Wednesday, March 19, 2014

Non-Recouse Loans for Self Directed IRAs

Non-Recouse Loans for Self Directed IRAs

A self-directed IRA is a great tool for real estate investors. Self-directed IRAs in conjunction with Non-Recourse loans can be very useful.  They're becoming more popular as investors look for ways to take more control over their retirement investments, and one of the biggest selling points for self-directed IRAs is the ability to leverage IRA funds through loans. Not just any loan will work, though. According to the IRS, an individual cannot personally guarantee loans on behalf of their IRA.

In order to obtain a loan for one’s IRA, the loan must be of the “non-recourse” variety. A non-recourse loan is simply a loan that does not require a personal guaranty from the borrower. It does not mean that there is no collateral for the loan, however. In a normal real estate loan scenario, if the borrower defaults the lender can repossess the property in addition to seeking damages from the borrower through collection efforts. In the case of a non-recourse loan the lender is only able to repossess the property – that’s it. While this probably sounds great to most investors, there are some downsides to non-recourse loans which we will discuss shortly.

The Benefits Of Non-Recourse Loans

The benefits of non-recourse loans are fairly self evident. Leveraging your IRA funds allows you to purchase more property than you otherwise could have. Assuming you are a smart investor, and are purchasing quality investments, the ability to leverage your funds means a dramatic increase in the potential rate of return you can earn inside your retirement account.

Another benefit to leveraging your IRA is the ability to achieve greater diversification. Instead of buying one property entirely with cash, you can purchase multiple properties with the same amount of cash using leverage.

In addition, with a non-recourse loan the downside risk is limited to the amount of money you have invested. Remember, if the borrower decides to stop paying the loan and walk away, the only recourse the lender has is to repossess the property. The lender cannot seek additional damages, hurt the investor’s credit, or take any other action against the borrower. If you put $20,000 down on a property, and get a non-recourse loan for the balance, the most money you can lose in the deal (assuming you didn’t invest any additional money in the property after purchase) is $20,000.

The Drawbacks To Non-Recourse Loans

The main drawback to non-recourse loans is that they are incredibly hard to get. There are really only two banks actively offering non-recourse loans on a national basis. Want to know how many loans the largest one closed over the past five years? 1,000 – or roughly four loans a week. For the largest lender, and one who lends in all 50 states, that number is incredibly low. Having worked with countless investors who tried to get loans with these institutions, I can say that they are incredibly picky. They will only consider loans on certain types of property, with certain returns in certain locations. If the investment property doesn’t fit into their tiny little box – forget about it. If you are able to find a property that fits their loan profile (congratulations by the way), you are rewarded with interest rates much higher than traditional mortgage rates, and an incredibly high down payment requirement.

Another thing to consider when looking at non-recourse loans, is that if you take out a loan on behalf of your IRA you will be subjected to a tax called UBIT (Unrelated Business Income Tax) on the financed portion. Before you immediately rule out non-recourse loans because of UBIT, though, let me explain something important about UBIT. Just like with your normal tax returns, when calculating UBIT tax you are able to write off an incredible amount of deductions. Mortgage interest, real estate taxes, maintenance, management fees, and so on are all deductable. In my experience, the actual UBIT amount that most investors end up owing at the end of the day is fairly minimal.

Now for full disclosure, I’m not a CPA, attorney, or tax advisor. Before proceeding with a non-recourse loan, it is advisable to contact your advisor and discuss the impact of UBIT in your specific situation. If your advisor is unaware of what UBIT is (this is very common by the way), I would be happy to refer you to a professional that is well versed in UBIT.

Where Else Can I Get A Non-Recourse Loan?

As I stated earlier, your chances of getting approved for a non-recourse loan through one of these banks is very small – that is just the way it is. I’m not saying don’t give it a try, but if you truly want to leverage your IRA account it is probably a good idea to look at some alternative solutions as well. The good news is that there are a growing number of them.

Private Investors
Do you have friends with a sizeable amount of cash sitting around? If so, maybe you can convince them to lend it to you in the form of a non-recourse loan. Again, you can negotiate the terms however you’d like in this scenario – so the potential is only limited by your contacts and negotiation skills.

Hard Money Lenders
Some hard money lenders are beginning to offer non-recourse loans, however, there are some things to keep in mind regarding hard money lenders. Number one is that they are expensive. Hard money lenders are going to charge you a considerable amount of points upfront for the loan, and then you can also expect an interest rate at least double what a typical mortgage might be. In addition it is very rare to find a hard money loan with a term of 15 or 30 years. Typically hard money lenders want in and out of their loans fairly quickly. If your investment timeframe is more than 3-5 years, hard money lenders are probably out of the question.

Solution to the Problem!
When self-directed IRAs started becoming popular a few years back we saw the potential that leveraging IRAs offered, and we wanted to help our investors take advantage of this potential. Unfortunately working with non-recourse banks proved to be most difficult, and our investors soon became soured on the idea. So we decided to do something that no one else was – we went out and got our properties pre-approved for non-recourse financing. The kicker is we got them pre-approved with terms much better than what investors would be able to get from any of the non-recourse lenders.

For example, we currently have a development which we bought as a repo from a small local bank. The developer of this golf course community ran into trouble when the real estate market collapsed, and ended up losing the property. As part of the deal we had the bank agree to offer our investors – who we intended to resell the finished units to – special non-recourse financing at 4.75% with 30 year amortization (unheard of for non-recourse loans). They agreed to the arrangement, and so we proceeded with the deal. This went so well for us, that we intend to do the same thing with future properties, and I assume others in the industry will soon begin to follow our lead in this.

Conclusion

Non-recourse loans can be an incredible way for self-directed IRA investors to leverage their IRA funds – providing investors with increased returns, diversification and lower risk. However, obtaining a non-recourse loan is easier said than done. Are more banks going to start offering non-recourse loans? I don’t see it happening anytime soon. The best opportunity for self-directed IRA investors to find a non-recourse loan is in the growing non-traditional loan space, like the special non-recourse loan arrangement my company is offering to self-directed IRA investors, that is where I see the potential.

Friday, October 4, 2013

We want your non-performing assets

In the past twelve months, Verity Property Solutions has purchased four properties from financial institutions that were non-performing assets.  We are in the process of closing on two more properties before the end of this year.

We are still in search of non-performing assets.  We have financed mostly commercial properties but are willing to look at residential properties, if there are enough of them.  Generally, we look at apartment buildings, industrial/warehouse buildings and retail/office buildings.  We understand that most lenders do not want to give these assets away but we rarely offer your asking price.  There is a reason it is non-performing and when we make an offer, we believe that we can fix this reason.

Please contact us if you have a need to get rid of a property or if you are looking to get out from under an investment.  Often times, a commercial real estate investment becomes too daunting a task for those investors without the time or energy to handle the day-to-day management.

Verity Property Solutions
612-578-9898

Thursday, October 3, 2013

Hard Money Loans in Minnesota

When you have a deal that most banks don't want to do or it is a little bit outside of the box, you need a Hard Money Loan.

Verity Property Solutions has a cadre of Hard Money Lenders that we work with every day.  All of these lenders are experienced.  It's important to get an experienced lender.  If you are looking at an airplane loan, you do not want a lender that only deals with residential real estate. You need someone who has done these types of loans before. It makes the transaction go much smoother when your lender has seen almost any and all types of documentation necessary for each deal. 

In addition to being experienced, our hard money lenders are transparent.  They will get to know you prior to the date of closing.  These are often investors, just like you, and they are always looking to make more contacts.  In addition to being there for your closing, they will not quote you one rate and change it at the closing table.  Our hard money lenders work hard to be an effective means for getting your deal done however, they are always looking to make a fair return for the risk that they are willing to take. 

Finally, our hard money lenders are fast and professional.  They are quick to give you an answer on your loan request.  If the loan is complex, they may take a little longer to understand the deal but they get back to you as soon as possible.  In our eyes, a quick "No" is better than a long drawn out "Yes".  

When you need a Hard Money Lender, give us a call.  We are Verity Property Solutions.

612-578-9898

Wednesday, October 2, 2013

Is this a foreboding sign?

In the attached article, a large owner of buy-to-rent properties is looking to sell off the portfolio.  According to the article, Oaktree Group is looking to sell off about 32,000 single family homes in several western states.  It is the opinion of the reporter that the group is looking to make about a 25% profit due to the increase in residential real estate values.


What does this mean to you, a residential real estate investor?  Are you willing to get out of your investment for a 25% profit?  Is it too soon to get out or is this the peak?

It is our belief that this may be a bit premature.  We believe that as the economy continues to recover, the prices of residential housing will continue to appreciate.  The Federal Government has relaxed some of the stringent rules for home ownership and the mortgage rates have not escalated as previously thought.  We believe that by the middle of 2014, you will see home prices back to near their pre-recession pricing.  

What are your thoughts on this from an investor point of view?  

612-578-9898

Quick tips when purchasing commercial real estate.

Here are some tips when it comes to purchasing commercial real estate:

1)  All types of properties follow a life cycle. Just like a car, your real estate investment will perform better when you take care of it with proper maintenance.  Your real estate investment will need a new roof or new siding.  Make sure that you are keeping these items maintained or the problems left behind will cost so much more than what you originally figured.

2)  There are a lot of differences in the financing of a piece of commercial real estate and the financing for a piece of residential real estate.  First of all, the down payment will be much larger on a commercial real estate project.  In addition, the term will be shorter and the loan may come due or balloon after a short number of years.  Often times, the taxes and insurance will not be collected as a part of your payment and you need to handle this on your own.  Lastly, the closing process for a commercial real estate transaction can take up to 90 days where are residential transaction should not take nearly that long.

3)  In the beginning of your investing career, try to limit your investments to one type of property.  It is much better to be a master of one type of property than to know a little bit about a lot of different types of property.  Also, learn as much as you can from every person that you encounter in your real estate investments.

These tips can help you make the right investment decisions.

For more information:

Contact Matt Bartlett
Verity Property Solutions
 651-235-1469

Tuesday, October 1, 2013

Business is up but confidence is down

In the attached article from the Star Tribune, the most recent survey shows that manufacturing activity is up but business confidence is down.  The opinion is that due to the uncertainty of the Affordable Care Act, businesses have limited hiring more people even if they need them.  Does this make sense to you and your business?

The article is here:  http://www.startribune.com/business/225988361.html

Many of our readers are real estate investors but they also have full time jobs and/or are entrepreneurs.  It is our opinion that if you have more business than you can handle with your current staff, you should hire additional people to keep your clients happy and satisfied.  If you decide that you need to hire temporary staff or part-time staff rather than full-time staff, that is a decision that you, as a business owner, need to make.  For example, if you get a large order due to the time of year or it is something out of the ordinary, you may be able to get away with a simple hire of temporary staff to get that particular project finished. However, if you are experiencing a general increase in your business and have seen this occur for each of the last six months, you may need to take on additional staff.  Before you make a decision on this level, be sure to talk to your banker and your accountant.  You have a good support system, use them for input into decisions such as these.

On the real estate front, we have seen an increase in the willingness of financial institutions to part ways with some of their non-performing assets.  It appears that the need to pay insurance and real estate taxes on these assets has begun to wear on the financial institutions.  As long as you know who to speak with, there are great deals still to be had.

Contact Verity Property Solutions to find your next deal!!

Matt Bartlett
651-235-1469


Why pay a broker a fee?


This is one of the questions that we get asked a lot.  What do you do that requires a borrower to pay a fee?

Well, beyond our unbelievable good looks and charming banter, we save you time and money.  We save you time by getting your financial information into the right hands.  Do you have the time to put together your personal financial statement, three years of personal and business tax returns, and a pro forma on the property you are looking to purchase?  Now, if you can do it once, that is great.  The problem is that you will need to provide that same information to multiple financial institutions.  Do you know which banks or credit unions are lending money on investment or non-owner occupied commercial real estate?  

You have put together the information and got it into the hands of a bank or credit union that is willing to look at your deal.  Three weeks have passed and you still haven't heard from the financial institution. Do you know who to call?  Do you know what questions to ask?  If the financial institution calls and tells you "No.", what do you do?  If they tell you "Yes.", do you know if the interest rate you are being presented is fair?

When you use a broker, you are paying a fee for the time and energy of putting together the financial information and getting it into the right financial institutions hands.  We work with a multitude of financial institutions and private money lenders as well.  We know what type of loans a certain institution is looking for and what they need to hear to be sold on the transaction.  You are paying a fee for the expertise to get around a "No" and how to negotiate a better interest rate when you are told "Yes".  The time and energy, if put into an hourly wage, would greatly outweigh any fee that you will pay to a broker. 


Matt Bartlett
651-235-1469 

Monday, September 30, 2013

What are the two most important words in Commercial Real Estate?

Many of you may have looked at this title and come up with the following answers:


  • Cash Flow
  • Debt or Equity
  • Cap Rate
  • Investment Return
However, you all would have been wrong.  The two most important words when discussing commercial real estate are "yes" and "no".  It is as simple as that because without these two little words you can get nowhere. 

Does the seller want to sell?  Yes or no.  If it is a "maybe" or "for the right price", you don't have much to work with.  Does the buyer think the price is fair?  Again, a "yes" or "no" will get you a lot further than "perhaps".  

At Verity Property Solutions, we know that asking the right questions to get to the "yes" or "no" answers is imperative.  These questions can ferret out the challenges the buyer or seller face in putting a deal together. 

We have the know how to get to your "yes" or "no" faster than anyone else.  We can make it happen!

612-578-9898

Friday, September 27, 2013

Benefits of an experienced property manager


Once you have decided to invest in a rental property, the responsibility of maintaining and running the property can quickly become overwhelming. For many landlords, the logical solution is to hire a property management company to oversee their rental property. But is this the right decision for you? Here are several issues to consider.
  1. If this is your first time venturing into property management, you could find yourself overwhelmed. Collecting rent may sound easy, but in reality, it can be more like a painful extraction. If you are not familiar with what is legally allowed in rent collection, you may quickly find that your tenants are taking advantage of your inexperience.
    In addition to collecting the rent, the day-to-day maintenance of a rental property can be exhausting. If you unable to operate your property as a full-time job, you may not have the time to address tenant concerns and repairs in a timely manner. This could lead to further damage to the property and a deterioration of the value of your property.  This may make hiring a property management company an excellent choice.
    If you have purchased a rental property that is near your home or place of business, you'll be able to keep an eye on the property. However, if your rental property is located more than five to ten miles out of your way, you'll be hard pressed to travel to it to deal with the inevitable problems that arise. If you're unable to check on the property on a regular basis and handle any issues that may arise, finding a local property management company can mitigate these concerns.

  2. If you find yourself spending more time at your rental property than at your regular job or if you're getting constant requests for repairs to a property, having someone who can devote the majority of their time to your property is very helpful. In addition, the more units you have, the more you can benefit from a professional maintenance worker or property management company.
Hiring a property management company should result in more free time and less worry for you. 
Verity Property Solutions is Property Management, Solved!
Contact Matt at 651-235-1469.

Thursday, September 26, 2013

Construction Loan Checklist


When you need to get your next construction project financed, you will need to gather the following:

1)  Copy of Land Acquisition Settlement Statement - this should have been presented to you at the closing of the purchase of the land.  

2)  Copy of the Environmental Report - every lender will need to see this report to ensure that they are not financing a "brownfield".  Often times, the lender will accept a report if it has been done in the last 12 months. 

3)  Copy of the Building Plans - the architect should provide you with a number of copies as most financial institutions will keep a copy regardless of their decision on the loan.  

4)  Copy of the Construction Cost estimate - a sworn construction statement will need to be provided to the title company at the time of closing and an estimate will be needed by the bank to determine how much they will finance.

5)  Copy of Construction Contract - this helps the financial institution determine where any cost overruns will come from and who can make changes to the plans and specifications.  

6)  Copy of Contractors resume and qualifications - If the general contractor is an unknown entity to the financial institution, this will provide them with a level of comfort that they can finish the project in a timely manner. 

These are some specific items that you should have when you are looking to finance a construction project.  Of course, you will need the pertinent information on the borrowing entity and the personal guarantors.  If you have any questions, please don't hesitate to contact us!

Verity Property Solutions
612-578-9898 or 786-503-1753

Wednesday, September 25, 2013

Banks are lending money, again!


Over the last few years, the financial institutions of this country were asked to do two things at the exact same time.  First, the Federal Reserve and Office of the Comptroller of the Currency asked them to limit the amount of loans that they did with what was considered "an inordinate amount of risk".  Second, the President asked these same financial institutions to make more loans so that the small businesses in this country could reinvigorate the economy.  This defied every type of logic.  A financial institution could not limit loans to small businesses because of the perceived higher risk and make more loans to these same businesses.  So, in an effort to make nice with the bank regulators, they basically shut off the availability of loans.  

However, it is with great anticipation that we announce that banks are now lending money again!  You will need to have some form of down payment and your credit will have to be good but you can go back to the banks to see what types of loans they can offer to you.  If you would like to save some time and money, you need to contact Verity Property Solutions.  We have a working relationship with a large number of community banks, regional banks and some national banks.  We will work with you to get your information to the correct institution.  This saves you time and energy.

Contact Verity Property Solutions at 612-578-9898 or 786-503-1753 to get your next project financed at the best rate and term possible. 

Tuesday, September 24, 2013

Where are CAP Rates headed in 2014?

Here is a white paper report on the expectations for CAP rates into 2014.  It was put out in August of 2013.

https://prea.org/research/ConsensusSummaryResultsQ32013.pdf

The writer opines that there will be a modest expansion of the CAP Rate and a small increase in the NOI for most building types.

Why does this matter to you?  As a reminder, the CAP Rate is a rate of return on a real estate investment property based on the expected income the property will generate. A CAP Rate is used to determine the return on investment.  Another way to use this information is in helping to determine a value of a real estate investment.  For example, if you have an Net Operating Income (NOI) of $100,000 and a CAP Rate of 10%, your building should be worth about $1,000,000.

If CAP rates start to rise, this could inflate the value of your building.  However, if the fundamentals of this building do not change, did the value really increase?  So, if you are a seller, this is good news but if you are a buyer, it may do you a disservice.

If you need more in depth analysis of a real estate investment, contact us right away!

Verity Property Solutions
612-578-9898 or 786-503-1753

Buying Residential Real Estate for Investment Purposes


According to the Minneapolis Association of Area Realtors, the "Days on Market Until Sale" for June of 2011 was 145, for June of 2012 was 113, and finally for June of 2013 was just 74.  When you go looking for a home to purchase for rental income or as a possible re-sale, you will be expected to act fast.

We have been watching the residential real estate market for the last ten years and have seen this type of market before.  If you want to earn an income from real estate rentals or from re-sales of improved properties, we can help you find the properties, get them financed, get them fixed and finally get them sold.

We are connected with a number of different realtors and general contractors so we have the ability to leverage our relationships to make your purchase and/or rehabilitation go off without a hitch.

When you are ready to make a change in your income and use residential real estate as that vehicle, contact us.

Verity Property Solutions
612-578-9898 or 786-503-1753

Monday, September 23, 2013

Is the American Dream dying?

In an article published in the Guardian, the author opines that the American Dream is becoming too great a burden for many of us to bear.  What are your thoughts on this?

http://www.theguardian.com/commentisfree/2013/sep/22/american-dream-wages-stagnate-delusional-myth

We believe that there needs to be significant and meaningful changes made in order for the children of today to be more prosperous than this generation.  The lack of a livable wage and affordable health care are two items that need to be addressed. In addition, the cost of going to college will soon be so immense that many bright students will forgo this opportunity due to a lack of financing.  We would love to hear your thoughts on this matter.

Verity Property Solutions
612-578-9898 or 786-503-1753

The time to own an apartment building is now!

According to Finance and Commerce, the Twin Cities Metro area has one of the lowest vacancy rates in the nation as only New York City at 2.0% is lower than the the 2.1% vacancy rate of the metro area. However, the rents did not increase nearly as much with a 3.1% increase over the last 12 months ended in June of 2013.

What this means for you is that if you have aspirations of owning an apartment building, owning one can be very lucrative.  One example of this is the growth of the rental market in Uptown.  The rental market in the Uptown area is growing considerably.  There have been a number of new buildings constructed in the last year or so with some more units coming online in the next twelve to eighteen months.  If you own rental units, you may be able to increase your rates as the demand is still very high.  If you are looking to purchase rental units, the time to buy is now!!  As there is an increase in supply, this may drive down the rents that owners can charge.

We have closed on a couple of distressed properties in the rental markets.  There are many good deals still available.

Contact Verity Property Solutions to get a look at the latest good deals in the apartment market.

Verity Property Solutions
612-578-9898 or 786-503-1753

Friday, September 20, 2013

Commercial Real Estate closing documents

Closing a Commercial Real Estate transaction requires different documentation than closing a residential real estate transaction. We have compiled a list of some of the items needed for a Commercial Real Estate transaction.


1)  Entity documentation - Commercial property is rarely in title as an individual so that there is limited liability.  Closing a commercial real estate transaction will include the corporate documentation of the entity in title as well as that of the purchaser.  This would include a Corporate Resolution which expresses who has the authority to sign on behalf of the corporate entity.
2)  Insurance - Commercial property will need to be insured prior to the closing.  A commercial insurance policy will be more expensive than a homeowner's policy due to the increase in the risk and the higher value of the property.
3)  Escrow - In regards to escrow, a commercial real estate closing will generally involve a more structured escrow process than in a traditional residential transaction.  Typically, Title Companies will agree to hold the money, collect and record all documents, and wire out the money. In a commercial transaction, a more structured process typically entails larger sums of monies and numerous documents that may come in from other capital sources as well as a schedule of events that may be given as part of the contract.  This tends to be a guide to assure that all contract requirements are met, such as delivery of inspections, title search, surveys, corporate appraisal and other events that transpire throughout a particular transaction.
4)  Title Insurance - Title to a commercial property is generally more complex than title to a residential property.  Including pre-closing research, zoning requirements, title, survey and tenant leases acceptable to the purchaser, the title insurance will be more complex and therefore, more expensive than a typical residential real estate closing.  Commercial real estate transaction typically take more time to close do to there complexities.  A commercial transaction can take up to 90 days to close.
5)  Real Estate Transfer Documents - As with residential transactions, commercial real estate transactions will include a typical deed, non-foreign affidavit and an owner’s affidavit.  However, there are usually several other documents included in the transfer of ownership package.  Unless the commercial property consists of raw land, there could be an assignment and assumption of the leases, depending on the type of transaction.  This document clarifies that the obligations of the seller under the leases have been passed on to the buyer and is used to notify tenants that the property has been conveyed.
6)  Bill of Sale - Typically there is a bill of sale conveying any personal property included in the real estate transaction.  This personal property would not otherwise transfer to the buyer with the transfer of fee title. 
These are some of documents that you will need for a commercial closing.  Verity Property Solutions has conducted hundreds of commercial closings and by using our services, you can be assured that we know what documents you need and your closing will go off without a hitch.

Verity Property Solutions
612-578-9898 or 786-503-1753 

Thursday, September 19, 2013

Where are interest rates headed?


In the attached article from June 19, 2013, it is argued that interest rates will rise into 2014.  It has been stated by the Federal Reserve that interest rates will remain or be held relatively low until unemployment reaches 6.5% or inflation reaches 2.5%.  The Federal Reserve has many ways to influence the interest rate market and some of them are discussed in the attached article.  

What does this mean to you?  Well, if you are going to refinance your existing long term mortgage on a commercial building, you may want to lock in a 5, 7 or 10 year term at this point.  You will pay more today in order to get that long term rate but since we have been told that interest rates will be going up, doesn't it make sense to lock it in now rather than wait for it to go up?  Also, if you are looking to purchase residential real estate for either re-sale or rental income, your interest rates will go up and it may be harder to make money on these investments.  

What should you do?  You need to contact Verity Property Solutions to work on your refinance, today!  Banks will be looking to increase your interest rate in the near future.  You need to be in front of them, getting competitive bids, and making them EARN your business. We have a vast stable of community, regional and national lenders that will work for your business.

Contact us today!!

Verity Property Solutions
612-578-9898 or 786-503-1753

http://www.dailyfinance.com/2013/06/19/nows-the-time-to-start-worrying-about-mortgage-rat/


Wednesday, September 18, 2013

Private Money Loans

Making investments in your local real estate market takes time and energy.  As an investor, you know that you need to know the market, the neighborhood, and the developments going on in and around the local markets in order to make a good investment decision. Your local community banker may not have the same views on the positives and negatives in the local real estate markets.  Generally, bankers tend to wait too long in recognizing positive growth and overreact to any sort of negative stimulus.

So, after spending a lot of time and energy finding the correct investment, in terms of either commercial or residential real estate, how do you get financing for your project?  More often than not, you need to have access to Private Money Lenders.  These lenders are private individuals with excess cash that understand the value of an asset.  They can provide either short term or long term financing for your project.  Do you know of any Private Money Lenders?  If not, you have come to the right place, as we have access to many private money lenders.  We work with them to identify profitable investments.

Contact Verity Property Solutions to get access to a Private Money Lender and bypass the bankers who will move too slow and overreact to one negative statement.

Verity Property Solutions
612-578-9898 or 786-503-1753

Tuesday, September 17, 2013

Has your banker lost your phone number?


In general, most community bankers will get in touch with you at least once a year.  They will call you to get an updated Personal Financial Statement and a copy of your corporate and personal tax returns.  This lack of contact is in direct relation to your payment history.  If you continually pay your loans in a timely manner, they have little reason to contact you.  Or do they??

If you have been a customer of one financial institution for a number of years, you may be under-appreciated.  You and/or your company have made your loan payments without any hiccups for years and your deposit accounts always have generous positive balances, so why doesn't your banker call you and just say "Thank you."?  Generally, community bankers are busy working on those borrowers who don't make their payments.  Typically, they spend 75% of their time working out of problem credits, 20% of their time looking for new borrowers and the rest in meetings.  

If you are looking to purchase a building and will be going back to your same bank that you have dealt with for years, please come to us first.  We can go over your options with a number of different banks and make sure that you are being charged a competitive interest rate.  Too often banks get lazy when they deal with existing customers and the banks believe that any interest rate will suffice.  Verity Property Solutions can work with you to ensure that you are getting the best rate according to the market and not according to your bank.

Verity Property Solutions
612-578-9898 or 786-503-1753

Monday, September 16, 2013

How many hours a week are you connected?

In a recent article in the Harvard Business Journal, it was estimated that executives, managers and professionals (EMP's) are connected to work an average of 72 hours a week.  This does not mean that they are working all of these hours but that they were connected to work via smartphone, tablet, etc.  The article is here:  http://blogs.hbr.org/2013/09/welcome-to-the-72-hour-work-we/

In our opinion, we don't think this is too far off.  We are usually working from about 7:30 am to 7:30 pm on Monday through Friday and we can be contacted on the weekends.  However, during those off hours, we generally will let a phone call roll to voicemail or reply to a text letting you know that we will get back to you during "normal" business hours.  Often we will reply to a phone call or a text immediately because we know it will only take a minute or two or it will put to rest a particular issue.  We generally will not respond to a general inquiry as that is something we can handle during the "normal" work hours.

So, do you like to be connected all the time or do you feel the need to decompress after work?  Are there certain clients that you will respond to no matter what?  Leave us your comment below. 

Friday, September 13, 2013

One Option for Non-Recourse IRA Loans

Non Recourse IRA Loan
This loan is for your Self Directed IRA

Non Recourse IRA Loans for investors are hard to come by.  Few banks in Minnesota offer them.  However, we would like to inform you about one private/hard money loan we can arrange for you.  

YES, Hard Money may cost but how much does not doing the deal cost you?

YES, we can now arrange hard money loans in addition to the bank loans I arrange for IRA investors.

This loan is specifically designed to help you fix and flip properties inside your IRA. There are other income property loans available as well. This is a highly specialized loan. The Non Recourse IRA Loan is more of a commercial loan than a residential loan, meaning the property is considered more important than the borrower.  Because this loan is specialized we encourage you to call with your questions or to get more information.
Loan Highlights
  • We will loan 90% of your purchase and 90% of your repairs
  • 9 month term
  • We escrow the repair money and can pay your contractor directly
  • Easy to qualify
  • We can close in as little as two weeks
  • No minimum loan amount
Requirements for the Non Recourse IRA Rehab Loan
  • 65% max LTV based on the after repaired value
  • Minimum IRA reserves required (10 to 20 percent of the loan amount)
  • Available in Minneapolis, St Paul and surrounding Twin Cities MN Metro area
  • Single family detached houses only.  No condos, town homes, or multis
  • No income or assets requirements but we do pull a personal credit report
If you are tired of banks and hard money lenders saying NO to your IRA you need to call us TODAY!

Verity Property Solutions
612-578-9898 or 786-503-1753

Thursday, September 12, 2013

Need Bank Financing? - We can help!

Learn more about commercial mortgage loan programs available in the Minneapolis/St Paul, MN Metro area.  We can help those investors that are looking to secure purchase rehab mortgage loans for properties that do not qualify for programs like private/hard money loans or the FHA 203K rehab mortgage loan.  If you need financing on an apartment building or another piece of commercial real estate, we have contacts with community, regional and national lenders.

Hard Money, Private Loans and other creative loan programs can be arranged if borrower does not qualify for traditional bank financing.  Don't pay hard / private money fees and rates if you don't have to.  You most likely qualify for great bank pricing on commercial loans instead!

Contact:

Verity Property Solutions
612-578-9898 or 786-503-1753



Wednesday, September 11, 2013

You can't time the market so think long term

Here is an article on Sam Zell, a well-known commercial real estate investor.

http://online.wsj.com/article/SB10001424127887323864604579067393689137618.html?mod=WSJ_hpp_MIDDLE_Video_Top#articleTabs%3Darticle

In the article, which is attached, Mr. Zell states that he has only 30% of his funds in real estate.  He doesn't feel that he can trust the valuations based on the existing cap rates.  Mr. Zell feels that the bond rates which support the cap rates have been held artificially low and when the market corrects itself, the values of the commercial real estate will fall as well.

With all due respect to Mr. Zell, we believe that he is wrong.  It is true that when the bond rates rise, as they have to because we will see inflation as the economy starts to grow and the Federal Reserve gets out of the bond market, the cap rates will be affected and valuations may fall.  However, in the apartment building arena, we believe that the increase in the home mortgage rates will keep people renting and keep the buildings full.  As the economy rebounds in the next few years, the incomes should rise and the ability to charge a higher rent will increase the values on these specific types of buildings.  The only variable that would hinder the growth of the valuation of these apartment buildings is the growth of the available units.  The construction of a large amount of units will enable renters to leverage the newly available units and as supply is increased the rent may actually decrease or at the very least, stay the same.

All this being said, we believe that you should not be looking to make large investments in commercial real estate with a short term window.  Your best bet is to buy and hold for the long term.  Some guy named Warren Buffet has done pretty well for himself investing in this way.

Please feel free to give us your thoughts or comments.

Hard Money is available!


A hard money lender is one that has the funds to provide financing that would not normally be approved by a bank or commercial finance company.  Typically, the hard money lender makes a loan which is backed by a "hard" asset, typically real estate.

These loans have a distinct purpose.  They are used to get a project started and completed in as short a time as possible.  Most hard money loans have a short term.  For example, if you want to purchase a commercial property, make some repairs and have the property leased, you can use a hard money loan. The requirements for this type of loan will be less rigorous than if you went to a bank or other financial institution.  Once you have completed the project, you can approach a traditional financial institution to pay off the hard money loan.

A hard money loan will be more expensive than a traditional bank loan.  The reason for this is that there will be more risk.  A hard money lender is willing to place their faith in the value of the asset.  Most financial institutions want a few methods of repayment rather than just the sale of the asset.  However, in exchange for a higher rate, you obtain the funds you need without having to pass through the "tests" of a traditional bank.

Verity Property Solutions has access to many different hard money lenders.  Contact us today to get the financing you need!

Verity Property Solutions
612-578-9898 or 786-503-1753

Tuesday, September 10, 2013

Who needs more money?

Are you looking to purchase a new house, a new car, or a new flat-screen television?  If so, how are you going to get the funds that you need for these items?  You have two choices, you can either increase your income or decrease your spending.  No one wants to spend less, so let's work on increasing your income.

An investment in residential or commercial real estate is a great way to increase your income.  You can get monthly income from leases or capital gain type of income from the sale of an improved property.  Where do you get started to increase your income?  You call Verity Property Solutions!!

We can help you get started with your investments in residential or commercial real estate or if you have some experience, we find you a great deal!

Contact Verity Property Solutions at 612-578-9898 or 786-503-1753.

Monday, September 9, 2013

Move out to move up!

There comes a time in every business that you need to make a move from a hobby to a full-fledged business.  This could be an increase in your marketing base or hiring employees.  More often than not, this involves moving into an office.  Sometimes, this office is because you can no longer run your business out of your home or you want to appear more professional to your clients.

Getting a small office space is the first step in getting your business into a growth mode.  You are now responsible for this space and it makes for a great first impression on your existing and new clients.  If you are tired of meeting with clients or potential clients in coffee shops or some other place where you can get free Wi-Fi, you need to get your own office space.  This step takes something that you created in your home and moves it out into the world where business takes place.

Working from home has its benefits but looking professional is not one of them.  If you want to be perceived as a threat to someone and their line of business, getting an office space is a great place to start.  Potential clients will start coming in and your business will grow.

In the end, getting a small office  space for your company could be the shot in the arm that your business needs to get to the next level. Whether it is because you cannot effectively run your business out of your home or if you want to look more professional to your clients, getting an office space is the right move. When you are ready to move out to move up, contact us.

Contact Verity Property Solutions for your small office needs!!
Matt@verity-solutions.com
612-235-1469

Sunday, September 8, 2013

Land Development and Construction Financing

As further proof that the Minneapolis/St Paul and the surrounding communities are growing, an article in this Sunday's New York Times touts the recovery in land development and new home construction.

You can read that article here:

http://www.nytimes.com/2013/09/08/business/economy/prices-are-rising-for-new-homes-and-the-land-they-are-built-on.html?hp&_r=0

If you are looking for a finance partner, Verity Property Solutions can help you.  We have relationships with over 30 community lenders as well as numerous national lenders.  Call us today to get started on your land development or construction project.

Verity Property Solutions
612-578-9898 or 786-503-1753

Saturday, September 7, 2013

We want to meet Rehab and Commercial investors


Minneapolis Bank Owned Rehab Market

Here in the Minneapolis metro area there are more deals than money. This is the absolute truth!

The biggest problem we have is finding qualified investors to work with. The rehab construction loans are available to those who qualify. These loans are easy to get for the investors that really intend on buying ten plus bank owned rehab properties in Minneapolis or St Paul, MN metro area.

If you are an agent or investor struggling to find the financing to buy, fix and either sell or rent these great bank owned rehab properties in the Twin Cities, MN metro we need to talk.

There are great options for larger investors as well. People buying distressed apartments, offices and other commercial buildings can get loans to fix these properties up.

Now is the time to be in the market. Rates are low and so are real estate prices.

If you need assistance with financing or finding your next deal, contact our team!

Hard Money, Private Loans and other creative loan programs can be arranged if borrower does not qualify for traditional bank financing.

Please Contact:

Verity Property Solutions
612-578-9898 or 786-503-1753

We arrange financing in Minneapolis MN, St Paul MN and surrounding Twin Cities MN Metro area!

Friday, September 6, 2013

Why using a broker makes cents

According to the latest industry statistics from July of 2013, the sales price trends in multifamily dwellings have increased 1.8% over the last three months and 11.3% in year over year terms in the Twin Cities Metro area.  In fact, since about the midway point of 2011 there has been a steady rise in the sales price of multifamily dwellings in the Twin Cities Metro area.

What does this mean to you?  As an investor in commercial real estate, you are looking to get the best return on your investment.  If the prices keep rising and supply keeps dwindling, you need a team that can find you the best properties at the lowest prices.  We work with approximately 30 banks in the metro area and we have connections within the commercial real estate brokerage community which allows us access to properties before they come on the market.  By leveraging these relationships, we can get you the best deal on a property.  You will save both time and money by only looking at properties that fit within the scope of your investment objectives.

Contact Verity Property Solutions today to find your next investment opportunity!

Verity Property Solutions
612-578-9898 or 786-503-1753

Thursday, September 5, 2013

5 Reasons You Need a Property Manager

Being a rental real estate owner is a full-time job.  It requires you to know the ins-and-outs of rental agreements, you need to be a collection agency, and you have to be a handyman.  If being all of these things is what you aspire to do and have the time to do, then being an owner of residential real estate is for you.  However, if you want to have the income without the headaches that come with being an owner, you need a property manager.  Here are five reasons that you need a full-time property manager.

1)  You don't have to be the bad guy
As a property manager, nearly 70% of your time is spent enforcing leases and chasing down rent.  If imposing late fees, taking late night phone calls for excessive noise, and sorting through excuses as to why the rent was not paid is not your idea of a great way to spend your evenings, you need a property manager.  Tenants are more likely to pay on time if a professional is managing the property because systems are in place to collect rent, enforce late fees, post notices, and even report to credit bureaus or refer to collections.

2)  If you are not handy
If you know you're not handy around the house with leaks, squeaks, and clogs, you will spend more time than you think calling and coordinating maintenance requests.  Property managers have professionals in place around the clock, usually in house or at a deep discount, saving you time, money, and hassle.

3)  Make a better use of your time
Dealing with your property will take time and energy away from your day job.  Property managers spend their days and nights dealing with all issues relating to rental real estate - do you?  What if a tenant poses a question you don't have the answer to, where do you turn next?

4)  Proper financial documentation and reports
Property managers will provide detailed income and expense reports as well as cash statements every month saving you the bookkeeping headache.  In addition, your property manager will also manage your security deposit escrow funds, make sure you are in compliance with local and state regulations, and provide you with an end-of-year tax report for your accountant or financial advisor.

5)  Property law and regulations
Property managers have extensive local knowledge of rents and the ability to determine the highest rental rate possible for your property.  With the internet and the ability to do large scale searches for rental properties, potential tenants know if your property is overprices, even by $25.  Overpriced properties sit empty while other properties get rented.  Knowledge of rental rates is a key factor to fast rentals and quick cash flow.  If you go vacant for one month, you might as well have accepted $100 less per month on average!  Property managers help you maintain and achieve the highest possible return on your investment.  They will provide you with the knowledge of what repairs are necessary, and what repairs are a tenant's way of punishing you with petty requests.

Contact Verity Property Solutions to handle all of your property management needs.  Verity Property Solutions is Property Management Solved!

Verity Property Solutions
651-235-1469

Wednesday, September 4, 2013

5 myths of SBA Lending

The Small Business Administration (SBA) has received a bad rap in the last few years.  There are a lot of complaints from users of the program that are based on their experiences and are not related to the SBA as a whole.  For example, if the loan was turned down by the SBA, would you expect to get rave reviews from this borrower?  No, the outcome of the loan request should have no bearing on whether or not the experience was good or bad.

Here are 5 myths of borrowing using the Small Business Administration.

1)  Getting an SBA loan takes too much time
There are few things that borrowers like less than waiting for an answer on their loan request.  However, the SBA has increased the speed with which it can respond to the individual loan request.  The main thing that slows the process is when certain pieces of pertinent information are missing from the loan package.  If the information is not complete, the loan decision cannot be made.  It is up to the packager to ensure that the package is complete.  When you use a larger financial institution that has experience with the SBA, your loan decision should take about the same amount of time as it would if you went with the financial institution and kept the SBA out of it.

2)  There is too much paperwork and too many documents
The requirements for the SBA loan and a conventional loan are almost identical.  There will be a few more documents to send to the SBA because of their requirement for proper disclosure, including but not limited to privacy, sale of loan, and non-discrimination, etc.  Outside of these one or two page forms, they will need the same financial information that the financial institution needs.

3)  Rates are so much higher than conventional loans
Your interest rate with the SBA will be higher than a conventional loan.  However, if your financial institution is asking that the SBA be involved, it is because there is a risk that the bank is unwilling to take.  If you have a loan with more risk, you will need to be compensated for it.  With that being said, often times, there are other compensating factors that will work in your favor.  For example, the down payment may be less if you go through an SBA loan rather than a conventional loan.

4)  SBA loans require too much collateral
Unlike a conventional financial institution, the SBA cannot turn down a loan because there is not enough collateral.  Generally, the one piece of collateral that is required that most financial institutions do not require is life insurance.  It is a great idea for the owner(s) to have a buy/sell agreement and key-man life insurance in place to fund that sale.  Outside of that, the SBA will generally require no more collateral than any prudent financial institution.

5)  My business is too strong for an SBA loan
A business has to be exceptionally strong and profitable for the SBA to deny a loan request for these reasons.  One of the benefits of an SBA loan is the fact that they will fix the interest rate for 5-10 years on certain types of financing.  Most financial institutions will fix a rate for a maximum of 3-5 years.  If your business is profitable, wouldn't you go with the longer fixed rate option rather than a shorter one?  Don't think that just because you have been in business for a while and things have gone well that the SBA is not useful for you.  It is a relatively low cost option for longer than normal fixed rates.  Any business owner could use these benefits.

Contact Verity Property Solutions at 612-578-9898 or 786-503-1753 for all of your SBA packaging needs!!

Tuesday, September 3, 2013

Act Quickly to Purchase an Investment Property

In the news from Friday, August 23, 2013, new home sales were down in July.  The increase in the interest rates were blamed for the slowdown in new home sales.  However, rates are at extremely low levels on a historical basis, with interest rates at approximately 4.58% for a 30 year mortgage as of Friday, August 23, 2013.

The slowdown in new home sales can create an issue for people looking to purchase an existing home as an investment. As buyers are less likely to purchase a new home, they will scour the market in the hopes of finding a hidden gem amongst all of the existing homes that are for sale.  When they find one, they need to be able to act quickly.

This is where Verity Property Solutions comes in.  We have investors that are always looking to lend their cash out on a short term basis. So, when you find a property and need to act quickly, call Verity and get your loan approved. We can help you use traditional financing once you have made the purchase to get a low, long term interest rate loan put in place.

Verity Property Solutions
612-578-9898 or 786-503-1753

Saturday, August 31, 2013

Investment and Rehab tips


Always use a direct private lender who can fund loans within 2 weeks. Conventional lenders take too long, and Bank's are interested in disposing of the real estate, as is, to a buyer who can close in 2 weeks or less.
Don't be afraid to make multiple offers on multiple properties to get the best deal. Be prepared to walk from as many as 10 deals before landing one prospective property.
Always prepare a rehab budget and keep your rehab expenditures simple without getting into major construction. Try to stay away from major roofing, H.V.A.C., electrical, or plumbing. These expenditures can get out of control and eat any profit margin you had.
Do not get emotionally involved in properties, locations or improvements, do only what works and what sells fast, regardless of your tastes or desires. Your must provide a product that is desired by the masses. Stay away from medium or high priced appliances, lighting or plumbing fixtures as well as vibrant colors and complex landscaping. Low end paints, carpets, and appliances provide for the best return.
Don't skimp on Real Estate commissions, call the largest real estate company in your region and ask for the top sales agent last month, and that's your person regardless of rate. You must move that product in less than 6 months.
Finally, when you need financing, call Verity Property Solutions!
612-578-9898 or 786-503-1753

Friday, August 30, 2013

Hard Money Loans!!

A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by the value of a specific piece or multiple parcels of real estate. Hard money loans can be issued by individual investors or companies. Interest rates are typically higher than conventional commercial or residential property loans because of the higher risk taken by the lender. Most hard money loans are used for projects lasting from a few months to a few years.

Many people are confused about hard money loans and how to get them.  There are hard money lenders that do not look at credit, income or repayment. These hard money lenders look at nothing but the property and are typically the most expensive. Other hard money lenders want to truly understand the borrowers exit plan. The hard money lender may even want the borrower to show reasonable ability to repay and make payments on the loan.

Our team has been arranging hard money loans for over a decade.  If you need hard money or creative finance solutions give us a call.

Verity Property Solutions
612-578-9898 or 786-503-1753

Thursday, August 29, 2013

Commercial Finance Boom

Apartment Finance Boom!

This week I was reading the Finance and Commerce.  There was an article about why the Apartment Boom equals a Finance Boom.  Just like the housing market, apartment loans are at an all time low.  Now is the best time to refinance your apartment buildings, offices and other commercial real estate.

Here are some things you want to look out for:

- Prepayment penalties
     There are a lot of lenders out there giving record low interest rates.  Who doesn't want a low interest rate?  The problem with a low interest rate but high prepayment penalty is simple.  If you get a loan in the low 3's with a yield maintenance penalty you are asking for trouble.  Rates are low now but if they go up and go up quickly you may want to refinance.  If you are in a 25 year amortized loan with a 5 year balloon and a 5 year prepay you will pay dearly to refinance in the future to get longer term safe financing.

- Merchant account and company accounts
    Many larger lenders want you to tie up all of your banking with their institution.  This is fine if they are able to do the same for you by providing all the financing you.  However, that is never the case. Banks have lending limits.  As you grow there is no perfect bank.  Keep your accounts with a solid community bank.  Your relationship with your community bank is the most important relationship you can have.

If you would like to explore your options our team is here help.  We work with over 30 banks in the Twin Cities metro.  Each one of these banks has a niche and we know what they are.

4 things to know about financing your investment property

There are a number of things that you need to know before you set out to finance the purchase your first investment property.  Here are four that are very important!

1)  Expect to pay a higher interest rate
Interest rates on investment properties are generally higher than they are on a primary residence.  The rationale behind the higher rate is that with a non-owner occupied property there is a higher risk that the property will not be properly maintained and this could drive down the value.  In addition, if the owner should experience some sort of financial difficulties, the thought is that the payments on this investment property will be made after the payments on the primary residence.

2)  Prepare for a lower Loan-to-Value
For example, if your property is valued at $200,000 and your loan is $100,000, your loan to value is 50%.  The loan-to-value on an investment property will generally be less than 75%.  Lenders will generally associate more risk with investment properties and they want to see more equity in the property. 

3)  Know what lenders are looking for
When you speak with a lender, you should know what your credit score is or approximately is, what your debt to income is and how much money you make on a yearly basis.  These are going to give the lender a better idea of where the interest rate will be on your loan.  In addition, if you are not going to qualify based on the aforementioned criteria, it will save you and the lender a lot of time and energy.

4)  Shop around
Finding a lender to finance the purchase of your investment property is going to take some time and effort on your part.  The number of lenders that offer this type of financing have become fewer and fewer as the regulators have scrutinized these types of loans.  In addition, you will find that the interest rates and loan-to-value requirements will vary from lender to lender.

Save yourself some time and energy and contact Verity Property Solutions.  We have a large network of lenders that finance investment properties.  We can take your loan to the appropriate lender and get it approved quicker.

Verity Property Solutions
612-578-9898 or 786-503-1753

Wednesday, August 28, 2013

Why investing in Commercial Real Estate makes sense

Here are three reasons that you should consider investing in commercial real estate.

1)  Economies of Scale
You can operate a lot more units of commercial real estate than you can residential real estate.  And by a lot, we mean a LOT, like 100's more.  When you have to take care of fifteen residences, it takes a lot of time and energy.  If a problem should arise you need to get out to that particular residence and take care of the problem.  How much time does it take to maintain those separate residences?  If you don't have the income or desire to hire a property manager, you will need to take care of the maintenance, lawn care, snow removal, etc. all on your own.  This is a tremendous amount of time and energy.  Now, if you were to own an apartment building with fifteen units, all of the maintenance is contained in one place.  You have to take care of the snow removal, lawn care, maintenance, etc in one location.  In fact, if you were to hire a property manager, you would not need to worry about any of these problems as that company would take care of it for you. As you can see, when you own a commercial property, you can exploit the economies of scale to your advantage.

2)  Valuation
The value of a commercial property is almost always more than that of a residential property.  You don't need to factor in the market comparisons and replacement value for a commercial property.  The value of a home can be influenced by the location of the home, the year it was built, the amenities in the home, what other homes are selling for in that same area, and a host of other hard to determine factors.  Some, if not all, of these factors are out of your control.  The valuation of a commercial property is dependent on the net operating income (NOI).  We have discussed how this is determined in a prior article but if you missed it, it is the total income less the total expenses.  One way to determine a ballpark valuation is to divide the NOI by 10%.  This will give you a very rough estimate of the value of a commercial property.  For example, if the fifteen unit apartment building referenced above yields a NOI of $100,000 per year, at a 10% cap rate, your valuation is about $1,000,000.  You can influence the NOI by increasing the income or lowering the expenses.  It is more in your control and not subject to fickle market changes.

3)  Creative Financing
Most financing for residential properties falls into very strict guidelines.  You need to have a certain amount of the purchase price in cash and finance the balance over 15, 20 or 30 years.  In commercial financing, there are a number of ways to be creative.  For example, when financing the purchase of the aforementioned fifteen unit apartment complex, it is possible to get bank financing for 75-80%, and an investor financing for the remaining 20-25%.  This means that you could purchase the property with no money down.  These types of programs are rare but they are available.  It should also be noted that the secondary financing is usually at above market rates.  In addition to secondary financing, most bank loans will mature in 3-7 years.  This means that you would need to renegotiate the terms at that time.  If you have performed as agreed and don't like the terms being offered by the existing financial institution, you can seek out a competitive bid from another.

These are three reasons that you should consider purchasing commercial real estate but you don't have to go into it alone.  Call Verity Property Solutions for a list of possible properties to purchase or if you need help in obtaining financing.

Verity Property Solutions
612-578-9898 or 786-503-1753

Tuesday, August 27, 2013

Interest Rates are Historically Low

One of the first things that consumers and investors ask is, "What is my rate?"  This number is very misleading.

If I told you that your rate was 5%, what does that mean to you?  If you are used to getting funds from a hard money/private lender, you would be ecstatic!  A rate of 5% is extremely low and it means that your funds will cost about one-third of your normal cost.  However, if you were looking to get a conventional 30 year mortgage, you may feel that you have missed the bottom of the interest rate trough and your not nearly as excited.  In the recent past, conventional 30 year interest rates were somewhere between 3.5 - 4.00%.  As the turmoil in the Middle East continues and oil and the price of other commodities continue to rise, it will cause interest rates to rise.

So, as a commercial real estate investor, what is the right thing to do? If you are looking to purchase an investment property, the time to strike is now!  By all accounts, the low interest rate environment will not continue forever and the values of investment properties, especially residential housing, are starting to rise.  In fact, in some markets, home prices are about 20% under their peak.  This represents an opportunity for you, the investor, to purchase a good property in a great location and watch the values rise.  However, this rise will not be as dramatic as the last rise in property values.  This means that you will need to be more diligent in picking out the correct property and getting the best financing available.

This is where Verity Property Solutions can be of service.  We have been involved in residential real estate purchase, rehabilitation, and sales for over 20 years.  With our help, we can get you the best property at the lowest finance cost.  Whether it is your first property or your fifteenth, we can help you with your real estate needs.

Call us today and get started on your future!

Verity Property Solutions
612-578-9898 or 786-503-1753

Monday, August 26, 2013

Non-Recourse Loans in your Self-Directed IRA


Self-directed IRAs are becoming more popular as investors look for ways to take more control over their retirement investments, and one of biggest selling points of self-directed IRAs is the ability to leverage IRA funds through loans. Not just any loan will work, though. According to the IRS, an individual cannot personally guarantee loans on behalf of their IRA. So in order to obtain a loan for one’s IRA, the loan must be of the “non-recourse” variety. A non-recourse loan is simply a loan that does not require a personal guaranty from the borrower. It does not mean that there is no collateral for the loan, however. In a normal real estate loan scenario, if the borrower defaults the lender can repossess the property in addition to seeking damages from the borrower through collection efforts. In the case of a non-recourse loan the lender is only able to repossess the property – that’s it. While this probably sounds great to most investors, there are some downsides to non-recourse loans which we will discuss shortly.

The Benefits Of Non-Recourse Loans

The benefits of non-recourse loans are fairly self evident. Leveraging your IRA funds allows you to purchase more property than you otherwise could have. Assuming you are a smart investor, and are purchasing quality investments, the ability to leverage your funds means a dramatic increase in the potential rate of return you can earn inside your retirement account.

Another benefit to leveraging your IRA is the ability to achieve greater diversification. Instead of buying one property entirely with cash, you can purchase multiple properties with the same amount of cash using leverage.  In addition, with a non-recourse loan the downside risk is limited to the amount of money you have invested. Remember, if the borrower decides to stop paying the loan and walk away, the only recourse the lender has is to repossess the property. The lender cannot seek additional damages, hurt the investor’s credit, or take any other action against the borrower. If you put $20,000 down on a property, and get a non-recourse loan for the balance, the most money you can lose in the deal (assuming you didn’t invest any additional money in the property after purchase) is $20,000.

The Drawbacks To Non-Recourse Loans

The main drawback to non-recourse loans is that they are incredibly hard to get. There are really only two banks actively offering non-recourse loans on a national basis. Want to know how many loans the largest one closed over the past five years? 1,000 – or roughly four loans a week. For the largest lender, and one who lends in all 50 states, that number is incredibly low. Having worked with countless investors who tried to get loans with these institutions, we can say that they are incredibly picky. They will only consider loans on certain types of property, with certain returns in certain locations. If the investment property doesn’t fit into their tiny little box – forget about it. If you are able to find a property that fits their loan profile (congratulations by the way), you are rewarded with interest rates much higher than traditional mortgage rates, and an incredibly high down payment requirement.
Another thing to consider when looking at non-recourse loans, is that if you take out a loan on behalf of your IRA you will be subjected to a tax called UBIT (Unrelated Business Income Tax) on the financed portion. Before you immediately rule out non-recourse loans because of UBIT, though, let us explain something important about UBIT. Just like with your normal tax returns, when calculating UBIT tax you are able to write off an incredible amount of deductions. Mortgage interest, real estate taxes, maintenance, management fees, and so on are all deductable. In our experience, the actual UBIT amount that most investors end up owing at the end of the day is fairly minimal. Now for full disclosure, we are neither a CPA, an attorney nor a tax advisor. Before proceeding with a non-recourse loan, it is advisable to contact your advisors and discuss the impact of UBIT in your specific situation. If you’re advisor is unaware of what UBIT is (this is very common by the way), we would be happy to refer you to a few professionals that are well versed in UBIT.

Where Else Can I Get A Non-Recourse Loan?

As I stated earlier, your chances of getting approved for a non-recourse loan through one of these banks is very small – that is just the way it is. I’m not saying don’t give it a try, but if you truly want to leverage your IRA account it is probably a good idea to look at some alternative solutions as well. The good news is that there are a growing number of them.
Private Investors
Do you have friends with a sizeable amount of cash sitting around? If so, maybe you can convince them to lend it to you in the form of a non-recourse loan. Again, you can negotiate the terms however you’d like in this scenario – so the potential is only limited by your contacts and negotiation skills.
Hard Money Lenders
Some hard money lenders are beginning to offer non-recourse loans, however, there are some things to keep in mind regarding hard money lenders. Number one is that they are expensive. Hard money lenders are going to charge you a considerable amount of points upfront for the loan, and then you can also expect an interest rate at least double what a typical mortgage might be. In addition it is very rare to find a hard money loan with a term of 15 or 30 years. Typically hard money lenders want in and out of their loans fairly quickly. If your investment timeframe is more than 3-5 years, hard money lenders are probably out of the question.

Conclusion

Non-recourse loans can be an incredible way for self-directed IRA investors to leverage their IRA funds – providing investors with increased returns, diversification and lower risk. However, obtaining a  non-recourse loan is easier said than done. Are more banks going to start offering non-recourse loans? I don’t see it happening anytime soon. The best opportunity for self-directed IRA investors to find a non-recourse loan is in the growing non-traditional loan space, like the special non-recourse loan arrangement our company is offering to self-directed IRA investors, that is where we see the potential.

Please contact Verity Property Solutions for more information on a Non-Recourse loan in your Self-Directed IRA.

Verity Property Solutions
612-578-9898 or 786-503-1753

Sunday, August 25, 2013

What is most important, Price, NOI or Cap Rate?


Should properties be compared only by price, NOI (net operating income) and cap rate?

At Verity Property Solutions, we know that the cap rate is just the starting point. Low cap rates usually mean long term leases with national credit tenants. Shorter remaining leases with local tenants mean higher cap rates. It’s the theory of risk versus reward. In addition, our team members “tear apart” the NOI calculations to make sure that all of the expenses and replacement reserves have been included properly. Financing will not only be affected by the cap rate but by the strength of the commercial real estate tenant and remaining years on the lease.

Why are cash-on-cash and IRR (internal rate of return) numbers more important than the cap rate of a commercial real estate property?

The cap rate is the investor’s rate of return or cash-on-cash return for the first year if the investor pays cash for the property. Most commercial real estate investors choose to finance part of the purchase price to increase their cash-on-cash return so that it’s higher than the cap rate. It’s called leverage and is usually a good thing, within reason. However, once financing is involved, the interest rates and terms can vary widely depending on the strength of the tenant and remaining years on the NNN lease. The commercial real estate lenders will charge a higher interest rate for weaker tenants and shorter leases. In addition, the length of the amortization schedule may be shorter with a shorter lease which will increase the monthly debt service. All of these factors will affect the cash-on-cash and IRR.

Should an investor always go for the investment with the largest cap rate and highest projected cash-on-cash return?

At Verity Property Solutions, we always explain to our commercial real estate investors that properties with higher cap rates usually have weaker tenants and shorter lease terms remaining. In addition, there may be deferred maintenance or the property may be old and somewhat obsolete. While a commercial real estate investor may be able to take advantage of a high cash-on-cash return, it will usually be short lived and painful in the long run.

Contact Verity Property Solutions for all of your Commercial Finance needs!

Verity Property Solutions
612-578-9898 or 786-503-1753

Saturday, August 24, 2013

Benefits of Using Our Services for Commercial Finance


Does working with Verity Property Solutions reduce your financing costs?

Commercial loan clients typically do not incur additional financing costs when they use Verity Property Solutions to manage their loan transactions. Instead, they usually gain cost savings. It is important to understand Verity's role. First, Verity helps clients assess and convey the merits of their real estate project from the perspective of a commercial lender. Then we present the project to a number of qualified lenders, which enables us to gauge the rates and terms the market will sustain. Most commercial lenders are willing to reduce their origination and processing fees when they have an efficient intermediary, such as Verity, expediting the loan acquisition process. Thus, we can obtain compensation for our services while reducing the cost and, more importantly, the time and effort needed to complete the commercial debt financing transaction.

How is using Verity Property Solutions different than just going to the bank?

Verity Property Solutions represents you, the borrower. Our responsibility is to help you obtain the loans you want at the best rates and terms possible. Approved lending programs and underwriting requirements limit what banks can and cannot do for a borrower. Verity is free to consider as many real estate financing alternatives as may be required to meet each client's needs and circumstances. Banks are also limited by quotas and portfolio guidelines imposed by their management. As a result, banks sometimes reject borrowers because of quota requirements and not because of the merits of the borrower's project. We are not constrained by these factors. We are free to deal with as many funding sources as we choose.

On another note, a borrower's objective (minimizing cost) is usually adverse to that of a bank (maximizing profits). Therefore, in the absence of competition from other lenders, banks typically attempt to push the envelope on the rates, fees and terms they offer to commercial borrowers. Verity tilts the scales in favor of the borrower by reminding the lender that our commercial loan clients have alternatives. When banks obtain commitments from their commercial loan clients, banks tend to place borrowers in queue and offer little or no assistance in expediting the loan closing process. On the contrary, Verity Property Solutions takes a hands-on approach to ensure that the loan acquisition process is completed as quickly and efficiently as possible. 

What are the advantages of using Verity Property Solutions?

When you use Verity as your intermediary, you get several benefits, including:
  • Expertise to help you assess and communicate the value of your project.
  • Help with completing the commercial loan application components such as financial, market and industry analysis that is required for loan approval.
  • Qualified commercial lenders competing for your project, which allows you to get the best rates and terms available in the market.
  • A hassle-free experience with Verity focusing on the commercial loan application process so that you can focus on your business.
  • Quality customer service from start to finish.
Contact Verity Property Solutions for your commercial financing needs!

Dax Dickson
Finance & RE Consulting
Verity Property Solutions
Licensed by NRG
612-578-9898

Friday, August 23, 2013

Your Commercial Financing Problem Solvers


If you are looking for a solution to your commercial finance problem, we are here to help. Some of the services that we offer include but are not limited to:

Commercial Mortgage Loans on the following types of property:

  • Apartments
  • Strip Malls
  • Mixed-use (Office/Retail/Apartments)
  • Office Buildings
  • Churches

Commercial Mortgage Loan solutions for residential including:

  • Investor loans to buy, fix, and rent
  • Mortgage loans to buy, fix, and sell

If you need money for a real estate deal, we can help.  There are many options from hard money/private money, bank financing, and other institutional programs.

Contact us to get any of your real estate problems solved!

Dax Dickson
Finance & RE Consulting
Verity Property Solutions
Licensed by NRG
612-578-9898

Thursday, August 22, 2013

What You Need for a Rehab/Construction Loan



You have decided that you want to purchase a property, rehabilitate this property and resell it for a profit. What are the steps that you need to take to get this project started and completed?

There are basically four steps:
  1. The borrower (or a representative for the borrower) runs the project concept by us. If we like the project concept and feel that the numbers are acceptable, we proceed to the next step.
  2. We review a complete loan packet. We ask that this be sent via overnight mail, delivered to the office, or sent via email (fax copy is not acceptable). The packet should include the following items:
    1. Personal Financial Statement for each borrower/personal guarantor
    2. Credit (tri-merge) for each borrower/personal guarantor (or permission to pull credit)
    3. Company financials if the borrower is an entity (2 years)
    4. A privacy notice signed by the borrower
    5. A purchase agreement (when property acquisition is involved)
    6. A preliminary title report or owners and encumbrances report (if available)
    7. A detailed line-item budget for all construction work to be done on the project
    8. Plans (for all construction loans, and for rehab loans that involve changes in the basic floor plan)
    9. Borrower's estimate of the completion value of the project, and comps (or other value analysis) to support this estimate
    10. Photos of the subject property
    11. Borrower credentials
    12. A copy of contractor license, bond, and insurance (for all construction loans)
  3. If all this checks out, we ask the borrower for a deposit (generally $500). This should be in the form of a cashier's check or money order. We provide a conditional loan commitment letter at this time.
  4. If the property checks out, we draw up the documents and close the loan through escrow.
Contact our team for all of your financing needs.

Dax Dickson
Finance & RE Consulting
Verity Property Solutions
Licensed by NRG
612-578-9898