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Private Mortgage Lending 101 …
… Secure, Hassle Free, High Yields
- Ron Nawrocki- Jim Williams – Joe Stachon Mortgage
- Lynn Simonar – DHI Title
June 5, 2009 2
WELCOME
We’re glad you found the time to be here
Hopefully you’ll be glad you came!Feel free to ask questions during, at
end, and 1 on 1 during our time wandering in the gardens
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About Me
Jim Williams, Senior Mortgage Consultant, Joe Stachon Mortgage Residential lending & refinancing Conventional & Jumbo FHA, VA, USDA Asset distribution income Use of self-directed IRA’s
Partner with B.I.Solutions Corp. on using O.P.M.
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Investment Disclaimer
Nothing presented in this financial education seminar shall constitute the provision of investment advice by the presenters or any company sponsoring this seminar, and nothing provided or stated in the seminar should be interpreted as such.
In addition to and not in limitation of the foregoing disclaimer, the sponsors will not provide investment advice regarding any specific security or fund during this financial education seminar and nothing should be interpreted as such. No specific recommendations for the purchase or sale of any particular investment shall be deemed given to any attendees of this financial education seminar, and the mention of any particular security or investment is for example only.
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Outline
Brief IntroductionWhat is a Private Lender?Why do it?How? … an overviewLegal, Tax, RisksSimplified, Safer LendingWine down!
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Introduction
How do banks make money?Borrowing cheap – lending for more !
Do you think you could make money …Borrowing at 0.5% … typical CDLending at 5.5%? … typical mortgage
How about lending at 6.5%? … real estate investors pay 1% more
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Bank Example … residential loan
Borrow Lend Profit
Amount $160,000 $160,000
Interest rate 0.5% 5.5% 5.0%
Monthly $ 67 $ 733 $ 667
Annually $ 800 $ 8,800 $ 8,000
Banks make money on us!
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Bank Example … investor loan
Borrow Lend Profit
Amount $160,000 $160,000
Interest rate 0.5% 6.5% 6.0%
Monthly $ 67 $ 867 $ 800
Annually $ 800 $10,400 $ 9,600
Banks make more money on investors!
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Example … loan using O.P.M.
Borrow Lend Profit
Amount $160,000 $160,000
Interest rate 5.5% 6.5% 1.0%
Monthly $ 733 $ 867 $ 133
Annually $ 8,800 $10,400 $ 1,600
An opportunity to earn using O.P.M.?
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Conventional wisdom …
The year 2005 … Invest with big name gurus with
high returns You can’t get ahead with
guaranteed fixed return investments
MYTH
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Reality on gurus with high returns …
Some are crooks Know who you’re dealing with Read what they’re investing in
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Google:
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Who is Ron (The Ronald) Nawrocki?
Phoenix area resident since 2007 Lived & worked in Europe from 1994 - 2007 Cornell Univ. Engineer and MBA in Finance Manager at Xerox, Scott Paper, Bell Atlantic CFO at Pepsi, Hortex, Pioneer Investments,
McLane Rotarian, Toastmaster, Who’s Who of
Entrepreneurs, AZREIA, SW Valley Chamber, CrimShield, BBB
Author – “Investor Insights” in Hungary & Poland Investor – 30 years Full-time investor since 2001, CPS since 2007
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Evaluating any Investment … 4 tests
1. Liquidity2. Safety3. Rate of Return4. Tax Consequences5. Other: Social benefit
Will Rogers: "I am more concerned about the return of my money, rather than the return on my money”
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Outline
Brief Introduction What is a Private Lender? Why do it? How? … an overview Legal, Tax, Risks Simplified, Safer Lending Wine down!
June 5, 2009 16
References …
“MAKE YOUR MONEY “PRIVATE MORTGAGE MAKE MONEY FOR YOU” INVESTING” - Amarjit Ahluwalia - Teri B. Clark &
Matthew Stewart Tabacchi
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What is a Private Lender
Survey …How many here are Private
Lenders?
Any famous examples?Warren BuffettCarlos Slim
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Carlos Slim
Interested at 14%?
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Definition …
A private individual or company lending money against some collateral
Examples: Bank CD’s … collateral is FDIC Bonds … company assets as collateral Loan to your relatives … collateral? Tax liens – up to 16% in ArizonaHow many here are Private Lenders?
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More examples …
“Hard Money” loans to real estate investors … backed by deeds
Mortgage loans on income producing real estate … backed by deeds
Loan backed by Mortgage Loan (Deed)Collateral Assignment
These are Private Mortgage Loans
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Outline
Brief Introduction What is a Private Lender? Why do it? How? … an overview Legal, Tax, Risks Simplified, Safer Lending Wine down!
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Why be a Private Mortgage Lender?
Bank CD’s pay you (private lender) 0.5% - 1.5%
Real Estate investors pay banks 6.0% - 7.0%Cut out the middle man - earn 5.5% - 18+%
Why did Carlos Slim lend to NY Times vs. put money in CD’s?
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4 Tests for any Investment
1. Liquidity Monthly interest checks Can have short maturities (6 mo. – 10+ yr.) Can be sold or used to get Loan
2. Safety Backed by Deed, Title policy, Insurance Real estate does not go to zero Value does not drop as interest rates rise
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But Banks are in trouble …
Do NOT: Sell your loans with Credit Default
Swaps Lend 100% of the purchase price Give the buyer Title to live in the
Property
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But Banks are in trouble …
Lend only: On income producing real estate
(not owner occupied) To investors with good credit &
assets With a Corporate and/or Personal
Guarantee
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4 Tests for any Investment
3. Rate of Return 6.0% and higher Linked to mortgage rates for investors
4. Taxes Fully taxable O.P.M. used is tax deductible Unless in an IRA
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Financial Headlines
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‘The Ronald’ on Problems …
1. Biggest Problem – Banks aren’t lending
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More Headlines
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‘The Ronald’ on Problems …
1. Biggest Problem – Banks aren’t lending
2. There are no problems – Only Opportunities disguised (Pepsi mantra)
3. (1+2) Banks aren’t lending is the Biggest Opportunity – For Who?
Private Mortgage Lenders !
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4 Tests for any Investment
5. Social Benefit Private Lenders help the Economy …
more than the Government !
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The Benefits …
We help people make money in Real Estate …
Who?Home buyers who can’t get a mortgage
Fix & Flip Investors
Cities & Towns
Realtors
Mortgage Brokers
Title CompaniesPrivate Lenders !
Electricians
Plumbers Inspectors
Appraisers Painters
Landscapers
Bank shareholders!
Investors !Phoenix Economy!
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Outline
Brief Introduction What is a Private Lender? Why do it? How? … an overview Legal, Tax, Risks Simplified, Safer Lending Wine down!
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How? … an overview
YOU are the Bank !Find & Check BorrowersEvaluate the Deals Determine what YOU wantNegotiate & Agree T&C’sClose with Title CompanyCash your checks !
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Know the Documents
Note: Your agreement with Borrower Personal Guarantee or Recourse Property Taxes & Insurance kept current
Trust Deed: Pledges property if Note T&C’s not met Must be recorded
Lender’s Title Insurance Insurance: You must be Co-beneficiary or
MortgageeLender’s Instructions: How you want the deal
handled Good News: Title Company handles all these !
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Find Borrowers
Banks aren’t lending – Borrowers everywhere
Tell your network you are Private Mortgage Lender
Attend Business Mixers, Investment ClubsTell Real Estate Agents, AppraisersMortgage Brokers?Simplest: Call ‘The Ronald’
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Check Borrowers
Experience in Real EstateAre they making money?Credit Report/Score References, BBBVisit properties (Current & Past)Do they know more than you?
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Evaluate the Deals …
Fix & Flip vs Income ProducingSize of loan vs Your funds availableTerms requestedLocation – NOT too importantCondition of propertyReview a few before Lending
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Determining Value (ARV)
AppraisalMost accurate, Most expensive Difficult in Today’s Market
MLS (imapp) CompsSquare Footage & Value basisSome neighborhoods have only REO
(bank owned) sales
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MLS Comps
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Determining Value (Cnt’d)
County Appraiser, Recorder & Taxeshttp://www.maricopa.gov/Assessor/Parcel
Applicationhttp://recorder.maricopa.gov/recdocdatahttp://treasurer.maricopa.gov
For Income ProducingValue based on Rental IncomeHint: Value ~= 120 rent payments
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Appraiser
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Appraiser
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Recorder
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Recorder
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Mortgageable Equity
or Investable EquityNot for Fix & Flip – Key for:
Income Producing PropertyLending against Mortgage Note
Factors in Equity, LTV; Interest rate(s), Cash Flow to make all payments
Best Ref: Greg Pinneo (approx. $3,000 course)
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To do it on your own …
Come to our 4 hour course - $49You’ll be ready to start looking for
Clients that dayWe have TOO MANY Clients!Banks aren’t lending … great
opportunity
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Outline
Brief Introduction What is a Private Lender? Why do it? How … an overview Legal, Tax, Risks Simplified, Safer Lending Wine down!
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Legal Aspects
Private Lending is not complicatedTitle Co. handles most paperwork B.I.Solutions has Lawyer retained with
volume of loans taken & made – will soon get:SEC registrationHard Money lender license
Mortgage Pools require SEC registration – Avoid
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Legal Aspects
Lending to investors: “Commercial loan on Residential Property”Does not fall under residential mortgage
licensing
Several lenders partnering - Use LLCNOT mortgage poolSimple Operating Agreement to designate %
Or Largest takes 1st position, next 2nd …
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Tax Aspects
Interest Earned is fully taxableIncome tax deferred/avoided if loan in IRA
Must be self-directed
Borrower (if Company) should issue 1099-INTPrivate Lender, like Financial Institution, must
issue 1098 & 1096 to individual borrowerCan issue for company
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Tax Aspects
Using O.P.M.: must issue 1099-INT & 1096 to private lender to be investment interest (tax deductible), exceptCorporation – Bank or B.I.SolutionsUsing mortgage or HELOCCredit Card 0% offer - transfer directly to
borrower
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Tax: 1099-INT
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Tax: 1099-INT
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Tax: 1098
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Tax: 1098
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Risks
Lower risk than tax liens, bonds, stocks, angel investing, private equity, personal loans …
Borrower Performance (You’re the bank)Foreclosure cost $2,000 - $4,000Handled by Lawyer or Title Co.
Property ValuationCost & Time to resell propertyMoney on the side-lines earning ~0%
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Outline
Brief Introduction What is a Private Lender? Why do it? How … an overview Legal, Tax, Risks Simplified, Safer Lending Wine down!
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Do it Yourself Lending
Property? Property Property
Client Client Client?
? ? ?
Lender
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Simplified Lending
Prop1 Prop2 Prop3 … PropX Client1 Client2 … ClientY
B.I.Solutions
Lender Lend2 Lend3 … LendZ
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Simplified Lending … B.I.Solutions Corp.
Plus: No need to find & check Clients! Local, with track record of success, references Backed by $multi-million portfolio, strong cash flow Guaranteed repayment & interest payments
Regardless of Client payment
Referral based Clients calling weekly Handles Credit checks, Valuation, Mortgageable
Equity
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Simplified Lending … B.I.Solutions Corp.
Plus: Chooses the best tenant/buyers and borrowers to fund Handles all tax filings (except 1096 signature)
Including those for OPM borrowed
Low $10,000 Minimum – many loans to chose from
Minus: Slightly Lower interest rate – How’s your wife?
But much higher than CD’s, T-Bills But money invested the whole term
Only residential properties (for now) Minimal involvement in multiplex apartments
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The Business
B.I.Solutions Corp. - 2 Divisions …
1. Buying Solutions – Home buyers – who can’t qualify for a mortgage
2. Investing Solutions – active real estate Investors who need “Fix & Flip” loans
Banks aren’t lending – we have backlog of Clients
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1. Fixed Rate*, guaranteed
“BI MP3” 6 mo.– 6.0% (No early withdrawal penalty) 12 mo. – 6.5% 3 yr. – 7.0%Monthly interest checks … $10,000 minimum Investment backed by full portfolio of properties Plus my personal guarantee
* Rate based on investor mortgage rates at time of investment
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2. Fixed Rate*, guaranteed
Investment backed by a specific Deed plus my personal guarantee
12 mo. – 6.5% 3 yr. – 7.0%
Creative investing: Convert Bank CD, earn $00’s more Take mortgage on home and earn $000’s/yr.
* Rate based on investor mortgage rates at time of investment
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Interest Payment
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Some Trust Deed Loans
Loan to Value (LTV) 65%; 1 yr; 6.5%*Phx03: $130,000; 4-plex; collateral
assignmentPhx04: $180,000; 3-plex; “Phx05: $94,500; “Phx06: $94,500; “AvonX: $100.000; “ (pending)
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Toll1: 9416 W. Williams St
1,761 sf; 3 Bdrm / 2.5 bath Parcel: 101-27-602 $1,295 lease payment (25% rebate) Cash flow of $269/mo Option for $194,900 – $205,470 Current 1st position loan - $114,000 Mortgageable Equity (6.5%, 90% LTV): $26,000
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Some Trust Deed Loans
Loan to Value (LTV) 90%; 3 yr; 7.0%* Toll1: $ 26,000; 2nd position
$140,000; 1st position Toll2: $ 29,500; 2nd
$146,000; 1st
Avon1: $ 32,000; 2nd
$150,500; 1st
Glen1: $145,800; 1st (best deal)
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More Trust Deed Loans
Loan to Value (LTV) 90%; 3 yr; 7.0%* Phx02: $145,500; 1st (pending) Mesa2: $162,000; 1st position VerrX: ~$215,000; 1st (new) Phx04: $500,000; 7-plex; 1st
* Interest Rate & payments guaranteed, regardless of Client’s payments
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Bribe to fill-out Questionnaire …
We need your feedback to improve the seminarIf you fill-out the form:
1. Enter in today’s drawing
2. We cover your CD pre-payment penalty to get into a similar maturity Private Loan with B.I.Solutions (thru 6/30/2009)
3. We buy you dinner for people you refer that become B.I.Solutions private lenders (they might buy you 2 dinners!)
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Questions?
Q&A time
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BBB Website
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Website
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Contact
Ron Nawrocki (The Ronald)
B.I.Solutions Corp.
Verrado
1-623-249-4792
www.TheRonald.us
Proven, Profitable, and Positioned for Growth
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Security – Private Mortgage Loan
Any Private Mortgage Loan (should) have:
1. NOTE
2. DEED OF TRUST
3. LENDER’S TITLE POLICY
4. PROPERTY INSURANCE
B.I.Solutions also provides:
5. CLIENT INCOME
6. B.I.SOLUTIONS CASH FLOW & ASSETS
7. RON NAWROCKI’S PERSONAL GUARANTEE
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4 Ways to Invest in Real Estate
OWN LOAN
1. Fix & Sell4. Private
2. Lease-to-Own Mortgage
3. Fix & Rent Lending
5. Do Nothing
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B.I.Solutions’ Investments
OWN LOAN
1. Fix & Sell4. Private
2. Lease-to-Own Mortgage
3. Fix & Rent Lending
5. Do Nothing
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Using IRA’s
IF you have a choice which money to use:
Use IRA - these are fully taxable:1. Fix & Sell
4. Private Mortgage Lending
Use taxable money - these have tax breaks:2. Lease-to-Own
3. Fix & Rent