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Position Yourself For Success

How to Avoid the Common Pitfalls of Real Estate Investing

Learning to invest in real estate is just like any other business or career: It takes time to get good at it. Too many people get frustrated very easily and give up, and this is not only the case with real estate.

Study and learn as much as you can about the process, the industry and the areas in which you’re interested in investing. As I’ve watched clients create, as well as lose, rental real estate fortunes, I’ve learned common strategies that have helped more succeed with fewer mistakes. Here are six concepts I encourage you to consider when investing in rental properties:

1. Have a master rental property analysis spreadsheet.
Create an Excel spreadsheet to analyze any and all possible deals. That’s right — you’re not going to buy the first rental property you see this year. Start with the Fair Market Value (FMV), money down, improvements and mortgage/carrying cost — then move it through rental income, expenses and wrap it up with a cash-on-cash ROI figure. Run every property through the gauntlet of your spread­sheet. If, after putting the numbers into all the columns, the ROI isn’t good or it’s not in your favor, move on to the next property. Base your decision on the key factors generated by your spreadsheet. This is why you took fifth-grade math — embrace it.

2. Remember, you are buying “numbers.”
Too many investors get emotional about their purchase and even envision themselves living in the rental property they’re ana­lyzing. This is a terrible mistake. In these situations, the investor often over-improves the property, investing far too much time or capital and blowing their ROI out of the water. Don’t think your rental property needs granite counter­tops; instead, realize you aren’t buying a property, you’re buying numbers. What do your dollars get you in “dollars and cents?” Remember, it’s not about your personal wants and needs; it’s about how much you can make off the property. Pouring a lot more money into the property to get a higher rental rate can backfire.

3. Do your research.
Let me say that again: Do your research, then do it again. I see so many new investorsbuy the first rental they see. Take your time. Also, don’t look at a property as to “Why shouldn’t I get this?” Look at it as to “Why should I get this property?” Make the numbers prove it to you. Don’t assume you’re going to buy it unless you find something wrong with it.

4. Buy local if you can.
The words “if you can” are the key. Don’t get hyperfocused on buying local so you can check on the property. It’s far more important to buy quality rental properties (good bones, reputable location, ease of upkeep, etc.) rather than local. But, if you’re living in an area where there’s a strong rental market with legitimate returns on investment (that aren’t dependent on putting down a fortune), consider yourself lucky.

5. Learn to manage your property manager.
Unless you’re a full-time real estate investor and one tough SOB, get a property manager. If you don’t have the temperament to be tough and start eviction proceedings three days after a tenant is late, have a personal intervention with yourself. You may not be cut out to be a property manager even if the property is local. You may not have the time, skills or system to be your own property manager. Be a realist. Your time could be better spent looking for other rentals, doing the books or running your business. With that said, always — and I mean always — have a budget in your rental property analysis for a property manager (approx­imately 10 percent of gross rents). Even if you have visions of grandeur and start managing, you want the budget to stick in a property manager.

6. Bundle.
I recently met with a client who had five properties in four states. They were great properties, but look at the inefficiency (and headaches) of registering an LLC in four states, doing four state tax returns, having four different prop­erty managers, four different trips to at least occasionally check on your rentals and four different rental markets to understand and follow. Perhaps when you have 25-plus rentals and can afford to make your full-time job managing your rentals and property managers, then you can tackle four or more markets. For now, purchase rental properties in just one or two markets, or “bundle” as it’s called. Using this type of bun­dling, your property managers can handle a few properties at the same time. You’ll also save travel time and expenses. Plus, you can familiarize yourself with a few good locations rath­er than having properties scattered all over the place. You can also be more efficient with your tax and legal planning and save a lot of time and money by bundling.

Position Realty
Office: 480-213-5251

Diversify Your Portfolio And Invest In Real Estate

The Chartered Financial Analyst (CFA) Institute categorizes real estate as an alternative investment that includes residential and commercial properties as well as mortgage-based securities and real estate investment trusts. For most real estate investors, these investments are characterized as income-generating properties that see revenue from rent earned and capital appreciation from the increase in market value. Since this investment vehicle depends on the net operating income (NOI), maximizing cash flow is key to a successful real estate investment.

Property Valuation

To fully understand the importance of cash flow to real estate investment, it is necessary to know that the value of the property is directly linked to the NOI. Unlike residential homes that get their value from comparable sales, income-generating real estate value is calculated as the annual NOI multiplied by an industry standard rate of return, called the capitalization rate. For instance, if the property has an annual NOI of $100,000 and a 10 percent capitalization rate, then the property would be valued at one million dollars. Since NOI is calculated after expenses and both property value and return on investment are depended on NOI, it is important to maximize income and minimize expense.

The Risk/Return Profile

Commercial real estate increases in value based on two components. The first is capital appreciation from the increase in the surrounding market. As a neighborhood becomes nicer and properties sell at higher prices, the value of the commercial asset increases. There is very little that an investor can do to mitigate the risk of market increase or decrease.

The other component to value is the cash flow from income. Revenue is something the property owner has a large amount of control over and which the risk and return balance can be finely tuned. To lower risk, the operating pro forma should have both estimated market rate returns and lowest logical returns.

REOs and Arbitrage Opportunities

Of course, getting a good deal is the foundation of any real estate investment. A low investment amount and high revenue make for a good return on investment. Bank-owned and government-owned homes often offer properties at amounts under market value. These properties are generally in disrepair, so rehabilitation costs should be factored into the price equations.

The website Equator handles bank-owned properties, and HomePath has extensive databases of distressed properties owned by the government. A knowledgeable real estate agent with expertise in this form of alternative investment makes it easier to identify opportunities for high returns. For active investors, a real estate analysis seminar helps maximize their investment.

Important Correlations

As an alternative investment, real estate is historically poorly correlated to the stock market, making it a good investment to diversify a portfolio. During times of stock market loss, real estate continues to offer returns. Real estate is positively correlated to inflation, meaning that it generally increases in value as inflation increases. This makes real estate a good inflation hedge.

Position Realty
Office: 480-213-5251

Tax Free Exchange: A Valuable Alternative To A Home Sale

Congress is currently talking tax reform. Two very important real estate benefits are on the so-called “chopping block”, either to be completely eliminated or significantly curtailed.

It is doubtful that the home owner exclusion of up to $500,000 (or $250,000 if you file a single tax return) of profit will be impacted; there are too many homeowner voters who will forcefully object. But investors do not have the same strong lobbyist who can make the case for preserving the “like kind” exchange. So if you have an investment property, now might be the time to consider doing an exchange.

Residential homeowners have a number of tax benefits, the most important of which is the exclusion of up to $500,000 (or $250,000 if you file a single tax return) profit made on the sale of your principal residence. But real estate investors — large and small — still have to pay capital gains tax when they sell their investments. And since most investors depreciated their properties over a number of years, the capital gains tax can be quite large.

There is a way of deferring payment of this tax, and it is known as a Like-Kind Exchange under Section 1031 of the Internal Revenue Code. In my opinion, these exchange provisions are still an important tool for any real estate investor.

The exchange process is not a “tax free” device, although people refer to it as a “tax-free exchange.” It is also called a “Starker exchange” or a “deferred exchange.” It will not relieve you from the ultimate obligation to pay the capital gains tax. It will, however, allow you to defer paying that tax until you sell your last investment property — or you die.

The rules are complex, but here is a general overview of the process.

Section 1031 permits a delay (non-recognition) of gain only if the following conditions are met:

First, the property transferred (called by the IRS the “relinquished property”) and the exchange property (“replacement property”) must be “property held for productive use in trade, in business or for investment.” Neither property in this exchange can be your principal residence, unless you have abandoned it as your personal house.

Second, there must be an exchange; the IRS wants to ensure that a transaction called an exchange is not really a sale and a subsequent purchase.

Third, the replacement property must be of “like kind.” The courts have given a very broad definition to this concept. As a general rule, all real estate is considered “like kind” with all other real estate. Thus, a condominium unit can be swapped for an office building, a single family home for raw land, or a farm for commercial or industrial property.

Once you meet these tests, it is important that you determine the tax consequences. If you do a like-kind exchange, your profit will be deferred until you sell the replacement property. However, it must be noted that the cost basis of the new property in most cases will be the basis of the old property. Discuss this with your accountant to determine whether the savings by using the like-kind exchange will make up for the lower cost basis on your new property. And discuss also whether you might be better off selling the property, biting the bullet and paying the tax, but not have to be a landlord again.

The traditional, classic exchange (A and B swap properties) rarely works. Not everyone is able to find replacement property before they sell their own property. In a case involving a man named Mr. Starker, the court held that the exchange does not have to be simultaneous.

Congress did not like this open-ended interpretation, and in 1984, two major limitations were imposed on the Starker (non-simultaneous) exchange.

First, the replacement property must be identified before the 45th day after the day on which the original (relinquished) property is transferred.

Second, the replacement property must be purchased no later than 180 days after the taxpayer transfers his original property, or the due date (with any extension) of the taxpayer’s return of the tax imposed for the year in which the transfer is made. These are very important time limitations, which should be noted on your calendar when you first enter into a 1031 exchange.

In 1989, Congress added two additional technical restrictions. First, property in the United States cannot be exchanged for property outside the United States.

Second, if property received in a like-kind exchange between related persons is disposed of within two years after the date of the last transfer, the original exchange will not qualify for non-recognition of gain.

In May of 1991, the Internal Revenue Service adopted final regulations which clarified many of the issues.

This column cannot analyze all of these regulations. The following, however, will highlight some of the major issues:

1. Identification of the replacement property within 45 days. According to the IRS, the taxpayer may identify more than one property as replacement property. However, the maximum number of replacement properties that the taxpayer may identify is either three properties of any fair market value, or any larger number as long as their aggregate fair market value does not exceed 200% of the aggregate fair market value of all of the relinquished properties.

Furthermore, the replacement property or properties must be unambiguously described in a written document. According to the IRS, real property must be described by a legal description, street address or distinguishable name (e.g., The Camelot Apartment Building).”

2. Who is the neutral party? Conceptually, the relinquished property is sold, and the sales proceeds are held in escrow by a neutral party, until the replacement property is obtained. Generally, an intermediary or escrow agent is involved in the transaction. In order to make absolutely sure the taxpayer does not have control or access to these funds during this interim period, the IRS requires that this agent cannot be the taxpayer or a related party. The holder of the escrow account can be an attorney or a broker engaged primarily to facilitate the exchange.

3. Interest on the exchange proceeds. One of the underlying concepts of a successful 1031 exchange is the absolute requirement that not one penny of the sales proceeds be available to the seller of the relinquished property under any circumstances unless the transactions do not take place.

Generally, the sales proceeds are placed in escrow with a neutral third party. Since these proceeds may not be used for the purchase of the replacement property for up to 180 days, the amount of interest earned can be significant — or at least it used to be until banks starting paying pennies on our savings accounts.

Surprisingly, the Internal Revenue Service permitted the taxpayer to earn interest — referred to as “growth factor” — on these escrowed funds. Any such interest to the taxpayer has to be reported as earned income. Once the replacement property is obtained by the exchanger, the interest can either be used for the purchase of that property, or paid directly to the exchanger.

The rules are quite complex, and you must seek both legal and tax accounting advice before you enter into any like-kind exchange transaction. The professionals at Position Realty can refer you to an intermediary who can help you facility your 1031 exchange.

Position Realty
Office: 480-213-5251

How To Avoid Paying Capital Gains With A 1031 Exchange

This article is meant to be an introduction on the topic of performing tax-deferred exchanges. There are a number of legal hoops that the IRS makes you jump through to complete a tax-deferred exchange, but they are actually not that complicated once you study up on them a bit.

A tax deferred exchange allows us to sell a piece of investment (i.e. rental), trade or business property, buy a new property with the gain or profit from the sale, and not owe taxes on the sale immediately. If you eventually sell the new piece of property, you would owe taxes at that time. Generally, all gains and losses on sales of real estate are taxable, but an exception lies where the property sold is traded or exchanged for “like-kind” property. The new property is seen as a continuation of the original investment, so taxes are not due at the time of the sale.

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Many people view tax deferred exchanges as being for huge corporations, or only for professional investors. I believe that everyone should take advantage of these where they can. Strategy — purchase a rental home below market value, rent it for a year, sell it, and buy two rental properties with your gain. Note that if you do this too many times, the IRS may take the view that you are not a long term investor, and disallow such exchanges. When you get ready to do a tax-deferred exchange, you will need the services of a qualified CPA or Attorney. This is a basic introduction only, and you should always get professional advice from someone who has all the details on your deal, since so much liability is at stake. In my course I list the company that I use for these real estate exchanges. They are a national company and can help you out wherever you are in the country. I have used them for several deferred exchanges, and they have been an excellent resource and extremely competent.

Let’s look at how one of these deals would work. Assume that you own a rental property that has gone up in value. You’d like to sell this property and then reinvest the proceeds into some other rental real estate. You can avoid the tax bill if you can find suitable property to exchange for. The difficulty of the tax deferred exchange is that the property you are going to purchase must be identified within a certain amount of time, and it must be closed within a certain amount of time after it is identified. Unfortunately, no extensions are possible.

Identifying Property

You must identify property in a written document signed by you, and delivered to the party assisting you with the exchange (cannot be related to you!) on or before 45 days from the date you sold the original rental property. There is a growing body of support for identification of properties, and closing of new properties before the original property is sold. This is somewhat controversial and outside the scope of this discussion.

Technical Note: You can identify more than one property as the replacement property. However, the maximum number of replacement properties that you may identify without regard to fair market value is three properties. You may identify any number of properties provided that the total value of these properties is not more than 200% of the value of the original property you are selling. Note that you don’t have to close on all the properties you identify. You can name several if you’re not sure what will close, or not close, but you have to observe the rules in this technical note in terms of the value of properties you identify. If at the end of the identification period you have identified more properties than you are allowed, you are generally treated as if no property was identified. This means that you pay taxes!

Time Limits For Completing the Exchange

If you have correctly complied with the identification phase of the exchange, you have up to 180 days to complete an exchange, but the period may be shorter. Specifically, property will not be treated as like kind property if it is received more than 180 days after the date you transferred the property you are relinquishing, or after the due date of your return (including extensions) for the year in which you made the transfer.

For multiple property transfers, the 45 day identification period and the 180 day exchange period are determined by the earliest date a property is transferred.

Avoid Boot!

Boot is defined as any money or any type of property of unlike kind (example, a car received as part of down-payment). You will be taxed on this boot regardless of whether or not you carry out the exchange correctly. You will want your exchange company, or attorney to examine your transaction closely to make sure you don’t receive anything that could count as boot. Special rules apply for exchanging property with assumed mortgages.

Summary

The tax-deferred exchange is a great way to maximize your wealth. By keeping your investments growing without immediately paying taxes, you can do wonders for your net-worth. You will need to search out a good intermediary. I am happy to provide the name of mine for our members. This may seem like a dry subject, but it is important to understand when you begin to accumulate some rental properties.

Remember that this article is to provide basic information only. If you are planning on doing a tax deferred exchange, you really need to speak with a professional that handles these transactions on a regular basis. Information here is subject to change by IRS regulations or statute, so be sure to use current information provided by your accountant or other professional when planning a strategy involving tax deferred exchanges.

Position Realty
Office: 480-213-5251

7 Things To Consider Before Buying A Fix and Flip

Turn on HGTV or any number of other channels almost anytime during the day or night and you’re bound to find at least a couple of shows about flipping houses. Some provide a cautionary tale about overextending yourself financially or making other rookie flipping mistakes, but the vast majority end up with a profit of $30,000, $60,000, or $100,000+ in profit for a couple of months (or a couple of days, in the case of one new flipping show).

Enticing, right? If you’re getting ready to plunk down cash for your own flip, here are a few things you need to think about.

1. Make sure you’ve got the money

Sounds obvious, but…do you really know the financial stakes involved? “The first expense is the property acquisition cost. While low/no money down financing claims abound, finding these deals from a legitimate vendor is easier said than done. Also, if you’re financing the acquisition, that means you’re paying interest,” said Investopedia. “Every dollar spent on interest adds to the amount you will need to earn on the sale just to break even.”

If you’re planning to pay cash, you won’t have to worry about interest, but you will have carrying costs including utilities, property taxes, and HOA fees where applicable.

Here are a few other options for buying property to flip, courtesy of Auction.com: “If you don’t have enough cash to purchase a home, the next cheapest source is a home equity line of Credit (HELOC). These are low-interest, variable-rate lines of credit that are secured by either your primary residence or an investment property. Typically, the HELOC rate is set about 1–2% above the prime rate. You need to put the HELOC in place before you bid on any homes; then you can bid on the home as a ‘cash deal,’ rather than as a ‘financing deal.’ Many investors use hard money loans or other conventional mortgages to finance their flips. Because of the higher interest rates and points paid at closing, both will reduce your net profit considerably, and are not recommended for flips unless absolutely necessary.”

2. Buy in the best location you can

“Expert house flippers can’t stress this enough,” said MoneyCrashers. “Find a home in a desirable neighborhood, or in a city where people want to live.” And keep in mind the convenience factor—for the potential buyers, certainly, but also for you. “You will work on this house daily in the weeks and months to come. Do you really want to work all day, and then drive an hour to get home? Don’t invest in a house too far away from where you live; you will spend more money on gas, and it will take longer to fix up the house.”

3. Work with a realtor…or become one

Tying to maximize profit by selling a flip yourself rarely works out well if you don’t know what you’re doing. If you think trying to figure out if the wall you want to take down is load bearing is complicated, just try to figure out disclosures and conditions without going to real estate school. The money you spend on a Realtor commission can be well worth it for the ability to concentrate on other things and know the sale is in good hands.

Beyond getting the home sold, good real estate agents can be helpful in other important ways when it comes to flipping. “They can help you find great deals, get you comps, help you connect with lenders or contractors, and a lot more,” said BiggerPockets. “Don’t settle for an average agent though—find a great investor friendly agent.”

4. Check the comps. And check them again

Speaking of comps…you can’t make a smart decision on buying, fixing up, and flipping a house if you aren’t aware of the prices in the neighborhood. And that might be easier said than done. In states like Texas, home sales are not reported and are not public record like they are in states like California. Do your research so you know what you’re up against.

5. Make smart updates

Knowing where to spend your money is key to a successful flip. You don’t want to leave key areas untouched but you also don’t want to over-improve for the neighborhood. “Home improvements that increase the value of a home might include upgrading kitchen appliances, repainting the home’s exteriors, installing additional closet storage space, upgrading the deck, and adding green energy technologies,” said MoneyCrashers. “On the other hand, avoid home improvements that won’t increase the selling price, like installing a pool, installing a whirlpool bath, or adding a sunroom to the house.”

This is another good reason to use a Realtor who is a local expert: they’ll be knowledgeable about specific updates that are important in your market.

6. Use good products

Scrimping on construction costs may seem like a good idea if it means your financial commitment is lower, but low-end materials might not get the home sold or fetch the sales price you want.

7. Work with good people

Everyone you work with has the ability to make your flip a success or derail it. Partner with those you can trust, and don’t forget to make sure they’re qualified for their role. A bargain basement subcontractor that does a shoddy job on your floors can end up costing you thousands when you have to have it redone by a professional.

On the flip side, “The real money in house flipping comes from sweat equity, said Investopedia. “If you’re handy with a hammer, enjoy laying carpet, can hang drywall, roof a house and install a kitchen sink, you’ve got the skills to flip a house. On the other hand, if you’ve got to pay a professional to do all of this work, the odds of making a profit on your investment will be dramatically reduced.”

Position Realty
Office: 480-213-5251

5 Critical Questions For New Real Estate Investors

There several ways to invest in real estate with single family homes, condos, multi-family and commercial. But before you can invest in real estate, you must answer a few questions.

5 Critical Questions For New Investors
Do you have cash or access to cash to buy real estate?
Are you looking to replace your current income?
Do you have great credit?
Are you just looking for cash flow?
Are you looking to build long-term assets?
If your answer to question number 1 was No, then you can only focus on a few strategies like wholesaling, lease-options and seller financing. Once you generate some income, you can move into other real estate strategies.

If you answered Yes to the second question, I would be focusing on wholesaling, lease-options, and seller financing.

If you answered Yes to question number 3, I would be focusing on the real estate strategy retailing.

If you answered Yes to question number 4, I would be focusing on lease-options and seller financing.

If you answered Yes to question 5, I would be focusing on seller financing and retailing.

How Should You Invest in Real Estate?

How to invest in real estate really depends on your goals and finances. First write down how much money you could use to invest in real estate. Second, write down a list of people that have money and would like to invest in real estate. If this equals $0, then you cannot focus on retailing/fix and flip.

You will find yourself running in circles doing nothing. If you do have some money to invest, start with the foreclosures since there everywhere and you may wind up finding a great deal.

Answer the questions above truthfully and you can’t say yes to all of them. I want you to pick one or two to start. This will ultimately determine how you should invest in real estate.

7 Essential Deal Evaluations Tools

Here is some basic real estate investing information that walks you a deal in 7 steps. These tools are all great for evaluating leads.

1) Location:

The location of the property will usually determine what techniques you can use. Generally, Ugly Houses = Wholesale or Retail. Nice Houses = Options, Lease-Purchase, or Owner-Financing. Here’s what to look for:
Ugly homes in need of repair.
Properties in appreciating areas.
Properties that have easy terms.
Properties with seller financing.
Properties located in high rental markets.

2) Real Estate Bargains:

No matter what technique you use, you want to find good bargains. The better the bargain, the more you profit. Real estate bargains are usually the result of highly motivated sellers.

3) Motivated Sellers:

Motivated sellers are sellers that are in situations they need help with. Usually their property is the problem. Motivated sellers make good real estate deals for us. Be sure to write down all real estate investing information about the home

4) Gathering Information:

Gathering information will help you stay organized and give you the best possible analysis of a property. Be sure you have a Property Research Form, Property Inspection Sheet, and an All Cash Offer worksheet. Other information you will need is Repair values, qualifying the seller, and financing. Use all necessary information that can help you with your buying decisions. You will profit when you buy and realize it when you sell.

5) Contracts:

Your contracts must be bullet proof. You should always consult your attorney before using generic forms found online. There are several factors to consider when using contracts, for example, state laws.

6) Use Other People’s Money (OPM):

Whenever you can use someone else’s money, you have tremendous leverage. The seller will still receive what you have agreed upon. Here are some ways to use other people’s money:
Banks
Other Investors
Friends
Subordination Technique
Substitution Of Collateral Technique

7) Closing:

As the buyer, you can choose a Title Company to close your real estate transaction. A Title Company researches the title for any defects. They will then close your deal and give you title insurance.

There’s a lot of real estate investing information out there but follow these 7 basics steps to get you started in real estate.

Position Realty
Office: 480-213-5251

For Sale ~ 17938 W Carmen Drive, Surprise, AZ 85388

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ASKING PRICE: $225,000

PROPERTY DESCRIPTION

Bed Rooms: 4
Bath Room: 2
Garage: 2
Story: 2
Sq Ft: 2,094
Pool: No
Roof Type: Concrete Tile
Patios: 1 Covered Patio or Porch
Year Built: 2007

Must see beautiful in Surprise Farms! Kitchen comes with granite counter tops, breakfast bar, recessed lighting and upgraded cabinets. The home has a family room, great room and formal dining room. Upgraded bay windows, tile floors and some carpet in all the right places. Solar water heater will keep your electric bills low. Backyard comes with synthesis grass, rocks and covered patio. Must see to believe!!

LOCATION (GREENWAY AND COTTON LANE)

This home is close to shopping, schools, freeways, businesses and parks. Shopping is within close proximity of the property at Bell Road and the Loop 303 Freeway. The Loop 303 freeway is approximately 1 mile east with easy access from Bell Road. Also, Arizona Traditions Golf Course, Sunset Hills Elementary School, Sierra Mountain Recreation Center is all within a 3 mile radius.

LET US HELP YOU PURCHASE THIS BEAUTIFUL HOME OR A SIMILAR PROPERTY!!

***Call or Text 480-213-5251 for information on Buyer’s Representation Services (NO COT TO HOME BUYERS)
***Search the entire MLS for FREE at http://www.PositionRealty.com
***Get a FREE report on YOUR HOME’S value at http://www.PositionRealty.com/Contact-Us

FOR SALE ~ Commercial Lot W/ 320 Feet Frontage~Luke Airforce Base Master Plan~Zoned C-2

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ASKING PRICE: $799,900

PROPERTY DESCRIPTION

Zoning: C-2
Acres: 7.61
Sq Ft: 331,491
Utilities: To The Site
Dimensions: 320 X 1,195
Frontage: Yes – 320 Feet of Frontage

Community commercial C-2 zoned 7.61 acres. High growth area near Luke Airforce Base, neighborhood retail centers, apartment buildings, residential neighborhoods. Property located in fast growing area with strong demand from developer and investors. Drive by the property and submit your offers today!!

LOCATION (GLENDALE AVE AND LITCHFIELD ROAD)

The property is located just east of Litchfield Road on Glendale Ave and is located ¼ mile from Luke Airforce Base. Property fronts Glendale Ave and 137th Ave located approximately a 1/4 mile from Luke Airforce base. Easy access to I-10 and Loop 303.This is a prime location for a developer or investor to make huge profits. Don’t pass up this amazing opportunity to take advantage of the next wave of development in Glendale!!

LET US HELP YOU PURCHASE THIS INVESTMENT OPPORTUNITY OR A SIMILAR PROPERTY!!

***Call or Text 480-213-5251 for information on Buyer’s Representation Services (NO COT TO BUYERS)
***Search the entire MLS for FREE at http://www.PositionRealty.com
***Get a FREE report on YOUR LAND’S value at http://www.PositionRealty.com/land

Dodd-Frank Act Explained For Real Estate Investors

Some real estate investors and lenders have been sounding the alarm on the upcoming Dodd-Frank changes to seller financing, but most investors will have little to worry over.

As of January 10, 2014, the Dodd-Frank Wall Street Reform and Consumer Protection Act (commonly referred to as Dodd-Frank) went into full effect. The bill was actually signed into law by President Obama in 2010, and since then there has been plenty of buzz around investor circles about its impact and what the Dodd-Frank Act really means. Some real estate investors are worried about some of their seller financing practices and ultimately their assets.

The nearly nine-hundred page bill was drafted, in part, to try and address the many shortcomings of the financial industry, and relevant here is how it modifies mortgage lending practices (including seller-financiers) to try and protect borrowers in the wake of the last housing and financial collapse. Here’s what you will need to know to be in compliance, if you make any mortgage loans or do any seller-financing.

Dodd-Frank Act Explained For Real Estate Investors

Residential and Owner Occupied Only – First and foremost, the new law only applies to homebuyers who intend to occupy the home. If you sell strictly to other investors, the remainder of this article is purely informational and does not apply to you. Similarly, the new law does not apply to commercial deals.

Category 1 – Dodd-Frank distinguishes between individuals, trusts or estates who sell to only one owner-occupant buyer per 1 year and those who sell to more than one buyer per year. For purpose of this article, “Category 1” refers to circumstances where the seller (individual, trust, or estate only) finances one property per year to an owner-occupant. Category 1 does not apply to LLC’s, partnerships, corporations or other legal entities.

Under Category 1, the following applies:

  • Balloon payments are allowed
  • No proof of ability to pay is required
  • Note must be fixed for first (5) years, then may adjust no more than 2 points per year with a cap at no more than 6 points above the original rate (the original rate must be based on prime or an index such as T-bill or something similar).

Category 2 – This category references any individual, trust, or estate who sells to more than one owner-occupant buyer per year, but no more than three (3). It also refers to any LLC, corporation, partnership or other legal entity that sells to 1-3 owner-occupant buyers. To be clear, all legal entities are subject to the law in the same way as an individual seller who sells more than 1 property per year. Sellers in this category must abide by the following:

  • No balloon payments allowed
  • Must determine and show proof of buyer’s ability to pay
  • Allowed to do up to 3 transactions without becoming a MLO (mortgage loan originator) or hiring one (an MLO is the shiny new term for a licensed loan officer).
  • Note must be fixed for first (5) years, then may adjust no more than 2 points per year with a cap at no more than 6 points above the original rate (again, the original rate must be based on the prime rate or a an index like a T-bill or something similar).

Category 3 – For sellers who make more than three home loans (including seller-financed transactions) in one year, the new law requires MLO status or mandates that an MLO be hired to complete all transactions. Sellers in this category, whether individual or legal entities, follow all of the same rules as Category 2 sellers otherwise.

The law does not apply to commercial, multi-family properties with 5 or more units, or vacant lots/land, even if the buyer intends to occupy it as a residence.

Investors who take the time to understand the new changes know there is no need for panic and may, for the most part, continue to operate as they have been. The thing to keep in mind, which has always been the case for scrupulous investors, is professional and fair treatment at all times. Dodd-Frank is simply another approach to consumer protection. Investors can protect themselves and the consumer by simply knowing and following the new rules.

Position Realty
Office: 480-213-5251

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