Information for Investors!

Creative Financing:

Option 1.

• Purchase a property subject to existing financing.

• This not a good option if the owner is upside down, only if they have some equity in the home.

• Need to find a desperate seller.

• You take over payments on existing mortgage and your name does not get reported to the credit bureaus.

• There could be issues if lender calls due the loan.

Option 2.

• Have owner of property provide the financing with carry back.
• Owner gets good rate on loan, better than they get on CD's, savings and etc.
• Good income if owner is a senior.
• 40% of homes in USA are debt free.
• Collateral is familiar and safe.
• Typically an installment sale where loan is 5 to 7 years with balloon payment. You can add a safety valve clause where at end of loan term the buyer has option to extend loan by 2 years at a higher interest rate.

Option 3.

• Get a loan from financial friends (people who have money saved such as doctors, dentist, lawyers or relatives).
• These people may have investments in CDs and Money Markets with bad returns. You can offer them a higher rate of return.
• Good option if flipping property.
• Usually get a 9 to 12 month loan at Prime + 2%.
• Usually short term loan that is personally guaranteed.

Option 4.

• Get a financial partner for investment money.
• A very expensive form of financing.
• Usually give the investing partner 50% of profits after interest.
• Not the best option, but better than losing a deal.
• You bring deal and do all the work.

Option 5.

• Commercial Banks
• Typically get a 20 amoritization loan with a 5 year call at prime + 2%.
• You can ask the bank to fix the rate for 5 years.

Option 6.

• REO Properties
• First negotiate the price, then just before accepting the offer, tell them you will not do the deal unless they finance the property.
• Typically at a 5 to 10 year fixed rate loan with a balloon payment.

Option 7.

• Portolio loans
• Currently not an option with most lenders, but may be in the future.
• Full doc loan with 65% loan to value ratio and you must have excellent credit.
• Typically prime + 2%, 5 year ARM.
• NovationMortgage.com has one now.
• The down side is the high interest rate.

1031 Tax Free Exchanges

• Under Section 1031 of the Internal Revenue Code (26 U.S.C. § 1031), the exchange of certain types of property may defer the recognition of capital gains or losses due upon sale, and hence defer any capital gains taxes otherwise due.

• The property you buy and sell must be held for investment.
• This option cannot be used by flippers.
• A taxpayer must identify the property for exchange before closing, identify the replace property within 45 days of closing, and acquire the replacement property within 180 days of closing.
• Click on this link http://www.irs.gov/newsroom/article/0,,id=179801,00.html for complete details.

Exclusion of Gain on Sale of your Principal Residence

• Section 121 of the IRS tax documents allows you to exclude the gains you make on the sale of your principal residence if you meet the following criteria.
• You must own and occupy the residence for 2 of the last 5 years.
• This is available only once every 2 years.
• You can exclude up to $250,000 in gains per owner-occupant.
• For complete details click on the following link http://www.irs.gov/irb/2004-39_IRB/ar07.html

Offer your rental property as a lease/purchase.

• You get a better tenant. They plan on purchasing the property and will usually take better care of it.
• They pay you non-refundable earnest money that is immediately yours to keep.
• The tenant may pay additional money each month that goes towards the down payment. If they do not purchase the property, you keep the extra money.
• The tenant is responsible for repairs.
• The price of the home can rise x% every year where x is a negotiable number.
• The statistics are that only 1 in 3 will actually purchase the property.
• Cannot do lease purchase for more than 36 months.