The Benefits of Real Estate Partnerships by William Bronchick

If you are thinking about investing in real estate, you should know that you don't have to do it alone. There are several that are thinking of the same thing as you, but don't have the proper resources to begin the process. Building partnerships to invest in real estate is one of the great ways to start building an income off of owning property.

One of the benefits of having someone else investing in real estate with you is that it will allow for any missed parts of the process to be covered. This is especially important in the beginning of the process. If you are unsure of different parts to look at with the real estate investing or if you don't feel like you can cover all of the areas alone, a partner can help in determining what you are missing. Everything from contract work to needing a third person can be handled and put together from missing links. Two heads are always better than one, especially if you are just beginning.

Having a partner to help you with investing can also be beneficial because of organizational needs that will need to be met. Everything from basic paperwork to taxes and even procedures can be better when handled by two people. You will want to make sure that everything that is set for your profits is understood by both and whatever is missed will be picked up by your partner in order to keep the benefits coming in organized.

By having more than one person involved in the investment of real estate properties, you will be able to set your goals, keep standards and move forward in the business. Finding the right person who has the necessary tools will ensure that you will be successful. Having the right help will provide you the ability to continue to expand your business and make plenty of profit from real estate sales.

(NEXT POST... the bad side of partnerships)

Don't Get Caught Up in Real Estate Scams or Illegal Practices by William Bronchick

There are many ways to legitimately make money in real estate.  There are also many shortcuts that are illegal, fraudulent, or a downright scam.

Here's a few of them:

1. Lying on Your Loan Application.  Whether it be saying you will live in the property or overstating your income, these are lies that can get you caught up in legal trouble.  If you get caught, you go to Club Fed.

2. Cash Outside of Closing.  Giving the seller or buyer cash outside of closing not reported on the HUD is a violation of RESPA.  This can also land you in Club Fed,

3. Not Reporting Rental Income.  It's tempting to screw the Government by undereporting cash you receive, but why risk it?  Instead, be aggressive on your deductions.

4. Doing Work Without Proper Permits and Inspections.  Many investors will disturb lead paint, asbestos or hide hold.  All of these can get you sued, not to mention fined by the EPA.  Do the job right, and disclose it.  Also, don't do any life-threatening or health and safety repairs without a proper permit.

You can make an honest living in this business without breaking the rules.  Keep on the straight and narrow path and you will succeed. 

Why Real Estate Investing?

At present, the number of real estate investors continues to rise  continually because many individuals today realized the high earning potential of real estate investing. Real estate properties have very attractive qualities that ensure viable income opportunities. If you want to enjoy the many benefits of real estate investing, start choosing your investments now.

If you have established long term goals, then you should invest on a certain scale over the long term. For instance, you purchase a real estate property. You need to hold it for a few years so that the home equity is built until it becomes a good or excellent deal.  Homeowners benefit a lot from equity because when equity is high, the net worth is also high. Many real estate investors prefer to invest over the long term for this reason.

By purchasing a real estate property, you will also enjoy the tax advantages that come along with it since you now own your investment property. Tax advantages vary depending on the property you purchase. Before engaging in any transaction, you should look into the possible advantages that you can get. Compare various properties and choose the ones that have the highest tax advantages.

Some investors tend to purchase properties and then resell them for a higher price. This type of investment promises high returns. You should consider the time of the purchase and the market condition. Check for the profit margin once you decide to sell the property. There are several factors that you need to consider before you purchase a certain property such as current property sales, upkeep, and renovations.

Can you hold the property for a short period? You should always be prepared because there are times when you can’t easily sold the property you’ve bought. After looking into these factors, you can now determine if a certain property is profitable or not. If the property can be sold quickly, then you will enjoy the benefits that come along with it.

There are real estate investors that become landlords. Some investors purchase properties but they don’t resell them; instead, they lease the property. If the property comes with a mortgage, the investor will need to pay for it but he or she will also receive additional incomes from the rents.

So you see, there are a lot of benefits if you decide to enter the real estate business. To summarize, the benefits are – build equity on the property, tax advantages, high return from reselling properties, and earn additional income by leasing properties.

It doesn’t really matter if you have short term or long term goals. The earning opportunities in real estate investing are really attractive. It’s no wonder why many people are now into the real estate business. If you want to enjoy the same benefits, try to determine if this is the right thing for you. You need to be interested in the purchase of real estate and you need to have adequate capital. To generate capital, you can take advantage of grants provided by governments or you can get capital in other ways.

Mortgage Elimination Scams

You’ve seen the emails:

“Legally eliminate your mortgage!!”

Can this possibly be true? Well, I’ve read the claims and researched the law and here’s what I came up with.

The Claim

The claim is that you can legally eliminate your mortgage based on an accounting loophole that goes something like this…

“If the lender who funded your loan used borrowed money to fund your loan, then the loan is not valid. And, since the loan is not valid, the security (mortgage or deed of trust) is not valid either. All you do is simply march into court and ask a judge to void your mortgage lien, and you don’t have to pay it back.”

Now, without going into the legal issues, a common sense approach would tell you that the entire premise of this argument is patently absurd. Think about it… most lenders use borrowed money to fund loans, that’s the nature of the business.

So, if these “mortgage elimination” promoters are correct, then millions of mortgages would be void. 

The entire economy would collapse. This sounds vaguely familiar to the “tax protestor” scam where people claimed that they didn’t owe income tax because the government did not have the constitutional authority to tax them. More on that later…

The Law

The mortgage elimination promoters cite various court cases in support of their position. At first blush, it would seem there are dozens of court cases in which the judge actually did what they claimed, that is, declare a mortgage void because the lender used borrowed funds for the loan. But, since most laymen are not trained in the law, they take this stuff, hook, line and sinker.

I’ve read the decisions and they all have a common theme: they don’t support the mortgage elimination theory. In fact, most of the cases are only vaguely on point.

The “tax protestor” promoters did the same thing… take a quote from a judge’s decision out of context and cite the case as support for their position. In the end, the tax protestors all lost in court, paid large fines and went away with their tails between their legs. The government went after the promoters of the scam.

Similarly, the government is going after the promoters of the mortgage elimination scam. The Federal Reserve recently issued a warning, a copy of which can be found at the end of this article. The Office of the Comptroller of the Currency issued a similar warning last year.

The FBI recently raided the office of the Dorean Group, a big promoter of the mortgage elimination scheme. 

The Cult of Stupidity

As I write this, undoubtedly a few “followers” of the theory will email me and argue that I don’t understand or that I’m part of the “establishment mentality” that keeps the little guy down. Of course, these are likely the same people who are collecting referral fees from the scammers that are charging thousands of dollars to consumers in exchange for a false promise to eliminate their mortgages.

On a philosophical level, I appreciate discussions about how the dollar really isn’t backed by gold, the government doesn’t have the right to tax Americans and the the like. But I wouldn’t tell a client to actually rely on any of these theories in a court of law. Nor would I charge someone thousands of dollars in exchange for a promise or guarantee that their mortgage could be eliminated without paying it off.

How to Really Eliminate Your Mortgage

There are some legal ways to eliminate your mortgage:

1. Pay it off in full
2. File for chapter 7 bankruptcy (in which case you will not be liable for the mortgage note, but you will also lose the house)
3. Find a REAL legal challenge that a judge is willing to accept as a valid reason to declare the debt void, such as usury, gross violation of lending laws, fraud, incompetency or the like

How to Challenge that Bad Appraisal

In the volatile real-estate market of the past several years, prospective homebuyers and refinancers have encountered the same frustrating obstacle: a low appraisal.

Appraisal complaints have risen in recent years, particularly since home values began plummeting in 2007 and the Home Valuation Code of Conduct took effect in May 2009. But the experts say this isn't the first real-estate cycle in which contract prices don't often match an appraised value. 

More --->>> http://realestate.msn.com/how-to-challenge-that-low-appraisal

The Basics of Foreclosure Short Sales

You will likely come across dozens of properties in foreclosure with little or no equity, that is, the seller owes at close to or more than the property is worth. In these situations, lenders are sometimes willing to accept less than the full amount due, commonly referred to a “short pay” or “short sale.”

Negotiating a short sale with the lender is a difficult process, generally because it is a daunting task finding a bank officer who has the authority to accept a discount. You will have to call around to locate the lender’s “Loss Mitigation Department”. More than likely, each lender you deal with will have a separate name for this department, so be patient when calling. Much like getting your phone bill corrected, you can expect the process to involve a lot of waiting on hold and being bounced around an intricate maze of automated voice mail systems. Once you get in touch with the right person, then the negotiating begins.

From the lender’s perspective, a short sale saves many of the costs associated with the foreclosure process - attorney fee’s, the eviction process, delays from borrower bankruptcy, damage to the property, costs associated with resale, etc. In a short sale scenario, the lender gets the property back faster, so it is able to cut its losses. Your job as the investor is to convince the lender that it will fare better by accepting less money now.

The lender will want some information about the property, the borrower and the deal he has made with you. Specifically, the lender wants to know what the property is worth. The lender will generally hire a local real estate broker or appraiser to evaluate the property (called a broker’s price opinion or “BPO”). You can also submit your own appraisal or comparable sales information. In addition you will want to offer as much specific negative information about the property as possible. Also, include some relevant information about the neighborhood and the local economy if things are bad (copies of newspaper articles with “bad news” may help). A contract’s bid for repair estimates should also be submitted, which, of course, should be the highest bid you can obtain!

The lender will also ask for financial information about the borrower. Sort of a backwards loan application, the borrower must prove that he is broke and unable to afford the payments. The borrower must show that he has no other source of income or assets to repay the loan. This process may involve as much, if not more paperwork than an original mortgage application! The borrower should submit a “hardship letter”, which is basically a sob story about how much financial trouble the borrower is in. This may require a little literary creativity, and some help on your part. Don’t lie, just paint a picture that doesn’t look good.

Finally, the lender generally wants to see a written contract between you and the seller. The lender wants to make sure the seller isn’t walking away with any cash from the deal. Generally, the contract must be written so that the buyer pays all costs associated with the transaction, so that the “net cash” to the seller is the exact amount of the short pay to the lender. A preliminary HUD-1 settlement statement is often requested, which can be difficult, since many title and escrow companies simple won’t prepare one in advance of closing. You can prepare your own HUD-1, and simply write “preliminary” on the top.

Don’t be surprised if your first short sale bid is rejected. Lenders aren’t emotionally attached to their properties, so they aren’t as likely to give you steal. Many short sales fall through if the BPO comes in too high, which is often the case. You can’t pull the wool over a lender’s eyes – if the property isn’t is need of serious repair, it is unlikely you can convince the lender the property is worth a whole lot less than the appraised value.

The process of the short sale is not that complicated, but the success or failure of the deal depends upon how you present it to the lender. Many novice investors and realtors give up at short sales quickly because their first deal is rejected. Like any business, short sales takes practice to get good. Generally speaking, loss mitigators are pretty good at spotting an amateur investor. If you know what you are doing, the loss mitigators are more likely to make a deal with you.

Want to become an expert at short sale deals? Register for William Bronchick's upcoming Foreclosure Investing Boot Camp.