The Colorado Legislature passed House Bill 10-1133, signed by Governor Ritter in June 2010 and effective January 1, 2011 which mandates new disclosures for investors (called “Equity Purchasers” in the Foreclosure Act legislation) who are flipping short sale properties.  The key text from the actual bill is below, the most dramatic changes are as follows:

• Investors must disclose to the home owner and lender within one day if they find a “subsequent purchaser” as a flip
• Investor must disclose  to the homeowner and lender accepting the short sale the subsequent purchase price for which the property will sell as a flip.
• Investors must disclose to the subsequent purchaser and the subsequent purchaser’s lender the purchase price the investor paid for the property as a short sale, and the profit margin.
• The time frame associated with a “flip” is 14 days.

In effect, the legislature has created a 14 day seasoning period for investors that will not allow for a contract to be signed between the investor and the end user of the property.  This is a different type, and in addition to, the seasoning period by lenders selling properties (most notably Bank of America) who are disallowing any change of ownership for a short sale property for 30 days up to one year.

It will be interesting to see how this affects short sale transactions, if it just adds more holding time to short sale investors who think that these disclosures will kill deals, or it really has the affect of stopping the “flips.”

NOTE:  ALL CAPS text indicates new language that will be added to the Colorado Revised Statutes.

6-1-1121. Short sales – subsequent purchaser – definition.(1) WITH RESPECT TO ANY SHORT SALE TRANSACTION IN WHICH AN EQUITY PURCHASER INTENDS TO RESELL THE RESIDENCE IN FORECLOSURE TO ASUBSEQUENT PURCHASER, THE EQUITY PURCHASER SHALL:

(a) PROVIDE FULL DISCLOSURE TO THE HOME OWNER AND TO THE HOLDERS OF THE EVIDENCE OF DEBT ON THE RESIDENCE IN FORECLOSURE, OR SUCH HOLDERS’ REPRESENTATIVES, OF THE TERMS OF THE AGREEMENT BETWEEN THE EQUITY PURCHASER AND ANY SUBSEQUENT PURCHASER,INCLUDING BUT NOT LIMITED TO THE PURCHASE PRICE TO BE PAID BY THE SUBSEQUENT PURCHASER FOR THE RESIDENCE IN FORECLOSURE, WHICH DISCLOSURE SHALL BE MADE WITHIN ONE BUSINESS DAY OF IDENTIFYING ANY SUCH SUBSEQUENT PURCHASER AND IN NO EVENT LATER THAN CLOSING ON THE SHORT SALE TRANSACTION;

(b) PROVIDE FULL DISCLOSURE TO ANY SUBSEQUENT PURCHASER AND TO ANY SUBSEQUENT PURCHASER’S LENDER, OR SUCH LENDER’S REPRESENTATIVE, AT THE TIME OF CONTRACT WITH THE EQUITY PURCHASER,OF THE TERMS OF THE AGREEMENT BETWEEN THE EQUITY PURCHASER ANDTHE HOME OWNER, INCLUDING BUT NOT LIMITED TO THE PURCHASE PRICE PAID BY THE EQUITY PURCHASER FOR THE RESIDENCE IN FORECLOSURE;

(c) COMPLY WITH ALL APPLICABLE RULES ADOPTED BY THE COLORADO REAL ESTATE COMMISSION WITH REGARD TO SHORT SALES; AND(d) COMPLY WITH SECTION 38-35-125, C.R.S.

(2) AS USED IN THIS SECTION, A “SUBSEQUENT PURCHASER” MEANS ANY PERSON WHO ENTERS INTO A CONTRACT WITH AN EQUITY PURCHASER  PRIOR TO THE DISBURSEMENT OF THE SHORT SALE TRANSACTION TO ACQUIRE THE RESIDENCE IN FORECLOSURE AND WHO ACQUIRES THE RESIDENCE IN FORECLOSURE WITHIN FOURTEEN DAYS AFTER THE DISBURSEMENT OF THE SHORT SALE TRANSACTION.

Download Complete H.B. 1133 Colorado Foreclosure Protection Act Update

This new legislation is part of a trend of increased scrutiny and regulation in the business of real estate investing.  Investors are adapting to these new rules and learning to add value using new tools and products.  Most recently, title company rule changes now prevent investors from using simultaneous closings to flip properties.  A group of transactional funding companies is creating a cottage industry to help investors adapt to these changes.  Additional products and services will likely become necessary as the regulation increases in this area.

What does this mean for contractors on your projects?  Well, this could be a BIG problem for fix and flip investors.  Or it could be just a minor inconvenience. When was the last time your contractor went back to school?  What happens if you get caught?

To be a certified renovator, contractors are required to take eight hours of training from an “accredited” service.  Two hours must be “hands-on training.”

I can’t wait to see some bureaucrat training MY contractor!   If that happens, the training certification is good for five years. The cost of this training is set by the providers, and of course these companies that will have to apply to be certified as qualified to certify other contractors.  Sounds like a big bureaucratic mess.

Do you think you could find a certified “Lead Safe Renovator” today if you wanted to?  Well, the Rule is effective on April 22, 2010. Here is a quote from the EPA website on April 24, 2010:

NOTE: Due to heavy demand, users may experience delays in searching for training providers and certified renovators. EPA regrets the delays and is working to improve the system.

If you are a contractor looking for a “school,” here is a short cut to the local accredited companies as of this writing.  Its risky not to become certified, as fines for contractors who work in pre-1978 homes without EPA certification are rumored to be as high as $37,500 per incident per day!. Wow.  How will the rule be policed?  The EPA expects those who bother to get certified will police their own industry.

They are probably right because contractors who abide by the rules will have significantly higher costs and will lose bids to contractors who are not certified.  This is of course the bad news for investors:  our construction costs just went up!  We just don’t yet know by how much.  Ouch.

If you are an investor (or homeowner) looking to hire a certified contractor, I have words for you:  Good Luck!  In the meantime, watch out for the “spot checks” by the EPA on your job sites.

• EPA Lead Safe Accredited Renovation Training Programs in Denver

Links to more information:

• Contractor Fact Sheet
• Read other information related to the Renovation, Repair and Painting Program Rule.

Attention all real estate investors!  HUD is proposing to eliminate ALL seller financing with two lame exceptions:

• Seller lives in the home, or
• Seller becomes a licensed mortgage originator

Passed last year, the federal SAFE mortgage act passed last year preserved the right for sellers to make up to five seller financing transactions per year without needing a mortgage originator license.  But that law was passed subject to HUD’s approval as “compliant” with the intention of the federal law.  This means that, for those states which do not have a ‘compliant law’, the SAFE act allows HUD to implement licensing for those states.  HUD has since issued proposed rules which would no longer allow seller financing for non-owner occupied homes.  This is a disaster for real estate investors trying to capitalize on the high-inventory and poor lending environment we currently face!

HUD is soliciting comments on these proposals and the Deadline for filing Comments is February 16, 2010.

Please contribute and do your part to help our industry comment to HUD on this issue.  Efforts to affect this law will not be successful unless thousands of individual investors communicate that we are opposed to this the rules.  Please submit your comments to HUD today, here are the links:

To read the proposed rules, go here – http://www.regulations.gov/search/Regs/home.html#documentDetail?R=0900006480a6b033

To file your comment, go here – http://www.regulations.gov/search/Regs/home.html#submitComment?R=0900006480a6b033
and fill out the form.

Here are some sample message to relay to HUD:

• Mortgage bank loans are not available on many types of properties today
• The current lending climate has made traditional bank financing impossible for some borrowers
• Seller carry financing is a solid way to help the housing industry recover
• These rules would prohibit even partial seller financing – e.g., a “owner carry second”
• Many investors own a property free and clear and would like to get interest on their investment
• Million of Americans own a property other than a primary residence
• Mobile homes are more difficult to sell with bank financing, and there are LOTS of them

Please comment TODAY and help our industry.  It only takes 5 minutes.

This will be music to investor’s ears everywhere!  We no longer have to wait and plan to hold for 91 days to contract and sell fix and flip projects to first-time home buyers.   This will translate to lower holding costs, more projects, and higher quality inventory for buyers.  Some investors may choose to pass along the savings to buyers, many will likely choose to retain better margins on properties in this competitive environment.  Thank You FHA and HUD!

90 Day Flip Rule

“Section 203.37a(b)(2) of the FHA regulations, 24 CFR, is hereby:

• Waived for a period of one year,
• Effective February 1, 2010 through January 31, 2011,
• Arm’s length transactions only
• Specific appraisal conditions must be met if property value increases more than 20%

Read the Press Release about the Waiver online at the Official HUD and FHA 90 Day Flip Rule Waiver Announcement

Read the actual Waiver of Requirements 24 CFR 203.37

If you have questions of FHA’s Property Flipping Waiver, please email FHA at: info@fhaoutreach.com or visit: http://www.fhaoutreach.gov/FHAFAQ

4155.2: 4.7

Congratulations investors and real estate investor associations that on the successful grassroots lobbying and information dissemination that helped make this change possible.   Let us all continue to work together to rebuild the housing market from the ground up and remodel the housing stock that has been neglected to improve our neighborhoods and communities.

One of the Craziest, Weirdest Wholesale Deals Ever

This is a wild story, even for seasoned real estate investors. It’s a bit long, so you might want to get comfortable, grab a cup of coffee or a beer (depending on the time of day). Read it and weep. And then cheer at the end.

One of the biggest challenges in the business of real estate investing is finding title companies and escrow officers that understand our business. I just finished working one of the craziest wholesale transactions of my career, and the difference between the level of service offered by the big brand name title company and a small investor friendly title company was astonishing.

The name of the famous title company shall remain under blogging disguise from Google search and alert bots, and named in pictures only (worth a thousand words, what good return on investment!). But I will gladly name the unprecedented service offered by Fernon Meeks of Axis Title and Escrow in Denver for saving the deal and making some amazing moves. She is an investor herself, who decided to get into the title business. Her motto, by the way, is “We Stay Open so You Can Close.” I can vouch for that. (You rock, Fernon).

Real Estate with Lots of Hair

Now, I will admit that this deal had a lot of hair on it.  So I did cut some slack to folks.  Here are a few of the crazy circumstances:

• The property was foreclosed by the lender at the Denver Public Trustee and then listed as REO;
• It had numerous encumbrances wiped at foreclosure, but a federal criminal restitution lien (wow) remained attached to the property, with twelve month redemption rights. (hmm, this 10 foot pole is kind of heavy!)
• The property had been placed under contract 3 or 4 times already and fallen out due to title issues (big surprise) and also unsuccessful wholesalers who could not find a buyer etc. It got a lot of attention because it is in the hot Highlands / Jefferson Park neighborhood of Denver.
• The REO listing agent was in the process of being fired because so many contracts had been placed on the property that did not close.
• It was being “flipped” using transactional funding (flash cash) to an end buyer. Thanks to Short Funding for killer service too.

Is that enough craziness for a title examiner and escrow agent yet? Here’s more:

• The bank REO asset manager / listing agent had actually double contracted the property! Once to our company and again to the wholesaler who ended up having the only contract that would close (because if the contract fell, the bank was jerking the listing agreement). We had been in back-up position twice and legal stuff was flying everywhere.
• The wholesaler who had it under contract, and then re-contracted to us, had borrowed the earnest money from someone who sounded like a crazy mafia Italian guy (who called me checking up on the deal!).
• At this point all earnest money was hard (non-refundable to all parties). So if anything went wrong all the parties were like dominoes falling down, and would be pretty upset.
• Oh, one last thing. The wholesaler had “misread” one of the Amend-Extend agreements from the Bank REO and thought he had a discount that was invalid. So, his specific performance contract to me was for MORE than he was buying it for.  Bad Dog.

What Else Could Go Wrong?

Like I said, lots of hair. But here’s the real kicker, and where the title company tale starts. After all the crazy lien stuff was negotiated and resolved, and we figured out a way to resolve the double contract and back-to-back closing, it was discovered that the legal description of the property was incorrect. What else could possibly go wrong?

Next was the blame game for who screwed up the legal description. The listing agent blames the title company. The title company blames the public trustee. I’m sure the public trustee would have blamed the previous owner, but alas, he was in prison for mortgage fraud! How in the world do we get this deal closed?

This is point when the title processor decided to stop returning phone calls and emails and the deal went into limbo. Behind the scenes, and in preparation for closing the Side B to C transaction, Fernon at Axis was researching the problem with the legal description. She told me later that it had been incorrect for more than 10 years and at least one sale transfer.

So, we needed a survey, fast! The big title company ordered it and received a corrected legal description. Yeah!  BUT, now the title examiner was complaining that his commitment did not match the new (correct) legal description. Dumb investor to smart title company lady:   “That should be an easy problem to solve, Miss. Just change the title commitment to match the survey, right?”

To my absolute disbelief, the big famous title company was not willing to do this (I still don’t understand why). Instead, they called the surveyor and asked him to “correct his survey to match the title commitment!” Excuse me? You’re planning to use the WRONG legal description on my deed and your company will be “insuring over” the defect? Wow.

Thankfully, small customer service driven title company closer was privy to all this and was in the background preparing a title policy that included the service of filing the “accurate” survey at the County. This procedure would finally have the property and the legal description match, and insurable title from Side B closing forward and forever more. So my initial policy from the big bad title company was moot.

The Closing Finish Line!  After all was said and done:

• The wholesaler got back his borrowed earnest money back, and paid back the mafia guy.
• Wholesaler’s buyer agent reduced her commission (bless her) to account for mystery discount to get deal closed.
• Transactional funding company covers the short-term loan to wholesaler for Side A of the transaction
• I receive deed and title commitment insuring over improper legal, but re-insure with a new title company that makes everything legitimate and insured.
• I sell the property to the final end user, who was extremely patient throughout the entire process, and he now owns a great rental property.
• I take the rest of the week off, (we concluded at 4:30 p.m. on Friday).
• I send Fernon at Axis Title Company a really big thank you card and a bottle of wine.

End of crazy title company tale:  Small, investor friendly title company 1, big famous title company, zero.

Did I mention I love this business?

Real estate investors, brokers and agents are as guilty as any other industry practitioners at using jargon and abbreviations that seem commonplace to us, but are often confusing to our clients and customers. As a reminder to slow down and explain these important terms and concepts, especially to new clients, here is a list of the most common jargon and simple explanations:

• ARV – After-Repaired Value. The estimated resale or new appraisal value of a property after remodeling or repairs are complete.
• CMA – Comparative Market Analysis.  A report run by a real estate professional to estimate the value of a property for a listing.
• CAP  (Cap Rate) = Capitalization Rate.  A measure of the quality of an income property investment based on income and expenses expressed as a ratio. (NOI/COST=CAP)
• COCR – Cash on Cash Return.  A simple calculation of the return on initial cash invested relative to annual cash flow. (cash flow/initial investment).
• DBA – Doing Business As.   Business name registered as ancillary to the actual entity or person filing taxes or bank account deposits.
• DOT – Deed of Trust.  Document filed by a lender to publicly show proof of loan or lien on real property.
• FHA – Federal Housing Administration. The federal agency in the Department of Housing and Urban Development that insures residential mortgages.
• HOA – Homeowners Association.  A group that governs a subdivision, condominium or planned community or other real estate with a common purpose.
• HUD – Housing and Urban Development.  The United States federal department that administers federal programs dealing with housing.
• I/O- Interest Only (loan). A type of loan amortization in which the principal balance of the loan neither increases nor decreases.
• IRR – Internal Rate of Return.  The average annual compound rate of return received by an investor over the life of their investment.
• L/O – Lease Option.  A written agreement between a property owner and a tenant that allows the tenant to use a property in exchange for rent, but it also gives the tenant the option to buy the property for a certain price within a specified time period.
• LLC – Limited Liability Company.  A legal structure for businesses which is designed to combine attributes of corporate and partnership structures.
• LOI – Letter of Intent.  A document outlining an agreement between two or more parties before the agreement is finalized.
• LTC – Loan to Cost.  The ratio of the price paid for a property to amount of the loan used to finance the purchase.  Often used to calculate a purchase AND repair or build costs.
• LTV – Loan to Value.  The amount of money being loaned (borrowed) against the appraised value.

• MLS – Multiple Listing Service. Local or regional service that compiles available real estate for sale by member brokers including detailed information, generally computerized and online.
• NNN – Triple Net Lease.  A lease in which, in addition to the rent, the tenant is required to pay for property taxes, insurance and maintenance.
• NOI – Net Operating Income.  Annual income after all expenses (property taxes, ins., & maintenance) except debt service (mortgage payment).
• NOO – Non-Owner Occupied.  Homes that are acquired specifically for investment purposes, also a type of loan for investment property.
• OWC – Owner Will Carry (owner financing).  A type of financing in which the seller accepts a promissory note as a portion of the purchase price. Also called owner or seller financing.
• PITI – Principal, Interest, Taxes and Insurance.   The total monthly payment a borrower makes to the lender.  If private mortgage insurance is required, that will be included in the amount as well.
• PMI – Private Mortgage Insurance.  Insurance paid by a borrower to protect the lender in case of default. PMI is typically charged to the borrower when the Loan-To-Value Ratio is greater than 80%.
• POA – Power of Attorney.  A written authorization to an agent to perform specified acts on behalf of his principal, usually to sign closing documents. This may be granted as either a general or a limited power.
• POF – Proof of Funds. A document by which the principal’s bank states that the principal owns the funds required for the transaction.
• REO – Real Estate Owned. REO is a class of property owned by a lender, typically a bank, after an unsuccessful sale at a foreclosure auction.
• ROI – Return On Investment.  A measure used to evaluate the quality of an investment or to compare different investments. Return/Cost expressed as a percentage or a ratio.
• SFR – Single Family Residence.  A standard home with no common areas, or sharing of common walls intended to be occupied by 1 family.

Old House Sewer Pipe Problems:  When Don Nichols visited our real estate office recently, I asked him about his Denver sewer line inspection company. Specifically I wanted to know how it relates Realtors who are buyer agents shopping for older houses in the central Denver area with aging sewer infrastructure.

Here is a recap of the questions answered in the short video below offering tips and advice to Realtors, real estate investors, home buyers and home owners about the importance of understanding sewer inspections and repair costs.

• Beware the Sewer Line Repair Salesman
• How much does it really cost to fix a broken sewer line?
• Question the repairs being suggested by plumbing companies
• What are the hard costs of sewer line plumbing repairs?
• Is the Denver city main verified or that a sink hole?
• #1 TIP? Make sure they are putting the camera down YOUR sewer line!

It’s so refreshing to meet people who are really good at what they do, and can explain technical and mysterious jargon in plain English.  Don offers a unique perspective when it comes to the costs and risks of sewer line problems: in addition to being in the plumbing business with his dad since childhood, he was a Remax real estate agent for more than 8 years.

I did some online research for common sewer repair questions related to real estate agents and home buyers.  I was surprised to read that in many parts of the country sewer repair inspections are rare and not recommended by Realtors to their buyer clients.  Sewer inspections seem to be more commonplace in Denver real estate transactions, but there was also a lot of misinformation, mostly by people who Don calls “plumbing repair salesman.”

Thanks to our Special Guest and PMRE Approved Vendor, Don Nichols

Don Nichols
Certified Sewer Inspection
Denver, Colorado
303-847-9805
http://www.certifiedsewerinspection.net/

Medical marijuana might seem like an odd topic for a real estate blog, but bear with me and I will explain. There are three interesting social trends happening in Denver in 2009, two have been publicly and proudly announced, and one is a little more underground, but buzzing:

A Growth Industry:

• Solar and “green” movement
• Exercise and “health” movement
• Medical Marijuana “growth” movement

Growing the Green Movement

Seems from the headlines that Denver Colorado is becoming quite enlightened!  New “green” service and construction businesses are prolific, and yoga studios are popping up everywhere. These businesses are having a positive affect on the small commercial real estate market locally. But would you believe that the medical marijuana movement in Denver is also having an interesting and tremendous impact on real estate owners, landlords and the legal community?

Property owners and managers advertising rental property are receiving multiple requests for leases on everything from single family houses, all classes of retail centers and even some industrial buildings. These tenant applications are from a new “growth industry.” Namely from well financed entrepreneurs seeking to open medical marijuana growing facilities and retail dispensaries.

The Landlord’s Legal Problem

Despite being offered premium rents by qualified (financially) and permitted use businesses by the City of Denver, most property owners are being advised by their attorney’s to not lease to them. The reason is that while state law allows for this type of use under Amendment 20, Federal law still prohibits the controlled substance. The risk to owners (as explained to me by our attorney) is that Federal seizure of the property is possible.

Consequently, this phenomenon has also been a boon for specialists in the legal community. I know several sophisticated property owners who are spending tens of thousands on lawyers trying to find ways to minimize the risk of signing leases with these business owners. Their fear is having their properties “go dark” during any Federal legal issues that may arise.

The economic risks are interesting to calculate. One dispensary owner I talked with plans to reserve 15% of gross proceeds for legal representation. The question we are trying to answer is how much should a property owner reserve, and how significant is the rent premium for leasing to this type of user?

The Foreclosure Factor

The calculation becomes more interesting when you factor in the distressed condition of many properties and loans in the commercial real estate sector.  If an owner has significant equity in the property and is in no danger of foreclosure or financial distress,  then leasing to a medical marijuana grow facility or retail dispensary may not be worth the risk.  But to the growing number of distressed property owners who are having trouble finding tenants and making mortgage payments, the risk reward calculation changes. If an owner is teetering on losing a commercial property to the bank in foreclosure, perhaps he or she will be more interested in signing a premium priced lease?

This scenario has happened often enough in our office recently that it has become newsworthy and worth sharing with other real estate agents, buyers and investors:  Our buyer clients are getting a competitive advantage in the 1^st time home buyer and investment property markets because of a mortgage strategy, and by working with a specific type of financing company – FHA approved mortgage banker that underwrites and funds locally on a warehouse line.

Too many offers, too long to close

Fastest Loan, Lowest Rates

Are you shopping for a house in the Denver real estate market, or an agent representing a buyer, in the $300K and under price point?   Are you experiencing stiff competition for good properties that are priced correctly?  Here’s an explanation:

• Moratoriums on foreclosure properties and REO inventory hold backs
• Inventory is down to historic lows in the lower price ranges
• 1^st Time buyer demand is high for remodeled houses and sweat equity bargains
• Investor demand for flip and rental properties is feverish

The most common challenges we hear from our agents and buyer clients:

• Multiple competing offers for good properties and losing deals
• Challenging lending environment and changing rules
• Very long underwriting timelines for loan approvals
• An over correction on appraisal values that are below market price

How do you compete in this market for the best priced properties?

We have had success lately winning contracts by offering shorter closing times to the seller or listing agent.  All things being equal, shorter escrow periods get attention.   Most sellers are motivated to close quickly, especially investors who have remodeled a house for resale.  Also, with the first-time homebuyer tax credit deadline fast approaching, it is doubly important to have confidence in your lender’s ability to get the loan done quickly.

Use a mortgage company that directly underwrites your loan

There are many articles online about the differences between mortgage brokers, mortgage brokers, and correspondent lenders, so I won’t go into detail in this post.  But the key difference for buyer, seller and agent alike is the time-frame for underwriting and funding.   In order to write offers for fast closes, you will need to work with a finance company that underwrites and approves loans in-house.  The best companies are approved to sell bundled loans directly to FHA.  Ask!

Brian Neufuss is the mortgage lender that we have worked with for the past several years.  And he deserves some accolades for his work recently in building relationships and getting loans approved locally and quickly with far less “red tape” than any other that we’ve worked with.  He has benefitted our clients and real estate investment business, but has also impressed listing agents whom our clients have purchased through.

Please know that this is a freely given endorsement and recommendation of Brian’s expert services with no intent other than to thank him.  He has consistently pushed deals through for us with the lowest possible rates, whether for owner-occupant, first time home buyer, investment property or refinances.  Please feel free to contact him to ask questions about his business and system at the following number or use our Contact Form on our website and I will forward to him (we don’t put email addresses on the website for the spam bots to grab).

Fastest Loan Approvals in the West

Brian Neufuss, Mortgage Banker

Denver, Colorado

303-250-1841 direct line

*Private and Hard Money Loans also available for Investors

In 2009 we have had a lot more requests and questions from clients about using IRA funds to purchase investment real estate for fix and flip projects and rental properties.  So I thought I would post an FAQ with answers.  Here are the Top 5 Questions from 1^st time investors using their IRA funds to buy income property:

#1 How do I get access to my IRA funds to buy a house?

In order to begin the process, you will need to establish a self-directed IRA account.  It is unlikely that you will be able to obtain this type of IRA account with your current brokerage or bank.  A quick Google search will retrieve many custodians who help investors open IRAs for real estate purchases.  After comprehensive due diligence of many of these companies, we have selected Equity Trust Company for our own accounts and recommend that our clients include this company as part of their selection process for a custodian.  Consider account and transaction fees, allowed structures, types of entities, consulting and customer service when selecting a custodian.

#2 Can I get a Loan in my IRA to purchase investment property?

Yes, you can get a loan for up to 65% of the purchase price of a property in your IRA using what is called a “non-recourse” loan.  This type of loan is not personally guaranteed by you, it is only secured by the property within your IRA account.  One of the leading lenders in Colorado serving IRA customers is First Bank.  They have a specific and streamlined program that we highly recommend.  You can read about all the plan and property qualifications at this link called Loans to Purchase Real Estate in your Retirement Account.

#3 What kinds of property can I buy using my IRA funds?

Within your IRA, you will have many options for real estate investments.  The most common is purchasing property directly and getting fee simple title.  The title will be held in the name of your IRA, not your personal or business name (with or without leverage or loans).  Another option is buying into ownership of LLC’s or Limited Partnerships that own and operate income property.  Your IRA may also be a lender that holds a mortgage on a property that pays interest to your IRA that is secured by real property.  This is called investing in notes (promissory notes).  In the first two examples, your IRA is the owner of a property, and the last example your IRA is a lender to an owner of the property.  Any of these can be good investments for your retirements funds, all of them have risks and should be only be undertaken after careful consideration.  After all, these are your life savings!

#4 How can I get the Money out of my IRA?

Well, here’s the bad news and the good news:  You cannot pay yourself or take profits or cash-flow from real estate investments in your IRA and put them in your pocket today.  Sorry.  But, the good news is that you are doing yourself a favor by growing your net worth and savings and that will increase your borrowing capacity and ability to do deals outside your IRA accounts for current income or short-term capital gains.

What do I do First? Or How Do I Get Started?

Sometimes this is the first question, and sometimes it’s the last!  I always recommend that investors (especially novice investors) begin the process by interviewing and hiring two experienced and competent advisors.  First, an accountant and second an agent or real estate investment advisor.  It is critical to choose real estate professionals that understand the benefits and risks of investing in real estate (whether in your IRA or otherwise).  Be aware that there are many accountants and real estate agents that are very knowledgeable about normal transactions, but there are only a limited number that specialize in investment property, and even fewer who understand IRA rules and regulations.  In other words, don’t just hire your brother-in-law!  Seek out people who have been where you want to go.  Find people who have an existing team that you can use; leverage other professionals who have paved the way for you!

NOW is the time to get started, Happy Investing!

If you or someone you know is interested in these types of IRA real estate investments, please us the Contact Form for additional information.