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wholesaling REO’s using a land trust

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  • #27234

    Great Questions and Feedback. Since there are so many and I’m working on some projects today I’ll tell you all what I’ll do.

    First: I justed want you all to know that I have read your posts.
    Second: I will construct a reply post that should answer all your last questions.
    Third: When I have it done, I will post it something before the end of the weekend.

    Again, thanks for all your questions, feedback and comments.

    #27235
    Avatar of homesavers
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    @Jerry Carey wrote:

    J
    HomeSavers:
    You seem to be under the impression that if you find a property that you can buy at discount … that REAP is going toget you an End-Buyer with approved lender funding. On the flip side of the coin … if you find an End-Buyer with financing … REAP is going to find a seller’s property at a substantial discount! Maybe you are right … but from what I read so far and with little bit that Scott has said … REAP will partner with you by handling the paperwork and talking to lenders, attorneys, buyers and sellers for you … but NOT that they’ll find the other half of the deal for you (a Seller or an End-Buyer)! Scott … correct me if I’m wrong!

    Jerry Carey

    Jerry that was a statement from another thread. However, you make a key point here. An ideal parnership would be for us to share deals like Realtors do. Most of the time a listing agent does not find their own buyer hence the MLS.

    I have not been able to find what I am looking for to even give REAP one deal. I don’t mind if they charge me to facilitate the deal. Seems to me they need a heck of a lot equity to make it work.

    Note: I found a source that sent me his entire process including both HUD-1s. Problem is he uses an Option agreement instead of the Land Trust.

    #27236

    @homesavers wrote:

    An ideal parnership would be for us to share deals like Realtors do.

    You hit the nail right on the head. This is exactly how REAP/CAPP would work with you.

    @homesavers wrote:

    I have not been able to find what I am looking for to even give REAP one deal. I don’t mind if they charge me to facilitate the deal. Seems to me they need a heck of a lot equity to make it work.

    What is it you think you’re looking for? It only takes someone who is willing to either “take payments” for a Full Price Offer or someone who is willing to sell their house for less than Appraised Value, preferrably at no more than 85% of value and usually at 50% to 70%. There are thousands of properties out there right now at 80% and below. Ours average less than 60% of value.

    “Lots” of equity is not required, only enough equity to close the deal. “Enough” is specific to each transaction and every transaction is different depending on the borrower.

    #27237
    Avatar of homesavers
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    @Scott_L._Moyes wrote:

    …preferrably at no more than 85% of value and usually at 50% to 70%. There are thousands of properties out there right now at 80% and below.

    Oh that is very good to hear, Scott. I can find those if I understand you correctly.

    #27238

    @homesavers wrote:

    Oh that is very good to hear, Scott. I can find those if I understand you correctly.

    They will find you if enough of the right people know what you do and who you are. As soon as you close one or two deals the word will get around that you have the way to legally close these type of transactions that NO ONE ELSE CAN DO.

    #27239

    They will find you if enough of the right people know what you do and who you are.

    This sounds so good, I can’t wait to find out what I do and who I am, myself !

    I’d always heard Utah could do that for you !;

    if I were to ” take a guitar to Utah and find myself !” )

    And, with REAP, I won’t even need the guitar !

    Wow, appreciate you working this stuff out, Scott.

    Very Cool. 8)

    #27240

    @Jerry Carey wrote:

    From what I’m reading … you’re saying we can buy REO property at a discount and sell it to an End-Buyer for FMV or Appraised Value.

    Yes

    @Jerry Carey wrote:

    You also said these types of transactions do not work if they’re listed because the End buyer’s lender will only finance the amount the the house is listed for … not Appraisal Value and would have to wait 90-days after canceling the listing.

    When one thinks of REOs or Short Sales they are thinking BIG Discounts. That is not necessarily so. Unless you are buying in bulk REOs aren’t good deals at all. Up untill recently, in my opinion, Short Sales haven’t been all that great of a deal either. I mean, who whats to buy a property for more than 80% LTV?

    When an Appraisal or BPO is done on an REO or Short Sale a listing price is also set, which is typically less than that amount. Even normal sellers that offer a big discounts sellers have the same issue if the property is listed for less than the appraisal.

    In my experience almost all REOs and Short Sales are required to be listed by the lender before they will even look at your offer. What they want is to make it available to the open market before they entertain accepting your lowball offer.

    What ever your offer is, is what you get your financing based on. If the property is worth $300,000 and the bank (REO) will take $225,000, you will most likely have to finance it at best with an 85/15 loan, if your lucky. That means you are going to have to come up with 15% of $225,000. Sure, you will end up with $75,000 plus your 15% in equity but now its all tied up and you can’t use it unless you take out a 2nd or HELOC on some of it. Now you have two loans and 2 payments. Thats probably ok if you are a retail buyer and can wait a while to refi but as an investors, cash is king and all yours is now tied up in a property with two payments and no tenants.

    In the above situation you want the Banks Appraisal or BPO to come in very low so that you can get a great deal, right? But, if it comes in too low you can’t get to any of the true equity. Once its been “listed” for that lower value, the new buyer’s lender will not let them offer more than the BPO. Of course most investors would not want to offer more because they don’t know about the EHTrust and its benefits.

    The reason Investors would want to offer more in the past is that they would try to come up with all these hair brained and Illegal ideas on how to capture, farm or skim all the equity out they could by making their lender loan them more than they would have normally.

    Even with the EHTrust you are not going to get a lender to finance more than a low listing price. You options are to take it off the listing and wait 3 to 6 months and relist it to it full original value first or buy it before it gets listed so you can use the correct appraised value for financing.

    Using the EHTrust the lender bases the borrowers qualifying on the Full Appraised Value and with the Require Down. If the buyer qualifies great, if they don’t they don’t, it is a simple as that. The Lender on lends what the borrow can qualify for and what they would normally lend on that property.

    The additional conditions I have mentioned may be in the form of “more money down”. Since we have full disclosure to the lender using the EHTrust and CAPP, even though they will approve the loan, they may require more down because of it. We have experienced this several times lately. One guy qualified for an 85/15 but when it came time to close the lender wanted 75/25. By the time we got to the closing table the borrower needed a 70/30 or 30% down to close.

    REOs don’t offer enought of a discount to work. Short Sales can if you really work them. I don’t go looking for Short Sales but have done a few that really worked out well with a Simultainous Closing and the EHTrust/CAPP.

    There are enough multi-million dollar homes out there with 30% to 60% equity in them to make offer on without dealing with banks on REOs and Short Sales.

    REAP is Scott Moyes and Dave Salcido. Because we have figured this thing out, we will help you close your own deals and share in the profits as co-beneficiaries and facilitators of the transaction and the EHTrust.

    REAP also is the only way anyone has access to CAPP and the ability to tap into the equity of the trust.

    There may be times when we refer one of our investors to you for a particular deal but you will usually come to us with the seller and buyer and need us to facilitate the deal. This will also include the full NARS Documentation Process from Offer to Close.

    #27241
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    @Scott_L._Moyes wrote:

    cash is king and all yours is now tied up in a property with two payments and no tenants.

    True investors are not buying with a down payment and financing. They are buying with 100 percent CASH at a discount and renting them out for cash flow. This is Classic, accepted Real Estate investing.
    And there are plenty of tenants out there. Where do you think all those foreclosed people are going?

    @Scott_L._Moyes wrote:

    There are enough multi-million dollar homes out there with 30% to 60% equity in them to make offer on without dealing with banks on REOs and Short Sales.

    I do not know what you are talking about here. I TURN DOWN multi-million dollar homes. You talk about a thin buyers pool. That pool is almost as thin as a deal-closing, money making NARS member.

    I am missing something here. I would love to bring deals into the REAP program but they do not seem real(market)istic.

    #27242

    @homesavers wrote:

    True investors are not buying with a down payment and financing. They are buying with 100 percent CASH at a discount and renting them out for cash flow. This is Classic, accepted Real Estate investing. And there are plenty of tenants out there. Where do you think all those foreclosed people are going?

    I’m sure there are “some” investors who have lots of cash they can tie up for an extended period of time but most Investors do not go using their own funds to pay cash for houses, either as an REO or Short Sale. They go to a Hard Money Lender and get up to 70% LTV from the HML which means they have to get the property for less than 70% or put money out of their own pocket too.

    Their rents must now cover their Short Term Hard Money costs until they can qualify to refinance which these days which may also requires them to come in some more cash depending on the Lender.

    @homesavers wrote:

    I do not know what you are talking about here. I TURN DOWN multi-million dollar homes. You talk about a thin buyers pool. That pool is almost as thin as a deal-closing, money making NARS member.

    I am missing something here. I would love to bring deals into the REAP program but they do not seem real(market)istic.

    Now I don’t understand what you are talking about. I’m saying there are thousands of Sellers out there with Multi-Million Dollar Homes that will sell at incredible discounts, even better than an REO or Short Sale. I have 30 or so in my files right now that we are working with that are willing to let them go for 40% to 70% LTV. Some have buyers who are working on getting them closed and some we need buyers for.

    Why are you turning down MM Dollar homes?

    #27243
    Avatar of jerry carey
    jerry carey
    Member

    Scott said:

    When one thinks of REOs or Short Sales they are thinking BIG Discounts. That is not necessarily so. Unless you are buying in bulk REOs aren’t good deals at all. Up untill recently, in my opinion, Short Sales haven’t been all that great of a deal either. I mean, who whats to buy a property for more than 80% LTV?

    I think we are saying the same thing! Especialy REO’s that are listed at todays FMV, based on the listing broker’s BPO! I do not believe that you can get the selling bank to take a 40-50% discount! If I’m wrong … God Bless ya! This is a point we seem to disagree on … but that is not what is confusing me!

    Scenario example details:
    Let’s say there’s a homeowner whose property can be purchased at a substantial 10-20% discount from the MLS listed price. Let’s also say that the property’s listed price is 20% below appraisal and current FMV.

    The homeowner puts the property in trust and assigns the IB and CAPP as Co-Beneficiaries. The Trustee buys the property for 20% below list price and uses CAPP funds to do so.

    The Trust then sell it at Fair Farket Value (FMV) which is 20% more than the listed price from which we got an additional 20% discount and the Trust now owns the property at 40% below FMV! The problem is that the End-Buyer’s lender won’t loan the money at FMV because the property was just sold at a listed price of 20% less … even though the property appraises and the sale price is based on current FMV :!:

    You are saying that the bank will allow the FMV sale price provided that a larger dow-payment is made by having CAPP put up the additional down payment money (which is actually Equity in the Trust) in addition to that actually being put down buy the End-Buyer. By making a larger down-paymnet … the EB’s lender is NOT loaning any additional funds than they would have if the “listed price” was used instead of the “FMV price”.

    Where I’m confused is how does CAPP get the additional down-payment money back at closing? The CAPP money for the pay-off is included in the EB’s loan amount, just like any HML’s money … but NOT the (equity) down-payment money :?:

    Jerry Carey

    #27244
    Avatar of homesavers
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    @Scott_L._Moyes wrote:

    Their rents must now cover their Short Term Hard Money costs until they can qualify to refinance which these days which may also requires them to come in some more cash depending on the Lender.

    So they are still using “leverage”? Instead of straight CASH? I guess if you have AAA credit they may still be an option.

    @Scott_L._Moyes wrote:

    Now I don’t understand what you are talking about. I’m saying there are thousands of Sellers out there with Multi-Million Dollar Homes that will sell at incredible discounts, even better than an REO or Short Sale. I have 30 or so in my files right now that we are working with that are willing to let them go for 40% to 70% LTV. Some have buyers who are working on getting them closed and some we need buyers for.

    Why are you turning down MM Dollar homes?

    Are you saying that there are buyers for homes in the 1 Million plus range? Who can afford a 10,000 Dollar a month payment? These people are not in my social/business circle. I can get one under contract if you can help me put it together. Since you have 30 working right now you may not have the time. I sure do not know what to do with properties over the 650K range either. I am just looking at the affordability factor.
    Scott you are a magician.

    #27245

    @Jerry Carey wrote:

    The homeowner puts the property in trust and assigns the IB and CAPP as Co-Beneficiaries. The Trustee buys the property for 20% below list price and uses CAPP funds to do so.

    The first part is correct but the Trustee does not “buy” the property. The Trustee already holds and is on Title, why would it need to buy what it already owns?

    The Funds contributed to the trust by CAPP simply payoff the existing negotitated discounted note. To the Bank this is a Short Sale, but since the Trustee already holds title, no transfer of title needs to take place. All you have now is a Trust with a paid off, free and clear, property. Now the Trustee/Owner is free to do anything it wants with the property. If it wants to go into the next room and sell it for Full Value, it can. The previous lender is completely out of it.

    What makes this all work is the Trust. Transferring title to a Trustee of your own Revocable Living Trust (in this case the NARS EHTrust) is not considered a title season or chain-of-title issue with lenders. So once the discounted or Short Sale note is paid off, the Trustee is now free to sell the property to an End Buyer with no chain-of-title or seasoning issues. The Settlor is still the Settlor of the Trust and along with the other assigned beneficiaries has directed the Trustee to sell the property and distribute the proceeds as agreed.

    It all seems rather simple really but, it has to be done correctly and you need to know how to correctly explain it to a title company or lender if they ask. This is where REAP comes in. We arrange for the Trustee (Strategic Realty Services, LC), since Equity Holding Corp is not in the business of quick turns or holding title for just a day or two. And, we arrange for CAPP to be used not only for the negotiated payoff but any funds required by the End Buyer to close, from “their” equity in the trust.

    @Jerry Carey wrote:

    Where I’m confused is how does CAPP get the additional down-payment money back at closing? The CAPP money for the pay-off is included in the EB’s loan amount, just like any HML’s money … but NOT the (equity) down-payment money :?:

    CAPP is a beneficiary of the Trust and must be repaid its “contribution” to the Trust along with its percentage of net profits, just like any other beneficiary.

    #27246
    Avatar of jerry carey
    jerry carey
    Member

    Scott:
    Thanks for your reply. I did know everything that you said in your reply, but perhaps I didn’t make my question clear enough about the use and acceptance of the CAPP money for use as part of the down payment by the End-Buyer.

    My question was:

    Where I’m confused is how does CAPP get the additional down-payment money back at closing? The CAPP money for the pay-off is included in the EB’s loan amount, just like any HML’s money … but NOT the (equity) down-payment money?

    To clarify what I’m asking, I don’t believe that there is enough money at the closing to pay this down payment money back … if it is to be paid back at all … or maybe it is to be forgiven to actually give the EB equity in the property after purchase. This is sometimes done when purchasing from builders.

    Let’s try a examplery scenario:

    Property:
    FMV = $500k
    List price = $400K
    Negotiated Short-Sale amount = $320k

    Seller sets-up Trust and assigns IB, CAPP, and End-Buyer (EB) as Co-Beneficiaries. Trustee pays off the short-sale balance of $320k using funding from CAPP.

    Problem: EB’s lender won’t allow $500k appraisal and FMV for loan amount of the property because it was listed at $400k! EB wants and qualifies for an 80%-20% loan of the $400k listed price … Financed $320k and cash down payment of $80k. This would make the Co-Beneficiaries a gross profit of $80K …. Sell for $400K (bought) paid off $320k. So far this is typical short sale transaction!

    Light bulb goes on … if we can get the bank to allow the $500k appraisal and FMV … we can make more profit! After all … that’s really what the property is worth! Bank says will o.k. $500K price, but only with a 70%-30% loan. Finance $350k and $150k down payment. Problem is the EB does not have the additional $70k to put down. CAPP to the rescue!
    We negotiate with the bank to allow the EB to use equity in the Trust, of which he is a Co-Beneficiary, but the bank says the equity is not “seasoned” because the Trust was only created weeks or months before. Via CAPP, the bank allows unseasond cash money to be used, because of the equal amout of equity in the Trust being owned by EB. Capp loans EB $70k which allow transaction to close.

    Closing Receipts:
    $350k from EB’s lender
    $80k cash down from EB
    Total Recieved: $430k

    Profit:
    Total Recieved: $430k
    Minus $320k payoff CAPP
    minus $70k down payment Capp
    Profit: $40K

    However the difference is that the EB owes CAPP $70k loaned for down payment! This brings the $40k + $70k owed = $110k total profit!

    My quetion is where does the $70k come from to be paid back :?:

    Jerry Carey

    #27247

    @Jerry Carey wrote:

    Property:
    FMV = $500k
    List price = $400K
    Negotiated Short-Sale amount = $320k

    Seller sets-up Trust and assigns IB, CAPP, and End-Buyer (EB) as Co-Beneficiaries. Trustee pays off the short-sale balance of $320k using funding from CAPP.

    Problem: EB’s lender won’t allow $500k appraisal and FMV for loan amount of the property because it was listed at $400k!

    Yep, you are right, there isn’t enough. That is why I don’t do deals that are listed, especially at $400k when it will appraise at $500k.

    @Jerry Carey wrote:

    Light bulb goes on … if we can get the bank to allow the $500k appraisal and FMV … we can make more profit!

    Yep, how your getting it. But, that is a big “if” and not one I’ve ever been able arrange.

    You need to get the properties BEFORE they are listed and BEFORE a Realtor or the Lender get a hold of it.

    You must be able to have an End Buyer’s Purchase Price to be what the Appriased Value is. And of course these days it may be less than the $500k it was just a few months ago so you need to work fast.

    However, there are tons of these out there so you should have no problem finding them. Just work the NOD lists at the County Recorders Office. Or, work with Lenders to find people trying to refinance their way out of Foreclosure.

    @Jerry Carey wrote:

    We negotiate with the bank to allow the EB to use equity in the Trust, of which he is a Co-Beneficiary, but the bank says the equity is not “seasoned” because the Trust was only created weeks or months before. Via CAPP, the bank allows unseasond cash money to be used, because of the equal amout of equity in the Trust being owned by EB. Capp loans EB $70k which allow transaction to close.

    1. CAPP IS NOT A HARD OR PRIVATE MONEY LENDER. CAPP is a beneficiary that makes a Cash Contribution to the Trust.

    2. You/Us DO NOT negotiate with the bank to allow an EB to use Equity in the Trust.

    3. Seasoning of Equity in a Trust is not even an issue.

    4. The bank has nothing to do with CAPP or its “contribution” to a Trust.

    5. You are missing some key points and benefits of using an EHTrust to facilitate the transaction. These Key Points are not something I wish to discuss on a public forum, even amoung fellow NARS Members. Just like Bill says, “this is not magic, it is just that we know something that you don’t”. As the Magician of this method, I don’t wish to devulge the secret. Therefor, if you want to do deals such as these, REAP will be your Partner/Co-Beneficiary and will perform it for you for the benefit of us all.

    #27248
    Avatar of jerry carey
    jerry carey
    Member

    Sorry readers … I see the error in my (calif.) math :!:

    I said:

    Closing Receipts:
    $350k from EB’s lender
    $80k cash down from EB
    Total Recieved: $430k

    Profit:
    Total Recieved: $430k WRONG = $500K :!:
    Minus $320k payoff CAPP
    minus $70k down payment Capp
    Profit: $40K WRONG = $110k :!:

    However the difference is that the EB owes CAPP $70k loaned for down payment! This brings the $40k + $70k owed = $110k total profit!

    My question is where does the $70k come from to be paid back?

    As Scott said … it is paid through disbursement at closing!

    A point that was not addressed in this scenario is the “cost” of doing business with R.E.A.P.! We have to partner with them to be able to access the CAPP funding necessary. Plus at this time we need R.E.A.P. because we don’t know how exactly to get the EB lender to go along with FMV appraisal price instead of a lower listed price. We know it’s by accessing trust equity and making a lower LTV by putting up more acceptable down-payment money but that’s it … for now!

    We’ll have to wait ’till later this month when R.E.A.P. is officially announced and explained. I’m waiting to see how much R.E.A.P. will charge us and hope Scott and Dave R.E.A.P. us and not R.A.P.E. us! I also am waiting to see what interest rate CAPP wants as a hard money lender(HML)! I’m sure Scott will be fair … as he has always been in the past!

    Jerry Carey

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