AUGUST 2018
REÂ N E W S
INVESTMENT
NEWSLETTER OF MID-AMERICA ASSOCIATION OF REAL ESTATE INVESTORS
This Month Private Lending in the Real Estate Business with Attorney Rick Davis & Friends
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AUGUST MEETING PRIVATE MONEY IN REAL ESTATE Being a private lender in a real estate transaction is a great way to keep your money working for you in real estate, whether you invest in real estate yourself or not. Using a private lender in your business is a great way to access money faster and do more deals. Private Money is a Win-Win, but if you don't know what you are doing, it could become a nightmare. With a few simple steps, both parties in the transaction can be protected and everyone can make money! Join us at the August MAREI meeting on the 14th where we will hear from a few members Eric Grannemann, Dale Griffin and Kim Tucker some of their experiences from both the borrowing side, the lending side and the deal went to heck side. Then we will learn from Attorney Rick Davis, how to put it all together and keep it legal. Have a potential private lender bring them with you. Monthly meetings held at the Holiday Inn at 8787 Reeder Road, Overland Park, KS. MAREI Members & First Time Guests who Pre-Register at MAREI.org attend free all others pay $25 at the door or $15 online. As always there will be the Business Hall, the Deal Table, and Networking from 6 to 7 pm. Presentation starts at 7 pm.
Mailing Address: 6709 W 119th #332 Overland Park, KS 66209 Phone: 913-815-0111 Web: MAREI.org Web: MAREIMember.com Email: Kim@MAREI.org Views and advertising expressed in the RE Investment News are not necessarily endorsed by Mid-America Association of Real Estate Investors. The information contained within should not be construed as a recommendation for any course of action regarding financial, legal, or accounting maters by MidAmerica Association of REal Estate Investors. Email to inquire about advertising oportunties or membership.
See full day workshop page 5
GET INVOLVED AT THE M E E T I N Deal GTable: Bring your business cards and deal flyers for our u r e s deal table. Located in the middle of the vendor hall members can
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place a stack of business cards or a stack of flyers. Please make sure to remember we have limited space. Make sure your name and contact information are on your marketing piece or the deal table police may remove your materials. Please place, browse and move on so that traffic can flow. Genius Bar: MAREI has a wealth of knowledgeable members and we are asking a few of them to volunteer from 6 pm to 7 pm at our new MAREI Genius Bar. Ok, so it will be more like an Expert Table. Look for two tall tables just past the check-in table to the left. There should be a couple of tall cocktail tables with a couple of experts who are there to answer your basic investor questions from their own experiences. They are not offering legal advice. If you would like to take part by being an expert at our monthly meetings, please let us know by emailing kim@MAREI.org.
New Member Orientation: Wonder just what you get for $99 as a new member? Join us from 6:30 till 6:45 at our new member orientation. This month we are testing out a new location for this in the Green Mill. Please join us at 6:30 in the lobby, through the doors to the Green Mill and just inside to the left. We will share what the major benefits of becoming a member might be.
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real estate news Question 1 Passes Healthy Homes was a rental registration and Health Department Inspection program proposed in 2017 but the city council declined to put it on the ballot due to a few serious concerns. Several Tenant Advocacy Groups gathered enough signatures to put the ordinance on the ballot August 7th. Healthy Homes Proposed FEES to the Property Owner
Initial $20 Fee Per Rental Unit Paid Annually A late fee of 10% per month if not paid. Suspended permit fee of $300 to reinstate Health Department will be able to raise fees annually equal to increase in CPI The permit is non-transferrable, so if you sell, the new owner must get a new permit. Inspections to the Property The owner must turn in a health and safety inspection with the permit application. The landlord must allow inspectors access to an unoccupied property. Most inspections will be on a complaint basis, but complaints by who? It is not defined.
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Health Department Director shall determine a percentage of random annual routine inspections. Health Department Director can require additional inspections based on past performance. Health Dept Director shall formulate rules and regulations for the inspection process, method, and guidelines. Health Dept Director shall determine regulations for health, sanitation, and adequate rental housing standards. Health Dept Director can modify regulations on a case by case basis. inspections of an occupied unit can be made with five-day notice to the tenant. There is no fee for initial inspection, reinspection fee is $150 for first unit/$100 for all other units Consequences of Not Participating Permit suspension ($300 reinstatement fee) Permit revocation (owner can’t operate the property as a rental, legally) Require property to be vacated Fine to the Property Owner of up to $1,000 Imprisonment of the property owner for up to 180 days.
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KCRAR'S JUNE 2018 HOUSING REPORT
SENATE PASSESS EXTENSION OF FLOOD INSURANCE July 31st the U.S. Senate voted to extend legislation on flood insurance funding. The bill, which the U.S. House had passed the week and was signed by President Trump. This will extend the federal flood insurance program through November 30th and ensure that the government will be able to pay out claims for victims of flooding. The legislation, sponsored by Rep. Tom MacArthur, R-3rd Dist., passed the House last week, 366-52, with all 12 New Jersey representatives voting yes. "Congress' work is not done," MacArthur said. "Both chambers and members of both parties must come together to craft a long-term reauthorization that provides stability, holds FEMA accountable, invests in mitigation, and offers affordable coverage."
HELP FOR 1ST TIME HOME BUYERS IN MISSOURI This spring, buying a first home just got a little easier in Missouri. The Missouri First-Time Homebuyers Savings Account Act passed through the legislature in Jefferson City thanks to efforts by Missouri REALTORS®. This will allow potential homeowners to set aside savings dedicated toward the purchase of their first homes, similar to a 529 college savings plan. Up to $20,000 could be put into the account by a married couple filing jointly to assist first-time homeowners with their down payments. Learn more at MissouriFirstHome.com
Housing markets across the nation are most assuredly active this summer, and buyer competition is manifesting itself into several quick sales above asking price. While the strength of the U.S. economy has helped purchase offers to pile up, the Fed recently increased the federal funds rate by 0.25 percent, marking the second rate hike this year and seventh since late 2015. Although the 30-year mortgage rate did not increase, buyers often react by locking in at the current rate ahead of assumed higher rates later. When this happens, accelerated price increases are possible, causing further strain on affordability. Closed Sales decreased 5.9 percent for existing homes and 6.1 percent for new homes. Pending Sales increased 8.0 percent for existing homes but decreased 5.8 percent for new homes. Inventory decreased 9.4 percent for existing homes but increased 4.7 percent for new homes. The Median Sales Price was up 5.7 percent to $200,895 for existing homes and 2.4 percent to $364,975 for new homes. Days on Market decreased 15.0 percent for existing homes and 11.4 percent for new homes. Supply decreased 8.7 percent for existing homes but remained flat for new homes. Inventory may be persistently lower in yearover-year comparisons, and home prices are still more likely to rise than not, but sales and new listings may finish the summer on the upswing. The housing supply outlook in several markets is beginning to show an increase in new construction and a move by builders away from overstocked rental units to new developments for sale. These are encouraging signs in an already healthy marketplace. From Kansas City Regional Association of Realtors. Get the full report at kcrar.com/Statistics
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A D V O C A C Y MEMBER BENEFIT
Membership in Mid-America Association of Real Estate Investors and by extension National Real Estate Investor's Association provides direct benefits such as discounts, education and opportunties to network. Members also also benefit from the organization’s advocacy efforts with regulators at the city level, the state level with MAREI Plus the added benefit of representation in Washington through National REIA. Local Issues Currently MAREI has partnered with Housing for all KC along with all the other major housing industry organizations in Kansas City in an effort to defeat Question 1 on the August 7th Ballot - see page5. We shall see this week how well these combined efforts at keeping our memers informed and swaying the public to vote no on this issue turns out. State Issues 08
In 2017 & 2018., MAREI partnered this time with Missouri Property Owners Association to introcude legislation that would allow tenants in the cases of Rental Inspection Ordinances to decline the inspection and we expect to try again in 2019. The past year we also testified on behalf of several different laws to regulate Assistance and Comfort Animals in Missouri, to make it illegal for a city own utility to bill the owner for a tenants unpaid bills and the sponsor of the bill to eliminate the trust account requirements for landlords when they hold tenants security deposits was successfully passed. Federal Issues We have supported National Association of Realtors in their efforts to extend flood insurance. National REIA has partnered with the Seller Finance Coalition to lessen
the impact of seller financing regulations. Last year landlord were given new rules from Housing and Urban Development on disparate impact and what we could and could not ask potential renters. National REIA is providing input to the new leaders at HUD in regards to these regulations and have been keeping members informed. While advocacy does not seem to be the "SEXY" benefit that you can point to and say I learned this or saved that, it is one of the most important benefits in keeping you informed of what your government is doing and keeping you engaged in protecting your own business and your own industry. We urge you to follow the MAREI news updates via email at on the blog at MAREI.org as well as following RealEstateInvestingToday.com RE INVESTMENT NEWS • PAGE
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FUNDING OPTIONS BY KIM TUCKER
One of the biggest questions I receive from new real estate investors after they get an idea of how they want to invest is what is the best way for me to fund my deal? When starting out most new real estate investors who have the funds might use their own funds to buy that rental or flip property or whatever, but then all their funds are tied up and when another great deal comes along, they have to pass it up because all their current funds are tied up. For example, I have a friend right now that found a great rental property and used his own funds to purchase this property and renovate. Then along comes another killer deal. Because his model is to pay cash, he has to scramble to find other funding to do this killer deal or pass it up. The next method new investors use depends on their investing model. Those who are going to acquire buy and hold rentals, usually go to a local small-town bank and make a down payment and purchase the rental property with a mortgage. This is actually a great model and you will find many different versions of it discussed at length on BiggerPockets. However, depending on the
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A VERY BRIEF LOOK AT INVESTORS OPTIONS FOR FUNDING REAL ESTATE INVESTMENT PROPERTY investors cash funds and banking rules, eventually they can’t buy any more property. This could be because they run out of cash for the down payment or because they hit the limit on the number of loans a bank will make to one person for investment purposes. There are quite a few other options that will depend on the reason for investing and the individual investor’s resources. These options range from your own liquid funds, your own retirement funds, your own credit, other people’s money, other people’s credit and even the deal itself. This article is to take a VERY BRIEF LOOK at investor options for funding real estate investment property purchases.
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liquid Funding: This is money that the new real estate investor has available that is not tied up in a retirement account such as a 401k or an IRA or Pension. Cash that can be accessed and spent however the investor would like. If the investor has a large sum available, say over $250,000 this could be a great resource for doing a few wholesale flips or rehab flips in a year. However, if the model is to buy and hold for rental, then this would only go so far, maybe 2 or 3 houses and then they can’t buy any more. Purchase Money Loan: This one is used to buy and hold a real estate investment. It assumes the property is in good living condition and does not need any repairs. This loan will usually require at least 30% down and usually a certain amount of money in held reserves in case the rental goes vacant or needs a major repair. The amount of reserves will depend on the experience of the investor, the condition of the home and on the lender’s rules. There are a bunch of options here. Such as a Conventional, an FHA, an FHA 203, a VA, Adjustable or Fixed Rate or even a USDA Loan. Be sure to explore these options with your local small town bank lender to see how they might be able to assist you. These will all require access to good credit scores, yours or a cosigning partner.
Learn more about private lending with this book in the MAREI Member Library!
Rehab Loan: This type of loan is sometimes offered by the smaller local banks as well as by hard money lenders. This loan is for the purchase and renovation of a home that needs fixed up. The lender lends money for both the purchase price and for the renovation costs. These could be loans used to purchase, rehab and flip a house. Or it could be used in combination with a purchase money loan to buy, rehab, rent up and then refinance to a purchase money loan. The Rehab loan usually involves the deal itself meeting certain criteria for the lender, as well as good (not stellar) credit on behalf of the borrower, quite often it must be made in the name of a corporation, not an individual. Typically, it cost the investor a minimum of 2 to 5 percentage points of the overall loan amount and 10% to 15% interest. The loan is generally only for 6 months, possibly 9 months and may or may not require a down payment. There are a bunch of Hard Money or Rehab Money lenders at MAREI and a new investor should spend time talking to each to see what their terms are and what transactions might be a good fit for their loan as well as to ask for recommendations on other lenders that might be needed to refinance out or that might be a better fit for the transaction. Combo: Some smaller banks have been known to offer a Rehab to Permanent Loan that has all the characteristics of a Rehab Loan and that once the property is finished converts to a permanent loan with a lower interest rate and then is amortized over a longer period of time such as 20 or 30 years. Home Equity Line of Credit: This is just what it sounds like. If the real estate investor owns a home and there is sufficient equity in the home, that equity can be used as collateral for a revolving line of credit. For an initial set of first time closing costs, the line of credit can be set up and then the money borrowed and paid back over and over again. This is a great tool to use to buy, renovate and then sell or refinance for a long-term hold. Be sure to only use in situations where the plan is to get the line of credit money back on 6 to 9 months, not for a permanent loan on a long-term hold. Retirement Funds: Many new investors, as well as some of the more experienced ones, do not know that retirement funds can be used to invest in real estate. This is a huge area where investors sometimes never utilize. Because of many of the tax advantages, using this type of funding can save $1000s, even $100,000s in taxes making it that much easier to build up a retirement nest egg. All of the retirement vehicles like IRAs, Roth IRAs, 401(k)s, Coverdale Education Savings Accounts, Health
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Savings Accounts and maybe a few others can be set up with specially qualified custodians and then be used to invest directly in whatever type of real estate investment the investor might want to do. This is a whole month- long course in itself, so be sure to get educated about Retirement Funds and many of the custodians have numerous articles, videos and webinars on the subject to get you educated. Insurance Plans: There are life insurance plans that combine a term life insurance policy with a savings plan. That savings plan can earn interest, and with the right company it can be invested in real estate, or it could be used to borrow against for investing. Some Real Estate Investors like to use this as an investment vehicle for retirement because the profits made by investing in this plan has tax benefits. Investment Funds: Other investors may also find that they have funds invested in mutual funds or stocks and bonds at a brokerage account that they could cash out for money for their investment. But rather than cash out, they opt to get a line of credit using these investment funds for collateral and basically borrow their own money for a few percentage points in interest over whatever the fund is paying.
For example, if a buy and hold investor finds a rental property from another investor, the other investor might finance the deal. Or a retiring landlord might owner finance rental properties to a new investor. Or a homeowner who has a free and clear house, has already moved to Florida to retire, wants to sell a house here but does not need the cash, understands interest and has a rapport with the investor buyer, this owner might owner finance. Or a homeowner who can no longer afford their home and the upkeep might let an investor take over their mortgage payments on the home, just to get out from under them. No matter how you go about getting your transaction funded you are going to want to take the time to present yourself and your transaction to make sure the numbers work. For each deal take time to note why you would be investing, your strategy, the money needed for purchase, the money and time needed for renovations if any, the money and time needed to get it rented and potential profits. If there are renovations also work out a scope of work and a budget. Then present your deal to yourself to make sure it works. Then make sure you have the needed funds or reserves. Then if you are going to use OPM, you have a funding plan to present in your efforts to find funding.
Private Partners: Most new investors do not start here, they aspire to get to this point where they invest with other people’s money or credit. This can be as simple as one person or company lending money to the investor for a flat interest rate, interest, and points (like the hard money scenario), equity share or as complicated as a combination points, interest and equity share. Using private partners is also an entire training class all by itself, but at the bare minimum, we want you to make sure if you are using a private partner that you both agree in writing before the transaction to all terms and a definition of profit if you will be splitting profit. And you make sure to secure the partner's funds invested with the correct documentation, close through a third party and record the proper documents immediately. The Deal Itself: There are also ways that the deal itself could provide the funding. For example, when you get into larger apartments or commercial buildings often loans are made based on the merits of the property, some on the borrower’s experience or team, and very little on the borrower’s own credit. the lender can do if the borrower stops paying is foreclose on the house, and the loan is based on the merits of the investment and the cash flow from the investment and not based at all on the borrower or the borrower’s credit. However, where we mostly see a deal funding itself is when the investor is being creative with a highly motivated and desperate seller OR with a seller who just no longer wants the property and does not need the cash up front.
FREE Training Resources Real Estate Closings Rental Applications Residential Assisted Living Tenant Screening Wholesaling MAREI.org/Free-Training
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Top 10 Methods
TO FIND PRIVATE LENDERS
by KC Invest Staff At the MAREI meeting (that’s our local real estate investment association here in the Kansas City area) a while back we were talking about using Private Partners or Private Lenders during the networking portions of the meeting. Both the planned networking before the meeting and at the meeting after the meeting. If you are not going to your local REIA group and taking part in both the planned events and the meetings after the meetings, YOU ARE MISSING OUT.
put together last year and the fact that we utilized private money to do the deal. The person I was talking with emailed me this morning to ask for more info. He is doing great using hard money lenders, however, he wanted to spend some time cultivating a few private lenders. As I am sure others have similar goals, I thought I would share my thoughts here.
Anyway, back to the Private Lending . . .
Before we go into cultivating private lenders part, let’s first consider the ways we might partner on a transaction.
We were talking about how a deal that our team here at KCInvest had
Ways to Partner on a Real Estate Transaction
Sometimes my private lenders or borrowers want to go the flat fee route of $5,000 on the entire transaction. Not bad until you work that into an interest rate of an 87% on one of our first private lender deals where we borrowed, On one where we lent, I compared it too hard money and by borrower basically paid me 2 points and 12% Interest. Other times a private partner might want 40 to 50% of the profits, again a great deal, although in some cases the hard money lender would still have cost less. Other lenders want a straight interest rate for the time we hold their money, that has been for us anywhere from 8% to 10% depending on how much access to private funds we had at the time. And this would on the surface seem the best way to go. But there was the one time we had a house where the only road too and from the subdivision was promptly ripped out right after we purchased the house. It took us over 6 months to sell. The private lender made all the money, our profits were eaten up by 9 months of interest. pThere are as many ways for the lender to get paid as there are people. Every lender and borrower is different and your transaction will be whatever you negotiate, that’s the beauty of private money. RE INVESTMENT NEWS • PAGE
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But don’t discount your hard money lenders, they really are a great deal and a great place to start. But as you build your portfolio of completed deals, you will be able to cultivate more people who are willing to partner with you or lend you money on the deal. Let’s dig in . . . . Find and Cultivate Private Lenders 1. Brag a Lot . . . Ok, don’t be obnoxious about it but tell people what you do. Our first private lenders were our insurance agent and family members. We were borrowing money from a local bank for our rehab loans, they made those back in the day and still do if you go to the right one. Our insurance agent noted we kept buying and selling houses and based on how often he was insuring us and then canceling insurance he decided he wanted in on the deals. We also shared every deal with a family member and one day they asked us how much we were paying the bank for money. He wondered that if he could lend to us for less han the bank, would we partner with him. All of this is because we told them what we were doing. Now along the lines of bragging a lot, it is helpful to have something you could actually show people. We created two items we use to show people what we were doing. One is a website we where we could share more information and the other was a brag book of sorts. Both had a section that explained what private lending or partnering actually is and a section explaining how we protect 12
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the private lender. Then we had page after page, or blog post after blog posts showing all of our deals – the good and the not so good. In each, we shared the story of the deal, the photos and the numbers from what we paid for it,. 2. Teach . . . This is where our next private lenders came from. We attended a workshop with Alan Cowgill who talked about putting together a presentation that explained who he was, shared some example deals, provided a credibility kit (my brag book and website) and then he would have a luncheon where you invite people of high net worth. That just felt really really weird to me. So instead, I approached the local REIA group and offered to have workshops explaining how private lending works and how self-directed IRA’s work. My first class, I charged people a small fee and had about 5 people who came to 2 different 2hour workshops. The first was how to protect yourself as a private lender. This one explained what a private lender was, told them how to screen and select potential borrowers and how to protect themselves with the paperwork. It ended with a couple of example deals that I had done with my first private lenders from #1. The second workshop went into Self Directed IRAs and included an informational packet on self directed IRAs that I received from own IRA custodian. Out of that, I found two potential private lenders and one of which had enough money to actually fund a few of our wholesale deals out of his Self Directed IRAs. 3. Teach Some More . . . Take on a few newbies. As leaders at
at MAREI we were in the front of people a lot and newbies naturally flocked to us. We really didn’t want to partner on deals that way because many of them wanted to learn how to do a deal but had no money. They didn’t bring much to the table in the way of a trade – they had no knowledge and no money. But when a newbie came to us and said teach me to do what you do and by the way, I have access to cash to fund the deals . . . well, then we partnered on a few deals and taught him the ropes over about a 2-year span. We sat down and decided who was to do what and how everything was to be divided up before hand. And along the way, we learned from him. So you are sitting there and saying no way am I going to go out and start a group, that takes a lot of time and effort, but you don’t have too. In most areas, there is already a group there and if you join, take part and volunteer your time to teach, write articles, help at the check-in table, take over social media duty . . . what ever it is that you are good at, you can instantly over a few month period become on of the movers and shakers. Here at MAREI, we have had several people that have built their credibility because they are willing to share. The volunteer to teach a class, they write an article, they stick around after the meeting to help clean up, they come early to help set up . . . and that’s when you start becoming the go to person. Then the newbies who don’t want to spend 3 years learning the ropes will come to you. Some of them will have the funding to be your private lender, you just have to be willing to teach them something in exchange . . . not a bad deal, you teach, they do all the work and bring the money. WWW.MAREI.ORG
4. Become Famous . . .
published on their social media pages.
6. Speed Networking Events . . .
I am serious. There are many ways to become famous and most ways are low cost and just require you to put yourself out there a bit. Share your stories in article form, newsletter form, video or audio. So let’s give you some examples.
There are numerous real estate sites out there where you can contribute your knowledge . . . so pick one or two and start participating.
Just a fun time where I have come up with a few lenders every time. Basically, in speed networking, you break into pairs and each person gets a minute or two to give their elevator pitch. After each person in the pair has their turn, you trade partners. So you need to have a clear concise message or elevator pitch . . .
One person I know here in Kansas City had the backing to fund his deals, but he needed deals so he started a radio show. . . never mind he started investing in real estate a few months before, he started a real estate radio show and interviewed people. He became famous overnight. Another way is to write a book and while I have not written my book yet, it’s on my to do list. You can self-publish a book on Amazon.com and do a product launch on the internet and at your local REIA is talking about your book. You might even be able to give it away for free on your website in exchange for some contact information and cultivate private lenders that way. And one of the easiest right now is to become an author for BiggerPockets.com . So go to BiggerPockets, create your own account and profile and start writing a blog for them. They like longer well thought out articles like this one, not short 2 paragraphs that say nothing. After a while, they may feature some of your blog posts and possibly ask you to be a featured writer . . several of our very own members here from MAREI have done that, so look up Andrew Syrios and Nathan Brooks. After you get to be a featured writer, then your articles go out on their weekly emails and get
5. Networking . . . Network local business associations. This can be at your local REIA group or other business associations, like the chamber of commerce or maybe a trade association around what you do in life outside of real estate. Now, I do this monthly at MAREI. I go every month and network before the meeting and after the meeting. You will notice if you attend that there are people who come every month and who are willing to share. These are the people with a circle of people around them. The movers and shakers of the group and people will bring them deals, ask for help and sometimes these are people with funding. Let’s talk a bit about networking outside of the REIA for a moment.
“I buy, rehab and sell houses for a profit. We have completed 30 deals. Our average hold time is 3 months. Our average profit is $15,000 to $20,000 a deal. We utilize private partners to do those deals and they earn on average $2,000 to $4,000. Do you know anyone who might be interested in earning about the same over 3 months by lending $100,000?” Always be prepared with a flyer or a business card so you can provide them with all of your contact information and send them to the website that you created above where you can showcase your deals. 7. Self Directed IRA Events . . .
One person I know is a dentist by trade and he has done all of the above. He sat back and thought about the dentists he knows. They make good money as a dentist and want to invest for retirement. He took the teaching thing to heart and started explaining the concept of Self Directed IRA’s, Tax-Free Investing and Real Estate Investing. Only he focused his training on his fellow dentists. People he already knew and had a rapport with as a dentist. These were busy people who were not quite as willing to take the time to learn how to invest in real estate but wanted to get the better returns, taxfree on their money. He basically went out and created his own private lenders, people who had never even thought about real estate before.
These events have built-in lenders. Now when a large self-directed IRA custodian or administrator rolls into town and holds an event, you will want to attend. There will be 2 types of people at these events. The first is people like you who saw them speak at the local REIA and are coming to learn about Self Directed IRAs as a beginner or Self Directed IRA’s as an advanced user. There will also be people there who are already clients of the people putting on the event, people who already have the money saved up and growing, who understand real estate, and would rather lend their IRA money to you, that go buy a deal in their IRA. So when you go to these events, bring RE INVESTMENT NEWS • PAGE
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your business cards and your elevator pitch. Then while you are networking during the breaks, lunches and before and after, you have something to refer back on and are prepared. And if you happen to find a good fit at the event, follow it up with happy hour after the event . . . again the meeting after the meeting is very important. 8. Direct Mail Marketing . . . Not my favorite, but I have seen it taught many times, so I want to share it. All of the previous methods deal with a warm market . . . either people you know or people who are a part of your a similar group. With Direct Mail Marketing you are going after a totally cold market. It has been suggested to me that you create a mastermind group of people who want to talk about some specific topic, real estate investing, self-directed IRAs, what have you. Then go out and buy a list of high net worth people in your area from a list broker. Then in your direct mail piece, you invite them out to your mastermind group or maybe to a workshop where you will teach a concept or maybe a private one on one session online. This is a great way to connect with new people that you don’t know and who are not directly in your current circle of influence. Then once you meet them, you set yourself up as the expert who teaches or leads the mastermind. You share your knowledge and expertise, sharing the latest deal and how it all works. And telling them how the private lender fits into the deal and asking from time
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RE INVESTMENT NEWS
to time if they know anyone who might want to fit into that private lender deal. 9. Buying Creatively . . . . This means you find a way to take over payments or it might mean you get the seller to carry your note. A good friend here at MAREI buys a lot of deals where she either takes over the seller’s payments with very little money down is any then she rents them out for cash flow, because she needs very little down or for the renovation she could cultivate private lenders from the REIA who only have $5,000 to $10,000 in their selfdirected IRA to lend out. She also may find people who own the house free and clear and agree to seller finance the house to her. Let’s say that further, she lease options the house and they eventually buy the house and pay her off and she pays the seller who financed her off. You follow so far. Original Seller financed the Investor who lease options to End Buyer. End Buyer goes to the bank, gets a loan and pays off the Investor and the underlying loan from Original Seller. Now the Original Seller didn’t need the money that bad to begin with or they would not have seller financed the property in the first place. So when the Investor calls the Original Owner to get the payoff, she can ask, “so once we pay off the loan, what are you going to do with the money? Would you be interested in keeping the same monthly payments with a new loan on a house that I am buying.”
10. Marketing . . .. Actively putting out marketing pieces asking for a private lender. I don’t directly market for private lenders because I keep hearing or seeing that you have to do this, that and the other thing to legally market for lenders and not get crosswise with the SEC. This is an area, that if you are going to do it, you should spend some time and money learning a lot more about to find out what you can and cannot do. Our good friend Attorney Jeff Watson has a series of videos we recently posted on the MAREI Blog that can help you understand a bit about why you just don’t post about needing a private lender on Facebook. There you have it folks, how our team here at KCInvest works to cultivate private lenders. Please take note as you read this that here in Kansas City we will be talking about Private Lending at the MAREI meeting on Tuesday August 14th. We look forward to hearing from a few members how they found their own private lenders and learning from Attorney Rick Davis how to protect oursevles as a borrower or as a lender and how to keep everything legal.
I don’t do a lot of creative buying, however, my friends that do have found this to be a great way to get private lenders, cultivate your motivated sellers.
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PRIVATE LENDING
A GUIDE TO DUE DILIGENCE
Private Lending can be very profitable. It can also be a way to lose a lot of money fast. It is important to know your lending niche and match that to the right borrower and deal. Have the right policies and procedures in place. Have experts to consult. And to complete your due diligence before ever making the loan.
THE BORROWER: Know, Like and Trust Your Borrower. Check out past deal &, verify ownership of past deals.
FINANCIAL HEALTH: Do they pay their bills. You could do a credit & background check.
DRAW SCHEDULE: Disperse rehab funds as repairs are made to protect yourself through 3rd party escrow
THE VALUES: Get an appraisal or complete a CMA so you know the value of the property as is & repaired.
PLAN: What is the plan & strategy for the property. Does it make sense on paper. Will they sell or refinance? PreApproved?
TITLE: Review title to ensure clean title on the property and 1st lien position of your loan.
REPAIRS: Get an estimate of repairs. Study them, understand them. Have contingencies for overages.
CONTINGENCY What happens if things go wrong will you have to foreclose?
MONTHLY PAYMENTS: The best way to learn of issues is when a monthly payment is missed.
MAJOR STEPS IN THE PROCESS PROFESSIONAL PAPERWORK: Spend some money on getting good professional paperwork: promissory note, mortgage or deed of trust, assignment of rents, and possibly a confession of judgment and deed in lieu of foreclosure. Consult with your attorney on how foreclosures work in the state before proceeding.
CLOSING WITH A THIRD PARTY: Always complete the closing at a disinterested third party like a local title company. They collect all paperwork and funds and only disburse funds once agreed upon steps are made, like the transfer of title and recording of deeds. Always review title insurance prior to closing to ensure position and require the borrower to pay for a lenders title policy.
OFTEN OVERLOOKED: Always require the borrower to show proof of insurance on the property naming you 2nd insured before funding and instruct title company to record the mortgage or deed immediately upon funding and to provide you with all originally signed documents. Always check up on this until you receive. If funding from a Self Directed account verify the custodian's procedures in advance.
VISIT
Build Your Team With MAREI Business Members Save time and money by starting with service providers who already know your business. Who can solve problems as they arise to help you get the deal completed on time and for maximum profit. Accountant Coleman Accounting Service Bob Coleman www.ColemanAcctg.com 913-787-0308
Rick Davis Legal Real Estate Law Rick Davis www.RickDavisLegal.com 913-283-8300 Auction Company Auction.com Rachel Bailey www.Auction.com 816-797-6875
click on Business Associates
Building Supplier DeMayo Enterprises Wholesale Cabinets Mark Yanda www.DeMayoEnterprises.net 913-980-4260
Attorney Anderson & Associates Evictions / Collections Julie Anderson www.MOKSLaw.com 816-931-2207
MAREI.org
Joe’s Carpet / Weber Flooring Jerry Ratway www.WeberFlooring.com 913-236-3680 The Home Depot George Neal 816-461-9583 2% Rebate / 20% Off Paint Details in Member Benefits Contractor Hearth Masters Fireplace / Masonry Gene Padgitt www.ChimKC.com 816-461-3665
SPECIAL EDITION OF THE RE INVESTMENT NEWS
Genesis Home Restorations Mold Remediation Terry Amerine GenesisHomeRestorations.com 913-270-0812 HCS Restoration KC, LLC Mike Peace HCSRestorationLLCKansas.com 913-731-6537 NuLook Custom Finishes Cabinet Refinishing Carol Baldwin www.NuLookFinishes.net 913-385-2574 Serve Pro East Independence/ Blue Springs Crytsall Gregg www.ServeProEastIndependence BlueSprings.com 816-224-5300 Under Pressure Property Services Rehab, Maintenance, & Staging Dallas Kidd www.MyUnderPressure.com 913-274-9555
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Insurance Agema Insurance Fred Dickinson www.AgemaIns.com 913-543-8116 Arcana Insurance Rental, Vacant, Landlord & More NREIA.ArcanaInsurance HUB.com 877.744.3660 IRA - Self Directed Equity Trust Company TrustETC.com/NationalREIA FREE Training 844-732-9404 Lending Flat Branch Home Loans Morgtgage Banker Beth Langston FlatBranchHomeLoans.com 816-479-5841 x 1148 Crossroads Investment Lending Hard Money Britton Asbell / Doug Harris www.KCLend.com 913-800-8226 House Traders Monthly Meeting Investors Choice Funding Hard Money Scott Ficinus InvestorsChoiceFunding.com 816-668-7223 KC Investor Funding Longhorn Investments Hard Money Mike Minor www.LongHornInvestments.com 913-209-8630 Merchants Mortgage Mushy Money Susan Aubin www.MerchantsMtg.com 303-514-0815
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North Oak Investments Hard Money Tommy Nigro www.NorthOakInvestment.com 816-249-1001
Pest Control
REI Investor Funds Hard Money Charlie Fitzgerald www.REIInvestorFunds.com 913-904-8090
Properties
Revolver Finance Hard Money Jeremy Hanna www.RevolverFinance.com 316-880-1611 Worcester Financial' Hard Money Taryn Kendrick www.WorcesterFinancial.com 816-291-4146
BedBugTraps.com Stop BedBugs Discounts for Members
Bridge Turn Key Investments Nathan Brooks www.BridgeTurnkey.com 913-276-4114 McKinnis Real Estate Turn Key Provider Nick McKinnis McKinnisRealEstateInvestments.com 816-914-2614 KCInvest Investment Properties Scott Tucker & Kim & Don Tucker www.KCInvest 913-735-0018
Marketing Constant Contact Email & Social Media Marketing FREE Trial MAREI.org/ConstantContact Investor Carrot Investor Websites Free Training & Discounts www.MAREI.org/IC Pat Live Answering Service Discounts www.MAREI.org/PatLive Zoom Video Conferencing www.MAREI.org/Zoom Office Supply Office Depot / Office Max www.OfficeDepot.com Discount Link & Card in Member Benefits Package
Pride Properties Wholesale Marcus Bray & Matt Bray www.PridePropertiesHomes.com 913-213-5370 Deal Makers Monthly Meeting We Buy Cash KC Buyer & Seller Justin Montoya www.WeBuyCashKC.com (816) 885-6441 Property Manager Home Rental Services Paul Branton www.Home4Rent.com 913-627-9543 Lotus Key Homes Loni Louis Bernard www.LotusKeyHomes.com 816-838-7368 M & M Property Pros Michael & Michele Bellman www.MMPropertyPros.com 816-490-6745
ALL STAR NETWORKING
Realtor Crown Realty Rich Melton RichMelton.CrownRealty.com 913-215-9004 Realty Resource Scott Tucker www.RealtyResourceKC.com 816-284-7844 Show-Me Real Estate Dan Hartman www.Show-MeRealEstate.com 816-532-6101 Rent Collection National Credit Systems Specializing in Collections www.NationalCreditSystems.com Screening Rent Perfect Tenant Screening Plus Heather Johnson www.RentPerfect.com 877-922-2547 Discounts at www.MAREI.org/RP Servicing Escrow Services Inc. Loan Servicing Nationwide www.EscrowServ.com Title Company Accurate Title Company Dave Green www.AccurateTitleCo.com 913-338-0100 Alpha Title Mary Kellogg www.AlphaTitleInc.com 913-498-8999
Trash Out 1-800-Got- Junk Trash Pick Up www.1800GotJunk.com Discounts in Member Benefits 1-800-JunkPro Trash Pick Up & Dumpsters Clint Pringle www.Junk.pro 816-935-7078
JunkLuggers Eco Friendly Junk Removal Olivia Jones www.JunkLuggers.com 816-905-2204 Want to be listed in our directory? For as little as $135 a Quarter or $499 annually, join MAREI as a business member. Details at MAREI.org.
MEMBER SPOTLIGHT BRITTON ASBELL CROSSROADS INVESTMENT LENDING Britton is our local representative from Crossroads Investment Lending. He has been coming to MAREI meetings since, well we're not sure how young he started attending as a part of his father's home buying and selling team. In about 2015, they opened their lending business with Britton at the helm at the MAREI meetings. Britton and the team at Crossroads offer a lot more than just short-term lending. They can help you look at your deal to decide it if makes sense, they might have a wholesale deal for you to buy, they offer a monthly whiteboard session where they work out the numbers on deals and they also hold their monthly House Traders Meetings at Nick & Jakes on the Plaza. Be sure to visit www.KCLend.com to find out about all they have to offer. www.KCLend.com britton@kclend.com 913-244-7833 Direct 913-766-2900 Office
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