Archive for January, 2012

As a real estate investor, the title insurance company you choose can make a big difference in the quality of your transactions. Be sure you have open lines of communication with your Title Officer so that you are able to get questions answered up front on any concerns you might have on your title report. Here are a few tips to help you familiarize yourself with the title report and some common items to scrutinize.
If you don’t have a relationship with a title company, you are more than welcome to call me and I’ll be happy to help you sort things out!

Review Your Title Report For ‘Schedule A’  Concerns 

Policy Type: Ensure the Owner’s policy on Schedule A is the proper form of policy per the Purchase and Sale.

Agreement: Example of policy types are Owner’s Standard, Homeowner’s or Owner’s Extended.

Ownership: Ensure the vesting name matches your seller. If the seller is deceased, yet the title company does not vest in the estate of the deceased, look for a pending probate action as an exception to title. If there is not a probate, contact your title company to find out their requirements.

Legal Description: Ensure the legal description matches the map provided with the title report or with your Purchase and Sale Agreement.

Review Your Title Report For ‘Schedule B’ Concerns

Easements, agreements and restrictions should be reviewed by the Realtor, seller and buyer. Is there something listed your buyer can’t live with? Does the property meet the needs for your buyer for the intended use?  Ensure monetary exceptions appear to be correct. Are there valid outstanding Deeds of Trusts, judgments or liens?

Are their questionable judgments or liens that have identity concerns? Does the paragraph contain the words “question of identity”? If so, a Statement of Identity (or Identification Affidavit) will be provided and required to be submitted to the title company. Individuals with common names like Baker and Smith will often have questionable judgments attached to their name.

Is there a recorded survey as a note or exception to title? An encroachment concern may be recorded on the survey. A title company may require a survey be done depending on the type of coverage.

Is there an inspection paragraph to be cleared? A title company may require an inspection based on information found in an Exception.

Exceptions are cause for concern.  Exceptions are exclusions of coverage.

Notes are for information only. There is no question on title.

About the author…
Since 1983 Elizabeth Peterson has provided her clients with a level of professionalism and expertise that sets her apart in the title industry. Her years of experience and commitment to client advocacy means Real Estate Agents, Lenders and Investors receive the support necessary to successfully close more transactions for buyers and sellers and refinance loans.  If you are looking for a title and escrow partner you can count on, Elizabeth is here to help you provide your clients with the added measure of service so essential in today’s competitive market.  Elizabeth is a senior account manager at Chicago Title of Washington. She can be reached by phone at 206-618-6786 or send an email to:  [email protected]

“REAPS is the oldest – and largest – Professional Association for the real estate investor this side of the Mississippi. We provide education and networking resources for real estate investors, those who want to be investors and anyone who provides value to our members. Our goals are to motivate and support our members and guests through education, discussion, legislative action and networking. We host over 40 live events a year around Puget Sound and they are all open to the public. If you’ve never attended one of our meetings, just email our office at [email protected] and be our guest for free!”

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When I founded Fairplay back in 2005, I felt the  could fill a much-needed niche in the real estate market: the ability to find, mentor, support and  investors interested in foreclosures and distressed properties. At the time, we had no idea how dramatically the economy would shift, and how much it would affect the real estate market.As we prepare to enter our seventh year of business, I wanted to take time to reflect on our growth and accomplishments in 2011, and what we have planned for 2012 and beyond.

Perhaps our greatest achievement this year was making the Inc. 5000 list of America’s Fastest Growing Companies. We ranked #398 overall, and #11 in the real estate category, measured by our growth between 2007 and 2010. Considering how housing prices peaked in 2006 before beginning their steady decline, it’s no surprise that Fairplay  by a phenomenal 857 percent during this time.

Fueling our growth was the increase in distressed property transactions, which we helped hundreds of our customers navigate successfully this year. These transactions are popular because they allow investors to purchase real estate at rock-bottom prices. As both a real estate company and a lending firm, Fairplay can purchase properties on our customers’ behalf while arranging bridge loans on a very tight timeline. In some cases, we have put deals together in 24 hours. Bridge loans are an important part of the process, allowing clients to purchase distressed properties at auction, which requires cash on the spot. We also offer traditional mortgages, which come with a much lower interest rate. This transitional service gives our clients a huge advantage, as we can immediately begin the refinance process into a traditional mortgage.

As Fairplay has grown, we’ve also expanded our vision beyond the Northwest. We’re currently conducting feasibility studies in Los Angeles County in California, Clark County in Nevada and Maricopa County in Arizona — all prime markets for distressed real estate that we plan to service in the future.  To help achieve our goals, we’ve added a new executive team member: Realty Sales Manager Gary Gray. Gary is the former CEO of Mortgage Reduction Group, LLC, and spent years as a consultant to real estate upper management teams developing processes and refining business metrics. At Fairplay, Gary will perform many of these same tasks, helping us achieve our vision as we grow and expand.

This year, we will continue to host our Thursday new investor workshops, which introduce people to the basics of foreclosure investing. Also, our weekly Investor Café meets over drinks and appetizers to discuss investment strategies, home improvement, financing options, and “featured properties ” selected for their investment potential.  In addition to these regular events, we’re holding two special classes. The first, titled “Maximizing Funds from Self-Directed IRAs,” will show you how to easily diversify your retirement accounts beyond the stock market by using funds to invest in real estate, all while avoiding taxes. The second class, “What You Need to Know About Title,” will address your questions about these legal documents that prove ownership of a property and often pose issues for the distressed property investor. I encourage anyone interested in learning more about the amazing potential in distressed real estate to give us a call or attend one of our investor meetings. All are free, as are our membership services, which include access to our exclusive database, online tools and personal coaching. We only charge a fee when you purchase one of our properties or borrow money.

As we wrap up another exciting year, I wish you and your clients tremendous success in real estate, and in life. Here’s to a happy holiday season and a prosperous new year.

About the author…
Bill Widmer is the CEO and founder of Fairplay Financial, Inc., and its operating entities. He has 19 years of experience in finance, management, real estate sales, investment and development. He is also licensed as a loan originator and real estate agent in Oregon and Washington.

“REAPS is the oldest – and largest – Professional Association for the real estate investor this side of the Mississippi. We provide education and networking resources for real estate investors, those who want to be investors and anyone who provides value to our members. Our goals are to motivate and support our members and guests through education, discussion, legislative action and networking. We host over 40 live events a year around Puget Sound and they are all open to the public. If you’ve never attended one of our meetings, just email our office at [email protected] and be our guest for free!”
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A Series for the New Real Estate Investor.
In this article, we continue our discussion of commercial real estate investment. Commercial real estate encompasses a number of property types. It includes multifamily properties with five or more units, office, retail, warehouse, industrial, health care facilities, self-storage and manufacturing facilities, to name a few. Commercial properties are typically financed with a different type of loan than residential.
In commercial real estate, properties are ranked in terms of age and location as “A,” “B,” “C,” or “D” properties. REAPS guest speakers David Lindahl and investor Sue Nelson defined these classifications as follows:

“A”  properties are the highest end, luxury properties, built in the last 10-15 years and in prime urban locations.

“B”  properties are in mixed blue collar/white collar neighborhoods, and built 10-20 years
ago.

“C”  properties are in primarily blue collar neighborhoods, and built 20-30
years ago.

“D”  properties are in more marginal or war zones, more than 30 years old and typically functionally obsolete. They generally need a good deal of work to rehab or upgrade. As we discussed last month, Capitalization (Cap) Rates are used as a key measure of value in any commercial property. Cap Rates typically increase from A to D properties, with A
properties having the lowest cap rates and D properties the highest. Cap rates are a measure of risk.

Cap Rate = Net Operating Income/Purchase Price

Net Operating Income (NOI) is determined by subtracting all expenses other than financing costs (debt service) from Gross Annual Income, which is all revenue generated by the commercial property.  Debt service, or the financing in place on a commercial property, comes into play when calculating Cash-on-Cash Return.

Cash-on-Cash Return = (Net Operating Income – Debt Service) /Acquisition CostsAcquisition Costs are all the money put down to purchase a , including down payment, closing costs and acquisition fees. According to Dave Lindahl, multi-family acquisitions guru, the amount of acquisition costs an investor is willing to pay towards a commercial property will depend on the specific phase of that particular market cycle. Lindahl recommended that in a Buyer’s Market One or a Seller’s Market One, an investor might put down up to 15% in Acquisition Costs. In a Buyer’s Market Two, with more negotiating power, an investor may be able to put down as little as 10% in Acquisition Costs. But in a Seller’s Market Two, an investor might have to go as high as 20% in Acquisition Costs to acquire a good commercial deal.Certainly, buyers will pay more for commercial properties, but Lindahl is a proponent of putting down as little money as possible. This will actually increase the Cash-on-Cash Return for an investor, which Lindahl likes to see at 12 percent or higher.

There is much to learn for the commercial investor, but these last two articles in Doing Your First Deal will help the novice investor get started with terminology and understanding value.

This series of articles is a regular feature of the REAPS newsletter, and as REAPS Membership Coordinator, I welcome your feedback. Please let me know what topics you might like to see addressed in future articles for the novice real estate investor. I can be reached via email at: [email protected]

About the author…
Wendy Ceccherelli is the volunteer membership coordinator for REAPS. She has been a full-time real estate investor since 2006, and is the designated real estate broker for Home Land Investment Properties, Inc. Prior to her career in real estate, she spent twenty-five years as a government arts funder. More information on real estate topics may be found on her website at www.HomeLandSeattle.com.

“REAPS is the oldest – and largest – Professional Association for the real estate investor this side of the Mississippi. We provide education and networking resourc”es for real estate investors, those who want to be investors and anyone who provides value to our members. Our goals are to motivate and support our members and guests through education, discussion, legislative action and networking. We host over 40 live events a year around Puget Sound and they are all open to the public. If you’ve never attended one of our meetings, just email our office at [email protected] and be our guest for free!

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