Without getting into a bunch of calculations, I determined that I’d be risking almost 350K to make less than 50K. Not a good trade-off. I passed.

Speaking with several local real estate agents and rehabbers, I learned this is a common story right now. What happened? I thought banks were desperate to get rid of properties?

This is purely my opinion, but here’s what I think…

The government has put most of the bad banks out of business and has bolstered the balance sheets of the remaining banks through TARP funds, etc.. Additionally, by cutting lending, banks have sufficiently protected their remaining asset bases and understand the market is in recovery mode. What does this mean for you?

First, banks don’t seem to be in any rush to get rid of inventory. They are either quietly releasing properties bit-by-bit, or selling large blocks of them to REIT’s and hedge funds (meaning you don’t have access to them – you don’t have $200MM to spend).

Second, because we are more efficient and computerized than ever, and real estate data is easily obtained on the internet, investors are evaluating deals quickly. This, in turn, allows them to make tons of offers each week (I know some making 50+ offers/week).

Finally, banks have access to this same data and can easily evaluate inventory in local markets. They also see the multiple offers coming in on their properties. Thus, in active markets banks are holding out and demanding top dollar.

Are there good deals out there? Certainly. But banks right now are not “giving away” properties like we thought they would, and it seems all this activity is cutting margins and making it more difficult to find home-run deals.

Do you agree with me? I’d love to get your stories or comments to post. Are you killing it right now or having a hard time finding deals?
If residential investing has become overcrowded in your market, commercial investing may be a better play for you. And, as promised last week, here are 4 more FREE training videos from Peter Conti, a commercial mentor:

Click on each title to view the video

Finding Great Deals on Commercial Property

Contacting Brokers – How to Sound Like a Pro Even if You’re Just Getting Started

Commercial Offers That Get Accepted, But Allow You OUT if You Don’t Like the Deal

We also have a free webinar with Peter coming up on February 17th.

We’ll send some emails out ahead of time so you’ll have plenty of notice. Peter will cover:

- How to get your first apartment building in 90 days or less.
– How to use other people’s cash or credit to buy commercial properties.

Peter is the author of “Commercial Real Estate For Dummies.” He is a 20 year real estate veteran. He currently mentors a limited number of students throughout the Country.

I will give you our answer from a hard money lender’s perspective (based on risk and underwriting).  If you have questions about your State’s lending laws, please consult an Attorney.

Short answer:  We do not lend on primary residences and we don’t personally know any hard money lenders that do.

Longer Answer: In some states, mainly in the West, a hard money lender doing only commercial/investor loans will still have to have the same residential mortgage lending license as a normal “consumer-based” mortgage lender.  Doesn’t make much sense but that’s the case.  And since they have to have the license anyway, they might as well learn how to be RESPA and TILA compliant and do some loans for primary residence homeowners.  It’s another line of business (maybe not for every lender, but we’ll get to that soon) for them.  If you are in the West, chances are you can find a hard money lender doing primary residence, consumer-based loans.

In many Eastern states (such as DC/MD/VA, the states where we do most of our business) there is a distinction between primary residence, consumer-based loans and commercial/investment property loans used for business purposes.  Hard money lenders doing commercial/investment/business loans are not required to have the primary residence, consumer mortgage lending license.  It doesn’t apply to what we do.***

So there are some legal reasons, in many states, not to do primary residence loans.

But, more importantly, there are some underwriting and business reasons not to do them either.

Here is the most important reason:

It simply isn’t our target market.  We are in this business to lend to real estate professionals, people who make most or all of their income with their real estate investments.  People who are serious about their business and are experienced in real estate investing.  People who use our money to make more money, and are happy they did.  People who come back for more loans each month.  True professionals.

We are not in this business to lend money to homeowners who aren’t able to get a bank loan and might have a troubled financial situation.  It’s not what we do.  If other lenders do, that’s their business.  It’s just not what HMB is about.

I hope that explanation clears up this issue for people.

If anyone is looking for a hard money loan for investment purposes, please apply here:

http://hardmoneybankers.com/loan-application

Thanks!  I hope 2011 is starting off strong for you.  Stay tuned for more.

-Chris

***There is an exception in some states near us where a person’s business could take a loan and collateralize a primary residence, but it’s rare and doesn’t come up often.

In fact, that is exactly how Hard Money Bankers got started back in 2007.  Shortly after forming our company and closing a couple loans, we were on a plane to Vegas to meet up with the best private lenders in the country and to learn how they ran their businesses.

We are happy to say that was a very good decision.

We owe a lot to Pitbull Mortgage School and Leonard Rosen for teaching us at the beginning and for continuing to lead the industry today.

I gave Leonard a call not long ago to see if he would be interested in sharing some of his knowledge with our blog’s readers.  He happily agreed.

Please watch the video below to find out:

-How HMB first met the Pitbull

-Why hard money lending is such a great business model

-How HMB has fared in its first 3-4 years of business

-How did hard money lenders make out during the market crash…and why

-Leonard’s insights on the industry today and in the future

-The 3 ways you can get involved in hard money lending now

Watch the video here

And if you are considering diving in (like we did) check out Leonard’s conference below.  It’s happening on March 3^rd so time is running out!  Plus, aren’t you looking for a reason to go to Vegas?

Sign up here:

http://www.pitbullconference.com/

PS–  To get a FREE seat upgrade tell them Hard Money Bankers referred you!

Good luck with your investments!

-          First, he gets some education, overcomes his fear, and nervously buys his first residential investment property;

-          After gaining some confidence and doing a few deals, he moves up in volume, gets a web presence, and starts talking to his wife about leaving his day job;

-          Inevitably, he hits a few road bumps – trouble with financing or a deal that goes sour. But the true entrepreneur makes it through, continues to learn and hone his craft, and ultimately creates a profitable life as a residential investor.

Many investors accept this as the end of the road.  And, truthfully, it’s a good one.  Many a fortune’s been made in residential real estate.  But there is another extremely profitable road to travel, and only a few select entrepreneurs seem to follow it. Of course, I’m speaking of commercial investing – apartment buildings, self-storage, strip centers, hotels, etc.  Most of my truly wealthy business acquaintances play in the commercial arena.  I call them “Big Dogs,” and for good reason.  Through one acquisition, they can generate cash flow similar to an average person’s annual salary, or more.

I believe most investors never venture into commercial investing simply out of fear.  Fear of the size of the deal – it’s too big and their afraid of dealing with banks or getting financing.  Or fear of all the different lingo – cap rates, debt service coverage ratios.  Or fear of creating business plans and pro-forma financial statements for banks and investors.  Or fear of networking to find the money to do the deals or the deals themselves.  Or, worst of all, fear of success.  Many of us just don’t want to believe we can generate that kind of opportunity for ourselves, so we don’t let our brains even consider it.

The message I want to get across today is, DON’T BE AFRAID.  When you first started residential investing, you were probably afraid.  I know I was nervous as hell on my first deal.  But you got educated, learned the lingo and the process, and started making money.  Commercial investing is the same.  And what makes commercial investing so appealing is that very few people step up to the plate to swing at the big deals, so there is much less competition.

Of course, this does not mean commercial investing is easy, or doesn’t have risk.  It may have a bigger reward but, to get that big reward, you will have to be smarter, work harder, and be willing to take bigger risks.

I have a lot of information upcoming in the next few weeks through hmbcribs.com about commercial investing.  I will discuss with industry experts:

-          How to get started in commercial real estate;

-          What are the biggest pitfalls of commercial real estate;

-          What’s the easiest way to buy your first commercial property;

-          How to get investors/financing for your commercial deals

I will even give you some tools so you can get started right away.

In my next blog, I will tell you the 5 fastest ways to lose all your money in a commercial deal.

Prior to passage of the Housing Assistance Tax Act of 2008 (H.R. 3221) you only needed to live in the property as your personal residence for any two of five years that you owned the property and you could exempt up the full amount of exclusion.  The two years could be any of the five years in any combination:  live in the property for two years and rent for three years, rent the property for three years and then move in for two, or even live there every other year of the five if you really liked moving.

Under H.R. 3221 the period of time the property is not used as your personal residence is termed “non-qualifying use.”  The ratio of non-qualifying use compared to the 5-year time frame reduces the amount of gain that can be excluded.  For example, John who is married and files jointly lives in a property for 2 years of the 4 years he owns the property.  Fifty percent of the time is non-qualifying use so his gain of $100,000 would only be excludable up to $50,000 and he would owe capital gains on the balance.  If he had owned the property for five years; rather than four, his exclusion percentage would have increased to 60% leaving capital gains due on $60,000.

You may have noticed from my previous blog posts that I often like to organize my thoughts into a list.  I think that format will work well in this situation (of course I think that)…so here we go:

Chris’ tips to an Effective Business/Game Planning Session

1. Make it an appointment on your calendar, like any other, and don’t miss it.  Treat is as being very important because, well, it is.
2. Do it at a location other than your office or home.  In those places, where you spend almost all of your time, it is too likely you’ll be distracted by your usual routines.  For this planning session you want to be away from your normal activities so you are able to focus and think in a way that you don’t think when you’re in the everyday grind.  Pick a place where you are comfortable but can concentrate.  I went to Barnes and Noble and sat in a big chair in the corner of the upstairs.  It worked out pretty well.
3. Do it during business hours.  This is when your brain is functioning the best because you are used to thinking and concentrating during this time.  At night you are tired and your brain is slower.  On the weekends you are thinking about weekend stuff.  During the work day is the way to go.
4. Turn off your cell phone and close your email.  I know it sounds drastic but it’s important.  Your Crackberry or Iphone is the biggest distraction ever invented.  Email is a close second.  You can’t have that when you are planning your next 12 months.
5. Brain dump.  Open up MS Word and just let it flow.  You can re-write later.  Think, write and repeat.  You’ll be surprised at some of the things that come out.  They are probably things you had in your brain…you just weren’t completely conscious of them.  It’s pretty cool.
6. Don’t forget dates!  As they say, “A goal without a timeline is just a wish.”  Mark the exact date by which you will accomplish a certain task.
7. If the goal is big and/or complicated, include the steps to get there and the resources you’ll need to make it happen.   Don’t just throw out something big like “launch e-commerce website” without a step by step process to get there.
8. Concerning production numbers- set the bar high and shoot for it.  I used to work with some guys who would set their production goal way low and double it every year.  What is the point of that?
9. Take breaks!  You want to be fresh during all of this, not rushing to get it done.  If you need a break, take one and drink some coffee or something.
10. Re-read it the next day.  You’ll re-write, elaborate and clarify some things.  You’ll also enjoy what you were able to get on paper.

BONUS

This is a tip from Julius Park at Crazy 88 BJJ & MMA- post your plan in a place where many people can see it.  It will do wonders for accountability.  It’s also very ballsy and I have to admit I am still too chicken to do this.  Haha.  Maybe next year!

I hope you enjoyed my list.  Best of luck with your 2011 game planning!

-Chris

http://www.hardmoneybankers.com/real-estate

Beginning with tax year 2011 landlords will be required to file 1099 information returns for anyone that provides greater than $600 of services to their rental “business.”  I hear you, “what business, I only have one rental property?”  In fact after doing some research today preparing for this post I found several posts from 2008 on a forum of tax professionals where they almost unanimously said the same thing.

So what changed?

Please welcome, 262 pages of The Small Business Jobs Act of 2010.  This is the first time that landlords have officially been codified as “engaged in a trade or business.”  There is a long history of both Congress and the IRS dancing around what is actually considered to be “engaged in a trade or business” despite the phrasing being used liberally throughout the Code.

Well here they went right for it and if you “are a person receiving rental income from real estate” you’re in the club.  So to what do you owe this great honor?  Estimates are that the Treasury will raise nearly $2.5 billion over the next ten years a result of this additional reporting.

There are some exceptions; though if you are reading this blog they likely aren’t going to apply to you.  The exceptions include:

• any individual, including members of the armed forces or an employee of the intelligence community, if substantially all rental income is derived from renting the principal residence on a temporary basis
• any individual who receives rental income of not more than the minimal amount, as determined under regulations prescribed by the Secretary
  • as of the date of this post the “minimal amount” has not been determined; but, I would not rely on it as a reason to put off preparing to comply with the new rules

Advising small business clients on what needs to be done throughout the year to prepare for filing 1099’s has been a part of my professional life for over 10-years.  So the advising part is easy… my experience has been that it’s the implementation on your part that will be painful.  More so than many other businesses because it won’t be an everyday occurrence as you go through the year; however, it has to become second nature to you.

Here is what I tell my clients:

• At the beginning of every year start the process over again even if you’ve been using the contractor, landscaper, handyman, etc. for years.
• The first check that you pay them beginning in January give them a W-9 form before you actually give them the check.
  • No form, no check end of story.
• Always write the check in the name that they filled in on the form whether it is their individual name or their business.
  • NO MORE checks made to “Cash.”
• Don’t second guess in January, February, or even November whether you will pay that particular service provider more than $600 by December 31.  Everyone fills out a W-9 or they don’t get paid.
  • Officially, if they won’t fill out the W-9 then you should withhold 28% and submit directly to the Treasury on their behalf.  Don’t even bother…too many good contractors out there to make your life difficult so find a different one.

There are many more changes coming regarding who is required to begin issuing 1099’s.  We’ll be covering some of those in future posts.  Also, I’ll be introducing you in future posts to the 1099-K.

Bryan L. Wakefield, MS Acct.

http://www.HardMoneyBankers.com/real-estate

In these tough economic times, commercial real estate developers are often the first to falter financially. Take a large condominium project that started during the boom as an example. The first tower was completed and sold out quickly, so the second tower was started. When the bottom began to fall out, it is likely several of the first tower investors started to fall back on their note payments. Then construction costs soared and the 2nd tower project stalled. This is the perfect time for that developer to turn to a real estate capital lender like Madison Realty Capital. The developer is not going to qualify for a bail out from a bank or your typical mortgage broker so a bridge loan provider is the only option. There are not downsides since there are no other options at this juncture. The interest rate may be high and the loan term may be short, but if the developer offers an equity stake in his condominium venture, that bridge loan can turn into a win-win.

At some point the market will turn around, the bridge loan or hard money will have helped you through the hard times or the start-up. Now the future will be newly paved without any further financial headaches. Ideally, the money borrowed will be paid back and any further interim financing required will be less of a mystery. Indeed future hard money loans would be available at better interest rates with a proven track record of successfully completed projects.

Hard money loans are a type of real estate loan that is provided by private investors, through brokers. The collateral for this type of loan is the value of the property. In the case of a construction loan it is the improved value of the property. In order to provide security to the lender, the hard money loan will have higher interest rates than a conventional loan, and will be limited to around 65% of the improved value of the property. The lender will also only lend from the first position, so that in the event of a foreclosure, they are the first party to recover their investment.

Hard money loans are short term loans, so you need to have an exit strategy before obtaining one of these loans, such as a plan to sell the property when completed or to refinance the property through traditional institutions.

Although the loan is limited to 65% of the improved value of the property, construction loans will generally cover all of the costs of construction, assuming that costs for construction are less than the value of the property upon completion.

If you have a business that is growing at a rapid pace and you are ready to expand by constructing a new building or updating your current building. Obtaining enough capital to obtain traditional financing for this construction can take a while. In this case, it would be worthwhile to pay a higher interest rate for a hard money loan, and be able to start construction within days.

Hard money lenders are available all over the country; a web search will turn up many lenders available in your area. Several websites will give you access to multiple lenders. Before approaching a lender, have your plan in place. Have complete details on all of the costs associated with the construction project, an appraisal of the completed property, as well as details on your exit strategy. Provide this information to the lender(s), and you should receive approval within a day or two, and be able to close on the deal within a week.

You could avoid bankruptcy: There are many people who purchase real estate and they get in over their heads, where they simply can not afford the property. In many cases these same people have high amounts of debt which makes the prospect of bankruptcy seem like a realistic possibility. When you receive a hard money loan you can be able to use what is known as a deflated rate, this allows you to pay more of the principal back on property. As this continues on a regular basis you will be able to own the property quicker and be able to pay off your debt faster compared to other forms of lending. This will help improve your credit rating by showing that you are making your payments consistently and it will ultimately allow you to avoid bankruptcy.

You can be able to purchase real estate easier: For many people who are investing in commercial properties or even apartment buildings hard money lending is ideal. There are times when you are trying to purchase a piece of real estate where the lending standards are very tight and many investors are afraid to invest. One way to be able to overcome this dilemma is to receive a hard money loan. In general hard money lenders do not rely heavily on your credit report like many traditional lenders; instead they are concerned about if the investment makes sound financial sense. Where, the property is generating enough income to be economically viable during both good as well as bad times.

Clearly hard money lending is a great way to be able to receive the kind of financing that you are looking for. Above are just two of the distinct benefits that hard money lending has to offer. It is through understanding these different benefits that will help you determine if receiving a hard money loan is right for you.