get started! I’d love to work with you to ensure that you get the best price and the best service with someone you can trust. You can email or fax documents to (626)451-0454.

And don’t worry . . . the documentation requirements can seem overwhelming, but my associates and I will be here to help you every step of the way.

I Have a Mobile Home on Land, Will the Title Holding (Land) Trust Work For Me?

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Mon, 08 Jun 2009 18:36:44 -0500

I recently received this email from someone who saw a post from last year: Seller Financing and Mobile Homes in Parks, and wanted to know if her mobile on 2 acres of land might be eligible for the land trust transfer technique:

Hi!

I have two acres with a mobile home on it in Perris, California, not on a permanent foundation (hence not eligible for bank financing), which I’ve owned free and clear as my primary residence for around thirty years (hence don’t need to worry about capital gains.)

I have found a way to buy a new home without needing immediate cash from the sale of this one. Am asking $142,500, willing to carry back. However, a current potential buyer who has only $15,000 to put down, willing to make payments @ 6% amortized over 30 years (no balloon), presents the issue (for me) of worrying about foreclosure costs should he default.

In my financial position, selling him the house for $15,000 down would be the same as giving it to him. Should he default, I could do nothing about it (I’ve not seen foreclosure costs for less than $30,000.)

Your website had a similar case (albeit for much more expensive property) wherein the seller owed nothing, the buyer put little down, selling As Is but using a “two party trust” which would allow the seller (if necessary) to evict rather than foreclose.

Questions:

1. Is this an option for me? I wouldn’t necessarily need a buyout of any or all of the loan; just the security of not having to go through the much more expensive process of foreclosing should they default.

Yes, the title holding (land) trust transfer system would work for you.

2. I haven’t been able to find anything online that discusses California law re: eviction in this type of transaction. If someone fights eviction, that can still run upward of $20,000. How would the two-party trust fit within California law, and protect me from high eviction costs?

If the resident beneficiary defaults and fights eviction, then they will forfeit their beneficial interest in the trust. Most people wouldn’t want to jeopardize their initial investment, especially if it’s in excess of 10% of the purchase price.

3. Your consultation fees would be….?

Read here about the costs associated with the trust, and the documents I’ll need to get you going.

4. It’s my understanding you wouldn’t be interested in purchasing all nor a portion of the note until the buyer (if the deal goes through) has demonstrated reliable payment behavior. Correct? As I said, it’s not a necessity, but I’m willing to look at the option.

If you choose not to use the land trust, and just want to set up a traditional installment sale (a note secured by a deed of trust), you will need to let the note season for at least 12 months before trying to sell it.

To sell for minimum discount at that time, you will want help putting your deal together. It’ll make all the difference in the price you’ll get for your note if you ever want to sell.

To Sell or Not to Sell - The Recovery Game

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Fri, 05 Jun 2009 18:53:29 -0500

I recently consulted with a couple who are renting a home in Pasadena. They own a home in Tujunga, but instead of selling it when they moved last year, they decided to rent it out, even though it represented a negative cash flow of $500/month.

Why not wait to sell until the market ‘recovers?’

Their loan broker referred them to me when he realized what they were trying to accomplish would be impossible through conventional means.

Given the economy, and the fact that his wife was struggling to build a new business for herself, they wanted to refinance the home (now investment property) so they could pull out $20,000 to put in savings for a rainy day. It would also help subsidize the negative monthly cash flow.

They bought the home for $250,000 and refinanced to a loan amount of $315,000 when the value exceeded $600,000 at the top of the market.

Loans can be hard enough to get for owner occupied dwellings, but investment property cash outs are even harder. And, of paramount importance is the fact that the value had dropped to $450,000 . . . or so they told me.

When I did the comps, I came out with a market value of $350,000 . . . oops. Yes, there was one new construction that sold for $450K, but several REOs and individually owned properties were selling between $320K - $365,000.

If they put it on the market and sold at $350,000, they’d probably be able to pocket $10,000 and eradicate the $500 a month soak from their bank account.

But, ouch . . . selling at a ‘loss’ is hard to swallow, isn’t it? Wait, but they bought for $250K, so they’re actually up a hundred grand, right?

Nope, that’s not how they see it. In their minds, the property ’should’ be worth $600K, so selling at $350K, they’d actually be taking a $250K ‘loss,’ which, of course, is unacceptable.

I ran some numbers and showed them how they could possibly inch the purchase price closer to $400K if they were willing to offer terms to the next buyer by leaving their (very attractive) existing financing in place.

Using that strategy, they could have pocketed the $20,000 they wanted, and they would have had a positive cash flow of $500 per month. They could also have created an equity sharing agreement that would have let them participate in any appreciation down the road.

In my mind, it made a lot of sense. Most people shouldn’t sustain unnecessary negative cash flow when they’re moving into uncertain economic times, personally and globally.

Ultimately, they decided to do nothing, partly because if they put the house on the market, the tenant might move out a month too early and cost them $1,700 in lost rent.

Hmmm . . . I must be bad at math.

And partly because they, like so many others, are determined to ride the market out until it ‘recovers’ so they don’t have to suffer the humiliation of a loss.

But let me ask you something . . .

When you’ve ‘recovered’ from a hangover after having too much to drink the night before, do you feel all tipsy and high, or do you just feel normal again?

Recovery is not the same thing as re-inflated bubble.

It’s highly probable that some time in the next 3 years this couple will find themselves under water, and not have any exit strategy (save a short sale) if they run out of money to subsidize their ‘investment.’ Bummer.

And even if the price comes back up to $450K, it’ll most likely be the result of inflation and won’t represent real appreciation, because by then they’ll be paying $19.50 for a cappuccino.

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Seller Financing Helps Move Commercial Property

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Tue, 02 Jun 2009 15:44:26 -0500

Buying my first commercial building from an owner offering terms several years ago made me an instant fan.

I was reminded that the technique is still alive and well.

Just a few months ago, 5828 Temple City Blvd. sold for near asking in less than 60 days. The listing description went something like this:

“Commercial building for sale. Large lot with approx. 2500 sq. ft. building plus more parking. Currently chiropractic offices. OWNER IS RETIRING & WILL FINANCE 1ST TRUST DEED WITH APPROVED CREDIT & TERMS.”

So why does someone who is retiring think of doing this? Most likely his first objective was to defer capital gains and create a dependable monthly income. His money is probably growing somewhere between 6-8%, and is secured by a property he’s very comfortable with.

I’m thinking he’s glad he hasn’t been exposed to the stock market or to low- yielding CD’s from banks who may, or may not, be in business next year.

Secondarily, it probably helped him sell quickly for top dollar. When conventional financing isn’t required, there are more potential buyers for a property. But that doesn’t mean there isn’t any underwriting involved.

You notice that even though the seller was providing the financing, his ad said,

“with approved credit and terms.”

He’s still looking at the strength of the buyer . . . down payment, credit score, and probably financial statement.

When a seller carries, it’s important that the transaction be structured properly for maximum safety of the investment itself (the trust deed), as well as the marketability of the note if he ever needs to sell it for cash.

The first items usually negotiated between the buyer and seller are:

purchase price,
down payment,
interest rate,
monthly payment, and
term or due date (or balloon payment, if any).

A seller should require no less than 10% of the purchase price as a down payment, with 20% being ideal (25%+ for commercial). There is no substitute for protective equity.

The interest rate on a note, in most instances, should at least be the going rate in the market at the time. It can often be a point or two higher. Even with a higher interest rate, the buyer is saving cash at closing by not having to pay points or loan origination fees.

The sellers carrying back a note would want:

A due-on-sale provision.
A balloon payment due on the note 5-7 years from closing.
A late charge of 6% of the payment if it is not made within 10 days of its due date.
A prepayment penalty (if early pay-off would generate adverse tax consequences).
The buyer to pay all closing costs.

A buyer would want:

No due-on-sale provision.
No balloon payment. Where will they get the money in 5 years?
No late charge.
No prepayment penalty.
The seller to pay all closing costs.

A compromise would look something like this:

A due-on-sale provision will give the sellers some control in the event the buyers sell. They will be able to approve the new buyer.
A balloon payment in 10 years, not 5.
A late charge of 6% of the payment if not paid within 15 days.
A prepayment penalty only if the buyers make additional payments that reduce the principal balance by more than 10% in any given year.
Buyers and sellers agree to share closing costs equally.

Can I Defer Capital Gains Without an Exchange?

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Wed, 20 May 2009 16:57:29 -0500

I recently got a call from a gentleman who is selling a duplex here in Temple City, and the first words out of his mouth were,

“I want to defer capital gains without an exchange, and it says right here in your ad that you can help me do that.”

The 1031 exchange (IRC section 1031) has been one of more popular and effective strategies for deferring capital gains and depreciation recapture; however, many people just aren’t interested in exchanging one real estate headache for another. They want out of real estate altogether.

He owns his duplex free and clear, and he wants monthly retirement income. What are some of his options?

He could use the installment sale (IRC 453) to defer most of his capital gains if he’s willing and able to ‘carry paper’ (provide seller financing) for the buyer.
There is also the structured sale (Deferred Sales Trust), and the
Title Holding Trust System based on the Illinois land trust.

He had listed his property and received 3 offers. He accepted the highest one, but here’s the ‘catch.’ In exchange for a high offer, the buyer was asking him to take back a note (carry some financing).

The buyer was willing to put down $500,000 cash, and was asking him to carry $225,000 in a note and first deed of trust.

From an underwriting perspective, this is a great scenario if all you’re worried about is the safety of the note. With a 69% down payment, there’s some serious protective equity there.

You wouldn’t worry about potentially having to foreclose if the buyer quits making the payments . . . in fact, you might even pray for it! But he’s more concerned with wealth preservation through deferring capital gains at this point.

As it turns out, he does plan on doing a 1031 exchange into a 4-plex with that juicy $500,000 cash down payment. What he can’t figure out is what to do with that $225,000 note, which will be considered ‘boot,’ and be taxed heavily.

I suggested that he consider having the Qualified Intermediary (the exchange accommodator), be the beneficiary on the note, instead of himself. That way, the QI could sell the note, and the proceeds could then be exchanged along with the rest of the cash from the sale.

For instance, if set up favorably, I might be able to buy that $225,000 note for as much as $200,000. Yes, he’d be taking a $25,000 discount, but he would be able to save himself the capital gains on $225,000, which his accountant told him would be about $75,000.

Yuck, nasty discount, you’re thinking. Maybe, until you realize that his next best offer was $50,000 less. He’s still coming out ahead creating and selling the note by working with this buyer.

There are many excellent exit strategies above and beyond the standard CTNL (cash to new loan) and the 1031 exchange. What you’re after is the vehicle that best delivers your desired benefits.

Builders Move New Construction Homes Helping Buyers: Seller Financing Plus Simultaneous Note Sale

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Tue, 05 May 2009 13:48:31 -0500

This is a post I’ve been wanting to write for a while now, because I get so many questions from investors and builders like the one you’ll see below.

When the financing machine is rusty, we need to look for ways to lubricate the system and get those creaky parts moving. We need to create liquidity one way or another. Buyers need to buy and sellers need to sell. So much of our economic activity here in the U.S. revolves around the housing market.

“Dawn-

Below is a basic synopsis of what we’re looking to do. We’re builders looking for options for buyers who do not quite fit the mold for an FHA mortgage. Please let me know if this is something that you could help us out with.

Historical home sales over the last year have been between $149,000 and $169,000

Lots are approximately 50 by 110.

Homes are new construction. Brick and siding.

Buyers for this program are typically in the 540 to 620 credit scores, with stable employment histories, and debt ratios that slightly exceed FHA guidelines.

HOWEVER, these buyers are required to have a 24 month clean payment history on a previous mortgage or rental housing, previous 12 months clean payment history on any auto loan, a new housing payment not to exceed a current payment by more than 20%, and must not have had a foreclosure or repo within the past three years.

Down payments are typically three to five percent.

Note rates are typically eight to eleven percent.

Option 1: Builder will carry a low interest/no interest second for 20% and sell the first lien of 75%.
Option 2: Builder will sell the 95% LTV note at a 15 to 20% discount with a simultaneous closing.

Many thanks, R. M.“

Not only are builders in a pickle, but so are all the real estate investors out there who are trying to buy, rehab and flip short sales and REOs. There are some seasoning issues that sometimes make it difficult for buyers to close with conventional financing in a timely manner, if at all.

So these investors say, “OK, we’ll just sell these properties quickly offering seller financing and then sell the note right away.” The problem is that there are still seasoning issues to contend with.

A note buyer these days wants to see some seasoning. No one is that eager to buy rehab/flipper paper. Either

the seller has to have owned the property 12 months before selling it, or
the note needs 12 months of seasoning (at least!).

So, let’s pretend you don’t have these seasoning issues. You’ve owned your property for the last 5 years before selling and carrying paper. Most note buyers are still going to want you to receive 1-3 payments from your Payor/Buyer before they buy the note from you, even if it’s the best note out there.

So, is there any hope?

There is an investor out there who can get around the seasoning issues and do a true simultaneous close. How can they possibly do that??? No one else can touch it!

They underwrite the deal from the very beginning.

You have your prospective buyer fill out a 1003 (loan application) and have them pay for a credit report, and the investor reviews the file. Some buyers will qualify for the program, some won’t. If they do qualify, here is a sample of what an average deal might look like:

Only owner occupied SFR’s (single family residences), and there are some parts of the country they won’t touch
5% cash down payment
Seller carries a 10% - 15% second
Seller creates and immediately sells an 80% - 85% first at .85 cents on the dollar
Face interest rate on the 1st note will be somewhere between 8.5% - 10% (when 12 timely payments have been made, the buyers will most likely be able to qualify to refinance at a lower rate with the same company, and they can be working on improving their credit scores to boot).

So, here’s what some potential numbers might look like:

Purchase Price: $100,000
Down Payment: $5,000 (plus closing costs)
Seller Carry Second: $10,000
Seller Carry First: $85,000
Proceeds From Selling First Note to Investor: $72,250

So, the seller/investor/builder walks away with $77,250 cash and a note for $10,000 that will ‘hopefully’ get paid off when the buyers refinance in a year or so.

It won’t make sense for everyone, but it is an option that’s out there if the seller can absorb the 15% discount and wait for the 2nd to pay off down the road. And even though the buyer will have what sounds like a high interest rate, most of the time they still come out ahead owning instead of renting on an ‘after tax’ basis.

Based on the above builder’s understanding that they will be holding a second for a while, it sounds like we will probably be able to put a few ’simo’ note deals together. Alternatively, if they didn’t need immediate cash, the builder could

let the note season for a year or more and probably take much less of a discount, or
put the property in a title holding trust.

Breaking and Entering - New Skill Set for Pasadena Realtors

Dawn - Rickabaugh Realty (Note Queen) Owner Financing Expert — Tue, 31 Mar 2009 22:12:43 -0500

Creative financing, creative property viewing . . . it's all good. Realtors need an increasingly diverse skill set to compete in today's market!

Pasadena Note Queen

Owner Financing Helps High End Home Avoid Foreclosure

Abundance is Right Around the Corner

Getting a Bear Hug Tracking Down Market Leader Active Rain at NAR San Diego 2009

Lack of Financing #1 Barrier to Recovery

Bear Legal Title - a Title Holding (Land) Trust Minute . . .

Broke or Broker? Realtors Turned Note Brokers

So here's what she's doing . . .

And guess who will most likely be brokering that note?

Tsunami of Foreclosures - Will You Be Collecting Shells When It Hits the Beach?

Be sure to sign up! (you’ll get the inside scoop)

When Your Soul is On Fire - Sierra Madre, the Station Fire, Chantry Flats, Sturtevant Camp and the Big Santa Anita Canyon

Take Over My Payments - Published in the Pasadena Independent, and the Monrovia, Sierra Madre and Arcadia Weeklies

Whoops . . . that crystal ball thing can be kinda tricky.

Be sure to sign up! (you’ll get the inside scoop)

FSBO - For Sale By Owner - Asked to Carry a Note

Be sure to sign up! (you’ll get the inside scoop)

Seller Uses Seller Financing to Sell Quickly for the Highest Possible Price

Best Financing - Small Down Payment - for Canadians Looking to Buy U.S. Real Estate

The particular strategy that will be most effective for you will be determined by the unique circumstances of your transaction. There is no ‘one size fits all’ approach.

Owner Will Carry - Seattle - Woodinville Estate

When You Can’t Sell Your Note, Do a Little Rain Dance - Published in the Temple City Tribune

The original deal looked like this:

So, I decided to give up . . . NOT.

Be sure to sign up!

Seller Financing on Steroids & the Seller Financing Decision Making Guide

Simultaneous Clothes - the Simultaneous Note Sale for Real Estate Investors - Published in the Pasadena Independent

Here’s a typical scenario:

Seasoning is an issue. In general, note buyers want to see that either,

If they do qualify, here is a sample of what an average deal might look like:

So, here’s what the numbers look like:

Be sure to sign up!

Canadians Buying US Property Have Financing Options - Even With REO’s

Should We Sell Now or Next Year? When Even ‘Free and Clear’ is Too Much

So back to the couple at hand.

Can I Sell a Business Note?

Yes! It’s very common for business owners to carry a portion of the sale when selling a business, and frequently, the note can be sold after 6 months of seasoning (this can be less in certain circumstances).

The basic info I’ll need to start working on your business note:

These are the documents I generally need to get started and that help me put together the above:

Additional documentation requirements before closing (where applicable):

Potential fees that the note seller MAY be required to pay in order to sell:

I Have a Mobile Home on Land, Will the Title Holding (Land) Trust Work For Me?

I recently received this email from someone who saw a post from last year: Seller Financing and Mobile Homes in Parks, and wanted to know if her mobile on 2 acres of land might be eligible for the land trust transfer technique:

To Sell or Not to Sell - The Recovery Game

But let me ask you something . . .

Seller Financing Helps Move Commercial Property

The sellers carrying back a note would want:

A buyer would want:

A compromise would look something like this:

Related Reading:

Can I Defer Capital Gains Without an Exchange?

You wouldn’t worry about potentially having to foreclose if the buyer quits making the payments . . . in fact, you might even pray for it! But he’s more concerned with wealth preservation through deferring capital gains at this point.

Related Reading:

Builders Move New Construction Homes Helping Buyers: Seller Financing Plus Simultaneous Note Sale

So, is there any hope?

They underwrite the deal from the very beginning.

Related Reading:

Breaking and Entering - New Skill Set for Pasadena Realtors