Using IRA Funds to Invest in Hard Money Loans

Filed under Investing by on April 26, 2012 at 5:07 pm {no comments}

Many of the loans that we put together are funded by individuals using IRA funds. Investing in hard money loans offers better returns than many other investments, and is also one way you can diversify your holdings.

Current hard money conditions present a unique opportunity to those investing in deeds of trust. The recent downturn in the real estate markets was one of the largest downturns we’ve seen. Values are still depressed. While this is not great for the average consumer, it does provide good conditions for trust deed investors.

With the markets down and the steep losses they left many with, hard money loans are not nearly as aggressive as they were five years ago. Typically speaking, most hard money loans are being written at 50-60% loan to value. This is a loan to value based on current value, not the value of five years ago. If you believe the real estate markets are at or near bottom, this leaves a nice cushion of protective equity to secure your investment.

In addition to lower loan to value ratios based on lower values, the people borrowing hard money these days are more credit worthy (generally speaking). It is not uncommon for people with excellent credit to still need hard money to finance their real estate projects. With better borrowers, lower loan to value ratios and a depressed real estate market within which to base a valuation on, you can still earn a double digit return on funds invested.

The average IRA custodian will not be set up to allow investments of this nature, but there are a number of self directed IRA companies that are set up in this manner. Investing in real estate trust deeds is not for most investors. Those who do choose to invest in this manner should seek legal council and have a good understanding of the process as there are strict rules to which you must adhere.

For those who are comfortable with investing in hard money loans, though, it can be a very rewarding experience. Investing locally, you can personally visit each property you choose to invest in personally. Finding local hard money lenders to work with is one way you can find transactions that may fit your investment strategy and goals. Regardless of the type of property or location you wish to invest in, chances are good that there is a transaction that will fit the bill.

The Dodd Frank Act – Impacts From the Passage of the Dodd Frank Bill

Filed under Finance News by on April 20, 2012 at 11:09 am {no comments}

So I got an interesting email today about the Dodd Frank Act and the impact it is having, and will have, on lenders. This is an eye opener, and worth sharing. The passage of the Dodd Frank Bill is ushering in a mountain of work for lending institutions to comply with the rules, and it is not even halfway to being fully written!

There is an online tracker put out by the Financial Services Committee, aimed at helping people keep track of the new regulations required by the Dodd Frank Act. An expert from the financial services webpage really highlights the ridiculousness of how far this act goes. According to the site:

Oversight and Investigations Subcommittee Chairman Randy Neugebauer noted that it will take businesses more time to comply with Dodd-Frank rules than it took to build the Panama Canal.

“It will take over 24 million man hours to comply with Dodd-Frank rules per year. It took only 20 million to build the Panama Canal,” said Rep. Neugebauer.

Again, according to the financial services website:

Dodd-Frank, passed by Congress in 2010, mandates that government regulators write over 400 new rules and requirements that will be imposed on the private sector. Since the law was signed by President Obama in July 2010, the Dodd-Frank Burden Tracker reveals:

• regulators have written 185 of the 400 rules;
• these 185 rules consume 5,320 pages;
• it will take private sector job-creators 24,035,801 hours every year to comply with these first 185 Dodd-Frank rules.

You can read the full article here and you can follow the Dodd-Frank burden tracker here.

So where are all these extra hours going to come from? What about the small community banks, are they going to be put out of business by this act once it is finally fully written?

I have concerns about what I’m reading, and this information is not coming from a random website, but from a government website and entity that is following the Dodd Frank Act and the impact it will have.

This is important information, please share this with your friends and business partners!

FHA Lending Tightens Up, Consumers to Consider Residential Hard Money Lenders?

Filed under The Real Estate Market by on April 2, 2012 at 4:14 pm {no comments}

The latest development in the ongoing real estate and finance saga is new, tighter regulations for FHA loans. Will these tighter standards force more consumers to consider residential hard money lenders to fund their real estate purchase?

While the regulations may impact some consumers who could end up turning to hard money as an alternative source of funding, the reality is that the vast majority of those impacted would not be able to qualify for a hard money loan. Yes, that’s right, I’m saying that the borrowers who cannot qualify for an FHA loan based on these new regulations are borrowers, for the most part, who would not qualify for a hard money loan.

Most of those impacted by this regulation are those putting 3.5% down on a home. So they are being financed 96.5% of the purchase price. At that level, the FHA wants to ensure that all their debt is accounted for. Makes sense, especially since the high loan to value loans are typically the most risky. Here’s an overview of the regulations from CNN Money:

Starting April 1, borrowers in ongoing disputes with creditors over debts of $1,000 or more may no longer qualify for FHA-insured loans. Even borrowers with perfect credit scores can be denied over a single $1,000 problem charge.

The change is part of the agency’s effort to reduce its risk as it grapples with a depleted reserve fund that has fallen below legally-mandated levels. The FHA insures mortgages which are originated by private lenders. To help bolster its capital reserves, FHA will also hike the insurance premiums it charges borrowers beginning in April.

The new rule requires borrowers with loans in collection that add up to at least $1,000 to either pay off the debt, prove they’re making payments on the disputed loans or explain why the disputed loan is somehow wrong — and document their case — before they can close on a FHA loan.

Disputed accounts going back more than two years, along with those related to fraud or identity theft, will not count against borrowers, according to the FHA, but lenders must get evidence, such as police reports, that document client claims of identity thefts or fraud charges

(Read the full article here)

So basically they are saying that if you want to buy a home and put only 3.5% down, you have to take care of outstanding issues on your credit report. It makes sense to me. Although this has the potential to slow the housing market some if many borrowers cannot qualify for an FHA loan, it is a risk reduction tactic that can help ensure borrowers are able to meet their housing obligations.

To come back to our original point of these turn down borrowers not being able to qualify for a loan from residential hard money lenders. The reason this is true is not due to the credit, but due to the down payment requirement. While FHA and other conventional loans require credit worthiness to mitigate risk, hard money lenders require equity to mitigate risk. On a residential purchase, a borrower really needs to put down at a bare minimum 30% to obtain a hard money loan. That is unrealistic to many would be home buyers.

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