Real Estate Investing

Investing in Tax Liens: 

Tax Liens: a lien imposed by law upon a property to secure the payment of taxes. You can invest in tax liens for as low as $500, but a good rule of thumb is to go into the auctions with a minimum of $2,500.

Tax Deed: a legal document that grants ownership of a property to a government body when the property owner does not pay the taxes due on the property

Quiet Title: an action lawsuit or legal proceeding that can help clear title to real property, especially if there are multiple claims, disputed interest, or title defects

Quick Guide to Tax Lien Investing:

1. Take our Tax Lien Investing course for full breakdown and steps. Familiarize yourself with the auction process and understand your county auction times, location and rather your state allows for redeemable deeds. All of this is detailed in course.

2. Decide what county you would like to invest in and pull the auction list.

3. Perform your due diligence on properties you are interested in: research title and liens against property through a title company or attorney. Understand  the state & county laws and procedures. Be careful with viewing properties it as against the law to go inside most properties as some may still be occupied.

4. Register at the local county clerk BEFORE the auction date.

5. Show up on time and obtain your bidders number.

6. Attend auction and bid on desired property. 

7. Pay amount owed and get tax lien certificate.

8. Receive payments from owner and hold onto certificate for the required redemption period.

9. If owner fails to pay full amount owed plus due interest, and other fees. Contact the county clerk and one of two things will happen.

     -You are issued a tax deed and now obtain potential ownership in the property. At this stage is when you want to file a quiet title.

     -The county initiates foreclosure/tax deed auction proceedings itself.

10. Decide what you want to do with the property.

     -keep as rental

     -sale as is

     -renovate and sale

     -create a mortgage and sell the property (sellers financing)

Here are some sites to find liens/deeds/foreclosures:

FYI: The cheaper properties will likely require some rehabbing, be prepared for that. Be sure to have adequate insurance that includes builders risk and specifies replacement cost value.

FUNDING

Crowdfunding:

a method for raising money for businesses and an easier way to access such ventures for investors. It utilizes the internet and social media outlets, such as Facebook, Twitter, and LinkedIn, to reach an audience of potential investors. The idea behind crowdfunding is that many people are willing to invest a small amount, and when they do, large sums of money can be raised quite quickly.

BRRRR Method:

This method involves buying, rehabbing, renting, refinancing, and then repeating. This investment strategy is ideal for investors who want to grow a large rental property portfolio quickly (see link below):

203K FHA Loan: 

FHA 203k loan is a loan backed by the federal government and given to buyers who want to buy a damaged or older home and do repairs on it. Here’s how it works: Let’s say you want to buy a home that needs a brand-new bathroom and kitchen. An FHA 203k lender would then give you the money to buy (or refinance) the house plus the money to do the necessary renovations to the kitchen and bathroom. Most investors use this to invest in multi-units. For example, you buy a duplex and stay in one side. Fix the other up then rent it out. The rent will cover your mortgage plus you get a profit. 

203K Requirements:

  • FICO® score at least 580 = 3.5% down payment.

  • FICO® score between 500 and 579 = 10% down payment.

  • MIP (Mortgage Insurance Premium ) is required.

  • Debt-to-Income Ratio < 43%.

  • The home must be the borrower's primary residence.

  • Borrower must have steady income and proof of employment

1031 Exhcange:

method used to defer gains on real property either used in a trade or business or as investment property.

Quick Guide: Land Investing   

Investing in land can be one of the easiest and lucrative ways to invest in real estate. Here is a quick guide to investing in land. You can invest in land with as little as $1,000 sometimes less.

1. Research the market/area you looking to invest in. What are the future economic development plans? Is the area at risk for natural disasters? Do you need an appraisal?

2. Survey the land: Will it support electrical and sewage lines? Is it in a desirable area? 

3. Place an offer: As with any real estate deal, consult with your agent and make an offer.

4. Fix up the land: Do some landscaping and if possible have electrical and sewer lines laid.

5. Buy & Hold-Quick Flip

      A- Buy & Hold- you hold onto the land until it's value appreciates or you have a structure built in order to lease to a company or build a house to sale. If you buy & hold be sure what you have planned for the land. If you decide to go this route be sure you understand that you are still responsible for the property taxes.

     B- Quick Flip- this is one of the most desirable parts of investing in land. You buy, fix up and sale for a profit. It's literally that simple.  

      - In Quick Flips, the easiest way to flip quickly is to offer seller financing.

       -You can sell using a land contract, which is also called a “contract for deed” in some areas. You retain the title to the property until the final payment is made, at which point you sign a deed for the buyer. You could also sell with transfer of title and put a mortgage on the property. If you’re not sure which is better where you live, talk to an attorney (in some places the foreclosure process is faster for one or the other type of contract).

6. Keep in mind, even if you find super cheap land you are still responsible for:

  • closing the purchase (when you buy)

  • recording the deed (when you buy)

  • property taxes until you sell 

  • closing the sale (when you sale)

  • recording of the contract 

  • preparing the deed when your buyer pays in full

PRO TIP: You can even get land at the auction,  but be sure to always do your due diligence. 

You can also host an experience by renting land out to campers, starting a glamping, treehouse or RV park.

Quick Guide: Profit from RE with no Property:  

      This tactic is becoming increasingly popular as a lot of beginner investors want to turn a profit without the hassle of becoming a landlord. Now before we continue, I need you to know that the BEST and most PROFITABLE way to make money from rental properties is by actually having a rental property. Although having rental property is the best it is not the only way. Here are some ways to profit from rental properties without actually owning property.

1. REITS; Real Estate Investment Trust (reit's) are companies that own, and in most cases operates, income-producing real estate. You can invest in these similar to the way you would invest in stocks and make income. The biggest difference is that all REIT's pay dividends (required by law), meaning YOU will always make a return on your investment. REIT dividends provide:

     -wealth accumulation

     -reliable returns

     -reduced portfolio volatility

     -inflation protection

2. REIG: Real Estate Investment Group (reig); an entity that focuses the majority of its business on investing in real estate. Online Crowdfunding platforms are usually known as REIG's. Real estate investment groups commonly buyout a property and sell units to investors while taking responsibility for the administration and maintenance of the property.

3. Airbnb Arbitrage- This tactic is becoming increasingly popular. The way this works is you lease a property at one price and place it on Airbnb that will allow you to make a profit after paying the rent and any other fees. Here is a quick way to do this, see link above for full breakdown and more resources.

      - set up your business entity and research desired market (use AirDNA link)

      - find a landlord or company and lease unit from them. It is important to communicate and write into your contract that you will be subletting the unit. Negotiate any fee, lease price and term length. Be sure to explain everything and explain Airbnb liability insurance.

     -perform maintenance, cleanup and furnish the unit. Be sure to get additional insurance, set up electronic locks that can be accessed through phone and security cameras around exterior of unit, install a smart thermostat (doing these things under your business entity will allow you to write them off on your taxes)

     -place on Airbnb, and set up automations (booking, fees, communication and even outsourcing cleaning). Take time to write out a well thought-out cancellation & refund policy.

     -collect your coins, pay what's required to the landlord and you pocket the difference (ex: you rent an apt for $700/mo, the amenities are around $150/mo you place on Airbnb and made $2100. $2100-$700-$150=$1250 profit)

***There are additional links above. Also you CANNOT Airbnb HUD/subsidized housing, it is against the law and YOU will face fines and possible jail on top of expulsion from the program.

Quick Guide: Mobile Home Investing

Mobile Home Investing is not much different then investing in single family homes. The biggest difference is they are easier to afford as most mobile home units go for $40,000 or less. This form of real estate investing is popular because they are easier to keep filled, meaning you rarely pay vacancy fees and most mobile homes are placed in mobile home parks which are usually ran by mom & pop owners and the owners usually provide the electricity, gas and water.  So how exactly do you get started.

 

Single Units:

1. Buy a used unit from sellers or from places like Ebay, Craigslists and even Facebook Marketplace. 

2. Search for available plots within your desired area (rent usually goes for $150-$250 per month. 

3. Set up leasing and pay any applicable fees. 

4. Set unit up for rental ( use sites like Zillow Rental Manager allows you to screen perspective tenants, collect deposit and even collect rent)

5. DO NOT SKIP! Screen and perform background check(s).

6. Collect your rent.

    Example: If you lease land for $250 you rent out your unit for $1,000 thats a $750 per month profit.

     

                                                               $750*12=$9,000 a year

Mobile Parks:

1. Research desired county zoning laws & setup business entity.

2. Secure your financing if not paying cash.

3. Find land zoned for mobile homes.

4. Have land assessed and lines laid this is needed to have electric, water and gas lines laid. 

5. Have electric, gas and water lines laid. 

6. Lease out land

7. Collect your rent

Profit for owning a mobile home park can range from $500,00-$750,000 per year. 

Quick Guide: Subleasing Commercial Property:

     Similar to the way you would sublett an apartment or home (Airbnb Arbitrage). Subleasing is when you rent a space from a landlord at one price and you rent it out to a subleaser at a higher price allowing you to make a profit. For example, you rent a small office space for $1200 per month, but you rent it out at $1700 per month; $1700-$1200=$500. That means you make a $500 per month profit on that property. Things to consider.

1. Set up your business structure correctly.

2. Find your desired space and reach out to the landlord and inquire of space. Tour it and ask any relevant questions (are you able to reno? are there any other amenties you would have to pay?) More importantly make it known that you plan on subleasing and ask if they have any thoughts about it and do they allow it. 

       -Find the original lease in order to review tentants rights in regards to subleasing.

       -In some instances you may need to sign a Landlord consent form, in order to sublet

3. Sign and submit required documentation, specifically a commercial sublease agreement (see below)

4. Once you are in the clear, perform any maintenance, renovations etc. Set up documentation you are requiring for potential tenants.

5.  Once property is ready to go, place it on real estate sites. Be sure to list specifications, and anything that would make property appealing

     -Be sure to include addendums and discl0sures and include a copy of the original lease.

6. Review submitted applications from perspective tenants and perform any background checks, credit checks and collect your deposit and sign contract etc. Be sure to add a Expiration Date that does not EXCEED the original lease. Make copies for all parties.

7. Collect rent, pay your landlord and pocket your profit.

Quick Guide: NNN Leasing  

NNN Lease (or Triple Net Lease) stands for Net, Net, Net. This simply states that your tenant pays most of the expenses, they pay the rent fees, property taxes, property insurance, and CAM, or common area maintenance. NNN leases are considered to be one of the most secure investment opportunities. This is because, similar to bonds, single-tenant net-leased properties provide steady and predictable returns over time.

***NNN Lease are more popular with commercial investing

Takeaways:

  • tenant agrees to pay property expenses such as taxes, building insurance, and maintenance in addition to rent and utilities.

  • tend to have a lower rent charge because the tenant assumes more of the ongoing expenses for the property

  • single net lease on a commercial property includes property taxes in addition to rent.

  • double net lease on a commercial property includes property taxes and property insurance in addition to rent.

When drafting lease agreement you need to be sure to include all fees and responsibilities and time-frame of lease. 

 

Quick Guide: Mortgage Note Investing

Mortgage Note Investing: Passive Income

 

Using this strategy to investing is still fairly unknown to most investors. Note investing is a great way to actively create a steady stream of passive income.

A mortgage is a document that says that the lender can take possession of the home if the borrower stops paying, a mortgage outline:

  • the roles and responsibilities of the lender and the borrower,

  • what would qualify as a breach in the agreement, and

  • what property the mortgage is tied to

 

What does it mean to invest in mortgage notes?

When someone buys a property, whether it's a personal residence or an investment property, the buyer is put on the title. They're on the deed and are responsible for maintaining the property, having adequate insurance, and paying taxes.

The lender vested interest in the property does not exceed simply collecting a principal and interest.

Investing in a mortgage note means that you're buying the DEBT not the property that remains to be paid on the note, secured by the asset outlined in the mortgage. In short, as a note buyer you become the bank. This entitles you to now collect all principal and interest payments. If property owner fails to pay all owed in a timely manner, THEN you may take legal action to take ownership of the property (foreclosure).

 

Most notes are bought and sold at full price a good number are bought on discount; usually when the note is non-performing, or the holder is seeking to part with it.

 

Note Investing Process:

  1. Lending institution loans money to buyer to purchase property.

  2. Buyer signs note and mortgage which states how much is owed, what property secures debt, roles & responsibilities, and terms of repayment

  3. Buyer owns property and begins to pay principal and interest to lender

  4. Lending institution needs cash, so they sell notes to an investor (often discounted)

  5. Lender assigns mortgage and note to investor. Investor now acts as the bank. Buyer continues to make payments but now payments go to the investor.

 

As long as the note is performing (buyer making payments) the investor has a steady flow of passive income.

If buyer defaults and note becomes non-performing the investor can take hold of the property and:

-fix and flip for a profit

-keep as a rental

-sale as is

-create a new mortgage on the property (seller financing)

 

As the “bank” you have the power to alter the note like lowering the interest rate or assisting the borrower.

If your goal is to have multiple income properties. You should set up a series LLC as your umbrella company and each property should have it's own LLC. this is for protection and tax reasons. One bad tenant or property can completely bankrupt you. Protect your investments at all cost. 

For Example:

Umbrella Company, a series LLC

123 Abc av, an individual protected series of Umbrella Company, LLC, a series LLC

849 Hansford LLC, an individual protected series of Umbrella Company, LLC, a series LLC

1383 Dallas Rd LLC, an individual protected series of Umbrella Company, LLC, a series LLC

(C) TD&F Investment Group 2020