If you have a 401(k) or are thinking about a 401(k) then this video is for you. Many people don't know the in and outs of a 401k and how it works.
There is a ton of noise out there about where to place capital and what to expect. The truth is no matter what you do there are few foundations that you should make sure that you're aware of. That's exactly what we cover with this video.
If you're planning on increasing your portfolio you have to buy real performing assets. In order to purchase you need to have the proper agreement. That is exactly what we cover in this video. A detail walk through the proper components of a contract agreement to purchase your next asset.
Have you met ROBS?
You have to admit for the financial services industry, this is a pretty cool name for financial product. But not to worry, this is nothing out of the ordinary. ROBS are not a new instrument that you have to be concerned with. In fact, ROBS or ROB is an acronym for Rollover for Business StartUp Program). It's also known for by it's more common names such as; IRA Rollover and Self Directed 401(k).
The beauty in this is that you are able to use either of these vehicles to invest in the following;
What makes this very beneficial is that you won't have to worry because you are able to utilize these funds Tax-Deferred and penalty free.
Most startup businesses rely on the use of lines of credit or start up loans called "micro" lending. But through ROBS these equity injections are not considered loans at all.
Let's Talk Benefits
Business owners, friends and colleagues can now use this financial advantage to invest or offer capital to partner, grow or sustain an existing business. In the past in order to do this you would inherit a ton of liability and fees associated with adding capital to another business.
Flexibility through diversification. By being able to take control of your retirement you can now pin point the assets or businesses that you would like to invest in. This could be your local small business coffee shop or your grandson's new start up business. You can know back your business and retirement.
You'll be surprised on how many middle age clients that we speak to who want to start a business once they leave corporate America. For many they are captured to leave their money in the rollercoaster of stock options and their ex-employer's holdings. ROB grants the opportunity to go out and bet on yourself. Start that business you always wanted.
You're now given the same ability that you had in investing as a employee to your company just like that of another corporation, franchise or small business.
How To Structure ROB
Like many things in finance, you want to make sure that you have everything structured properly. So here are some key factors to be aware of;
It is without surprise that many of us bid Toys R Us farewell. The retail giant now is in a swift liquidation process as the writing of this article.
The year of 2017 has been the bearer of so many companies that have filed bankruptcy. Here is a condensed list:
If you look closely there is a trend to majority of these "Fortune 500" companies going bankrupt. Most retail giants have great store fronts that are apart of their of the business model. This business model highly revolves on the ability and habit of the customer. These customers have a great interest in visiting a store to feel, touch and try various products before purchasing.
The number one lesson that any business owner can learn from Toys R Us.
Because of this business model many people believe that these retail giants are falling. But this is not the primary reason of their downfall. In fact, the biggest catalyst of their downfall is that of their operating expenses. For many retail giants they are the anchor tenants in various shopping malls and centers.
A large retail giant with supurb credit as a retail renter consist of;
- Verizon etc.
Operating expenses is what is needed for every business to operate. The average fortune 500 company has the following view of operating expenses from Toys R Us.
As you can see the rent liabilities have crippled Toys R Us and many retailers because they lose the ability to scale small when needed for tough times. How can we learn from this? It's important that if you plan to grow a brick and mortar business to do one of the following:
1. Purchase your office location do not lease.
2. If you must lease, then you should agree to a short term lease. A short term lease may be a higher monthly rate, however it will allow you to have a definite exit without the need of bankruptcy.
Fannie Mae recently closed on a controversial $1 billion loan with the Blackstone subsidiary Invitation Homes. It likely won’t be the last time one of the government-sponsored enterprises (GSEs) bankrolls a loan to a major Wall Street player in the single-family rental market, analysts say.
The Invitation Homes loan has drawn controversy for several reasons. Fannie has previously only done loans in the single-family rental market involving 10 properties or fewer, and typically with small investors. Invitation Homes is one of the nation’s largest landlords, and is owned by a multinational private-equity firm, the Blackstone Group.
The loan, which was originated by Wells Fargo, covers more than 7,000 homes scattered around the country. These are properties that were bought at rock-bottom prices during the foreclosure crisis. The deal, which received a lot of negative press coverage when it first became widely known in January, closed on April 28.
Invitation Homes will use the proceeds to refinance a portion of its preexisting debt. By lowering its debt costs through Fannie’s guarantee and the ultimate backing of U.S. taxpayers, the company can potentially earn more profit from the properties. There is nothing in this deal that requires Invitation Homes to lower the rents charged on any of the properties.
Another controversial aspect of this deal is that the rentals tend to be located in more affluent areas than Fannie’s typical single-family rental deals. On most previous GSE deals with investors in single-family rental properties, the rents on the majority of properties were affordable to people earning 100 percent of the median income in that area. In the Invitation Homes deal, the median monthly rent for the properties was $1,470, the Urban Institute estimated in a recent analysis of the deal. Just 67 percent of the 7,204 properties would be affordable to people earning the median wage, according to that study.
Fannie Mae executives say the Invitation Homes deal is a test case. Larger investors entered the market for single-family rentals only recently in 2011. Single-family rentals are also a growing part of the overall rental market. The share of single-family rentals has risen to 57 percent, up from 51 percent in 2005, according to the Urban Institute study.
“This market traditionally has been very fragmented, made up of mostly mom-and-pop investors,” Fannie Mae Chief Executive Officer Tim Mayopoulos said this month during his first-quarter earnings call with the media. “And here was an opportunity to work with a large and sophisticated investor in this space because we really want to learn more about how we could, you know – what the opportunities were to better support the market.”
Push back from Realtors
Realtors hate this deal, however. The powerful real estate lobby, the National Association of Realtors (NAR), says it makes no sense from a public policy standpoint. During a time when home inventories are extremely tight, NAR says Fannie has infused $1 billion into the market to subsidize Blackstone’s rental profits.
“Realtors have no issue with institutional investors making moves in the single-family market,” said NAR President William Brown in a prepared statement for Scotsman Guide News. “What’s more perplexing to us is Fannie Mae’s support.”
Brown questioned why Wall Street investors need a break on their financing, when it is homebuyers who could benefit from lower loan costs. “Instead of helping big investors compete with average consumers and taking inventory off the market in the process, the GSEs should maintain their focus on broadening access to credit by lowering fees and helping prospective buyers become homeowners,” Brown said.
In a brief published this month, however, the Urban Institute said it was appropriate for Fannie to test the market. Other institutional investors that bought up distressed properties during the downturn will likely try to refinance to increase their targeted yields, said Karan Kaul, a research associate with the Urban Institute. Kaul noted that it will be harder for investors in rental properties to earn yields in the single-family market. Increasingly these companies will look to boost their profits through leverage.
“Regardless of the missteps that the financial sector and Wall Street engaged in during the crisis, these guys came in and they bought these properties at a time when house prices were in a free fall,” Kaul said. “They took a risk and they have been rewarded handsomely for that, and now they own these properties and, as an industry, are just trying to create a viable, long-term business in this market.”
Despite snapping up 300,000 homes during the last downturn, institutional Investors still only control around 1.7 percent of the entire single-family rental market, Kaul said. Fannie and Freddie could potentially have more impact through deals with mid-sized private investors that have fewer financing options.
Fannie is guaranteeing 95 percent of the loan. Ultimately taxpayers will be on the hook should it fail. Regarding loan risk, however, the underwriting was conservative, and there was more than sufficient rental revenues and value in the properties to support the debt, according to the Urban Institute analysis. Fannie has also transferred a portion of the risk.
Apart from purely business considerations, Kaul said GSE deals with large Wall Street investors, as well as mid-sized investors, can make sense from a public-policy standpoint, if the financing subsidy helps address rental shortages and control rent costs. Kaul said that if Fannie and Freddie plan to do more of these deals, guidelines are needed to ensure a percentage of the rentals remain affordable.
“That is what we think needs to be straightened out moving forward, and the policy focus ought to be not whether this kind of financing should exist or not,” Kaul said. “It is how we make sure the benefits of this financing flow to the renters.”
Thanks to the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the ability-to-repay rule’s qualified mortgage (QM) provision for residential loans, a unique opportunity has emerged for commercial real estate lenders and mortgage originators.
Section 1026 of the Truth in Lending Act (Regulation Z) details the scope of the QM provisions, identifying a list of exempt transactions. In short, this section says that credit extended to purchase, improve or maintain non-owner-occupied rental property is deemed to be for business purposes. This means that residential mortgage loans to be secured by non-owner-occupied investment properties are exempt from the QM provisions of section 43 of Regulation Z. An opportunity has been born as a result.
Enter commercial lendersDespite express statutory exemption for business-purpose loan transactions secured by investment properties, most residential lenders have decided that such loans must comply with the QM provision in order for them to be eligible for financing. This has opened the door for commercial lenders to take advantage of what would appear to be an underserved niche for financing, one that also happens to be a primary driver of the residential sector.
This past first quarter, all-cash purchases, many by investors, accounted for 42.7 percent of the U.S. residential market’s sales. Although that may have helped bolster the residential market overall, it did little to help profitability of residential mortgage lenders.
Many commercial real estate lenders have seized this opportunity and are now offering one-to-four-family investor purchases and refinances as commercial loans. In order to do so, they must structure the transactions with the owner being a limited-liability company or corporation, and the property, in most cases, must meet minimum debt-service coverage ratios.
Some lenders, however, have taken this a step further and allowed for stated-income loans in this category, as there is nothing prohibiting them from offering alternative-documentation loans, given that these are now deemed to be commercial, not residential, loan transactions — and as such, are exempt from the QM provision.
Some lenders are even allowing co-ops and condos to be eligible property types. Many offer blanket transactions so investors may buy multiple properties at once. Some offer nonrecourse loans, and still others allow for foreign investors. With loan-to-value ratios as high as 75 percent and rates being offered as low as 3.5 percent with no limit on the number of properties financed, residential lenders, even those that interpret the QM provisions literally, may have difficulty competing with these offerings.
The implications of this are important to note. Investors now have an opportunity to buy multiple properties and can obtain financing where previously they had been denied. The residential sector also will benefit from this, given the liquidity now available to investors, which gives them the ability to buy more investment properties. Commercial lenders, meanwhile, will reap their rewards via profitable loans in a category untapped by them until recently.
DrawbacksThese products do have their flaws, however. For example, because they’re now construed as commercial mortgages, fixed-rate options — at least those longer than three to five years — are not being made available. For investors seeking to buy a one-to-four-family property and hold it for steady cash flow, this is a drawback.
In addition, because these are commercial loans, lenders are now able to impose a prepayment penalty, which will not benefit the fix-and-flip crowd. Also, lenders may be far less inclined to originate deals under certain minimum loan-amount standards, which may range from $250,000 to $1 million. These same lenders will likely also place a maximum on the dollar amount they will finance for any one loan or blanket transaction, which also may hinder investors seeking financing.
Lastly, for lenders that use a true debt-service coverage ratio (DSCR) calculation to qualify, many markets will be excluded because market rents will not exceed expenses with a 1.25 DSCR. Even some high-end markets will have trouble with properties qualifying this way because higher expenses — for example, property taxes because of recent value appreciation — cannot be offset by rents to the extent that ratios fall within lender guidelines.
CompetitionAlthough these products are being welcomed with open arms by originators and lenders alike, it will be interesting to see how this all plays out. Residential lenders are going to find themselves in competition with their commercial-lending counterparts.
For lenders that offer both residential and commercial lending platforms, it allows them to retain far more originations given the increased options afforded to investors. If a loan does not work under their residential platform, they can simply flip it to their commercial division in order to accommodate the transaction.
For the time being, commercial lenders have found themselves in an enviable position to benefit from a sector once off-limits to them: multifamily properties with fewer than five residential units.
This article is written by: Rob Diodato
Rob Diodato is the president of York Commercial Finance, a commercial mortgage advisory company with offices in Dallas and New York. Diodato arranges financing for commercial real estate transactions nationwide for all property types and is an expert in Small Business Administration 504 and 7(a) loans. Diodato has more than 26 years of experience in the commercial and residential mortgage industries.
The multifamily real estate market has been on the rise in recent years. Real estate research company CoStar Group, for example, reported that loan originations increased by 26 percent year over year this past third quarter. Will that growth continue in 2017?
Commercial real estate brokers should be aware of two factors that are likely to have a major impact on the multifamily market in the year ahead: interest rates and deregulation. Rising rates could potentially slow multifamily loan-origination growth to a snail’s pace, compared with recent years. President Donald Trump’s move to pare down financial regulations, however, could have the opposite effect, at least in the short term.
Just like all sectors of the market, the multifamily real estate landscape is rapidly changing in the wake of rising interest rates and the election of a new pro-deregulation president. The combination of those factors could have a significant impact for mortgage brokers serving the multifamily real estate industry.
The Federal Reserve raised short-term interest rates for the second time in a decade in December 2016, and it again boosted rates this past March — for a total bump of a half percentage point, raising the federal-funds target rate to a range of 0.75 percent to 1 percent. While the recent increases were relatively slight, they are only the beginning of what is expected to be a continuing upward push on rates. This is underscored by Fed officials predicting rates will rise two more times this year.
Trump spoke out in favor of raising rates during his presidential campaign, contending a rate bump would pop a “big, fat, ugly bubble.” As demonstrated by his recent executive order aimed at scaling back regulations enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, he intends to keep his campaign promises.
Currently, the multifamily market remains strong. In fact, the Association of Foreign Investors in Real Estate said multifamily assets represent one of the most sought-after investments. This presents an opportunity for mortgage brokers already in the multifamily real estate sector and also for those looking to expand into an area with a large potential for growth.
With that in mind, there are some major changes in store for multifamily real estate lending that brokers should be watching for in the coming months and years. In the face of those changes, and as rates rise and regulations are stripped away, new opportunities for brokers also are emerging, especially in the nonbank lending arena.
There is evidence to suggest that lending in the multifamily market may slow down. When it becomes more expensive to borrow money, as it does when rates rise, then multifamily real estate projects have a more difficult time making the internal rate of return necessary to secure deals. That means fewer deals happen, unless lenders and mortgage brokers work together to think outside of the box.
At the same time, there is evidence that lending may speed up as a result of executive-branch regulatory overhauls. Experts are predicting Trump will deregulate banks enough to make it attractive for them to increase lending. Trump announced plans this past February for “cutting a lot out of Dodd-Frank,” to make it easier for businesses to borrow money. With fewer barriers, banks may originate more loans and take advantage of the potential to enjoy higher spreads afforded by rising rates.
To cover all of their bases, mortgage brokers may want to consider widening the financing options they typically recommend to clients to include more nonbank lenders. As rates rise, additional means of securing financing may become necessary for multifamily real estate investors.
While the short-term possibility exists that banks will increase lending in the advent of Trump΄s new deregulatory policies, his unpredictability and isolationist stance on trade — as well as his immigration policies — are making many people nervous about what the future holds for the global economy, which ultimately affects markets on the home front.
“ There are some major changes in store for multifamily real estate lending. ”
Rising rates alone can result in financial institutions lending less because the cost of lending goes up. Any sharp stock market drop prompted by investor uncertainty in the strength of the nation’s economy would amplify this effect. Either of these potential circumstances, or a combination of the two, could lead to a reduction in the volume of multifamily real estate investment deals that get off the ground.
To better illustrate the point, here’s an example: If investors typically received around 80 percent leverage on a project and, as a result of rising interest rates and stock market uncertainty, banks choose to lower the amount of leverage they will offer to 60 percent, it creates a 20 percent financing gap. That gap has to be covered if the project is to move forward. If the stock market also is in turmoil, the amount of capital available from equity investors to cover the gap also is diminished.
For mortgage brokers comfortable with a second position in such a deal, however, that 20 percent financing gap represents an opportunity to help clients get creative with their capital stack. That means having access to alternative sources of financing is key.
Bridging the gapGiven the chance, nonbank lenders will make up the difference on underfunded projects. Private lenders or private equity structures are a natural next step for securing the extra funding necessary to make multifamily real estate transactions happen. They offer several advantages over traditional financing, including:
The cons, of course, include the fact that nonbanks often extend loans that have higher interest rates than banks offer, and the loan terms are usually shorter than what banks offer. Still, when a deal is on the table and a lack of funding is the only thing in the way of moving it across the finish line, higher interest rates and shorter terms are a price many multifamily real estate investors are more than willing to pay.
• • •
With the inevitable changes on the horizon because of rising interest rates and a new president in the White House, commercial mortgage brokers would be wise to consider steering borrowers who are seeking multifamily financing toward nonbank lenders — in addition to pursuing traditional bank loans. Now is the time to reach out and solidify existing relationships with private lenders and to establish new connections.
Mortgage brokers should always be prepared, especially when the market moves. By keeping an eye on emerging trends and shifting your strategies based on these insights, you will have the advantage early in the game — before the market changes the rules.
This article is written by: Yuen Yung
Yuen Yung is chief executive officer of Casoro Capital, a private equity company that creates discretionary funds for investing in multifamily properties and developments. With Yuen at the helm of Casoro Capital and in partnership with The PPA Group, the companies have achieved more than $600 million in multifamily transactions. Yuen earned a bachelor's degree in business administration from the McCombs School of Business at The University of Texas at Austin.
There are only three real objects when it comes to commercial finance and real estate. Commercial real estate is a more sophisticated matrix for wealth creation in this country. What this means is that the common exit strategies are either to sale via a trade or to refinance. There is no other exit strategy.
In reference to performing a mode of action you are given three strategy options:
The most skilled professionals pride themselves on Capital Placement and Formation. You may of noticed that throughout the last few years lending has tightened increased the amount of equity that is needed for a traditional institution to fund a deal.
Although this is common in a lower market this gives others the ability to leverage this intellectual capital. The rave in 2010 became syndication. During 2009-2010 Warren Buffet paid frequent trips to Washington DC to have series of questions in reference to this very thing. By 2015 the process of Syndication has become less regulated allowing a slew of investors and speculators to aimlessly exchange or trade their hard earned money for potential earnings via equity.
What most are uneducated about is that equity is not all that it cracks up to be. Equity is the opportunity to obtain the highest gain, while not truly securing your investment.
Asset Arbitrage is typically performed is something is being traded at a low basis point for its existing market. This creates a win-win situation for both the operator and seller. 2017 is expected to have higher amounts for exit strategy meaning that value will be stiffed at lower returns due to others exiting on the height of the bell curve.
Capital Placement is the process of placing the proper debt on a property that will perform well especially if stabilized. With rates expecting to increase it is important to place capital on the proper groups of assets.
Capital Formation is also know as the debt stack this can often refer to having the capital organized in a way where either the institution, lenders, investors, equity partners and sponsor has priority or is protected.
If you are a web developer or a marketer looking for a great opportunity, look into joint ventures. Keywords: business
If you are a web developer or a marketer looking for a great opportunity, look into joint ventures. Joint ventures are a great way to combine talents and create a winning product. Many people who have been successful at joint ventures came to the plate with one strong talent, whether a winning product or a great network to sell products. By combining your forces, you can create synergy and a healthy profit. Here are some tips on joining joint ventures.
Joint ventures are very easy to create. There are plenty of web sites that offer people the opportunity to post their business propositions online for other to see and consider. Many developers and marketers check out JV opportunities weekly looking for the next big product. For instance, many web developers use affiliate sites to sell quality products to the masses that offer huge commissions. Affiliate sites such as Clickbank, Commission Junction and even Amazon help small web developers sell their merchant’s items. You can also look at web forums for vendors or marketers that are looking to team up and make a healthy profit. So if you only have one piece of the puzzle, but still want to be successful, look into joint ventures and create a relationship that will benefit both parties involved.