August 2009
NREIC newsletter heading
Nanaimo Real Estate Investors Club Newsletter

Hi Folks!

The Rent To Own (RTO) style of investing is gaining popularity these days. When I was a student it was called Lease Option (lease with an option to buy). There are ads on the Victoria Craigslist offering that service to potential buyers. There's a little red car in Langford with giant ads on it for rent 2 own. My mentors were adamant that having the correct contracts could make or break this method. Attracting the correct tenant-buyer was also a key skill for no-hassle RTO investing. We decided to give it a pass when we started our RE investing company. It was too complicated and we were scared of the unknown. Looking back, the Victoria market then probably wouldn't support RTO investing. Right now it's a lot easier to find tenant-buyers and appropriate properties. If you want to take this on here's my recommendations: get a mentor who has a track record and do what they say, get court-tested contacts suitable for BC and acquire excellent negotiating skills. The negotiating skills will come in handy in other parts of your life, esp. relationships!

The September 1 meeting is tomorrow night! Karen Aven will speak on staging your porperty. See details below.

Denise (spouse) and her partner Steve at Wealth By Design have closed on a 125-unit apartment complex in Phoenix's Biltmore area. They paid the 1994 price. Look for an opportunity to invest with an option to buy a fixed-up suite down the road at today's prices.

Take care,

Gord Knox
RE NEWS
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Layth Matthews
layth@ratemisers.ca
250-591-3333

Rate Miser Logo for NREIC
Victoria September Meeting
September 29, 2009
Comfort Inn,
3200 Blanshard St
7pm, $15 at the door

Speakers: from Randall North property management team
NREIC meeting Tuesday Sept 1, 2009

This month we will be learning about
Staging Your Property for Sale.

Karen Aven will speak and says:

Housing and real estate has been my family's business for nearly half a century and I have always been involved in one way or another.

I dedicated 5 years of my life to university to become an Interior Designer. I have designed custom homes, custom renovations and additions as well as operated my own construction company. I have been and continue to be a real estate investor. I am currently a licensed realtor working in the Comox Valley.

I know for a fact staging a property will ALWAYS improve the return on your investment and I can show you inexpensive ways to stage your property and make more money.

Beban Park Rec. Centre
2300 Bowen Road
Room 8 (right off the breezeway)
$10 at the door
Opinion on Subject-To wording on Contract for Purchase and Sale

Lance Cook says:

I wanted to dig a little deeper into the conversation I had with the lawyer at last weeks investor club meeting. Again I apologize for asking a lot of questions at the meeting it was not my intention to hog the floor time. BUT...
 
This is a long time existing legal issue that has NEVER been resolved. The answer below is what I was looking for. I got this answer from Brock Emberton. If you would like to publish this issue let me get Brock's opinion, maybe you could identify that this is his answer followed by his contact info,
 
At the end of the day, I believe we should all be writing detailed conditions (objective conditions) not subjective conditions such as what is going on.

Lance asked:

Hi Brock, I was at a real estate investor meeting and this issue popped up, can you give me your point of view?
 
There was a precedent case set many years ago (I think it was early 90s) A realtor wrote an offer for a purchase on a home and had a clause like "subject to satisfactory building inspection or financing" does not matter the point was they had the term satisfactory in the clause leaving the buyer an easy out.
 
The seller got a better offer (sound familiar in an up market) and asked their lawyer to get them out of the 1st deal. here is how they got out.
 
In a real estate contract if I agree to pay you $400,000 for your home and you agree to give me title, we both have "consideration" and it is binding on both of us. If the buyer inserts a clause that the court deems whimsical (meaning the buyer can get out of the deal very easy) then there is no legal consideration for the seller and then the seller can cancel the contract (and take the higher 2nd offer)
 
The realtor then was sued by his buyer because they lost the home and had expenses (appraisal and building inspection) the Realtor's defense was "I don't work for you I have a fiduciary responsibility to the seller they are my client you are just a customer. The court ruled in favour of the buyer and stated" The buyer depended on the professional skills of the Realtor to write a binding offer and they did not"
 
The realtor lost his commission and was successfully sued by the buyer, both of these were precedent cases, so you cant blame the Realtor.
 
When I was a Realtor, we were told to do either or both of these
 
1) Write subject to clauses that are not whimsical and have enough detail that the buyer can not walk away for any reason. Example
Finance clause should have some detail on the mortgage and inspection clauses should be: Subject to the buyer obtaining a building inspection at their cost and the inspection showing no immediate repairs necessary greater than $1000.
 
2) Write a clause: in consideration of the seller accepting this offer the buyer will pay a non refundable fee of $10.00
 
My question is: We see a lot of whimsical clauses such as satisfactory financing and building inspections. Is the danger of having the seller revoke the contract (due to a lack of consideration) to the 1st buyer no longer an issue? In a rising market should buyers and sellers be aware of this potential risk? 


Brocks opinion:

Hi Lance,
 
Yes it seems this topic arises from time to time. The technical side of this is the difference between objective conditions and subjective conditions. In order to create a proper conditional contract the subject tos must be objective, that is, they must be dependent on a 3rd party to do or not do something or some certain or ascertainable event to occur or not occur. For example a clause that says the transaction is subject to financing in the amount of $x at y interest rate with payments of $z for a term of 5 years amortized over 35 years is an objective condition whereas a subject to that says subject to satisfactory financing is a subjective condition. The reason it is a subjective condition is that it depends totally on the whim of the buyer as to what is or is not satisfactory while in objective condition there is a clear set of criteria that must be achieved in order for the condition to be satisfied. The clause in your e-mail about inspections is another example of an objective condition.
 
Where the difference becomes crucial is in the situation you outlined where the seller wants out of the deal. If the conditions are objective then both the buyer and seller are committed to the deal until the condition is either satisfied or not. Neither one of them has the right to just up and walk away from the deal. On the other hand if the condition is subjective then the Courts have held that such a deal is merely an offer which the seller can simply walk away from at any time before the so called condition is removed.
 
I recall there was a time severally years ago where we were told by the Law Society to make sure we drafted objective conditions if we wanted to make sure the seller couldn't walk away from the deal. The Real Estate Council probably said the same to the realtors. Unfortunately old habits die hard and after the initial rush to draft perfect conditions we all fell back into the habit of drafting the quick easy conditions we had all grown used to using. This occurred largely because most deals went though without a hitch despite the bad wording of the conditions. Another thing that leads to using the quick easy conditions is that a clause was added to the Real Estate Board's standard contract that says the seller and the buyer agree the contract is executed under seal and neither party will withdraw from the contract while the buyer is endeavouring to satisfy the conditions (if you look at an update version of the Board's contract you will see the clause just before the clause where the buyer signs the contract). This clause is supposed to prevent the seller from walking away even though the condition(s) may indeed be subjective. The clause however has never been tested in Court so we really don't know whether it is actually enforceable but it gives just enough comfort so that we can go back to drafting sloppy conditions and apparently get away with it.  

Brock Emberton
Brock T. Emberton Law Corporation
Barrister, Solicitor, Notary Public
#317 - 877 Goldstream Avenue
Victoria, BC V9B 2X8
Tel: (250) 391-7777
Fax: (250) 474-0802
Email: brock.emberton@embertonlaw.com
 
How Does a Hard Money Loan Work?
By Khalid Johnson

There are tons of loans available for real-estate investors. One type of loan commonly used by investors is the Hard Money loan. These loans allow investors to buy and fix investment property. If used correctly it can definitely put money in your pocket right away. But, be aware because there are some pitfalls you will need to avoid in order to be successful. Below explains how a Hard Money loan works and what to look out for.

1.Scope of Work- the Hard Money lender will require the investor to provide a scope of work worksheet. Every repair you plan to make needs to be written down on this sheet. The scope of work worksheet is what the Hard Money lender will use as a guide, in order to pay for the project. If repairs are done that are not on the worksheet, then you may have trouble getting reimbursed by the Hard Money lender. The lender will want to see everything written down to be sure everyone is on the same page. Lenders will normally allow investors to change the scope of work in the middle of the project if able and necessary.

2.Requirements- Most Hard Money lenders now want 20% down from the investor on all projects. The lender will also want to see reserve money sitting in a bank somewhere. The investor's monthly income will play a big role with the lender in approving the loan. Credit score is a factor, but they do not require a stellar score to be approved for a loan. The last Hard Money lender I used did not even pull my FICA score, they just wanted to see a copy of my credit report-which I was able to order for free. There will be requirements for loan to value, but each lender will have their own set of guidelines.

3.Over estimating repairs- Repairs on an investment property is always just an estimate. When rehabbing property nothing ever goes as planned. Over-estimate the repair that needs to be done to cover yourself if any repairs are added later in the rehab. If you did a good job with the initial inspection, and no additional repairs were needed then you can return the money or keep it. If you decide to keep it do not spend the extra funds. Keep the extra money as additional reserve.

4.Process- The process of receiving money for repairs is called a draw. After your contractor finishes a percentage of the work you will call your Hard Money lender, and tell them that you are ready for an inspection. The lender will send an inspector out to verify the work has been done and completed within code guidelines. Once the inspector gives the lender an o.k. , the lender will release the funds that equal to the amount stated for the cost of work. For example, if you listed carpet repair $1500, paint $1200, and new light fixtures $100; when the inspector checks all the items off: the Hard Money lender will cut you a check for $2800. Now you can understand why it is important to have all repairs and cost listed on the worksheet. If the repairs are not listed then they will not pay you. Normally the lender will give you 3 to 7 inspection dates depending on how large the project is. Unless you can convince the contractor to start working without putting money down, you will have to put the money up to get things started. Expect to get reimbursed from the Hard Money lender through your draw checks.

5.Refinancing- This is the most important part in rehabbing property using a Hard Money lender. Hard Money loans are short term loans with high interest rates. These interest only loans will have an interest rate of somewhere around 15%. That may seem high, but these types of lenders understand how important it is to make their money and get out. We need these companies in order to rehab properties if we cannot fund our own projects. Hard Money lenders realize the risk they are taking, so lenders ask themselves "WIIFM" (What's in it for me). They compensated with a high interest rate for the risk they take. Hard Money lenders expect you to either sale the property quick for a profit, or refinance into a long term loan and rent it out to a tenant. Whatever your exit strategy is, be sure to do it quick. Hard Money loans are normally due in full 6-12 months after origination.

Hard Money lenders have allowed many investors to make money in real-estate. These types of lenders are more flexible when compared to traditional ones. They allow investors to make things happen when no other lenders want to take the chance on them. Their guidelines are loser and allow an investor to spread his wings. These types of loans are expensive, but they can allow more deals to be done due to the amount of money they have access to.

Khalid Johnson is the CEO of Asset Properties, LLC. The company sells investment property with tons of equity in Atlanta, GA. Visit http://www.AssetPropertiesATL.com/cheapproperty.html for a Free report "How to Buy Wholesale Property Without Any Risk"

Article Source: http://EzineArticles.com/?expert=Khalid_Johnson http://EzineArticles.com/?How-Does-a-Hard-Money-Loan-Work?&id=2839011