Simultaneous Closings are the new hot item in the real estate industry. What is a Simultaneous Closing? There are many different types. One is when a home seller creates a note for the buyer to facilitate the sale of his property, and then sells the note to an investor at the same time.
The Simultaneous Closing is nothing more than creative financing. We all know that it is much easier to sell real estate if owner or seller financing is available. However, most sellers do not want to take back financing. They do not want to play the role of a bank, but if the seller can take back financing long enough to create a note, that note can be sold to an investor, allowing the seller to cash out of his property. Here’s how it works.
Say a seller has a property he’s been trying to sell for months at $100,000 and no buyers have surfaced. With a simultaneous closing, the seller can advertise the property as owner financing with no need to bank qualify. This will create an abundance of buyers. Working with an investor, the seller finds a buyer who is able to put $20,000 down and agrees to take back the balance of the financing, subject to being able to sell the note. With the buyer of the property identified and the conditions of the note agreed upon, the investor buys the note from the seller once the note has been created. Here’s what it looks like:
Sale Price
$100,000
Down Payment from buyer
$20,000
Note created by seller
$80,000
Amount supplied by the investor to purchase the note
$72,000
Total amount to the seller
$92,000
The seller gets $20,000 down and $72,000 from the sale of the note, for a total of $92,000. Although the owner didn’t receive the full asking price for the property, he still sold for a good price. In fact, the seller probably would have sold his property a hundred times if he got an offer for $92,000. Of course, if there were any liens on the property, they would have to be paid off with the proceeds of the sale.
Simultaneous Closings are a great tool for people trying to sell their homes. Buyers can be identified quickly and, by working with an investor or funding company familiar with simultaneous closings, the whole process can be a quick and easy method of selling a property.
- Article courtesy of the International Association of Investors
Across the nation there’s a lot of new talk about an old form of investment; the purchase of tax lien certificates. Although they’ve been around for over 150 years, it’s only been recently that they’ve become a popular investment. In fact, it’s been one of the best keep investment secrets of all times. Now the secret is out and thousands from Florida to Arizona are reaping the benefits of a virtually untapped investment market.
Suddenly dubbed “The Investment of the Nineties,” tax certificates are offering indisputable higher yields at 100% security. According to Don Burnham, President of the Discount Buyer’s Association of America, “People are out there making a lot of money with tax certificates.”
Here’s how the tax certificate system works: When a property owner does not pay one or all of the installments on an annual property tax bill, the property becomes tax default. Because the government is dependent on tax revenue to pay its bills, it must have a way to collect those defaulted taxes, or face the risk or running out of money. The best way to do this, and most states practice this method, is to sell tax certificates at a public auction for the amount due in back taxes. The amount of back taxes may also include interest, fees, and other administrative costs associated with the delinquent tax, such as the cost of conducting the sale.
Investors agree to pay off the delinquent tax in a lump sum in exchange for a certificate, or more accurately a tax lien, that entitles them to redeem their investment, plus substantial interest after a certain amount of time. You can think of a tax certificate as a kind of a promissory note or evidence of indebtedness. It would be similar to taking out a loan. For example, when you go into a bank to borrow money, you sign a promissory note or deed of trust certifying that you agree to pay the money back with interest.
Currently, approximately 47 states sell tax certificates or similar type tax liens. The process of selling them actually dates back to 1816. Until recently, there really weren’t many tax certificates available and those that were for sale were usually bought by attorneys, mortgage lenders, and other real estate insiders.
Today, the cat’s out of the bag and the prospect of making money with tax certificates is incredible. In fact, many states report that over 100 million dollars or more in tax certificates or unpaid taxes. In reality, as long as people continue to default on property taxes, there will be a steady stream of tax certificates for sale. Even investment experts like Barron and Mark Skousen are recommending tax certificates as an investment, and for good reason.
Tax lien certificates offer 15, 20, even 25% return on an investment. In some cases, your interest yield can be as high as 60 or 70% because penalties and compounded interest, under certain circumstances, are awarded to the purchaser. It’s really quite profitable. But, even better, it’s very secure. Each tax certificate is secured by the real property itself. If the tax lien is not paid off by the property owner, the certificate holder can force foreclosure on the property to redeem their investment. This is also a strategy used by investors to purchase properties for literally pennies on the dollar.
Imagine finding a way to not only get a high yield on an investment, but a safe return as well. Most investments don’t work this way. Traditionally, high yields and successful returns meant high risk as well. There aren’t too many investments in today’s market that offer the exciting yield and security that tax certificates do.
Compare tax lien certificates to a more traditional investment… the Certificate of Deposit, or CD. While it’s true that CD’s are safe and you’ll always get a guaranteed return, they only offer approximately 4 %. But why would you do that when, in the same amount of time and for the same amount of money, you could earn 20 % from the purchase of a tax certificate. This is a substantially more profitable investment than a CD or a government bond for that matter. You can put $1000 dollars into a CD annually for 20 years and still not achieve the return you would by investing the same amount, for the same length of time, in tax certificates. Getting high returns with CDs is virtually unheard of.
In theory, if you put $1000 a year into an IRA that pays 4 percent interest, compounded annually, in 20 years you’ll earn less than 50,000 dollars. On the other hand, if you put the same amount into tax certificates at 18 %, compounded annually, for at the same amount of time, you’ll could earn around $500,000.
Stocks offer high returns. You’ve heard of people getting rich in the stock market, sometimes overnight, or earning hundreds of thousands even millions in a matter of weeks. But it takes a lot of capital and even worse, it can be very unsafe. There are no sure bets in the stock market or even futures or commodities. It’s basically a gamble. Whenever you invest in something with the speculation that its value will increase, you’re not always happily rewarded. Just as there have been people who became rich overnight, so have there been those who have lost it all in a blink of an eye.
Comparatively speaking, it’s not hard to understand what all the buzz is about. Fortunately, entering the tax certificate market requires very little money. You’ll never have to go to a lending institution to beg for capital. With only a little cash and some intelligent money handling techniques, you’ll be able to get started immediately. And compared to other investment opportunities, they’re a steal.
So whether it’s high yields or security, tax lien certificates have proven to be a smart investment for over 150 years. It simply goes to show you that an oldie can still be a goody.
- Article courtesy of the International Association of Investors.
The US Government has passed enactments to ease up the troubles of home buyers, when they addressed the problems arising out of the foreclosure crisis. The US economy is facing challenges and struggling hard to avoid recession.
So in the changed scenario of credit crunch, a home buyer in the Real Estate market should be aware of the pre-requisites towards securing mortgage loans for buying his or her dream home.
1.FHA Loan limits: The latest stimulus bill by the Obama administration has modified the loan features, which are guaranteed by government sponsored agencies of Fannie Mae and Freddie Mac. The Federal Housing Administration (FHA) is the administrative wing of the Government for issuance of guarantees for home loans. Three aspects have been changed in the FHA programs for housing loans namely – the loan limit: the highest amount that can be borrowed by an individual borrower from the above mortgage lending institutions; second is the FICO credit score; and the third is the down payment that the borrower should make at the time of receiving the home loan.
The new limits are being assessed State to State. Emphasis has been given for high cost housing markets. FHA is allowing limits up to $729,000 in 33 identified Counties. In more than 600 Counties all over United States, there are also loans awarded for more than $271,050. These new limits apply to specific Counties and depending upon the State the home buyer emerges, they will not find much of the change.
Among the change is the loan to value is limited. Home buyers can get 125% loan to value in high cost markets and this limit is extended for the year 2009. After this year the current market will be assessed. Home buyers going for a FHA loan can ascertain the limit from the lenders in their area.
2. FICO Credit Score: Fair Isaac Corporation (FICO) credit score is widely accepted by most of the mortgage lenders in US to determine the credit worthiness of the barrower. Prior to 2009 a borrower needed 580 for their FICO score. The lenders negotiated with FHA to increase the score due to the risk they felt 580 posed. So in April 2009 this is changed to 620. It is imperative on the borrower prior to embarking on a home buying activity to check their credit score. A higher credit score ensures best welcome by lenders and low interest rates. Keeping track on the credit rating by paying all your bills promptly is the key. It is to be noted that the credit history of the borrower in the last 7 years is taken into consideration by mortgage lenders to decide – good, bad or ugly.
3.Down payment: The next change FHA modified is the down payment required. One needs to have at least 5 percent down payment now, changed from 3 percent prior to 2009. In effect this means the lender will give only 95% of the value of the property as home loan.
There are other factors in vogue for sanctioning home loans, which home buyers can do well to bear in mind.
4.Employment history: Lenders look for stability and consistency in the background of employment and they expect the borrower to have continued in employment for at least 2 years in the same industry. This is a good basis for enhancing credibility.
5. Debt-to-Income Ratio: While calculating debt-to-income ratio, mortgage lenders add up all the monthly payments of the borrowers like car loan, credit cards, student loan, rent payment etc. with the loan repayment that is being applied for. This amount is divided by the monthly income of the borrower and the debt-to-income is expressed as a percentage. To qualify for a FHA loan, your debt-to-income ratio should not exceed 29%. For a conventional mortgage, 33% is a comfortable ratio.
6.Cash Reserve: This is a proof that you have cash resources to pay a minimum of 2 months of monthly repayment instalments of the applied loan. It can go up to 6 months in case of some lenders.
Although lending requirements have heightened, if home buyers heed the above requirements they may take advantage of the current “buyer’s market”.
First the statistics about foreclosure; for May 2009 – there were 321,480 properties that turned up in foreclosure filings in the country. The total number of properties affected by foreclosures and listed for distress sale in the entire United States is 1,979,063. In the State of Illinois, which is the 7th ranked in the top 10 States of worst foreclosure activity; the total foreclosure filings in May was 10,942. To put these numbers in perspective, 1 in 479 housing units received a foreclosure filing in Illinois.
The foreclosure laws of Illinois State permit only judicial foreclosure process through the County Court. A typical foreclosure process ends in a Sheriff Sale with the concerned property going to public auction; the process takes approximately 300 days.
Now the question is how a foreclosure affects the distressed home owner when their property is caught under foreclosure. The direct effect, apart from losing their property is the drop of their credit score in their overall credit rating.
Every American is valued in the financial market for all his activities – right from buying groceries in a department store to a mortgage loan for buying a property – based on their Fair Isaac Credit Organization (FICO) credit score. In the case of buying properties through a mortgage loan, the application is evaluated by the individual credit score of the person concerned. The mortgage lender obtains the detailed credit history of the applicant, from one or all of the three Credit Bureaus – Experian, Equifax, and TransUnion.
Normally the credit score of a person is determined based on their entire history of using credit for the last 7 year period and the entire picture will be taken as a whole. In the case of foreclosure, the drop in credit score of the borrower depends on many factors. If there are many positive marks, like many bills they are current on, other loans paid-off or on time, the foreclosure will not impact them heavily. Their credit score will only suffer minimally, once rebuilt they can have an ability to borrow after a few months to a year.
On the contrary, if there are numerous late payments on other loans, a foreclosure can destroy their credit score, dropping it by many points. Such victims of foreclosure will be unable to borrow any money for several years, let alone another mortgage loan. Thus, the overall picture of their credit history is important, rather than just one part or another.
The credit score is expressed in numbers between 300 and 850 and is vital in decision making by mortgage lenders for home loans. A high score denotes low risk and a low score means high risk. So the foreclosure victims have the ability to ruin their future financial activities depending on their credit score, affected by the foreclosure. If they have a high credit score they will be offered a mortgage loan with lowest interest rate and lowest down payment. This can be explained by the following table as how their credit scores will affect the monthly payments of a 30-year, $150,000 mortgage loan:
Score Interest RateMonthly Payment
720 – 850 5.49% $851
700 – 719 5.61% $862
675 – 699 6.15% $914
620 – 674 7.30% $1,028
560 – 619 8.53% $1,157
500 – 559 9.29% $1,238
In conclusion, you can see from the table above that it pays (literally) to have a stellar credit score. With a high score you are considered less of a financial risk to the lender. You should do what you can to protect your score. Therefore, if you have trouble making mortgage payments, seek help immediately. Schwaps would be glad to help, but we don’t mind if you contact another company. The main priority is that you obtain assistance. You may prevent foreclosure, save your credit, and your house, if you take action soon enough.
Although there are many Governments and Private sponsored Retirement Plans, four of them are widely popular. A 401(k) Retirement Plan (referring to the section of Internal Revenue Service code) is the foremost. This Retirement Plan is applicable to most of the salaried class of people under any employer. During the term of their employment, the employees can save a part of their earnings without payment of tax, until they are withdrawn. The funds in the 401(k) plan of the employee are managed under participant-directed options of investments like mutual funds, bonds, stocks and money market investments or the mixture of these categories.
A Simple IRA is one type of Simple Individual Retirement Account, provided by an employer. It is simpler and has less costly rules for administration, although very similar to 401 (k) plans. Contribution limits for this type of Retirement Plan are lower than other types.
A Simplified Employee Pension Individual Retirement Account (or SEP IRA) is a slight variation, which small business owners and self-employed persons can adopt. It is more or less similar to other IRA Plans, with the only exception being if the business owner and a self-employed person has employees, all of them can contribute and receive same benefits under a SEP Plan.
A Roth IRA (named after the legislative sponsor – Senator William Roth of Delaware) is an Individual Retirement Account, permitted under the Tax laws of the United States. This differs from many IRA accounts in significant ways.
A Self-directed Individual Retirement Account is an IRA giving complete freedom of decision making on investments to the owner. The assets should be held on behalf of the owner, by a qualified Trustee or Custodian. The Custodian can only regulate the funds, maintain all records, file papers required by IRS, issue client statements etc. but can never compel the owner about the investments to be made.
Importantly the owner can transfer funds from 401(k), IRA, SEP IRA, or Roth IRA to the Self-directed Individual Retirement Account.
There has been a spurt in awareness for Self-directed IRA owners, to invest in Real Estate as a very profitable one, rather than the other modes of Cash Deposits; Company Stocks; Bonds; mutual funds etc. Virtually a Self-directed IRA can be made a wealth building tool for the future for persons in every age group. Particularly so, when the time is ripe that US Real Estate markets carry huge investment of foreclosure properties, in almost all the States of United States, with prices well below their fair market value.
The only prohibition is that the investments made in Real Estate should not be used for buying properties for your personal use. Otherwise you can buy properties for renting or selling to others. All the proceeds of re-selling or rental income will go to your Self-directed IRA Account and will grow as tax-free income, till you attain the age of retirement. In that case you can withdraw the funds and pay tax at the minimum, since you will retire at the lower tax bracket as a senior citizen.
You can borrow money from mortgage lenders for buying properties – open market or foreclosed – based on your Self-directed IRA account. With so many benefits, your Self-directed IRA account can be transformed into a fantastic wealth building tool when used with Real Estate.
Champaign city of Champaign County, Illinois shares its existence with its sibling city of Urbana, to be known as the Twin Cities. The residential rental property market is mostly dependent on the University of Illinois at Urbana-Champaign. The rental property market is catering to the housing needs of the student community, coming from the entire State of Illinois and elsewhere.
So it would be worthwhile to know more about the University – This is a public research University and famous as the oldest and largest campus in the Illinois University system. Formerly Illinois Industrial University, established in 1867, the name was changed to the present in the year 1982. 18 Colleges offering more than 150 programs of study comprise in the University, apart from an extension that serves more than 2.7 million registrants per year in Illinois State and beyond. The University campus extends over 1,468 acres, situated within the twin cities of Champaign and Urbana with 286 buildings. The student population is 41,495 (under graduates 31,173 + 10,322 post graduates), apart from 8,085 staff.
The University provides residential accommodation for first year under-graduates in its own Residential Halls or in University Private-Certified housing, both administered by the University’s housing division. Most under-graduates choose to move into single family homes and apartments, after their first or second year. This is where the rental property market of Champaign-Urbana Metropolitan Area comes into reckoning. There are 22 Rental Agencies in Champaign and 36 in Urbana, including the Campus Management, to guide, assist and help in locating residential accommodation for the student community of the University.
The statistics for the residential rental market for Champaign is – 49.21% of the population are renters. Nearly 5.20% of houses and apartments are presently unoccupied. The total population of Champaign city is 75,254. As for Urbana is concerned, the city has a total population of 39,484 people. Renters make up 58.73% of Urbana population and 6.47% of houses and apartments are unoccupied (vacancy rate).
Based on the Cost of Living indices of US, the average is 100. The Cost of Living Index for Champaign city is 82.62, so it is less expensive than most cities. Similarly the Cost of Living Index for Urbana is 82.94.
It can therefore be safely concluded that in Champaign-Urbana Metropolitan Area, good and amicable single family homes are available for rental, somewhere between $470 and $1600 at an average per month. This Metro is certified to be a very good and peaceful place for living by experienced residents – with all the facilities for dining, shopping, recreation and entertainment provided – mostly by the University of Illinois on this metro city.
I know it’s been too long since my last post, that is going to change. I’ll begin by sharing this visualization of what caused the downturn in our economy. I think you’ll find it fascinating.
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
Difference between CPI and cost-of-living:
CPI solely measures the change in the value of the “basket of goods” over time.
Basket of Goods = goods and services purchased for consumption
Some of which are:
* FOOD AND BEVERAGES
* HOUSING
* APPAREL
* TRANSPORTATION
* MEDICAL CARE
* RECREATION
* EDUCATION AND COMMUNICATION
* OTHER GOODS AND SERVICES
On this blog, I focus on being a resource for those who are Real Estate Buyers and Sellers in Champaign County. Therefore, I will keep the company promotion down to a minimum. I am not a Real Estate Broker or Sales Agent. Rather, ‘I’ buy and sell Real Estate, I don’t ‘represent’ buyers and sellers in Real Estate transactions.
Naturally, the company website is linked in the blog and on the navigation bar. The way I look at it, when you buyers and sellers in Champaign are ready, I will be as well. In the meantime, there is a lot of research that I can provide which will assist you in making an educated Real Estate decision.
