Detroit Real Estate: The Best Opportunities in the World
First, I'd like to admit that I am an Optimist. In fact I’m an Optimist Club builder having built more than 130 Optimists Clubs around the world. If you live in another city, please do not hold it against me when I say that the best real estate deals in the world are in abundance in Detroit, Michigan. Detroit real estate is being purchased at 5%-40% of its value two years ago, albeit with risk if not done properly. Some homes in challenged areas are going for a mere $2,500 or less per house. These are homes that will one day appreciate back to their normal values of say $50,000 to $125,000. I look at this as great news for investors around the world.
In the real estate world, these are the worst of times and the best of times. In the current real estate market, banks and municipalities have too many houses which have been reverted to them from foreclosures of mortgages and property taxes. If you are an investor or if you can put together deals and investors, this can be the best of times. Finding money is tough but the deals today are great. I have been in the real estate business for more than 40 years, purchasing my first house at the age of 18. After more than 500 transactions and over $2 billion in real estate deals, I have never, ever seen a real estate market such as this, it is unbelievable. For the savvy real estate entrepreneur, you can make the greatest deals ever!
Let’s consider the people who have been devastated by the present market, people who have lost their jobs, cannot afford their mortgage payments and are delinquent for 90 days or more. They can possibility get the best deals of all including a short sale on their existing mortgage, possibly lopping off as much as 30-60% off their balance. The same principle applies to credit cards. Jobs may be scare but individuals will eventually get other jobs and the values of property will rise again. As a bonus, they will not have to pay taxes on the new found equity.
The scenario just presented is being played out in communities all across America and around the world. As easy as this sounds, it is not as easy to accomplish. These are great times for potential investors if you are associated with the right real estate agents, have a game plan and have access to capital.
Because the market has so many properties at a discount, many investors in their zest, purchase too many houses. You can create mega headaches if too many properties are purchased at once, especially if you cannot attend to all of your properties. There are plenty of thieves waiting to steal from you and your properties, thieves who will happily strip you of everything in the house including your piping and copper wiring. To avoid problems, you might want to consider a partner or at least a bonafide real estate property management firm that knows the lay of the land and can either rent or 'flip' the houses at attractive terms for today’s market.
Herb Strather
“The Master”
About Herb Strather.
Herbert (Herb) J. Strather, author of Getting Rich Is Easy and How to Survive and Thrive in a Recession, is a real estate expert who has purchased, brokered and developed more than 3 million square feet of real estate in Detroit, totaling more than $2 billion in real estate deals. A few of Strather's developments include Woodbridge Estates, a 46 acre, $100 million mixed use residential community, and the elegantly appointed, Hotel St. Regis in Detroit. Strather is one of the originators of the casino industry in Detroit and is the former Chairman of Atwater Entertainment which developed and sold Motor City Casino at an 1100% return to investors.
A philanthropist and member of several boards and organizations, Herb Strather is on the international board of Optimist International, an association of more than 3,000 Optimist Clubs worldwide dedicated to “Bringing out the Best in Kids”. Strather is a lecturer at the Summer Leadership Institute at Harvard Divinity School in Boston Massachusetts where he teaches Faith and Finance and is also a regular lecturer at the University of Michigan's Stephen Ross School of Business. Strather has also taught more than 2,000 students at Marygrove College and Wayne County Community College in Detroit. Strather is currently focusing his attention on helping students, homeowners and investors to 'survive and thrive' during the current real estate and financial crisis through his articles, books, CD’s DVD’s, seminars commercial tours and lecturers. Herb Strather is the proprietor of the Strather Academy which the fundamentals of locating, underwriting, structuring, acquiring, developing, managing, trading, and selling real estate, especially in urban areas. (www.stratheracademy.com). His firm Strather & Associates is located at 300 River Place Suite 6600, Detroit, Michigan 48207 313.446.6900.
Wednesday, August 5, 2009
Be your own Bank
Be your own Bank
The art of creating non taxable cash
In times like these, we all need a bigger balance sheet, especially if it will help repair credit and give us future liquidity. If you are struggling to save as most people are today, try borrowing to purchase a Certificate of Deposit (CD). The results will be like a forced savings account with benefits. Let’s discuss this interesting concept. Start by placing money in the bank and borrowing against it – better yet, put as much money as possible in the bank and borrow against it, say $100,000. You might say, “I have no money” and that's OK. Borrow money from a friend for one hour (if possible), place it in the bank, borrow against it and pay your friend back – got that? If you don’t have a friend with money, try a community credit union, it should have a Credit Builders program (I helped to create it.) Why, you ask, should I do that Herb? There are six good reasons: (1): it will give you an instant balance sheet especially if the CD is in your name and the loan is in your business name. In this instance, you will have a contingent liability and your business will have the liability (2): it forces you to save – every time you make a payment you are amortizing the loan and creating equity for yourself; (3): it gives you interest on your tax return, once the banks start lending again, it proves to a lender that you are capable of maintaining a savings account; (4): it could be evidence of liquidity which you may need one day; (5): if you pay according to the terms of the loan, it increases your credit score; (6): it gives you an important relationship with the bank which you will need if you are going to be successful in the real estate business and most importantly; (7): it may allow you act as your own bank, affording you an opportunity to replace the collateral perhaps with real estate and release all or some of the CD as collateral thus, you have just pulled out non-taxable cash! Remember, you do not pay taxes on borrowed funds and it's a lot easier to substitute collateral than to borrow new money nowadays.
It is important that you do not pay too much for this opportunity. The spread between the rate you receive and the rate you pay should be no more than 25% if you have a decent credit score. By way of example, say the bank pays you 4% and you borrow at 5%. A $100,000 loan would therefore cost you net interest of only $1,000 annually the first year. This amount would decrease of course each year as you amortize the loan. At one point the loan itself would become self amortizing. As you pay the loan down, the principal balance is accruing interest and going up. When the interest on the CD is greater than the interest on the loan, your loan becomes self-amortizing. This could even serve as a retirement account. However, if you use it as a retirement account, your business should be the borrower and you should hold the CD in your name, this way the interest payable may be tax deductible.
Herb Strather
"The Master"
www.stratheracademy.com
The art of creating non taxable cash
In times like these, we all need a bigger balance sheet, especially if it will help repair credit and give us future liquidity. If you are struggling to save as most people are today, try borrowing to purchase a Certificate of Deposit (CD). The results will be like a forced savings account with benefits. Let’s discuss this interesting concept. Start by placing money in the bank and borrowing against it – better yet, put as much money as possible in the bank and borrow against it, say $100,000. You might say, “I have no money” and that's OK. Borrow money from a friend for one hour (if possible), place it in the bank, borrow against it and pay your friend back – got that? If you don’t have a friend with money, try a community credit union, it should have a Credit Builders program (I helped to create it.) Why, you ask, should I do that Herb? There are six good reasons: (1): it will give you an instant balance sheet especially if the CD is in your name and the loan is in your business name. In this instance, you will have a contingent liability and your business will have the liability (2): it forces you to save – every time you make a payment you are amortizing the loan and creating equity for yourself; (3): it gives you interest on your tax return, once the banks start lending again, it proves to a lender that you are capable of maintaining a savings account; (4): it could be evidence of liquidity which you may need one day; (5): if you pay according to the terms of the loan, it increases your credit score; (6): it gives you an important relationship with the bank which you will need if you are going to be successful in the real estate business and most importantly; (7): it may allow you act as your own bank, affording you an opportunity to replace the collateral perhaps with real estate and release all or some of the CD as collateral thus, you have just pulled out non-taxable cash! Remember, you do not pay taxes on borrowed funds and it's a lot easier to substitute collateral than to borrow new money nowadays.
It is important that you do not pay too much for this opportunity. The spread between the rate you receive and the rate you pay should be no more than 25% if you have a decent credit score. By way of example, say the bank pays you 4% and you borrow at 5%. A $100,000 loan would therefore cost you net interest of only $1,000 annually the first year. This amount would decrease of course each year as you amortize the loan. At one point the loan itself would become self amortizing. As you pay the loan down, the principal balance is accruing interest and going up. When the interest on the CD is greater than the interest on the loan, your loan becomes self-amortizing. This could even serve as a retirement account. However, if you use it as a retirement account, your business should be the borrower and you should hold the CD in your name, this way the interest payable may be tax deductible.
Herb Strather
"The Master"
www.stratheracademy.com
The Art of Creating Equity
The Art of Creating Equity
By
Herbert J. Strather
The airwaves are full of promoters, authors and so-called real estate experts telling you how to purchase property with no money down. I have read very little ‘properly structured’ transactions allowing for 'no money down'. No money down deals are great and feasible but they must be structured properly. Making a secret deal with the seller for money under the table or falsifying a purchase agreement to a lender is fraught with problems that could even land you in jail. On the other hand, most lenders will not knowingly allow you to purchase property with no money down (on arm length purchases) or take money from the closing table even if you are buying the property at a deep discount. Most lenders residential mortgage policies are to loan 75% to 95% of the purchase price or appraisal price, whichever is less. So how then does a purchaser structure a compliance transaction that results in them taking money away from the closing table?
The first step is to find a deal with plenty of equity in it. That should be the easy part nowadays as deals are everywhere. Just make sure you check out the comparables to confirm the value and have good comps for the appraiser. In the case of income property, carefully underwrite the deal by arriving at a projected Net Operating Income (NOI). Some municipalities adjust or 'uncap' property taxes after a sale. If you do not determine what your future property assessment will be upfront, you could have a very bad day after you have acquired the property and your assessment triples. If any of you are unable to properly underwrite deals to arrive at a reliable projected NOI, then stay tuned to my future articles or you can acquire a proforma disk with instructions by ordering directly from our website at: www.stratheracademy.com.
Once you have arrived at an estimated value and a NOI, it is time to negotiate with the seller. Always approach your seller with an open mind. I often say that if the seller is blue then you be blue. Find common ground with the seller. Never sit down and commence negotiations without breaking the ice. Once the seller is relaxed and ready to listen, carefully explain your offer to the seller. You should have thought through your approach in advance of the meeting. Let’s use an example of a two flat that would be worth say, $100,000 if it is fixed up. Let’s say the property is in slight disrepair and could use about $15,000 worth of upgrading. You might offer the seller in today's market around $40,000. This amount represents a conservative price in the current real estate market for a 2-flat that requires repairs. If the seller accepts this amount as his net sales price, you must then ask the seller the magic question. “Mr. Seller, if we agree on the price and terms you want ,do you mind how I structure the deal so long as it has no adverse ramifications to you?” I have never had a seller turn me down however, if the answer is negative then get up and leave, find another deal. If the seller goes along with the proposition, then my friend you are almost home.
The idea here is that you want to buy the property with a fix up budget attached. The fix up responsibility along with the check to pay for the work should be transferred from the seller via the title company, to your friendly contractor at closing. The last thing you want is to buy a dog and then try to find the money to fix it up. You should fix up the property immediately after closing for all stakeholders which includes you, the community, the lender and the future tenants.
Someone once asked me, What price does your purchase agreement reflect on the 'creative deals' that you do? My answer was simply, the maximum price possible! The difference between what the seller wants and the mortgage amount less fix-up and mortgage costs belongs to the purchaser. You want the maximum price possible in order to receive the maximum possible mortgage in order for you to have adequate funds to complete repairs. It may also ensure the possibility of money left over to put in your pocket. In addition, you want the highest price possible because you want to protect the comparables in the community. One of the worst things you can do is to lower the values in a community by recording a low purchase price. Remember, the stated purchase price in the purchase agreement does not necessarily reflect what you are actually paying after you deduct credits for repairs, closing costs and fees if you are a real estate agent.
So the only real question we have pending is how do you get money back at closing?
i. Enter into a fully priced purchase agreement with contingencies. An example would be worded as, “This sale is contingent on seller being responsible for all reasonable improvements that the city inspectors, the buyer or their home inspector requests, to be determined within 45 days after this agreements date of origination. If seller and buyer cannot come to terms, this transaction shall be cancelled and the deposit returned to the buyer”. Note: there is no mention of the seller’s net amount. Try to put this language in the body of the purchase agreement and not on a rider. If this is in a rider, it will draw the attention of the lender.
ii. Have your mortgage approved (within the 45 days) then finalize the purchase agreement. At this point, you will know the net mortgage proceeds so you and the seller can come to terms.
iii. At the closing, the repair funds are paid to your friendly contractor, to complete repairs for you. The check should also include the buyers’ name to ensure the repairs are completed satisfactory before the contractor negotiates the check.
When all the smoke clears, your numbers should look like this:
Sales Price: $100,000
Down Payment: -$20,000 (possibly via a trade or note if you have no cash)
Mortgage : $80,000
Proceeds to seller: -$40,000
Gross to buyer: $40,000 (less closing costs, plus note)
Less closing costs -$5,000
Less repairs -$15,000 - $35,000
Net to buyer 0 - $20,000
Under this scenario your friendly contractor (and you) should walk away from the closing table with a check for about $35,000 (plus your promissory note of $20,000). This amount represents the net proceeds after subtracting closing costs and adjustments. Perhaps you can help the contractor fix up the property for reduced costs.
One last important thing, try not to acquire a property that needs a lot of obvious fix up. The lender might escrow the funds with the title company to be disbursed after the repairs are completed and the buyer will not walk away with money unless the buyer does the fix-up based on a competitive bid. To learn more about creative purchase agreements and strategies please considered purchasing ‘Getting Rich Is Easy’ by going to www.stratheracademy.com
About Herb Strather.
Herbert (Herb) J. Strather, author of Getting Rich Is Easy and How to Survive and Thrive in a Recession is a successful businessman and real estate entrepreneur who has purchased, brokered and developed more than 3 million square feet of real estate totaling more than $2 billion in real estate deals. Some of his noteworthy developments that have significantly impacted Detroit includes Woodbridge Estates, a 46 acre, $100 million mixed use residential community and the elegantly appointed, Hotel St. Regis. He is one of the originators of the casino industry in Detroit and is the former Chairman of Atwater Entertainment which developed and sold Motor City Casino.
A philanthropist and member of several boards and organizations, Herb Strather is on the international board of Optimist International, an association of more than 3,000 Optimist Clubs worldwide dedicated to “Bringing out the Best in Kids”. Strather has personally established more than 130 Optimist Clubs worldwide. Strather has lectured at the Summer Leadership Institute at Harvard Divinity School where he teaches Faith and Finance and is also a regular lecturer at the University of Michigan's Stephen Ross School of Business and Wayne County Community College in Detroit. Strather is currently focusing his attention on helping people to 'survive and thrive' during the current real estate and financial crisis through his books, DVD’s, seminars, lecturers and Strather Academy (www.stratheracademy.com)
By
Herbert J. Strather
The airwaves are full of promoters, authors and so-called real estate experts telling you how to purchase property with no money down. I have read very little ‘properly structured’ transactions allowing for 'no money down'. No money down deals are great and feasible but they must be structured properly. Making a secret deal with the seller for money under the table or falsifying a purchase agreement to a lender is fraught with problems that could even land you in jail. On the other hand, most lenders will not knowingly allow you to purchase property with no money down (on arm length purchases) or take money from the closing table even if you are buying the property at a deep discount. Most lenders residential mortgage policies are to loan 75% to 95% of the purchase price or appraisal price, whichever is less. So how then does a purchaser structure a compliance transaction that results in them taking money away from the closing table?
The first step is to find a deal with plenty of equity in it. That should be the easy part nowadays as deals are everywhere. Just make sure you check out the comparables to confirm the value and have good comps for the appraiser. In the case of income property, carefully underwrite the deal by arriving at a projected Net Operating Income (NOI). Some municipalities adjust or 'uncap' property taxes after a sale. If you do not determine what your future property assessment will be upfront, you could have a very bad day after you have acquired the property and your assessment triples. If any of you are unable to properly underwrite deals to arrive at a reliable projected NOI, then stay tuned to my future articles or you can acquire a proforma disk with instructions by ordering directly from our website at: www.stratheracademy.com.
Once you have arrived at an estimated value and a NOI, it is time to negotiate with the seller. Always approach your seller with an open mind. I often say that if the seller is blue then you be blue. Find common ground with the seller. Never sit down and commence negotiations without breaking the ice. Once the seller is relaxed and ready to listen, carefully explain your offer to the seller. You should have thought through your approach in advance of the meeting. Let’s use an example of a two flat that would be worth say, $100,000 if it is fixed up. Let’s say the property is in slight disrepair and could use about $15,000 worth of upgrading. You might offer the seller in today's market around $40,000. This amount represents a conservative price in the current real estate market for a 2-flat that requires repairs. If the seller accepts this amount as his net sales price, you must then ask the seller the magic question. “Mr. Seller, if we agree on the price and terms you want ,do you mind how I structure the deal so long as it has no adverse ramifications to you?” I have never had a seller turn me down however, if the answer is negative then get up and leave, find another deal. If the seller goes along with the proposition, then my friend you are almost home.
The idea here is that you want to buy the property with a fix up budget attached. The fix up responsibility along with the check to pay for the work should be transferred from the seller via the title company, to your friendly contractor at closing. The last thing you want is to buy a dog and then try to find the money to fix it up. You should fix up the property immediately after closing for all stakeholders which includes you, the community, the lender and the future tenants.
Someone once asked me, What price does your purchase agreement reflect on the 'creative deals' that you do? My answer was simply, the maximum price possible! The difference between what the seller wants and the mortgage amount less fix-up and mortgage costs belongs to the purchaser. You want the maximum price possible in order to receive the maximum possible mortgage in order for you to have adequate funds to complete repairs. It may also ensure the possibility of money left over to put in your pocket. In addition, you want the highest price possible because you want to protect the comparables in the community. One of the worst things you can do is to lower the values in a community by recording a low purchase price. Remember, the stated purchase price in the purchase agreement does not necessarily reflect what you are actually paying after you deduct credits for repairs, closing costs and fees if you are a real estate agent.
So the only real question we have pending is how do you get money back at closing?
i. Enter into a fully priced purchase agreement with contingencies. An example would be worded as, “This sale is contingent on seller being responsible for all reasonable improvements that the city inspectors, the buyer or their home inspector requests, to be determined within 45 days after this agreements date of origination. If seller and buyer cannot come to terms, this transaction shall be cancelled and the deposit returned to the buyer”. Note: there is no mention of the seller’s net amount. Try to put this language in the body of the purchase agreement and not on a rider. If this is in a rider, it will draw the attention of the lender.
ii. Have your mortgage approved (within the 45 days) then finalize the purchase agreement. At this point, you will know the net mortgage proceeds so you and the seller can come to terms.
iii. At the closing, the repair funds are paid to your friendly contractor, to complete repairs for you. The check should also include the buyers’ name to ensure the repairs are completed satisfactory before the contractor negotiates the check.
When all the smoke clears, your numbers should look like this:
Sales Price: $100,000
Down Payment: -$20,000 (possibly via a trade or note if you have no cash)
Mortgage : $80,000
Proceeds to seller: -$40,000
Gross to buyer: $40,000 (less closing costs, plus note)
Less closing costs -$5,000
Less repairs -$15,000 - $35,000
Net to buyer 0 - $20,000
Under this scenario your friendly contractor (and you) should walk away from the closing table with a check for about $35,000 (plus your promissory note of $20,000). This amount represents the net proceeds after subtracting closing costs and adjustments. Perhaps you can help the contractor fix up the property for reduced costs.
One last important thing, try not to acquire a property that needs a lot of obvious fix up. The lender might escrow the funds with the title company to be disbursed after the repairs are completed and the buyer will not walk away with money unless the buyer does the fix-up based on a competitive bid. To learn more about creative purchase agreements and strategies please considered purchasing ‘Getting Rich Is Easy’ by going to www.stratheracademy.com
About Herb Strather.
Herbert (Herb) J. Strather, author of Getting Rich Is Easy and How to Survive and Thrive in a Recession is a successful businessman and real estate entrepreneur who has purchased, brokered and developed more than 3 million square feet of real estate totaling more than $2 billion in real estate deals. Some of his noteworthy developments that have significantly impacted Detroit includes Woodbridge Estates, a 46 acre, $100 million mixed use residential community and the elegantly appointed, Hotel St. Regis. He is one of the originators of the casino industry in Detroit and is the former Chairman of Atwater Entertainment which developed and sold Motor City Casino.
A philanthropist and member of several boards and organizations, Herb Strather is on the international board of Optimist International, an association of more than 3,000 Optimist Clubs worldwide dedicated to “Bringing out the Best in Kids”. Strather has personally established more than 130 Optimist Clubs worldwide. Strather has lectured at the Summer Leadership Institute at Harvard Divinity School where he teaches Faith and Finance and is also a regular lecturer at the University of Michigan's Stephen Ross School of Business and Wayne County Community College in Detroit. Strather is currently focusing his attention on helping people to 'survive and thrive' during the current real estate and financial crisis through his books, DVD’s, seminars, lecturers and Strather Academy (www.stratheracademy.com)
Herb Strather, Real Estate Expert and Guru, to speak at College on Making Money in a Recession
Herb Strather, Real Estate Expert and Guru, to speak at College on Making Money in a Recession
Mr. Herb Strather will be sharing how to make money in real estate investing in down turn market.
Herb Strather has a long, successful history of identifying residential and commercial investment properties. Mr. Strather will be speaking on how to make a boat load of money in our current recession at Wayne County Community College District on August 20th.
From 6 pm to 7 pm there is networking. From 7pm to 9pm Mr. Herb Strather will be speaking. Herb will being giving great information making money when the market crashes.
The Strather & Associates of 2009 is a diverse, multifaceted enterprise whose portfolio includes over3.25 million square feet of commercial and residential properties for lease, buildings for lease, office space to let and numerous commercial property development projects all of which is responsible for over $1 billion in transactions. Strather & Associates real estate brokerage specializes in urban development, commercial property listings, acquisition strategies, commercial property rental and real estate turnarounds.
The Herb’s corporate philosophy holds that it is not only possible but essential to simultaneously renew economically disadvantaged urban neighborhoods, maximize value for investors and empower individuals to achieve to the level of their greatest potential.
Herb Strather the author delivers a broader view of his philosophy in his latest book, “How to Survive and Thrive in a Recession.” He describes his new book as a step-by-step guide targeted to everyone from homeowners facing foreclosures to commercial property investment opportunities for the entrepreneurs hoping to cash in on today’s unprecedented residential investment opportunities. If the reader is serious, this manual is worth its weight in gold and can be the ticket to success in real estate, even in today’s market.
The Mega Evening Event will be on Thursday, August 20, 2009; from 6pm to 9pm; at Wayne County Community College Eastern Campus, Cooper Room;. 5901 Conner Detroit, MI 48213.
Mr. Herb Strather will be sharing how to make money in real estate investing in down turn market.
Herb Strather has a long, successful history of identifying residential and commercial investment properties. Mr. Strather will be speaking on how to make a boat load of money in our current recession at Wayne County Community College District on August 20th.
From 6 pm to 7 pm there is networking. From 7pm to 9pm Mr. Herb Strather will be speaking. Herb will being giving great information making money when the market crashes.
The Strather & Associates of 2009 is a diverse, multifaceted enterprise whose portfolio includes over3.25 million square feet of commercial and residential properties for lease, buildings for lease, office space to let and numerous commercial property development projects all of which is responsible for over $1 billion in transactions. Strather & Associates real estate brokerage specializes in urban development, commercial property listings, acquisition strategies, commercial property rental and real estate turnarounds.
The Herb’s corporate philosophy holds that it is not only possible but essential to simultaneously renew economically disadvantaged urban neighborhoods, maximize value for investors and empower individuals to achieve to the level of their greatest potential.
Herb Strather the author delivers a broader view of his philosophy in his latest book, “How to Survive and Thrive in a Recession.” He describes his new book as a step-by-step guide targeted to everyone from homeowners facing foreclosures to commercial property investment opportunities for the entrepreneurs hoping to cash in on today’s unprecedented residential investment opportunities. If the reader is serious, this manual is worth its weight in gold and can be the ticket to success in real estate, even in today’s market.
The Mega Evening Event will be on Thursday, August 20, 2009; from 6pm to 9pm; at Wayne County Community College Eastern Campus, Cooper Room;. 5901 Conner Detroit, MI 48213.
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