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Financing Real Estate Investments For Dummies

Description:    Your practical guide to scoring cash to fuel your real estate investments

                Want to be a smart, successful real estate investor? This no-nonsense guide contains everything
                you must know to make the right choices about financing your investments — from the various
                options available and the impact on cash flow to the tax implications and risk factors involved. You
                also get tried-and-true tips for surviving a down market and using current investments to finance
                future ones.

                -A crash course in real estate financing — understand standard terms and concepts, learn the
                various sources of investment capital, and gather all essential facts and figures
                -Weigh your options — decide which type of financing is best for your circumstances and
                incorporate it into your real estate investing plan
                -Finance residential properties — evaluate residential loan programs, navigate the loan application
                and processing, and handle the closing
                -Invest in commercial properties — know the different property types, choose the one that meets
                your investment goals, and discover unique sources for financing
                -Tap into unconventional sources — discover the pros and cons of "hard money," capitalize on
                seller financing, partner to share risk and equity, and invest on the cheap with no-money-down

                Open the book and find:

                -Real-world advice on financing without tying up all your capital
                -How to get prequalified or preapproved for a loan
                -Questions to ask your lender upfront
                -Ways to avoid common beginner blunders
                -How to protect your personal assets from investment risks
                -Bargain-hunting hints for low-cost loans
                -Strategies for surviving a credit crunch
                -Ten pre-closing steps you must take

Contents:       Introduction
                About This Book
                Conventions Used in This Book
                What You’re Not to Read
                Foolish Assumptions
                How This Book Is Organized

                Part I: Gearing Up for Financing
                Your Real Estate Investments

                Part II: Financing the Purchase of Residential Properties

                Part III: Financing the Purchase of Commercial Properties
                Part IV: Sampling More Creative
                Financing Strategies

                Part V: The Part of Tens
                Icons Used in This Book
                Where to Go From Here

                Part I: Gearing Up for Financing
                Your Real Estate Investments
Chapter 1: Taking a Crash Course in Real Estate Investment Financing
Pumping Up Your Purchasing Power with Borrowed Money
Minimizing your potential by owning
property free and clear
Maximizing your potential with
other people’s money
Paying cash with borrowed money
Brushing Up on Basic Real Estate Financing Lingo
Identifying types of lenders
Grasping different loan types
Brushing up on important legal lingo
Pointing out mortgage concepts
Examining equity
Looking at loan-to-value (LTV)
Distinguishing Investment and Home Financing
Paying a premium for riskier investment loans
Using quick cash to snag bargain prices
Accounting for taxes on your capital gains (or losses)
Protecting your personal assets
Exploring Common Sources of Investment Capital
Tapping your own cash reserves
Borrowing from commercial lenders
Obtaining a hard money loan
Financing your purchase through the seller
Taking on a partner
Prepping to Meet with a Lender
Gathering paperwork and other info
Crafting a business plan

Chapter 2: Shielding Your Personal Assets from Investment Risks
Understanding Why You Need to
Protect Your Personal Assets
Limiting Your Personal Liability by Forming an LLC
Understanding the pros and cons
Setting up an LLC
Taking and securing title to real estate
Eyeing Sub-S corporations and partnerships
Transferring Personal Assets via Trusts
Weighing the pros and cons of owning property
in another’s name
Gaining asset and tax protection
with an irrevocable trust
Considering real estate investment trusts (REITs)
Staying Away from Promissory Notes
with Recourse Clauses
Opting for a nonrecourse loan
Negotiating the recourse clause
Avoiding cross-collateralization
Steering Clear of Real Estate and Mortgage Fraud
Telling the truth on your application
Dodging predatory lenders
Saying “no” to inflated appraisals
Turning your back on cash-back-at-closing
Avoiding illegal flipping
Defending yourself against chunking schemes
Refusing a builder bailout
Acting with integrity: The golden rule

Chapter 3: Gathering Essential Documents, Facts, and Figures
Examining Your Credit Reports
Obtaining free copies of your reports
Checking your credit score
Inspecting your report for problems
epairing your credit and boosting your score
Avoiding mistakes that can sabotage
your loan approval
Chasing Down Vital Paperwork
Delving into your personal financial information
Accounting for business income
Documenting the property you plan to purchase
Show Me the Money: Identifying Sources of Ready Cash
Sources of cash for down payments,
closing costs, and prepaid items
Rainy day funds: Cash reserves
Getting Prequalified or Preapproved

Chapter 4: Scoping Out Prospective Lenders
Borrowing Directly from Banks
Weighing the pros and cons
Conventional loans
Subprime (nonconforming) loans
Dealing with a Middleman (or Woman): Mortgage Brokers
Weighing the pros and cons
Shaking the branches for a broker
Checking a broker’s credentials
Taking the Hard-Money Route through Private Lenders
Borrowing from Uncle Sam: Government Loan Programs
Financing through the Seller
Lease options
Land contracts
Teaming Up with a Cash-Heavy Partner
Opting for a limited partnership
Going the corporation route

Part II: Financing the Purchase of Residential Properties

Chapter 5: Finding the Residential Loan Program That’s Right for You
Understanding Why Finding the Right
Residential Loan Is Key
Choosing a Loan Type to Maximize Your Cash Flow
The power of OPM (other people’s money)
Interest-only mortgages
Grabbing a hold of ARMs
Hard-money loans: Private investors
Taking Advantage of Government-Secured Loans
Tapping the FHA for a loan
Viewing Veterans Affairs (VA) loans
Considering REO loans
Tapping into state and local grants and loans
Digging up USDA Rural Development loans
Avoiding the Prepayment Penalty Trap

Chapter 6: Bargain Hunting for Low-Cost Loans
Understanding How This Interest Thing Works
Keeping simple with simple interest
Grasping the concept of amortization
Telling the difference between the
interest rate and APR
Exploring how adjustable rate mortgages work
Paying interest upfront with points
Considering the Mortgage Term
Accounting for Closing Costs
Getting socked with origination fees
Forking over other fees
Examining the Good Faith Estimate
Calculating a Loan’s Total Cost

Chapter 7: Navigating the Loan Application and Processing
Completing Your Loan Application
Walking through the parts of the loan application
Reviewing the lender’s disclosures
Supplying the requested documentation
Signing a release of information
Following the Loan Processing Trail
Getting up to speed on the underwriting process
Obtaining an appraisal or AVM
Having the property inspected
Obtaining a survey
Navigating the Closing
Keeping your attorney in the loop
Dealing with the preliminaries
Signing the documents
Knowing your right of rescission . . . or lack thereof
Dealing with surprises
Financing Other Types of Residential Properties
Digging up money for vacation properties
Financing investment properties
Purchasing vacant land

Part III: Financing the Purchase of Commercial Properties

Chapter 8: Picking the Right Commercial
Property Type for You
Estimating the Income Potential
of a Commercial Property
Calculating effective gross income (EGI)
Calculating Net Operating Income (NOI)
Estimating the property’s true value
Projecting future profits with a pro forma
Dwelling On the Thought of Multifamily Homes
Two- to four-family homes
Garden apartments
Large multifamily properties
Crunching the numbers
Buying and Renting Out Office Space:
The A-to-D Grading Scale
Investing in Retail Real Estate
Collecting your cut of gross sales
Comparing strip malls and convenience stores
Running Your Own Hotel or Motel
Distinguishing between flagged
and unflagged properties
Encountering income challenges
Checking Out Industrial or Warehouse Properties
Calculating income and costs
Considering storage facilities
Exploring Mixed-Use Properties
Sampling Some Special Use Properties
Restaurants and bars
Gas stations
Adult foster care

Chapter 9: Exploring Sources of Financing for Commercial Properties
Sizing Up Various Commercial Loan Programs
Exploring the middle market (local
and national banks)
Hitting up the private sector:
Hard-money lenders
Financing Main Street property
with Wall Street money
Pursuing Government Loans
Financing housing and medical facilities
through FHA loans
Tapping into economic development
funds and grants
Securing a loan through the SBA
Harvesting investment capital through the USDA
Getting a hold of a CDBG
Deconstructing Construction Loans
Financing Fixes with Rehabilitation Loans
Exploring Other Creative Financing Options
Borrowing from pension programs
and life insurance companies
Enlisting the services of venture capitalists
Sharing the costs and the equity
Participating in participation loans
Taking on a partner
Considering other potential sources of capital

Chapter 10: Securing a Loan to Finance Your Commercial Venture
Deciphering the Broker-Borrower Agreement
Accounting for Upfront Fees
Obtaining Third-Party Reports
Verifying a property’s market value
with an appraisal
Plotting the perimeter with a survey
Inspecting the title
Obtaining an engineering report
Getting a clean bill of environmental health
Navigating the Closing
Protecting yourself with title insurance
Insuring your property
Attending to existing tenant rights

Part IV: Sampling More Creative Financing Strategies

Chapter 11: Financing in a Pinch with Hard Money and Other Tough Options
Weighing the Pros and Cons of Hard Money
Perusing the pros
Considering the cons
Managing the Expense of a Hard-Money Loan
Calculating points
Adding up the interest
Subtracting the tax savings
Paying back the loan sooner to save money
Locating Local Hard-Money Lenders
Asking your broker for leads
Networking through local investment groups
Perusing ads in local newspapers
Searching the Web
Getting preapproval
Hitting Up Friends and Relatives for a Loan
Grasping the pros and cons
Identifying the moneybags in your circle
Drawing up an agreement
Honoring securities laws
Financing Fix-Ups with a Home
Equity Loan or Line of Credit
Understanding home equity loans and LOCs
Maxing out your LOC
Applying for an LOC
Supplementing Your Financing with Credit Cards
Eyeing the pros to credit card use
Choosing a credit card with low
interest and plenty of perks

Chapter 12: Capitalizing on Seller Financing
Buying Property on Contract with a Land Contract
The ups and downs of buying
a property on contract
Inspecting the title
Beware of the due on sale clause
The how-to: What you need to do
Protecting yourself against fraud
Renting to Own with a Lease Option Agreement
Grasping the fundamentals of a
lease option agreement
Using the lease to earn some cash
Dealing with the option
Paying Close Attention to the Forfeiture Clause

Chapter 13: Partnering to Share the Risk and the Equity
Differentiating between a Partnership
and a Joint Venture
Weighing the Pros and Cons of Partnerships
Finding a Partner with the Right Stuff
Scoping out prospective partners
Checking a prospective partner’s qualifications
Making sure your partner has what you need
and needs what you have
Drawing Up a Partnership Agreement
Drafting the agreement
Complying with the tax code
Avoiding Common Pitfalls

Chapter 14: Profiting from No-Money-Down and Other Creative Deals
Financing Your Down Payment with a Second Mortgage
Taking out an 80-20 loan
Disclosing your second mortgage
Wholesaling for Fun and Profit
Buying and selling options
Assigning a purchase agreement
Selling the Tax Benefits
Trading Spaces: 1031 Exchanges
Qualifying for a 1031 exchange
Meeting the deadlines
Selling Other Equitable Interests
Leaseholds and other rights
Naming rights, air rights, and
other unimaginable stuff

Part V: The Part of Tens

Chapter 15: Ten Ways to Avoid Common Beginner Blunders
Focusing on More than Just a Low Interest Rate
Getting Preapproved
Doing Your Homework: Property Research
Making a Reasonable Down Payment
Comparing at Least Three Good Faith Estimates
Viewing at Least Ten Properties before Making an Offer
Checking Your Credit Score before Applying for a Loan
Buying with Your Brain and Not Your Heart
Monitoring the Pulse of Current Market Conditions
            Calculating the NOI and DSCR on Commercial Properties

            Chapter 16: Ten Steps to Take before Closing
            Get and Review a Copy of the Appraisal
            Review the Title Commitment
            and Obtain Title Insurance
            Review All Closing Documents
            Review a Copy of the HUD-1 Closing Statement
            Get an Insurance Policy
            Do a Walk-Through on the Property
            Obtain Utility Final Readings and Schedule
            the Transfer
            Review Updated Tenant Rent Roll
            Have Certified Funds or Wire Transfer Ready to Go
            Confirm Date, Time, and Location of Closing

            Chapter 17: Ten Tips for Surviving a Credit Crunch
            Expand Your Search
            Choose Properties More Carefully
            Focus on Foreclosures
            Look for Short-Sale Opportunities
            Buy REO Properties
            Search for High-Equity Properties
            Shift from a Buy-Sell to a Buy-Hold Strategy
            Team Up with Your Mortgage Broker
            Offer Your Agent a Bonus
            Partner Up and Get Creative


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