Greetings from the metropolis of Cedar Crest, NM!

The Bank Allowed What?

Wow…has is been a long time or what?  I have been so busy with a real estate class (six weeks) and purchased an apartment building within the same time frame.  Just plain crazy so a lot of things got neglected…especially this blog.  Looks like we have another apartment building in the works (thanks to KB Realty)….things are looking busy for the next few months…at least I hope!

Anyway….

There is one thing I never heard of when it comes to investing… A Bank Approved Wrap.  BUT this one thing is a HUGE deal.  I have done several wraps before…..but never a bank approved wrap.  Now…remember…a wrap is when you “wrap” an existing mortgage with a brand new mortgage.  Read more about wraps HERE.

So what is the big deal?  Well, usually on wraps, there is always a small risk that the loan can be called due to the fact that the asset has been sold yet the loan is still in place.  This is a small risk because banks usually do not exercise the “due on sale” clause call if the loan is in good standing.  In other words, the payments are still coming in on time.  But…there is always a chance.  In any case, when we first approached the seller, the seller did a “no no” and asked if the lender if it would be okay to wrap the note.  Surprisingly, the lender said “yes”…..at first I thought there was a mistake….and I just felt someone misunderstood something.  But….I was wrong.  So, in the last week of December, we closed on an apartment building with only about 6% into the deal (commissions and closing costs).  No joke!

I even talked to my lender friends….they all NEVER heard of of such a thing….especially in commercial.

The beauty of the deal was that it was 80% occupied and still cash flowing.  The issue with the property was mismanagement.  Bad management with out-of-town owners is a great formula for opportunity.

Now…I have to give credit where credit is due.  Preston from KB Realty found this deal and made it happen.  James, a.k.a. “J” our attorney, worked hard during Christmas to get things right.  Having solid relationships was the only way to get this done….but I digress.

There were problems with the deal….more specifically, timing.  The sellers wanted to close before December 31, 2009….which only gave less than 30 days to close.  Now…. trying to close in 30 days during the holidays is impossible….so I thought.  I told Preston “there was NO WAY we could do it.”  Due diligence, attorneys, inspectors, banks, title companies….are hard to round up to work on a project anytime of the year….especially during the holidays….Forget about it!  Well…Preston pushed and pushed and the rest is history.

My partners and I learned something…..we don’t know everything…but thinking we do can lose us opportunities.

Thanks to Preston…David….J….

On to the next project!

DID HE SAY CHEESE OR LIENS?

Greetings from the metropolis of Cedar Crest, NM!

I hope this post finds all of you doing well.

Today’s post is yet another post on real estate terms/definitions.  Yesterday, my buddy Brian (from the great state of Oklahoma) called me to talk about a business deal he was considering.  After our phone conversation, I realized that I rattled off a bunch of investing lingo that I am not sure if I helped Brian or not.  But luckily, I can call him back.  But what about the rest of us?  If we do not understand the lingo….the language of the investment vehicle (stocks, real estate, etc.), we could position ourselves to lose a lot of money or even leave some money on the table.  So….let’s learn the language…..

Speak the language or DIE! (okay..not really…but…maybe LOSE!…?)

The real estate investment arena is filled with its own language and often features terms from property law, banking concepts and feudal times. As a continued segment to help you navigate the real estate investment lingo, we will be periodically posting commonly used real estate investment terms and definitions provided by many sources including www.investorwords.com and www.creonline.com.

This posting will focus on miscellaneous terms related to commercial real estate.

Affordability Analysis
Affordability analysis is the process lenders use to determine an individual’s ability to afford real estate. This includes examining income, available cash, real estate price, liabilities and other costs. Beginning investors should know and understand their affordability assessment.

Cost Value Logic
Cost value logic refers to a process where divisions or assets are analyzed based on economic rent and opportunity cost with the objective of determining which divisions or assets should be bolstered and which should be eliminated. Cost value logic is imperative to evaluating your real estate portfolio. By determining which investments are your highest producers for least liability and bolstering them, you can eradicate troubled investments and free cash for future investing. It will also allow you to limit your liability.

Economic Rent
Economic rent is the amount of money a property could produce if it were leased.

Escalation Clause
An escalation clause refers to a legal term in a contract that specifies that if costs go up, the rent will go up. For example, a multifamily lease to a tenant may state that if the landlord pays the gas bill, the rent may increase if the gas bill increases.

Free and Clear
Free and clear is a legal concept that refers to property rights. A free and clear title does not have liens or legal question regarding property ownership. Title companies and title insurance are used to make sure that real estate transactions only occur for free and clear titles. Free and clear titles are also referred to as perfect title.

General Lien
A general lien is a legal term that means an interest has been placed against all goods, not just the source of the debt, owned by the lienee. General liens do not apply to land or real property. When buying commercial real estate, you should always take title free and clear, meaning there are no liens against the property.

Income Property
Income property is any real property (real estate) acquired for generating income.

Rent Seeking
Rent seeking refers to spending limited resources to procure an asset that generates economic rent.

Transfer Earnings
Transfer earnings refer to the dollar amount that a production factor (land, labor or capital) must earn to be more valuable than repurposing it. For example, a multifamily unit property makes more money from leasing individual units than from just owner occupation.

Warranty Deed
A warranty deed given by the seller to the buyer guaranteeing title to the propery.

Well…that concludes today’s terms…..until next time…..rob