Day: December 11, 2017

Real estate investment can often present opportunities for investors that are quite difficult to find in any other space.  Specialists in buying, improving and selling at a profit multifamily units Achieve Investment Group are quickly building a reputation as a company to watch.  Their latest deal, buying a 174 Unit building in San Antonio, Texas may be their most successful yet.

January 29, 2017

It takes a complete, skilled team to be able to identify properties that can be bought, improved and resold at an impressive Return on Investment.  Multifamily apartment investment firm Achieve Investment Group has quickly become a leader in this space, raising money from accredited and sophisticated investors, to purchase multifamily apartment buildings or complexes, improve them greatly and then sell them at a great profit.  In exciting news in this area, the company recently purchased the 174 Unit Boston Woods Apartments in San Antonio, Texas, where they predict after improvements and sale investors can expect significant Return on Investment in just three to five years.

“Achieve Investment Group enjoy the fun of finding great deals and turning them into valuable investments,”  commented a spokesperson from the company.  “Our strict underwriting criteria in selecting an investment deal to work has made us very successful in making great return on investment in terms of cash flow and appreciation. Acquisition of Boston Woods Apartments is a prime example of this.”

According to Achieve Investment Group, this is the second multifamily acquisition with huge potential the company has closed in the last two years.  The team keeps its hand on the pulse of the real estate world and has a keen eye for spotting very promising opportunities to share with their investors.

Investors have been quick to give Achieve Investment Group very positive feedback.

S.James., from Texas, recently said in a five star review, “Boston Woods Apartment was bought at market price but with great future potentials. With this type of acquisition, there are many great exit strategies for my investment thus bringing down my investment risk.”

Secrets of Hard Money Lenders

Obtaining a rehab loan from hard money lending as a temporary bridge loan is a favorite strategy among real estate investors who want to use leverage. Since the hard money lending industry is not highly regulated, there are many nuances in the programs offered by different hard money lenders. Of course, our experience of transacting more than $1 million in hard money lending are limited to the Central Texas market, but we are guessing that these points are applicable across the nation.

Secret #1: Interest on Rehab Draws

Not all hard money lenders’ cost structures are the same. We have discovered a key hidden cost structure that only a few would realize and not advertise. Most of the time, many investors, both newbies and seasoned pros, do not realize this until they work with different hard money lenders and discover inconsistencies among them. The funny thing is that even with the more favorable cost structures, hard money lenders do not realize their competitive advantage that their program offers. If you are not aware of this cost, it can cost you a few thousands of dollars in your real estate endeavors depending on your project size. It’s important for you to know the unadvertised charges as part of your hard money lender’s selection criteria.
The cost that we are talking about is the interest charged to pre-draw rehab funds. Assume that you buying a $50k house with a $30K rehab cost. Your total hard money in the deal is $80K. The criteria that almost all hard money lenders require is that the draws are made after the work is completed. On the day you close, your hard money lending loan is $50K, and the remaining $30K will be made in a few draw cycles as the rehab progresses. Let’s assume your rehab requires a period of 2 months with 50% (draw of $30K / 2 = $15K) with project completion during the first month and another 50% (draw of $30K / 2 = $15K) during the second month. What we found out is that there are two types of lenders that charge interest differently.

• Lender A would charge interest on the total purchase + rehab amount from day 1 after closing until you get out of their financing.

• Lender B would charge interest on the purchase amount on day 1 but would adjust the loan amount interest based on draw amounts. To clarify, Lender B would charge $50K+ $15K ($30k divide by 2) at the end of the first month and $50K + $30K in the second month.

If you have gone with Lender A, you would have paid interest on $30K for 2 months without even having the money work for you. If a lender charges 14% interest, that would amount to $700 in extra interest that you have paid them for a money that you have not used money during the rehab phase.

Imagine a higher interest rate, if the rehab spanned across 3-6 months, or if the rehab cost is $30K-$50K. It can be thousands of dollars. Many hard money lenders will say that charging full interest upfront on pre-drawn money is common. It’s our job as real estate investors to be aware of this and choose the best program.

Secret #2: Hard Money Is a Risk and Relationship-Based Business, So Negotiate !

To understand this secret, one needs to understand how most hard money business is set up. The hard money is generally a pool of investor money. Believe it or not, but they use SEC guidelines to raise money using private offerings as well. Very few hard money lenders use personal funds. When their offerings are made, there are specific guaranteed returns. The guaranteed monthly interest rate goes directly to investors. So what about the origination fee?
The origination fee mostly goes to the person or company that is doing the marketing and operations. On a $100K loan, a 3% origination fee will be $3,000 upfront.

The secret is that this fee is negotiable based on your experience. After 2-3 smooth hard money lending transactions, you have a good, proven track record. You can always ask for a discount on the origination fee for the next transactions onwards. Convince the hard money lender that you have a proven track record, and since hard money is a risk and relationship-based business, they should reduce their risk tolerance in working with you. We got a reduction of 30% off an origination fee after my third or fourth transaction. If you do that for 10 houses, you can get more than $10,000 just by merely negotiating!

Secret #3: Ability to Get a Tax Deduction on Mortgage Interest

One of the biggest advantages of taking a mortgage loan is the ability for us to deduct interest from our overall income. When you do a lot of financing using hard money lenders, you will receive Form 1098 (Mortgage Interest Statement) from your lender every tax year. This deduction can be significant, as rehabbing a house can cost up to $20-$30K per house. Imagine if you do 3 houses with hard money loans of $100K each and paid 14% interest for 3 months on each. That’s a total interest payment of $10.5K for all the 3 houses. That’s a lot of free tax deduction while investing in real estate. Here is the secret: not all hard money lenders will issue Form 1098.
Even though many hard money lenders use conventional methods of raising money for their businesses, there are a few that get their funds using credit lines from community banks While the conventional lenders are able to issue Form 1098 detailing the interest, the lenders that get their funds from community banks do not issue Form 1098. I don’t know the reason; maybe one of the readers can enlighten all of us. I am just providing information so that an investors are aware of this option before choosing the hard money lender.

Secret #4: You Don’t Need Hard Money Lenders to Get Hard Money

What? Yes, you can avoid hard money lenders and get superb term deals without them. The secret is private lenders. Private lenders are individuals who have money in the form of cash or in a self-directed IRA. The best way is to ask all your friends and family if they have money that they want to lend. As usual, investors can collateralize their real estate in exchange for lending terms.
Since this is private lending, the private individuals usually do not care about an origination fee. Many private individuals are happy to receive terms such as 5-10% interest. We have tried this method, and it really works! You can find private lenders in most of the real estate investment meetups.
The legal documentation to get this setup costs approximately $400, and almost all title companies are able to prepare loan documentation with simple lender-borrower agreed terms.

Good luck and remember to ask and negotiate for the best deals.

Do you have any other hard money lender secrets, tricks, and tips to share?

You can contact us at james@4all.top.

The below steps outline the process that we took over two years period to generate more than 400K of equity and $42,000 passive income and more than 50% Cash on Cash return. Here are the steps .

1) Look for Deals Like a Wholesaler
The best way to get great deals is to look for deals like a wholesaler. That essentially means eliminating the efficiency of a transaction in the willing seller/willing buyer marketplace. I have discovered that many people use agents because they don’t know how else to get access to sellers. The next layer that many investors use is buying from wholesalers. That’s when I started my own marketing campaigns to get deals directly from the sellers. That methods gives the deepest discount.
To recap, to get the “normal” deal, buy it from MLS using realtors. Buy a better deal from wholesalers, and to get the best deals, we need to buy directly from sellers. Time and effort is inversely proportional to the discount of the deal in this case. Buying from a realtor will take minimal time but gives the worst deals; meanwhile, doing your own marketing will cost you the most time/effort but gives you the best deals.

2) Buy at Wholesale Prices

Not all deals from all direct sellers are great, but they give the best possible opportunities for a direct buyer to get the deepest discount. When you do direct marketing, you will be getting tons of responses from different types of sellers. Most sellers will want to test the water by asking how much you want to offer them. That will be their primary objective when they call you. You need to weed out the tire kickers from the motivated seller. When you find that motivated seller and after getting a price from them, you need to be able to determine the after-repair value (ARV), estimated rehab cost, and potential rent for that property. Keep in mind that you want to buy at wholesale price. If you have worked with wholesalers in the market, they will be able to tell you the ARV of the property that they are getting. In general, you can subtract $10K from that price and determine the actual purchase price. Of course, some wholesalers make $5K, and some even make $20K depending on the type of deal. As a direct buyer cum landlord, if you can purchase the property below 66% ARV (purchase price + rehab), then you can give zero out of pocket at the end of both closings. This is assuming your hard money lender gives 70% of ARV and your conventional loan lender refinances at 75% of ARV. In short, look for deals below 66% ARV. Even if you get a deal at higher than 66% ARV, such as 76%, your cash out of pocket is still much lower than buying from a realtor or wholesalers. Less cash out of pocket simple means you are buying at wholesale prices!

3) Do the First Closing Using Hard Money

A hard money lender is a “hard asset” money lender. They are lenders that provide loans for houses that need repair. The best hard money lenders provide loans 70% of ARV. The 70% is for purchase and rehab costs. If you can find hard money lenders who are investors as well, that would be great. They would be able to help check your ARV by doing their independent comps. Usually, hard money lenders charge 3-4% of points with 12-14% interest per annum. Make sure there is no prepayment penalty. Since you are expected to do the rehab within 1-6 months, the hard money lender is only a temporary measure. Don’t be too worried about the high interest rates. If the numbers work, hard money lenders are the best option to leverage your cash out of pocket.

4) Rehab the Property

After closing with hard money, start rehabbing the property. To do the most efficient rehab, ensure the scope of work is written clearly. All bids should be based on the same scope of work to make it easier for comparison. To get the optimum rehab cost vs. leveraging of your time, you need subcontractors for independent work using GC for interdependent work. Examples of independent work are foundation, roof, fence, landscaping, electrical, windows and AC. Examples of interdependent work are painting, drywall repair, cleaning, kitchen, and flooring. When you use subcontractors, you need to ensure that you use only the contractors that specialize in that field. You will often get a plumber who claims he can do electrical or a fence contractor who claims he can do landscaping. Limit their scope to what they specialize in.

5) Lease It Out to a Qualified Tenant

Once rehabbed, we can start looking for tenant. To ensure that we have a smoother landlord experience, it’s important to screen, screen and screen tenants. There are many tenant screening portals that are available out there. Apart from screening the tenant, you must talk to the tenant’s last two landlords and current employer. If you can’t find the right tenant, go ahead and reduce the rent price. A lower rent is better than choosing a wrong tenant. In my experience, you get a higher quality tenant when the property is listed in MLS and a tenant is represented by an agent. Open houses give the worst tenant exposure and usually waste your time.

6) Refinance into Conventional Loan (Second Closing)

Upon completion of a property rehab, the property qualifies for a conventional loan. The conversion from hard money to a conventional loan can be done almost immediately. There is no seasoning period. The refinancing using a conventional loan is based on a maximum 75% of ARV. Keep in mind that hard money was 70% of ARV, and now, it’s 75% of ARV. The 5% difference will absorb or reduce the conventional loan closing cost. You will get a 30-year fixed interest rate, which is the best type of loan for single-family homes.

The six steps above simplify the whole process. There are many details contained within them, but it’s good enough for someone to emulate what we have done.

What do you think ? Give us your feedback.

One of the biggest expenses for any parents is funding their children’s college education. The most well-known education fund is a 529 plan. What not many people know about is something called a Coverdell Education Savings Account (CESA).

The CESA fund is much like a Roth IRA fund, but it was established for education-related expenses rather than retirement. The CESA fund can be used to invest in real estate and grown tax-free.
What I am going to share in this article is my experience in researching and opening a CESA with the company called TrustETC. I will detail how any CESA holder can invest passively in apartment buildings to grow their CESA balance significantly. (Note: I am not a CPA or financial advisor. Please consult your own CPA/financial advisor regarding any specific CESA-related information and how to use the account in any apartment investing.)

Simplified Features of CESA

Advantages

1) Contributions are not tax-free, but the money that grows in this fund is tax-free.
2) The account can be open with any Roth IRA custodian.
3) It can be used for elementary, middle, high school, college education and beyond until the child is 30 years old.
4) Funds can be withdrawn at any time after a contribution is made.
5) Apart from real estate, you can use a CESA to invest in other investments, such as stock, mutual funds, bonds, etc.

Features, Limitations, and Disadvantages

1) There is an income limitation that is imposed for contributing to a CESA. The limitation is the modified adjusted gross income (MAGI) of $110,000 and $220,000 if filing a joint return.
2) The maximum amount is $2,000 per year per child. Anything beyond that will be taxed with a 6% excise tax penalty. Anybody can contribute (e.g., grandfather, relative, etc.).
3) Contributions can only be made before the child turns 18. This does not apply for special needs children.
4) Money must be taken out before the child reaches the age of 30. Beyond that, there is a 10% penalty and taxes on the earnings. A workaround for this is to transfer to another child’s account before they reach the age of 30.
5) The contribution period for a calendar year is from Jan 1st to April 15th of the next year. For example, you can still contribute for year 2014 before April 15, 2015.
6) With the TrustETC IRA custodian, fees to open a CESA are $50 per account and $195 for three years ($65 per year). One cost-saving measure is to open multiple account at the same time because TrustETC only charges a $50 fee for opening a “family” account for CESA/Roth IRA.

Using CESA and Apartment Investing to Grow Your CESA Balance

Scenario: A parent uses three CESAs to invest in an apartment deal. The apartment appreciates after two years, where the apartment gets refinanced. The refinance amount is distributed back to investors.

Let’s assume a parent has three children. Each one of them has $20K each in CESAs. An investor invests in all three CESAs (a total of $60,000) and makes it part of syndicated deal of apartment investment deal by joining with other investors. Usually Apartments are bought with 25% cash down payment while the balance 75% of purchase price is financed by Banks. For example, for a $4 million apartment building, with 25% total cash down payment from investors and the balance 75% is financed. That would be a $1 million (25% x $4 million) cash down payment needed from all investors. A $60,000 CESA investment out of a $1,000,000 down payment in cash will be: $60,000/$1,000,000 = 6% equity investment. That means the three CESAs will own 6% of the apartment building. Let’s assume that after two years, with good apartment property management, the building’s value appreciates from $4 million to $6 million. With a refinancing strategy, there is $2 million in value distributed back to the investors. The three CESAs, which own 6%, will have: 6% x $2 million = $120, 000 in profit. That $120,000 will be distributed to the three CESAs tax-free, as there are no taxes owed on real estate refinances.

Let’s not forget that apartment investing will also generate a cash flow of 8-15% cash on cash per annum and Bank loan pay-down by tenants. I am not going to count that as profit for now in order to simplify the CESA growth message.

With $60,000 in initial Investment, your cash on cash return percentage is: $120,000/$60,000 = 200%. That is $120,000 in tax-free profit for your children’s education, and you still own 6% equity in the building and still have monthly cash flow.

Of course, for this scenario, we’re assuming a $20K investment per CESA. That could easily mean a parent would start investing $2K each per year per child for 10 years. You can always start early from age 1 of a child to have more money in their CESA for investment. The other way to utilize more from an IRA is to combine children’s CESAs with the parent’s self-directed IRA. That will create a bigger equity percentage and profit in a value-adding apartment investing deal.

All the profit from appreciation and cash flow will go back to the CESA/IRA. The account can be used repeatedly for other apartment deals. With this way, a parent can save for their children’s college education tax-free using apartment investment techniques.

IRS website link for CESA: http://www.irs.gov/publications/p970/ch07.html

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