Posts Tagged ‘mortgage’
Strong Financial Backing for Apartment Building Investing
Freddie Mac, the federal government backed mortgage finance giant, has indicated that it will continue to favor multifamily apartment buildings the second half of 2011.
Freddie Mac is on track to purchase $16 billion in apartment building backed loans in 2011 and has announced they will accelerate the program through the end of the year. When you couple this with Fannie Mae purchasing over $10 billion in apartment loans the first half of the year and planning to top out above $17 billion, it indicates strong funding sources are available for investors in this commercial sector.
There are two primary reasons for this strong financial backing. First is that the multifamily dwelling sector has the lowest mortgage default rate within the commercial market with Freddie Mac reporting loans 60 days or more delinquent at a mere 0.31% the second quarter of this year and Fannie Mae reporting the same delinquency rate at 0.46%. This increased Wall Street’s confidence to buy commercial mortgaged backed securities (CMBS) secured by apartment building loans.
The sediment is so strong that when Standard & Poor declined to rate a recent $1.5 billion CMBS offered by Freddie Mac, Wall Street investors were not detoured. Every one of the 30 original planned investment houses stayed in the deal.
Not to be left out of this preferred market, banks and life insurance companies are aggressively adding these properties to the portfolios they hold. The good news for investors needing financing is that the loan market is becoming competitive. Unlike most commercial sectors where investors have to search for financing, those looking for apartment building financing often have multiple sources to select from.
Besides the easier availability of financing for multifamily housing, there are many very good reasons to be in this market sector today. Apartment buildings offer investors:
- Lower cost per unit than single-family houses.
- A great return on your investment when measured as a cash-on-cash return.
- A low vacancy rate due to families being displaced through foreclosures.
- Most apartment buildings generate positive cash flow from the day you take ownership. It’s an investment depositing income into your business bank account from the very beginning.
- The right apartment building produces enough income to pay a management company to run it. Investors don’t ever have to talk to a tenant.
How to Find the Tools, Resources, and Knowledge That Assures Your Investing Success
Are you currently satisfied with the pace that your real estate investment career is developing? Are you confident that it’s on the right track in these difficult times for real estate? Have you thought seriously about transitioning from residential to commercial investing but just aren’t sure how to navigate this more difficult real estate sector?
If those or similar career related questions weigh on your mind, it’s time you get help finding answers. That’s exactly what CoachingbyPeter offers you. Whether you’re beginning your career or wanting to close the most lucrative deals in today’s opportunistic market, having a real estate coach makes all the positive difference in your career development.
Here are but a few of the many resources I make available to my private clients:
- The most up to date ways of figuring out the ACTUAL value of today’s properties.
- Money to close your deals with.
- Tools that allow you to network with real estate investment professionals all over the US and the world.
- Access to over 60 current Hard Money lenders.
- Real estate investor Tools for getting motivated Sellers.
- How to find individuals behind on their mortgage payments.
- Access to unpublished auctions and “special” listings.
- Tools to forecast income, determine expenses, develop financial ratios, and generate various rates of return on your real estate investments.
- How to generate a minimum of three income streams.
- Much much more.
How to Insure Property Bought With a Wrap Around Mortgage
First, I want to clearly state that I am not providing insurance or legal advice. I am only providing information to help you make your own decisions.
Wrap around mortgages are a great way of financing real estate investments in today’s market. However, insuring a property purchased this way is often the biggest obstacle to making the deal happen.
The complication is a new policy naming the buyer as the insured must be provided to the lender to verify the insurance is paid current and in compliance with that clause of the existing mortgage. The risk involved is that the lender notices the change in ownership and executes the “due on sale” clause of the contract.
Some people attempt to skirt this issue by having the previous owner remain on the insurance policy with an agreement they will file a claim on behalf of the new owner if it ever becomes necessary. There are several problems with this approach. At best, it’s a gray area if an insurance company is even required to pay a claim for a property no longer owned by the insured. There’s not enough room to list all of the potential pitfalls here but another possibility is the previous owner can’t even be found when a claim needs to be filed. Or they simply refuse to file or worse yet, they file the claim and keep the money.
Clearly that is not an option you want to use. There are really only two reasonable options.
Keeping Seller Financing as One of Your Selling Options
Never underestimate the ability of a wrap around mortgage as a low-cost / no-cost way to finance a real estate investment or to sell one. A wrap mortgage is also called an “all inclusive mortgage” or a “trust deed”. Both terms are critical to the difference between an installment contract and a wrap around mortgage.
The primary difference between the two is that with a wrap mortgage, the title is typically passed to the buyer at closing. With a contract sale the seller retains the title until the contract is fulfilled by the buyer. In both scenarios, the seller retains the ability to foreclose on the property if the buyer stops making payments.
With a wrap around mortgage, the seller deeds the property to the buyer subject to the seller’s existing mortgage. The buyer signs a promissory note for the full purchase price that is made out in the name of the seller. The note is secured by a deed of trust on the property. At closing, the buyer is given title to the property and the seller’s promissory note becomes a second mortgage junior to the existing first mortgage.
With an installment contract, the seller retains the title. The contract includes language conveying equity title to the buyer for each payment made. Only when all conditions of the contract are met does the buyer receive the title to the property. Normally, the seller signs a deed of trust transferring the property to the buyer that is held by the escrow company until the buyer fulfills the contract. This is to ensure the buyer obtains title in the event the seller disappears or for some reason refuses to convey title when the time comes.
Using a Wrap Around Mortgage for Commercial Property
When you have a new business with little or no credit history, it can be near impossible to obtain a commercial mortgage. Especially in today’s tight credit environment. Still, when you look around any main street in any town in the country, you will see many “For Sale” signs on plenty of commercial properties. It’s a great time to be making commercial real estate investments.
This could be the right time to break out an old favorite creative financing tool. A wrap around mortgage can be the best answer when lenders won’t make a loan to a new business. With a wrap around mortgage, you take out a new mortgage with the commercial property seller as the lender.
Often sellers prefer wrap around mortgages instead of installment payments because the seller’s name remains on the first mortgage and title. It’s less risk for them because they will be the first to know if the buyer stops making the monthly payment. If it happens, they can elect to continue making the first mortgage payment while foreclosing on the buyer with the wrap around mortgage. This prevents late fees and foreclosure costs from piling up while the seller works to regain control of the property.
Wrap around mortgages on commercial real estate investments are a little different from residential properties. This is due mainly to the fact that commercial mortgages almost always contain covenants. These are clauses in the mortgage requiring certain things to be done in order to keep the mortgage viable. For instance, a multimillion dollar commercial mortgage may require the business to maintain a certain level of profitability or the mortgage can be called in full. Or the first mortgage may contain a covenant that tenant vacancy rates must remain above a certain level or the lender has the right to assume some level of control over the property.