Audio

Intro

Comprehensive guidance and numerous forms for real estate investors.

Covers various investment strategies, including wholesaling, retailing, seller financing, and lease options, detailing the agreements and procedures involved in each.

Specific forms like

purchase and sale agreements,
land trust agreements, and
partnership agreements
along with instructions for their use and negotiation tactics.

Addresses risk mitigation and legal compliance, emphasizing protection of investors’ interests.

Includes a quiz to test knowledge of the material.

Glossary of Key Terms

Agreement for Deed: A form of seller financing where the buyer makes payments to the seller but does not receive the deed until the full purchase price is paid.
Beneficiary (Land Trust): The individual or entity that benefits from the land trust and has the power to direct the trustee.
Binder Deposit: A sum of money given by the buyer to the seller to show serious intent to purchase a property.
Double Closing: A transaction where a property is bought and then immediately resold to a different buyer by the same individual.
Due-On-Sale Clause: A clause in a mortgage that requires the full loan balance to be paid when the property is sold or transferred.
FNMA: Federal National Mortgage Association (Fannie Mae), a government-sponsored enterprise that buys mortgages on the secondary market.
Garn St. Germain Act: A federal law that exempts certain property transfers into inter-vivos trusts from triggering due-on-sale clauses.
Inter Vivos Trust: A trust created during the grantor’s lifetime, as opposed to a testamentary trust that is created after death.
Land Trust: A legal arrangement where a trustee holds title to a property for the benefit of a beneficiary.
Lease Option: A legal arrangement that allows the tenant/buyer to lease a property with the option to purchase it at a later date.
Limited Power of Attorney: This document grants someone the legal authority to act on behalf of another person in specific real estate matters.
Memorandum and Notice of Agreement: A document that is recorded to put a cloud on a title, preventing the property owner from selling to another party.
Option Fee: A non-refundable payment made by a potential buyer to secure the right to purchase a property at a later time.
Proof of Funds: Documentation showing that a buyer has the necessary financial resources to close a real estate transaction.
Quit Claim Deed: A legal document used to transfer real estate ownership from the grantor to the grantee, often within trusts.
Sandwich Lease Option: A real estate strategy in which an investor leases a property with the option to buy, and then subleases the property with an option to a tenant-buyer.
Seasoning of Title: The length of time a seller has owned a property. Banks often prefer borrowers with a longer ownership history.
Seller Financing: A situation where the seller provides financing for the purchase of their property instead of a traditional lender.
Short Sale: The sale of a property for less than what is owed on the mortgage, with the lender’s approval.
Subject To: A real estate purchase strategy that transfers the deed to the buyer while the original loan remains in the seller’s name.
Trustee (Land Trust): The individual or entity that holds legal title to the property in a land trust and acts under the direction of the beneficiary.
Weasel Clause: Contingencies in an agreement that allows a buyer to back out of a deal for reasons that are vague or subjective.
Wrap Around Mortgage: A new second mortgage issued when an existing loan remains in place.

FAQ

Real Estate Investing FAQ

Purchase and Sale Agreements

1. What is the importance of using “agreement” instead of “contract” when interacting with sellers?

The term “contract” can be intimidating for sellers, especially private sellers. Using the word “agreement” instead creates a less formal and more approachable atmosphere. For instance, saying “OK the agreement” sounds less threatening than “sign the contract.” This simple change in terminology can foster a more positive and cooperative relationship with the seller.

2. Should I include “and/or assigns” in the purchase and sale agreement if I plan to assign the contract?

Including “and/or assigns” after your name as the buyer is not recommended. This phrase indicates an intention to flip the property, which can be a red flag to sellers, agents, and banks. It might raise concerns about your commitment to the deal and the possibility of you backing out.

Furthermore, it is generally unnecessary. Unless explicitly stated, most agreements are assignable. Even if the agreement prohibits assignment, you can still employ a double closing, where you buy and resell the property almost simultaneously.

Binder Deposits

3. How much binder deposit should I offer to private sellers vs. investors?

When working with private sellers, aim for the lowest possible binder deposit. Some accept as little as $10, though the typical range is $500 to $1,000. Investors, however, often expect a minimum of $1,000, sometimes more. A higher deposit demonstrates your seriousness and ability to close the deal.

4. Why should I avoid offering a promissory note as a binder deposit?

Offering a promissory note as a binder deposit is strongly discouraged. It projects an image of potential unreliability and raises doubts about your capacity to close the deal and pay the deposit.

Making Offers

5. What strategies can I use when making offers on bank-owned properties?

Banks favor “all cash” offers with a quick closing timeframe (15 days or less). Highlighting these aspects in your offer can significantly increase your chances of acceptance.

Additionally, avoid using contingencies or “weasel clauses.” They can damage your reputation and make the bank question your commitment to the deal. Only rely on standard contingencies, like the seller providing a clear title.

Financing and Mortgages

6. What are the key considerations when dealing with “subject to” agreements and due-on-sale clauses?

“Subject to” agreements involve taking over the seller’s existing mortgage without formally assuming it. While this strategy can be beneficial, it’s crucial to understand the implications of the due-on-sale clause, which allows the lender to demand full loan repayment upon property transfer.

Using a land trust can help mitigate this risk. Transferring the property into a trust where the seller remains the beneficiary initially, then transferring the beneficial interest to you, can effectively conceal the transaction from the lender, especially if payments are kept current.

7. What are the advantages of using a wrap-around mortgage in seller financing?

A wrap-around mortgage allows you to finance a property with an existing mortgage without the seller paying it off. You make payments to the seller, who then covers the original mortgage. This benefits the seller by potentially earning a higher interest rate on the existing loan and providing consistent income. You, as the buyer, benefit from a simplified financing process and potentially more favorable terms than traditional financing.

Lease Options

8. What are the crucial steps to protect myself when buying under a lease option?

When buying under a lease option, safeguard yourself by:

Title Search: Conduct a title search to verify the seller’s ownership and uncover any undisclosed liens or judgments.
Insurance: Ensure you’re covered under the property’s hazard insurance policy by being added as an additionally insured party.
Preventing Over-Financing: Prevent the seller from obtaining excessive financing that could exceed your purchase price and leave you with unexpected debt. Consider filing a Memorandum and Notice of Agreement to alert potential lenders about your interest in the property.
Land Trusts: Request the seller to place the property into a land trust to protect against potential judgments against them.
Seller Appearance at Closing: Secure a Power of Attorney or similar document to ensure the seller’s cooperation at closing, particularly if they have relocated or are not financially involved in the transaction.

Study Guide

Introduction & General Principles

Welcome & Course Overview:Briefly introduces “Agreements” emphasizing its focus on various forms and agreements crucial for real estate investors.
Avoiding the Term “Contract”:Advises against using the term “contract” with private sellers due to its potentially intimidating nature, suggesting alternative phrasing like “OK the agreement.”
Understanding “and/or assigns”:Explains why using “and/or assigns” in a sales agreement is unnecessary and can raise red flags for sellers and lenders, as assignability is generally implied unless explicitly restricted.
Seller Identification:Covers how to properly identify the seller in a sales agreement, particularly in situations involving bank-owned properties where the specific bank name might be unknown.
Financing Options:Outlines the process of handling financing details in the sales agreement, distinguishing between conventional bank loans and seller financing scenarios.
Binder Deposits: Strategies & Considerations:Delves into the complexities of binder deposits, discussing appropriate amounts based on the type of seller (private, investor, bank), the use of promissory notes, and strategies for handling deposits in realtor-listed properties.
Setting Realistic Closing Timeframes:Explores factors influencing closing timelines, such as property vacancy, seller type, and financing arrangements, emphasizing the importance of setting realistic expectations as a beginner investor.
Avoiding “Weasel Clauses”:Strongly cautions against using contingencies or “weasel clauses” in offers, as they negatively impact reputation and are generally unnecessary given existing contractual protections.
Proof of Funds and Bank Addendums:Highlights the importance of demonstrating access to funds for closing, either through bank statements or lender pre-approval letters, and anticipating the need to sign bank-specific addendums.
Memorandum of Agreement: Protecting Your Offer:Introduces the Memorandum of Agreement as a tool for protecting accepted offers by clouding the property title, ensuring the seller cannot sell to other parties.

Navigating Bank-Owned Properties & Double Closings

Working with the Bank’s Closing Agent:Addresses the challenges of closing with out-of-town title companies often preferred by banks, suggesting the use of “courtesy closings” through a local agent.
Authorization to Release Mortgage Information: Maintaining Control:Explains the importance of securing authorization from the buyer to release mortgage information, allowing for monitoring loan application progress and ensuring timely action.

Seller Financing Strategies: A Deep Dive

Overview of Seller Financing Options:Introduces various seller financing methods, including “Subject To,” Seller Held Mortgages, Agreement for Deeds, Lease Options, and Straight Options.
“Subject To” Agreements: Process & Protections:Explains the “Subject To” approach, where the buyer takes ownership while continuing payments on the existing loan, outlining necessary disclosures and protective measures.
Utilizing Land Trusts for “Subject To” Transactions:Emphasizes the importance of deeding the property into a land trust for the seller’s benefit, then assigning beneficial interest to the buyer, protecting against personal liability and potential foreclosure issues.
Key Documents for “Subject To”:Outlines the use of specific forms like the Quit Claim Deed to Trustee, Authorization to Release Mortgage Information, Limited Power of Attorney, and a letter to address potential due-on-sale clause issues.
Seller Held Mortgages: Note & Mortgage Basics:Provides an overview of standard FNMA notes and mortgages often used in seller financing, emphasizing the value of having a title company prepare initial documents to ensure compliance with state laws.
Addressing Due-on-Sale Clauses in Seller Held Mortgages:Discusses strategies for handling due-on-sale clauses, advocating for their removal or negotiating a one-time transfer exception to facilitate future property resale.
Wrap Around Mortgages: Structure & Considerations:Explains the concept of wrap-around mortgages, where a new mortgage is created without paying off the existing one, highlighting the need for a specific rider and ensuring the original mortgage remains current.
Agreement for Deeds: Benefits & Potential Pitfalls:Examines Agreement for Deeds as a seller financing option, noting the advantages of converting to a traditional mortgage after demonstrating consistent payment history, addressing seller concerns about potential buyer default.
Lease Options: Flexibility for Buyers & Sellers:Presents Lease Options as offering significant flexibility for both parties, outlining two distinct sets of agreements tailored to buyer and seller perspectives.

Mastering Lease Options: Buying & Selling Strategies

Lease Options When Buying: Essential Agreements:Focuses on agreements used when purchasing under a Lease Option, including the Lease Option Agreement, Deposit Receipt, Additionally Insured letter, and notices for renewal and purchase option exercise.
Protecting Yourself as a Lease Option Buyer:Provides critical advice on safeguarding buyer interests, such as title searches, preventing seller over-financing, using land trusts to protect against judgments, and ensuring seller participation in the eventual closing.
Negotiating Favorable Lease Option Terms:Covers key negotiation points like option fee and rent credit amounts, lease term and renewal options, and addressing potential due-on-sale clause concerns through strategic lease structuring.
Sandwich Lease Options: Understanding the Dynamics:Explains the concept of sandwich lease options, where the investor acts as an intermediary between the seller and a tenant-buyer, outlining the use of separate lease and purchase option agreements to mitigate potential eviction complications.
Key Considerations for Sandwich Lease Options:Highlights important factors for structuring sandwich lease options, including financial objectives, property condition, target tenant-buyer profiles, and developing exit strategies.
Lease Options When Selling: Maximizing Profit Potential:Shifts focus to selling properties under Lease Options, emphasizing the use of separate lease and purchase option agreements to protect the seller’s interests.
Setting Optimal Option Fees & Rent Credits:Discusses strategies for determining appropriate option fees and rent credits, considering property condition, market value, desired profit margins, and legal implications of non-refundable fees.
Determining the Option Sales Price: Fixed vs. Appraisal-Based:Examines different approaches to setting the option sales price, advocating for appraisal-based pricing to capture potential appreciation, while also acknowledging the viability of fixed prices adjusted for market fluctuations.

Short Sales & Land Trusts: Advanced Techniques

Short Sales: Negotiating with Lenders:Provides guidance on negotiating short sales with lenders, emphasizing honesty, avoiding empty promises, and structuring the transaction to benefit both parties.
Handling Deeds & Payments in Short Sales:Explains the process of obtaining and recording deeds in short sale situations, addressing potential lender concerns and ethical considerations related to seller payments.
Negotiating with Second Mortgage Holders:Outlines strategies for successfully negotiating discounts with second mortgage holders, capitalizing on their vulnerability in foreclosure scenarios.
Understanding and Utilizing Land Trusts:Provides a comprehensive explanation of land trusts, distinguishing them from living trusts and highlighting their benefits for real estate investors, including asset protection, privacy, probate avoidance, and estate planning advantages.
Key Considerations for Land Trust Setup:Covers important aspects of setting up land trusts, such as trustee selection, naming conventions, property limitations, beneficiary roles, and amending trust agreements.
Land Trusts: Applications for Investors & Homeowners:Explores the versatile applications of land trusts, including their use in refinancing, partnerships, and homeowner scenarios for enhanced asset protection and privacy.

Partnership Agreements: Structuring Successful Collaborations

Choosing the Right Partnership Structure:Offers an overview of different partnership entities, including joint ventures, limited partnerships, general partnerships, land trusts, LLCs, and corporations.
Joint Ventures: Deal-by-Deal Collaboration:Focuses on joint ventures as suitable for deal-specific partnerships, outlining the concept of “tenants in common” ownership and the implications of joint and severable liability.
Guaranteeing Partner Profits: Enhancing Attractiveness:Suggests a strategy for attracting partners by guaranteeing a predetermined profit share, outlining a mechanism for prioritizing partner returns before distributing remaining profits.