Monthly Archives: February 2016

Pay Cash or Finance a Car? That Is the Question!

When it comes to purchasing that shiny new car, you might be confused as to whether you should pay cash or finance it. With all the talk about personal finance these days, most people are either on one side of the fence or the other. You have one group of people who pay cash for everything and don’t believe in having any debt at all. Then there is another group of people who finance all kinds of stuff with the intention of paying everything off quickly. There are pros and cons to each approach that we will discuss below.

Perks of using Cash

When you pay cash, you get the perk of not having a monthly car payment to deal with. The feeling of not having to scratch out a check each month to pay for your car is a great one. Plus, if you run into any kind of financial, job-related or medical issues, you don’t have the worry of paying your car payment each month. When you pay cash, you also eliminate the need to pay finance charges and interest each month.

Another perk of using cash is that you can sell the car at any time, even if it’s at a loss. Buying a car with cash allows you to have a monthly budget with less of a strain. However, there are some cons to using cash to buy your car.

Obvious Negatives

The first negative for using cash is that you are using up your liquid assets to pay for something that will only go down in value. What else could you use that money for that might earn you a better return on your investment? Secondly, when you use cash you are taking away from emergency funds that might be needed for something else later. This means that you have to be very sure that your emergency fund is in place even when you take out money to purchase a car. You don’t want to put yourself in the position of not having liquid assets when you need them.

No Absolutes Here Folks!

So does this mean that you should always finance a car? Not necessarily. Again, there are pros and cons to both scenarios. Most people like financing simply because it means you’re using someone elses money to pay for your car. Again, this frees up your cash assets for other important needs. Unlike a lease, financing a car means that you will own it once you have paid all of your monthly payments. There are some great loan deals out there including no money down and a 0% APR.

Bad Credit Might be an Issue

For people with credit problems, getting financing for a car might prove to be difficult. Many people with credit issues find that they have to purchase a car with cash simply for this reason. In addition, having a monthly car payment can put a strain on your budget and cause you financial problems if you lose your job or have other issues that affect your monthly finances. Anytime you are going to take on a monthly debt obligations, you really need to think through it clearly to make sure that makes the most sense for your specific situation.

Purchasing Real Estate With No Cash Money Down

Have you often wanted to purchase real estate but didn’t have enough money? Or maybe you are new to real estate investing and don’t have good credit, but want to purchase real estate. How do you go about accomplishing this task? One way is by using ‘no cash money down real estate investing’ both a person without the funds or credit can purchase real estate. In this article I will explain one scenario in which this form of acquisition can be accomplished.

First off, let us understand what is required to secure a payment other than cash. Yes, I said other than cash! Remember this is no cash money down real estate investing . Other means can be used to secure a payment as a ‘consideration’ for payment. They can be anything that the seller agrees to that has value, i.e., a car, motorcycle, painting, jewelry, silver, etc… or even the promise to pay as in future rental payments.

The promise to pay means that you are not putting any money down at this time, however in the future once the option is exercised, you will then make payments. This is like the ‘egg’ in a recipe that binds the transaction and makes it a true no cash money down to purchase real estate investing acquisition.

There are obviously different methods and scenarios that could be used to purchase real estate with no money down . But for this example I am going to use what is called a ‘ sandwich lease option’ . In this scenario you not only want to acquire the buyer’s payments but also the equity in the property without ever having the risk of true ownership. To do a sandwich lease option you need a combination of an ‘option to purchase agreement’ and a ‘lease agreement’ . Both should be written in your favor, allowing you the ability to back out at any time with no recourse to you outside of the loss of the ‘consideration’. The option to purchase agreement binds the property for you by giving you the ‘revocable right’ before you purchase.

Is there a downside to no cash money down real estate investing ? Of course there is. For instance, if you are not offering to take the property out of the seller’s name leaving them free and clear of the title, then obtaining the option to purchase can be a difficult task.

Another thing to consider is why is the seller having such a hard time selling the property? This can obviously cause a problem for you as well in the future. And if you are looking at renting the property out, since you are not purchasing the property, you have to consider financing problems. What happens if the rental market is below what your payment is? Then you take a loss! And what if the seller is making interest only payments, later changing to interest and principal payments, greatly increasing your payments leaving you in further financial trouble?

Now knowing this it only begs the question; is there a better option to no cash money down real estate investing ? The answer is of course, yes there is! That is if you have a self-directed IRA (preferably Roth) or good credit and a relatively decent income of about $70,000 annually. But we are discussing the scenario that you do not have the funds or do not have good credit to acquire real estate through other means. Besides that would be a topic for another article.

So now that you know the ups and downs of no cash money down real estate investing , the only thing you need to do is ask yourself if this is the vehicle for you and if so, how to go about it. There are teams and companies out there for you, just for this purpose.
Have you often wanted to purchase real estate but didn’t have enough money? Or maybe you are new to real estate investing and don’t have good credit, but want to purchase real estate. How do you go about accomplishing this task? One way is by using ‘no cash money down real estate investing’ both a person without the funds or credit can purchase real estate. In this article I will explain one scenario in which this form of acquisition can be accomplished.

First off, let us understand what is required to secure a payment other than cash. Yes, I said other than cash! Remember this is no cash money down real estate investing. Other means can be used to secure a payment as a ‘consideration’ for payment. They can be anything that the seller agrees to that has value, i.e., a car, motorcycle, painting, jewelry, silver, etc… or even the promise to pay as in future rental payments.

The promise to pay means that you are not putting any money down at this time, however in the future once the option is exercised, you will then make payments. This is like the ‘egg’ in a recipe that binds the transaction and makes it a true no cash money down to purchase real estate investing acquisition.

There are obviously different methods and scenarios that could be used to purchase real estate with no money down. But for this example I am going to use what is called a ‘sandwich lease option’. In this scenario you not only want to acquire the buyer’s payments but also the equity in the property without ever having the risk of true ownership. To do a sandwich lease option you need a combination of an ‘option to purchase agreement’ and a ‘lease agreement’. Both should be written in your favor, allowing you the ability to back out at any time with no recourse to you outside of the loss of the ‘consideration’. The option to purchase agreement binds the property for you by giving you the ‘revocable right’ before you purchase.

Is there a downside to no cash money down real estate investing? Of course there is. For instance, if you are not offering to take the property out of the seller’s name leaving them free and clear of the title, then obtaining the option to purchase can be a difficult task.

Another thing to consider is why is the seller having such a hard time selling the property? This can obviously cause a problem for you as well in the future. And if you are looking at renting the property out, since you are not purchasing the property, you have to consider financing problems. What happens if the rental market is below what your payment is? Then you take a loss! And what if the seller is making interest only payments, later changing to interest and principal payments, greatly increasing your payments leaving you in further financial trouble?

Now knowing this it only begs the question; is there a better option to no cash money down real estate investing? The answer is of course, yes there is! That is if you have a self-directed IRA (preferably Roth) or good credit and a relatively decent income of about $70,000 annually. But we are discussing the scenario that you do not have the funds or do not have good credit to acquire real estate through other means. Besides that would be a topic for another article.

So now that you know the ups and downs of no cash money down real estate investing, the only thing you need to do is ask yourself if this is the vehicle for you and if so, how to go about it. There are teams and companies out there for you, just for this purpose.

Private Money Financing Offers Big Yields!

In the foregoing illustrations, the presence of a passive investor was a key to being able to capture large portions of equity in a relatively short period of time. The investor provided all the cash but, in the end, the transaction generated yields far in excess of those available in any other competing investment opportunity of comparable ease and safety. The stock market has been moving up and down for months as investors wait to see how the inflation picture shapes up. None of these can produce investment yields like those in the foregoing examples.

For many years I’ve been more investor than entrepreneur, but I see myself as a sort of venture capitalist who takes a large profit in return for sharing some of the risk with an entrepreneur. The amount of profit depends upon the particular transaction. When I have financed those who buy houses to fix up and resell and others who have developed mobile home lots, I’ve been able to earn around 20% per year on my invested cash. I’ve also financed those who attend foreclosure sales to buy houses for resale with roughly similar yields. I do no work. My role is that merely of a lender who lends money on a shared appreciation mortgage (S.A.M.) loan.

A lender usually gives up the benefits of amortization, appreciation, tax-shelter, and leverage in exchange for high cash flow returns. By keeping money invested in relatively short-term propositions, he is able to roll funds over and over, and thereby generate high yields. Except for mobile homes, I’ve rarely seen a house that would produce net cash flow yields that compare with those that private financiers can command. This is particularly true when conventional financing dries up. Builders, fixers, land developers, dealers are heavily dependent upon the availability of financing to stay in business, and they’re willing to pay high short-term interest rates to get it. When credit is tight, this is a fertile field of opportunity to those who followed my advice and sold some of their houses over the past few years and who are now looking for ways to invest their cash.

The big buggaboo of the lending business are those who become overextended and who file for bankruptcy protection. This can be a worrisome situation that robs the investor of a lot of time and money. There are several reasonable steps that a person can take to reduce credit default and bankruptcy risks.

1. Act like a banker. Lend only to those with high F.I.C.O. scores who have plenty of collateral that you would like to own. When you lend to them, don’t let them borrow more than they can repay. You won’t be able to get as high a yield, but if safety is a priority, this is a prudent way to get higher returns.

2. Don’t make loans! Instead of lending money to those involved in risky ventures, buy something else that they own at a discounted price. Instead of receiving regular payments which could cripple their cash flow, let them buy their property back at some point in the future. If they go broke, you’ve avoided the need to foreclose; or the need to file a motion in a bankruptcy proceeding. On the other hand, if they’re successful, the price at which they buy back their property can be increased in order to capture an agreed upon share of their profits.

3. Instead of buying another property as above, buy the property that a dealer wants to resell. Give him an Option to buy it from you at a price based upon risk factors and the time of repayment. This avoids potential usury problems, since you only deal with 3rd parties when buying, and they need not buy the property back from you. Obviously, you’ll want to buy at a very attractive price which will enable you to sell out to someone else if the entrepreneur fails to buy the property from you. This is particularly wise when dealing with builders and developers.

4. Provide a secondary market for sellers’ mortgage Notes. By buying them at a deep discount to value, you can build in a margin of safety and some liquidity, since you can re-sell them at a point in the future if need be. If State law allows it, give sellers an Option to buy back their notes to create a specified yield.

How To Get Cash Money Investors To Partner And Allow You To Stay In Your Multi-Family Deal Long Term

One very powerful aspect of investing in multi-family is you become the owner income property. The property produces income from rents and after expenses there is a net operating income This means you can attract investors who are happy to place their money with you in exchange for a rate of return.

In financing your acquisition of the property you can attract banks who are happy to loan you a purchase money mortgage up to a certain loan to value. For the remaining cash requirements of the purchase, like down payment and closing costs, you can arrange with a private lender or investor to provide the amount you need in exchange for a higher than market rate of return, and possibly a piece of the equity of the property. Another alternative is to partner with an investor, where they provide the cash and credit, while you provide the time, effort and legwork.

The key to making a multi-family transaction work is to recognize that it is “you” who is in control, not the private lender, and if you have a partnership to structure the transaction so that you exert all control over operating decisions, not the investor.

You can structure the deal as a limited partnership, where the investors are limited partners with ownership, but no operational control. Or, you can structure the deal in an Limited Liability Company where the property is the single asset owned by the LLC. In this case the investors can wither own a small non-controlling portion of the stock, or you can give them a lien against some of your stock to secure a Promissory Note. There are many possibilities.

Your overall play when taking on investors and/or bank financing is to buy the property, improve the property and thereby raise the value, and then refinance the property, at which time you pay off the acquisition lender and private lenders/investors/partners.

When they enter into the transaction with you, they don’t have a position that allows them any decision making power, so they don’t get to decide whether you stay in the deal long term or not. This is your transaction where you are pulling the strings, so it is in fact you who decides whether they stay in the transaction and for how long.

If the deal is an apartment building with value plays, like rehab and quite a few vacancies, it could be two to three years before all of the work is done and all of the vacant units are leased and the property is operating at full occupancy. After this is complete though, you can then focus on refinancing and paying off you lender and investors. After this you own the property 100% and investors and partners have no further involvement.

Investors and money partners are attracted to your deals by the high rates of return you can offer them. Don’t forget though, it is you who is in control. You have the wealth producer, the property. They have the commodity, capital, that needs to grow if it is to be of any use to them.

Private Money – Financing Options For Home Buyers, Business Owners and Investors

Private money refers to loans provided from sources other than banks. This lending option is used by real estate investors, small business owners, and individuals with poor credit. Lenders have tightened loan approval criteria which can make it challenging to obtain business financing, home loans, or funds for investment purposes. Private funding sources can provide funds when traditional lending sources will not.

Private money loans can be obtained from a variety of sources. People often turn to family or friends for short-term financing and small loans. Cash advance companies offer money for a week or two or provide lump sum cash to purchase structured settlement annuities or probated inheritance property.

Funding sources provide private funds to business owners and investors. Individuals who require large sums of money to buy a house or fund businesses turn to hard money lenders which are oftentimes private investors or investment groups.

Private loans usually require less paperwork than applying for mortgages or business financing through banks or credit unions. Funding sources focus more on their anticipated return on investment than borrowers’ creditworthiness. The type of financial records required by the funding source will depend on the collateral used to secure the note.

When loans are provided from family or friends they should be documented with a promissory note. While many people feel uncomfortable asking relatives to sign a financial contract, promissory notes ensure both parties are aware that the funds provided are a loan and not a gift. This simple contract can help prevent misunderstandings and family disputes.

Promissory notes record the amount of the loan, rate of interest, payment dates, and any action which would be taken if funds are not repaid. Promissory notes are a legally binding contract which can be submitted to court if borrowers default on their agreement.

Individuals who obtain private money loans to buy a house must provide financial records and real estate contracts. Most lenders require pay records, along with real estate appraisals and record of deed.

Business owners who obtain private funds for their company are usually required to provide inventory appraisals, corporate tax returns, profit and loss statements, business licenses and insurance contracts.

Private lenders are required to abide by their states’ usury laws in regard to the amount of interest assessed against the loan. Funding sources assume substantial risk when providing financing to high-risk borrowers or for investment purposes. Nearly every private funding source will charge the highest interest rate legally allowed.

Finding private lenders isn’t difficult. The Internet can be a good source for locating reputable funding sources. Investment networking groups and online real estate clubs can provide referrals and share experiences. Not only can borrowers locate suitable private money lenders they can also discover who should be avoided.

It is best to retain the services of a qualified lawyer when entering into private money lending contracts. Some states limit the number of loans private lenders can offer before being required to become a licensed lender. In order to reduce financial liability it is crucial for borrowers to engage in due diligence to ensure their private money lender complies with state laws.