Stop Foreclosure Now Before It’s Too Late…

Stop Foreclosure Now

Foreclosure is a stressful and unpleasant experience, not to mention the impact it has on your credit score, your ability to obtain a mortgage and it may even affect your employment for the years to come. No one wants to have to go through the foreclosure process.

But life happens…job loss, divorce, unforeseen illness/disability, death in family, underemployed, business loss, etc.

No matter the situation that brought you to defaulting on your mortgage payment and facing potential foreclosure, we have the solution for you.

Related article: Protect Your Home with Life Insurance

The most important thing to remember is that you always have options.

We’ll help you understand your situation and what options are available and best for you.

What options are available to avoid or stop a foreclosure?

Option #1: Selling Your Home Quickly

This is the simplest option of all if you don’t own more than the home is worth. You can easily sell your home in the conventional way with a real estate agent, listing on the MLS.

Or you can sell your home to us without any agent’s commission, as we’re not real estate agent. We’ll buy your home in “as in” condition.

You’ll get your money quickly as this would be a cash transaction. A traditional home buyer with bank loan would need a minimum of 30 days to close on the transaction.

Option #2: Short Sale

A short sale is similar to option #1, except you owe more than your home is worth. For example, your mortgage balance is $500,000, but your home is now worth only $350,000.

This option is not as easy as the first because when you took out the mortgage initially the bank created a lien on your property.
You’ll need to get the bank’s approval to sell your home for less than what you owe because the bank is losing money.

Many banks would agree to such option because the short sale is a lot easier and less expensive than a full on judiciary foreclosure.

Related article: What is a Short Sale?

Option #3: Loan Modification

If your goal is to stay in your home, a loan modification is what you need. A loan modification can help you work with your bank to modify the loan term to help you stay in your home.

Check out MakingHomeAffordable.gov. Hurry, programs expiring December 31, 2016.

See…you still have three options to stop foreclosure.

Don’t delay…contact us now or fill out the form above.

I am a real estate investor and can buy your home in "as-is" condition as an investor (not as a real estate agent).

Therefore, you pay no commission or service fees to me at all.

What is a Home Equity Line of Credit or HELOC?

What is home equity line of credit or HELOC?

If you have used a credit card, you'll easily understand the concept of the home equity line of credit or HELOC. In simple term, a HELOC is a revolving credit, like the credit limit with your credit card. The difference is that a HELOC uses your home's equity as a collateral. Basically, it's a credit card secured with your home's equity.

And what is home equity?

What is Home Equity

Home equity is the difference between what your home market value and the total home mortgage you owed. For example, your home is now worth $1 million, and you have a home mortgage of $300,000. So in this case, your home equity is $700,000.

Most banks do not let you borrow 100% of your home market value. The most I've seen are 90% and 95%.

How much home equity line of credit can you qualify for?

The qualification is very similar to qualifying for a home loan. You still have to show proof of income, good credit score, appraisal, etc. The general rule to figure out how much you qualify for is 80% of your home equity.

We'll use the same example we used earlier. So your home is worth $1 million in the current market. 80% of that $1 million is $800,000. We then subtract your current outstanding mortgage of $300,000. Therefore, you qualify for up to $500,000 in HELOC, given you meet income and credit score requirements.

What Can You Use a HELOC for?

HELOC uses

You’ve probably hear many times radio or TV advertising HELOC to finance your dream vacation, wedding, dream car, dream wedding, etc.

You should see me roll my eyes when these advertising show up…these are the worst way use the money.

First of all, when you borrow money to buy things that do not return money, that’s bad debts. You’re digging a hole for yourself.

A better use of the HELOC is to pay of your bad debts, such as high interest credit card balance, car loans, college loans, etc.

Even though the bank generally does not want you to use the money for real estate investing (because they think any investing is risky), but that’s the way to go.

I purchased my first rental property with a HELOC from my primary residence. And my rental property is making money for me while I’m sleeping, and the equity is of course growing every day like a healthy child.

Some banks may allow you to refinance your existing home mortgage into a HELOC. This is a rare strategy that not many people know of.

You can technically use the HELOC to pay off your mortgage in 5-7 years . I’m serious, no kidding…

Many local banks and federal credit unions offer very enticing introductory rates.

For Sale by Owner Makes Perfect Sense

Where Buyers Find their Homes

Did you know you do not need a real estate agent or broker in a real estate transaction?

If you think about it, buying and selling real estate property is like buying and selling a car, you can do it yourself.

Real estate agents and brokers are just car sales men in the real estate. They just want to make money from you.

For sale by owner makes sense and saves you lots of money.

And here’s how.

The median single family homes in Hawaii is $750,000. The average commission for a real estate transaction with a real estate agent or broker is 6%. You’re paying $45,000 for a random joe to sell your home. If your home is worth a million (which is majority of the homes in Honolulu), you’re paying this random joe $60,000 to push papers for you.

How about you save the $60,000 and hire an attorney, who can draft your purchase contract and give you legal advise about your estate planning and tax at the same time.

People are afraid of lawyers because they think they cost too much, which is true. They do charge a lot for good reasons, they have your ass cover when the time comes.

My attorney charges $400 an hour. The $60,000 commission you pay for your real estate agent, who does not provide any legal advice because they don’t know anything, will buy you 150 hours of attorney time.

My attorney went to 4-year undergrad, 2-year law school and passed his BAR exam, and is entitled to charge $400 an hour for legal fee, which is consider expensive.

A real estate agent (may or may not have a college degree) went to real estate agent prelicensing course for 60 hours and passed the real estate salesperson license test.

Say your real estate agent spends 50 hours for your listing…I don’t know, they may do 1 or 2 open house (4 hours each), writing listing description, etc, etc. Let’s say 50 hours, that’s $1,200 an hour.

Seriously?!

Unless you make more than $1,200 an hour, I would do it myself.

Did you know how easy it is to sell your home on your own. The hardest part is marketing.

Read “How to Market Your Real Estate Property?”

Chances are if you’ll need your attorney to draft the purchase contract and go over your trust and estate planning stuff, you’ll probably needs a few hours of your attorney’s time, which probably would cost you a few thousand.

Even if you use a lot of your attorney’s time chit-chatting, say 50 hours, you’ll still come out only $20,000 on attorney fees.

Remember, the commission you pay your broker or real estate agent is just one of the closing cost. You still have more to worry about when you close.

If you used a real estate agent or broker, his/her only tasks are writing you listing description, list in MLS, find a new agent to do open house for them, answer calls from other agents about showing. Most of the time, it’s the buyer’s agent who show up to showing, so your agent just sits pretty in the office waiting for an offer to come through, and get you to say “yes” to the first offer that come through, so he/she can close and pocket the commission.

Once you have an agreement with the buyer, signed the contract and start escrow. There’s not much left to do - schedule home inspection, and just wait.

Real estate agent or brokers are not allow to give any legal advice. The standard Hawaii realtor’s Purchase Contract specifically provides that your real estate agent is not providing you with legal advice, and you should seek legal counsel. So, you are might as well hire an attorney from the beginning.

You know what’s worst?

Of course in Hawaii, everyone knows a friend or a relative who is a real estate agent. Hiring a Hawaii realtor is especially inefficient when the sale is between family members, and both sides are using a family friend to be the dual agency broker. That “family friend or relative” may receive a six percent (6%) commission for processing paperwork, even though as a dual agent they have probably utilized the standard “Dual Agency” disclosure which provides that he/she cannot really take sides. So who does he/she work for?

They can't give legal advise, and they can't take sides. So why are you pay this person?

Related article: Real Estate Agent…Absurd?

Anyway, if you decide to sell your real estate property on your own and put up a for sale by owner sign in your front yard, the process is really simple.

Advertise your real estate property like you would selling your car. Seriously, do you hire someone to sell your car?

Write a very descriptive ads from your property.

Show your property to potential buyers. You can do a open house event or private showing.

When you have a potential buyer, contact your real estate attorney to have him/her draft your real estate purchase contract.

Have both parties signed.

You’ll contact an escrow company to open escrow. Actually, the buyer opens escrow. When I purchase my last real estate property, I went to Downtown to the escrow company myself. My agent did nothing.

Your buyer should contact a home inspector for home inspection. This is a buyer’s expense. It’s up to the buyer to have an home inspection.

If you’re a condo owner, you’ll contact your property manager to have condo doc send over to your buyer.

The escrow and title company will make sure the transaction goes smoothly and both parties get what they agreed upon.

The other advantage of selling the real estate property on your own is that you know the property best. You get to meet the buyer directly, interact and negotiate with them directly without a third or fourth person involved.

According to the National Board of REaltors, 44% of buyers find their homes online (not from an agent).

Related article: Simple Home Selling Tips to Sell Your Home FAST.

There are many available sites to market your real estate property for sale. Here’s are a few that I use. If you type in “for sale by owner” in Google, more sites would show up.

Craigslist

Owners.com allows your listing to be posted in your local MLS.

ForSaleByOwner.com

For Sale By Owner on Zillow

Don’t forget social media. Share your postings on Facebook, Twitter, Instagram, wherever your people hang out.

Having hard time selling your real estate property? Let us help

Related article: Sell Your Home Fast

Sell Your Home as Rent-to-Own

Rent-to-own homes

Rent-to-own, also known as lease option, is an investing strategy that can be benefit both home buyers and home sellers.
For home sellers, rent-to-own may be the perfect solution to ensure you get top dollar for your home in a buyer’s market. It may even generates some extra income for the seller before the actual sale of the home. The rent-to-own strategy also increases the number of potential buyers for your home to include those who do not qualify for the conventional mortgage from banks.
In a rent-to-own or lease option, the homeowner rents his/her property to a potential buyer (lessee) with the exclusive right to purchase the home within a certain time period, usually 3 years or longer. The homeowner cannot legally sell the property to anyone else during the period defined by the lease option. The homeowner and lessee would negotiate in the beginning of the lease the term of the lease to include the purchase price, option or earnest money, monthly payment in addition to the rent.

Decide if a rent-to-own is for you. Rent-to-own isn't for everybody. If you need all the money from the sale of your home right away, you're better off with a straight sale. In addition, the majority of rent-to-own aren't exercised, so you may have to begin the process of selling your home all over again after the lease terminates.

You might also have to consider if you want to, or aren't able to, keep up with the responsibilities of continuing to own the home. In the a rent-to-own scenario, the homeowner must continue to pay property taxes and insurance and is generally still responsible for major repairs during the lease period.

Do a background and credit check on the applicants. At this point, you have to look at potential buyers as potential tenants, and you don't want to do a rent-to-own with somebody who you wouldn't rent to. Look for someone with good references, a steady source of income, and the ability to pay the rent plus, if applicable, the additional monthly option money.

As far as the applicant's credit history, you probably don't want someone with serious credit trouble, but at the same time you may want to be somewhat lenient. Many buyers who choose rent-to-own do so because they have some blemishes on their credit and want to improve their profile before applying for a loan.

Pre-qualify your lessee. It's a good idea to contact a loan officer or mortgage broker to at least discuss the potential buyer's prospects for obtaining a mortgage at the end of the lease term. There is more uncertainty (and, hopefully, more chance of improvement) the longer the lease term, but both you and the potential buyer can get a realistic idea of whether they'll be able to buy the house.

This step is essential if it's important to you to sell the house at the end of the lease. But ethically, and perhaps legally, it's important regardless of your preference because if you take option money and above-market rent from a tenant who can't possibly buy the house at the end of the lease, you're just ripping the tenant off.

Provide the potential buyer with a seller's disclosure form. The disclosure form lists any known problems with the house. You attest, to the best of your knowledge, to the condition of the house. This form is standard for other purchase transactions but is sometimes left out in a rent-to-own. Make sure you give the buyer this form to help him or her make an informed decision and to protect the integrity of the contract and sale. The buyer should also have an independent home inspection done.

Prepare a lease agreement with option to buy and collect option money. You can get fill-in-the-blank rent-to-own forms online, but you're better off getting them from a local real estate agent or attorney. The contract is sometimes added as an addendum to a standard sales contract. Unless you really know what you're doing, get help with the details of the contract from a real estate attorney, not a or broker.

The most important thing to remember is that you've got to cover not just the money issues but also who is responsible for what types of repairs and other complications that are bound to come up.

◦ Agree on the purchase price of the home, which should be fixed on the lease contract. You'll be obligated to sell at this price, so you want to make sure it's something you can live with. Ideally, the agreed-upon price should be at least at fair market value and maybe slightly more (especially for lease terms of 1 year or more) to compensate for the convenience to the buyer and for the likely appreciation of the property over the term. You and/or the buyer may want to pay for an appraisal to validate the price. Banks and other lenders will only loan against the appraised value, regardless of the price that you agreed on with the buyer.

◦ Determine how much option money to collect. Some states and municipalities have laws specifying a maximum amount of option money that can be taken, but in general the initial option money or option fee can be almost any amount. A typical figure is 2-4% of the purchase price. You will keep this money no matter what. If the lessee decides to buy, the money will be credited toward the down payment or the purchase price, and if the lessee doesn't buy, he or she forfeits the option money to you. Keep in mind that many buyers choose lease options because they can't come up with a big down payment, so don't expect to be able to get a huge amount of initial option money.

◦ Decide how much of the lessee's monthly payment will be credited toward the option. Anywhere from 0-100% of the monthly payments can be credited toward the purchase price, although the amount is sometimes subject to state or local laws. In general, the monthly payment will be calculated at fair rental value plus a set amount that will go toward the purchase price. This, like the initial option money, will either be credited toward the down payment or the purchase price or, if the tenant doesn't buy, will be forfeited to you.

◦ Decide on the term of the lease. Lease options typically run anywhere from 6-24 months. Less than six months usually doesn't make sense for the buyer, and more than 2 years (sometimes more than 1 year) may cause tax or legal complications. Shorter lease terms generally result in sales more than longer terms, simply because there are so many variables over the long term, but the length of the lease should be adequate to ensure that the lessee has time to get his or her financial ducks in a row. Keep in mind that if housing prices appreciate quickly, you may be getting a bad deal on a long lease, since you're obligated to sell at the agreed-upon price. If housing prices decline, however, you may be getting a good deal, but if they've declined significantly, the lessee is unlikely to buy the house. You still get to keep the option money, however.

Get the right home insurance coverage. Since you will no longer be the owner-occupant of the house, you may need to update your homeowners insurance policy to a dwelling policy. Check with your insurance agent to determine what policy is necessary and what coverage you need. Your tenant should also be insured to cover his or her liability and, depending on your state, any gaps in your coverage that may result from the lease option.

Collect monthly payments. Now, all you need to do is collect the payments each month. Keep track of the payments received so you'll have a record when the time comes for the lessee to exercise the option (or, in the the worst-case scenario, when you have to go to court to settle a dispute).

Sell the home. At the end of the lease term, the lessee can exercise the option to purchase your home for the price specified on or before the date specified. The total option money paid (including the initial option money plus any credit from the monthly payments) will go toward the down payment. Thus, the buyer already has equity in the home and should find it easier to qualify for a mortgage.

Read Buy Your Perfect Home with Rent-to-Own.

What is Short Sale?

What is a short sale?

A short sale in real estate is a voluntary process that happens when the bank or lender allows the homeowner to sell the property for less than what is owed on the mortgage loan. The homeowner closes on the real estate property and the property is “sold short”. This can happen prior to the property entering the foreclosure process. The homeowner receives nothing from the sale.

With both a short sale or foreclosure, the homeowner ultimately loses his/or home. A short sale may allow you to avoid foreclosure and walk away with less damage to your credit score.  While a short sale will not show up on the homeowner’s credit report, the mortgage status will. For those in default, it’s a pre-foreclosure that has been redeemed, which is often reported as “Paid in Full for Less Than Agreed. A short sale, however, does not release the homeowner from the remaining loans, such as second or third mortgages, if any.

One benefit to a successful short sale is that some homeowners are now eligible to obtain a new mortgage loan for the purchase of a replacement house.  That is not possible with a foreclosure, which has a typical wait period of a minimum of 3 to 7 years.

Common Reasons That Result in Short Sale

• The home was refinanced at 100% (or greater) than its present fair market value.
• The home requires too many costly repairs to sell, and the market won't support a sufficient price.
• The home was financed with an interest-only loan, and homeowner is now unable to refinance.
• The home is located in a neighborhood or area with distressed economic conditions.
• The home was purchased at the top of the real estate cycle, and a substantial drop in value has occurred.

Read Short Sale vs Foreclosure.

Why Would a Mortgage Lender Agree to a Short Sale?

A short sale is typically faster and less expensive than a foreclosure. Many mortgage lenders would agree to participate in a short sale because the lender will incur a smaller financial loss compared to a foreclosure or continued non-payment.

How To Qualify For a Short Sale and (possibly) Avoid Foreclosure

A Short Sale may seem like an easy way out of a likely foreclosure, but not every homeowner qualifies for it. Even if they do qualify, the homeowner has to find a buyer, preferably a cash buyer, and the bank has to accept the offer.

A homeowner must meet the following requirements in order for the short sale to be considered:

A hardship letter. The seller must explain why he/she cannot keep up with making payments. The sadder the story, the better. A seller who is simply tired of struggling probably won't be approved, but a seller with cancer, no job and an empty bank account may. The most common acceptable reasons are divorce, bankruptcy, loss of job or some kind of emergency.

Proof of income and assets. It is in the best interest of the lender to recover funds from the home owner. If the lender discovers that the home owner has other assets, including retirement funds, they may prefer to liquidate these assets for payment on the mortgage, and denies the short sale. The proof of income and assets must include income tax and bank statements, going back at least two years. Sometimes sellers are unwilling to produce these documents because they conflict with information on the original loan application, which may have been fudged. If that's the case, this deal is unlikely to close.

Comparative market analysis. This document shows that the value of the property has declined, which essentially means the home owner has no equity in the property, and it won't sell anytime soon for the amount owed. The comparative market analysis should include a list of comparable properties on the market and a list of properties that have sold in the past six months or have been on the market in that time frame and are about to close. This analysis is very similar to the Broker Price Opinion, which is less formal but often more informative than a property appraisal. The prices should support the seller's contention that the property is worth no more than the short-sale price.

A list of liens. The home owner must be at least 3 months behind on the mortgage and has been served a lis pendens from the court indicating that the lender intends to foreclose on the property if they do not receive payment in the near future. There may be more than one lender or liens on the property, and all lien holders have to agree to take less -- or possibly no money at all.

A qualified buyer. A short sale is dependent on a quailed buyer making an offer to purchase. If an offer is not received, it will not qualify for shot sale. Even if tall the other criteria are met, it is possible that no one will buy the short sale. It is also dependent on the lender accepting the buyer’s offer. If the lender rejects the offer, a short sale will not take place.

* Since late 2008, the IRS has been releasing the federal tax lien. The IRS is not forgiving the back taxes that homeowners owe. It no longer requires the tax lien to be paid off before the property can be sold. This is making the short sale process a bit easier with one less lien to deal with.

Tax Consequence of a Short Sale

If the mortgage lender agrees to a short sale, the lender have rights to issue the homeowner an IRS-1099 for the shorted difference, due to a provision in the IRS code regarding debt forgiveness.

The Mortgage Forgiveness Debt Relief Act of 2007 allows taxpayers to exclude income from the discharge of debt on their primary residence. The debt must be secured by a principal residence and the total amount of the outstanding obligation may not exceed the original mortgage amount plus the cost of any improvements. Debt up to $2 million may be forgiven tax-free.

If a borrower, who is still living in the home, is able to make an arrangement with a lender that reduces the principal balance of a mortgage, the amount forgiven will not be taxed.

Read Hawaii Foreclosure 101.

Short Sale Process for Homeowners

Fee Simple vs Leasehold Homeownership

Fee Simple vs Leasehold

n most areas of the United States, land is owned in fee simple. A fee simple owner has ownership of the entire property, including both the land and buildings. Fee simple ownership is the most common and complete form of land ownership.

Leasehold ownership was a very common method of ownership on Oahu 30-40 years ago with most residential homes being owned in leasehold. It enables homebuyers to purchase a properties at far lower cost than if the properties were purchased as fee simple.

A leasehold interest is a rental agreement created between a land owner (the lessor) and a lessee, who is leasing the land from the fee simple owner.

This rental agreement is called a ground lease. It is usually written for a period of 55 years with 30 or 40 years at a fixed rent and then a slightly higher rent for an additional 25 or 15 years. The lease rent is usually renegotiated every 5 years. Lease extensions or renewals are common so leasehold homeowners or buyers could obtain long-term mortgages for refinancing or purchases.

A lessee acquires leasehold rights similarly as fee simple rights. However, the leasehold interest does differ from a fee simple interest in the following five aspects:

(1) The buyer of residential leasehold property does not own the land and in almost all cases, pays a ground rent to the lessor.
(2) The use of the land by the lessee is limited to the remaining years covered by the lease.
(3) When the ground lease ends, the land returns to the owner or lessor. If there is a surrender clause in the ground lease, the buildings and other improvements on the land may also revert to the lessor.

NOTE: Most of the ground leases on Oahu contain a surrender clause; i.e., the buildings and other improvements revert to the lessor at the end of the lease.

That’s why I prefer to purchase leasehold properties in buildings that have a mix of fee simple, leasehold or fee available. This way I know the building will continue to exist when the grand lease expires, and the fee is available for sale.

(4) The use, maintenance, and any alterations made to the leased land are subject to local ordinances as well as any restrictions contained in the lease.
(5) a lessee can sell or transfer the ground lease to another party, referred to as an assignment of lease; however, the sale or transfer is usually subject to the review and approval of the lessor.

So, what happens when the ground lease on a condo expires where the fee has never been offered?

Well, no one knows.

The ground leases on the first two leasehold complexes expired in 2007. It was hoped that a precedence would be set by these first two complexes, but that did not occur. Both complexes were quite small. The first lessor reluctantly caved-in to community pressure and agreed to sell the fee interest to the leasehold owners. The second lessor went to court where a judge ruled early in 2008 that the lessees would have to surrender their homes. Unusual circumstances existed with each of these complexes, but similar unusual circumstances are likely to exist with other complexes.

Leasehold ownership on Oahu has become increasingly unpopular in view of all the uncertainty. If the fee is available, many buyers will purchase it simultaneously with purchasing a unit in leasehold. Therefore, the leasehold value for a unit is usually the fee value for a comparable unit less the cost of the fee and fee closing costs. The cost to buy the fee is a combination of the unencumbered value of the land offset by the remaining years on the lease. As the lease gets progressively shorter, the fee price usually gets progressively higher, particularly near the end of the lease.

Mortgage financing also becomes an issue. As the lease gets progressively shorter, it becomes increasingly more difficult to find lenders that make loans on the property. When there are less than ten years remaining on the lease, the leasehold property is virtually unsellable except to a buyer that is willing to pay cash at a very discounted price.

There is also a 30-year requirement on the land lease for a leasehold property to qualify for a 1031 exchange, which means there must be at least 30 years remaining until the expiration of the lease (not renegotiation).

If you are the owner of a leasehold property, we advise you, in most cases, to buy the fee as soon as practicable, as the cost of the fee will continue to increase with time. If buying the fee is impracticable, in most cases, you should sell your property in leasehold as soon as practicable, as the leasehold value will likely continue to decline with time. If you decide to wait to sell for the next period of rising prices on Oahu, you may find that the cost of the fee has increased more than the increase in value of your leasehold home; i.e., you will net less from the sale. This general advice obviously varies with the leasehold property and the owner’s situation.

So are there good buys in leasehold?

Leasehold is considerably less expensive than fee simple, with the value decreasing toward the end of the lease. But some buyers are more concerned about what they’re able to do today than what may happen tomorrow.

The fact that a home is leasehold has no impact on the rent that it produces. So, some investors opt to buy in leasehold because leasehold properties can generates a pretty handsome cashflow.

The mortgage payment for some leasehold homeowners (offset by tax deductions) is less than the cost to rent a comparable home. So, some homeowners also opt to buy in leasehold. It may enable them to own in a complex that otherwise would be too expensive.
As long as you understand the implication of owning a leasehold property, there are many good buys in the leasehold to generate a good cash flow for investors.

Read more on Why Buy Leasehold Properties from Cash Flow

Why Buying Rental Properties Makes Sense?

Landlords grow rich in their sleep

6 Benefits of buying rental properties that you don't want to miss.

1. Cash flow

The most important reason for buying rental properties. Some people buy rental properties with poor cash flow, and hope that they'll either make even or appreciation will cover their loss. But you, as an educated real estate investor, should evaluate each property carefully to determine your CAP rate, return on investment and cash flow.

My strategy is if the property gives me good cash flow, I'll keep as rental property. If it does not have good cash flow, I just fix and flip it for a profit.

How to find real deals in Honolulu real estate market?

Related article: Invest in Leasehold Property for Cash Flow

2. Tax Deductions

The Federal government provides many tax benefits for rental properties owners. As a small business owner, you can deduct all operating expenses, such as property management fees, utilities, insurance, property tax, etc.

Another benefit that not many people realize. Say, you have a child attending college in Southern California and you purchase a rental property in San Diego. Each year you visit Southern California to check on your rental property, just to be sure your property manager is doing a great job. Each time you visit your rental property, you also visit your child. The whole trip can be written-off as a tax deduction as it is considered a business-related trip.

Ha...that's what I plan to do when my daughter goes to college.

We're not done yet. You also benefit from what is called "paper loss". Your rental property incurs depreciation, which you can write-off on your tax. This depreciation is calculated by dividing your property market value by 27 years. This is a "paper loss" because it is a loss that happens only on paper. Your rental property does not just vanish after 27 years.

This greatly reduces the income tax you pay each year.

Related article: Tax Deductions for Rental Properties.

3. Mortgage Reduction

This one is self-explanatory. As you, or should I say "your tenants", pay down the mortgage, you own less and your equity accumulates.

Related article: Pay Off Mortgage in 7 Years

4. Appreciation

Even though I listed appreciation as one of the benefits of buying rental properties, it should be looked at as the "icing" on the cake. Real estate market ebbs and flows, no one can guarantee that your local market would grow forever. So don't bank all your money on the property appreciation. The most important thing is cash flow. If you have a rental property that is giving you a positive cash flow every month, you're already making a profit.

5. Avoid Risk of the Stock Market

I'll let this South Park "It's all gone!" video explains the point.

6. The IRS Hobby Loss Rule does not apply to rental properties

The IRS Hobby Loss Rule states that business should make a profit in 3 out of 5 years, which means it's okay if you lose money the first two years during your startup, but by the third years, there should be some profits showing.

This is why rental properties make such great business. Rental properties are immune from the IRS Hobby Loss Rule.

With all these benefits, buying rental properties is like wealth building on autopilot. It's a no brainer!

Real Estate Investing

Real estates always beat stock market.

Do you have what it takes to be successful in real estate investing?

Everyone wants to be successful in building wealth. And real estate investing is one of the greatest ways to do so.

The whole real estate investing is about learning how money works, how to find money and "make" money magically. It's this challenge that makes real estate investing fun and exciting.

I started out with using equity in my own primary residence. I don't have any fix-and-flip experience on paper, but I do know how to buy-rehab-rent. I'm currently planning to rent my current home out, and use my owner-occupant status to qualify for a home loan to buy my next property. It's easier to qualify for owner-occupant property loan than an investor's property. Besides, hard money lender won't lend on owner-occupant, and they only lend up to 50-70% of value.

There are 3 basic elements to real estate investing: money, knowledge and deals.

Do you have these 3 elements to succeed?

1. Money

This is the biggest challenge for most people starting out. Most of us don't have a couple millions sitting around waiting to be spent. Besides, as we all know, Honolulu real estate is one of the most expensive, so the initial cash needed is a big challenge.

But still there are ways to find that money you need. And the word we love to use in real estate investing is "leverage". It basically means stretching what you have to accomplish more.

Remember, this money does not need to be your money. It can be and preferably other people's money.

For example, you have $100,000 sitting in your savings account earning 0.05% interest from the bank. Instead of earning 0.05% and being taxed every year on that earning, you decide to use that money to invest in real estate.

You have 2 options to do so.

One, buy a small condo with the $100,000 all cash. Second option, buy 5 small condos by putting 20% down on each, and mortgage the remainder 80%.

It's true, with the first option, you save on mortgage interest and closing cost. But you're missing out on the earnings.

Say, each of these condo gives you $200 a month cash flow. With 5 properties, your cash flow would be $1,000 per month vs $200. And from the article, Why Buy Rental Properties? you'll realized that you not only have 5 times the cash flow, but you also have 5 tenants paying down your mortgage and building your equity each month, you'll have 5 times the tax-deductions, and your real estate portfolio also appreciates 5 times faster.

So, are you ready to find some money for investing? Here's a list to give you some ideas:

Be Your Own Bank

Conventional Mortgages

Home equity loans or line of credit

Rent-to-Own

Self-directed IRA

Seller financing

Friends and family - I prefer to not get them involved. Other investors may have a different opinion.

Related articles: Hidden Down Payment

2. Knowledge

The next thing you need is knowledge. No one is born to know how to invest in real estate. Even seasoned investors spent many years and experienced many failure to become successful.

My motto always is imitate the person who you want to be. If you want to be a successful real estate investors, get a mentor and see what they're doing. Also read up on books and blogs. There are tons of free resources on the internet to start.

Avoid scammers who promise you the Babylon for a big sum of money.

This website is a good place to start. I use this site as my running notebook for real estate investing ideas. I would also be constantly updated the information here as new information appears.

3. Deals

Ok...nothing would happen if there is no deals. This is a tricky one. With Honolulu real estate being notorious for being very expensive, many investors shy away from investing here locally and choose to invest in cheaper mainland location.

I, on the other hand, prefer to invest here. To me, investing out-of-state is risky because you lose all your control. You have to depend on your real estate agent and property manager to manage everything for you. Even those turnkey properties are still not 100% foolproof.

Trust me, you can find good deals here. You just need to know "what" you're looking for. Otherwise, a deal will just fall on your lap, and you wouldn't even notice. I have a bunch of criteria that I'm looking for when I'm hunting for deals. Properties that provide good cash flow, I keep for rentals. Those that provide poor cash flow, they'll be fix and flip.

Finding the good deals goes hand-in-hand with your knowledge. You need to know your local market well. This is one reason why I insist on investing only in Honolulu. I live here and know the market well. I can easily drive over the check on a neighborhood. Pictures are great, but you should not trust everything in the pictures.

Related article: Search Short Sales and Foreclosures

I once went to a showing for a multi-family property. The pictures and everything looks great. I went to the location, and found a bunch of people and children sitting by the parking lot. The adults just sitting around chitchatting, and kids running around and riding their bikes. Obviously, a low-income pocket in the area. Even though the house is brand-new and would potentially generate a pretty good cash flow, I skipped this deal. One of my criteria is that the properties have to be in a decent neighborhood.

In real estate investing, we often say "when you find the deal, you'll find the money to close it."

Hawaii Private Money Lenders

Definition: A private money lender is a non-institutional (non-bank) individual or company that loans money, generally secured by a note and deed of trust, for the purpose of funding a real estate transaction. Private money lenders are generally considered more relationship-based than hard money lenders.

Hard money lending is the process of borrowing money from a professional private lender, with the bulk of the lending decision based on the hard asset being bought.

Private money lending is borrowing money from non-professional lender, where the bulk of lending decision is based on the relationship between the lender and borrower, but enhanced by the hard asset being bought.

Private lenders lend money out not as a living, but usually as an investment. The rate, fees and terms are usually less and much more negotiable than hard money lending.

Why Borrow from Private Money Lenders?

One of the biggest mistakes that new real estate investors make is that they spend an inordinate amount of time learning about finding and typing up deals but a small amount of time on how to raise equity capital from private money lenders. It’s just as important, if not more important, for real estate investors to understand the ins and outs of raising money as finding the deal.

Finding a deal is great but if you do not have earnest money to tie up a deal or funds to purchase it, then all that time and effort is for nothing. (Ankit Investing Life Rules: Work Smarter Not Harder). When you make an offer on a piece of property, it is expected, and usually required, that you place an earnest money deposit down with your offer. If you are currently living paycheck-to-paycheck, coming up with even a few hundred dollars can be a big hurdle in launching your real estate investment business, let alone thousands needed for a purchase. Hence if you work on raising capital from private money lenders while locking up deals then you will have a greater chance for investment success.

The first question that most investors come up is who should I approach to raise the equity capital? Lets try to answer that question

Why Would Someone do Private Lending?

1. Higher return than stock market, index fund;
2. Security – private lender holds first position liens on the property;
3. Passive investment.

How to Find Private Money Lending?

1. RealtyShares is a crowd funding platform for raising capitals for real estate from accredited investors .
2. Local real estate investors, especially older ones, as they don’t want to do much work anymore and just prefer more passive income.
3. Family and friends. This is how most people begin. I don’t advise asking all your families and friends. You need to approach this very carefully.

How to Get Your Private Lenders to say YES?

1. Find a deal
2. Connect with private lender
3. Build your brand
4. Build relationships
5. Ask
6. Do the math
7. Reduce risk
8. Present it right

Related article: Investor's Guide to Private Money Lending.

Hawaii Hard Money Lenders Resources

To be successful in real estate investing, you need 2 things – money and good deals. These are the fundamental elements of real estate investing. You can't invest in real estate with only one without the other.

Some real estate investors are good at finding good deals, but have no money to execute the deals. Others have money, but don’t know how to find deals or where to start.

Hard Money Lenders

Most people who started out in real estate investing fall in the first category. In fact, many investors started with no money of their own at all.

There are many ways to overcome this obstacle of funding.

Here, I’m going to explain how you can start getting funded for your good deals.

With the popularity of TV shows on real estate investing, and the rise of crow-funding or angel investors, there are many, many online companies popping up with the intention to lend to start-up businesses, real estate investors, small businesses, etc.

I intended this article to be a resource for local real estate investors looking for funding for your next good deals. The resources I listed here are companies I have researched, and some I have used. Most of these don't charge a fee to use their services. Be aware of lending sites that charge $5,000 or $9,000, who promise to get you a $200,000 line of credit. You can get your funding with these companies below without first breaking your bank.

Personal and Business Money Lenders

FundEra.com - small business loans
FundingCircle.com - small business loans
LendingClub.com - personal and business loans, and business line of credit.
Prosper.com - personal and business loans

HardMoney and Private Money Lenders

Hard money lending is the process of borrowing money from a professional lenders, with the bulk of the lending decision based on the hard asset being bought.

Private money lending is borrowing money from non-professional lender, where the bulk of lending decision is based on the relationship between the lender and borrower, but enhanced by the hard asset being bought.

Private lenders lend money out not as a living, but usually as an investment. The rate, fees and terms are usually less and much more negotiable than hard money lending.

Private money and hard money are expensive. There is usually an origination feed of 1-2%, and the interest rate is about 10-18%, depending on the purpose of your investment, such as fix-and-flip vs buy-and-hold. Also, these are short-term loans that are usually re-paid in 6months to 1-2 years, which means you need to have a way to pay off the investors quick. Such as in a fix-and-flip, you’ll mostly likely finish your rehab in couple of months and sell right away.

And in a buy-and-hold, you need to be sure you can either pay off the loan with cash or refinance with a mortgage. Remember, with hard money and private money lending, you still need to come up with at least 35-40% of your own money. These investors would not lend to a project if you don’t have any of your skin in it. The reason why hard money and private money charge higher interest rate is because they don’t care about your credit score. All they want to know is the loan is back by the property because if you default, the investors will foreclose on the property, just like a bank does.

Read: Hawaii Private Money Lenders

Hawaii Hard Money Lenders

Hawaii Lending Group
www.HawaiiLendingGroup.com

Hawaii Lending Group offers first mortgage loans of between $50,000 and $2,000,000, to be used for commercial or investment purposes on properties that are not primary residences of the borrower. Loan durations of six months to three years are available and can be secured by commercial or residential property. Borrowers are typically required to hold a 25% or greater equity position in the property. Rates are competitive, with annual interest averaging 12%, with 3 to 5 points charged at closing. Brokers are welcome and commissions are negotiable.

Investors Funding Corporation
www.InvestorFunding.com

These are criteria for rehab and flip loans of Investors Funding Corporation:

First, locate your target, do your due diligence, line up your funds or get a partner with money, get a reliable estimate on the rehab costs and only then come to us.

o We only loan on property located in the State of Hawaii. Mainland loans—go elsewhere.
o We loan only when the investors is able to put up in cash 40% to 60% of the actual purchase price The Loan-to-Value (LTV) is determined on a case by case evaluation.
o If in our opinion, the “as is” value is lower than the purchase price, the percentages apply to the lower of the two.
o It is possible to cross-collateralize the loan with a first mortgage on a different property, provided it is a first mortgage and otherwise meets our criteria.
o For LTV purposes, it is the actual purchase price, not the projected price when rehabbed. The rehab value is relevant only for exit strategy purposes.
o We need to have your pay a small fee to inspect the property ($125 to $200) for us verify the “as is” value and estimate the cost of the rehab.
o We must be in a first mortgage position.
o Then borrower must show us that he or she has the funds to accomplish the rehab.
o The investor must demonstrate to us that he or she has the financial resources to service the loan.
o We can load the interest into the loan amount but the resulting loan amount must meet our LTV determination.
o The borrower must have a reasonable exit strategy.
o Our loans are interest only.
o Our interest rate is 11.5% to 18%.
o We have a minimum loan fee of $3,000 or from 5 to 8 points.
o For rehab or flip situations the loan term is no more than one year.
o If you want to rehab and hold on to it until the market recovers, the term can be for 2 years provided can service the loan.
o There is a prepayment penalty of 6 months interest.
o Currently our loan limit is $1,000,000.00.

Pacific Home Loans
www.PacificHomeLoans.com

Hawaii! Pacific Home Loans provides equity-based lending for real estate property, as well as sub-prime money for borrowers who do not meet the stringent requirements of today’s conventional underwriting guidelines. As a direct private money lender, Pacific Home Loans is able to provide financing solutions to borrowers who are experiencing challenging times and are in need of fast, creative financing solutions without regard to their FICO credit score.

- When conventional financing is NOT an option
- Fast closings in as little as 2 weeks
- Non-traditional credit okay
- Qualifying: Cash flow in place of Adjusted Gross Income
- No seasoning requirements for cash out
- Bridge Loan: REO, Foreclosure, and Short Sale flips
- Bridge Loan: Funding for acquisition and rehab in preparation for conventional financing

Private Equity Lending

www.HawaiiLenders.net
COHI believes in fair pricing and terms for all of our Hawaii loans. Hawaii hard money loans are generally more expensive than conventional financing due to the increased risk factor to the lender. COHI offers more affordable, flexible and out-of-box lending solutions when an institutional or conventional Hawaiian loan is not an option.

Pricing and Terms: Rates vary by the type of Hawaii property and the length of the loan. Rates vary depending on the complexity of the deal. Fees also range. Loan to value can range up to a maximum of 70%. Loan amounts range from $50,000 — $3,000,000 and vary depending on type of Hawaii property, location and the condition of the property. All of our Hawaiian hard money loans are interest only payments throughout the term of the loan, however there are some cases where the payments are built into the loan.

COHI offers flexible prepayment terms on each loan and they vary depending on the length of the loan. COHI only funds first mortgage loans and will never finance a second position loan. All loans can come with an extension clause just in case plans are taken off course. General pricing and guidelines may vary with every deal, so please call to discuss.

Areas Served: COHI funds Hawaiian loans with real estate as collateral in the following areas in the Hawaiian Islands: Maui, Kauai, Oahu and the Big Island.

Portfolio Money Lenders in Honolulu

Some local banks offer portfolio lending, meaning then bank is using it’s own money to lend for your property. It’s like the bank become a private money lender. Leasehold properties in Hawaii don’t qualify for Fannie Mae or Freddie Mac, so banks cannot sell those mortgages after they are initiated. So some local banks would give you a mortgage on your property with their own money, and they’re keep this mortgage as their own investment in their “portfolio”.

Here’s a list of local banks that offer portfolio lending. If you belong to a credit union, ask the branch manager about portfolio lending. Small banks and credit unions has limited resources to compete with big national or local banks for business, so a lot of times you can get really good deals because they want your business.

Bank of Hawaii
Central Pacific Bank
Finance Factor
First Hawaiian Bank
Hawaii National Bank
HomeStreet Bank

Here’s a list of companies that work specifically with real estate investment funding:
B2RFinance.com
DwellFinancials.com
EquityMultiple.com
RealtyShares.com

Cash-value life insurance

Did you know you can borrow money from your life insurance for free? It's a strategy called "Be Your Own Bank". I’m not going to go into detail about this approach of funding. You can learn more about cash value life insurance in Be Your Own Bank.

Friends and Families

Don’t forget your friends and families can be a resource of your funding too. But, personally, I stay away from this resource. I like to keep my business business, and families & friends families and friends. I don’t like mixing these two together, because I don’t want to lose either.