Question: Scott, I am looking at a house for sale by owner and the home is assessed by the county assessor at $50,000, the owner said to me, if you qualify you can assume my payments, she owns $30,000. Does that matter to the lending institution if I assume the loan and rent the property? Or what would be the best way to go about this? The lady still lives in the home, consequently it could be rented immediately.

How would you as experienced investor go about it? Which issues do I have to be careful about? Do you have any forms or contracts that you recommend I should use?

Answer: Assuming a real estate loan is the process of taking over the existing financing when purchasing the property with the lender’s approval.

The type of loan that your seller has makes all the difference in the world. If it is an FHA or VA loan, the first question to ask is “when was the loan initiated? Any loan written prior to 1989 were assumable without qualifying, whether they were FHA, VA, or conventional. Since then, the rules have changed. If the loan was written after 1989, conventional loans are generally not assumable. However, FHA and VA loans are generally assumable if you qualify.

To determine if you can assume the loan as a landlord who does not plan on living in the property, I suggest you get a copy of the mortgage and take a look at the clause pertaining to loan assumption.

Suppose you find that you can’t qualify to assume the loan but you still want the house. You could also buy the property subject to the existing financing.

When buying a property subject to, you are not getting the lender’s permission to buy the property. You a just taking the over the payments of the existing financing. Banks aren’t crazy about people just taking over their loans, but the fact is that they rarely learn of the transaction (unless you tell them). And as long as the payment gets made, they usually could care less who’s making it.

It looks as if you have some equity in the property, so buying it subject to the existing financing might be an excellent way to buy to get this property. If I were buying the property, I would only buy it subject to. I would not pay the seller much for their equity if the figures you gave me were accurate (somewhere close to $1,000).

As for forms and contracts, the first one you’ll need is a sales and purchase agreement. You can definitely use the one you got through Wealth School. Or, you can use the State contract (the one realtor’s use).

We recently had a speaker in Oklahoma City who came to talk about how to borrow money from private lenders. That speaker shall remain nameless in this article.

He presented some excellent information on how to get private money from friends, family, and associates. And he told us how he had gotten his first private lenders by doing some limited advertising to bring together a group in which he did a presentation.

The presenter left us with the impression that we, too, could use do limited advertising within our own State to attract local private lenders as long as we let our State Security Exchange Commission know what type of advertising we intended on doing.

I was curious about these disclosures, so I contacted our Oklahoma Security Exchange Commission. The regulator I spoke to was very helpful. I described the type of mortgaged backed note that I wanted to offer. I asked him about what I needed to do in order to stay in compliance with Oklahoma Securities laws.

He referred me to Section 202 of the Oklahoma Uniform Securities Act of 2004. It states that “[a] transaction in a note, bond, debenture, or other evidence of indebtedness secured by a mortgage [is exempt from registration] if…a general solicitation or general advertisement of the transaction is not made.”

Section 202 therefore seems to indicate that if you plan to advertise in an attempt to attract private lenders in the state of Oklahoma, you must register the security with the Oklahoma SEC.

Registration is a big deal because of the cost and effort involved. In discussing this with a few securities attorneys, it appears that it would cost $20,000 to $25,000 in legal fees.

When I asked the SEC regulator about what can happen to someone who attempts to advertise an unregistered security, it didn’t sound pleasant. He suggested it would cost must more in legal fees for that person to defend themselves for such a transgression.

He said it almost always bankrupts a business when this occurs.

Clearly, one would be ill advised to pursue the advertising suggested by the presenter. Friends, family, and associates are still in play.

Well, if you’ve been to this blog before, you probably noticed the new look. We’re still not quite finished with the whole thing, but we’re close. The programmer has done a great job.

Anyway, let me know what you think of the new look. Also, do you see anything that we could do better? Any problems? Let me know…

I’m all for reasonable consumer protections.  I’m in favor of environmental regulations. 

But these proposed regulations HUD is considering putting in place are absolutely ridiculous. 

When I first read them, I thought it was a hoax. 

Here are some comments about the proposed regulations made by Owen Irvine, economics professor at Michigan State University.  Owens does research at the Federal reserve bank in Boston.

” I am a Professor of Economics with a Ph.D from MIT with specializations in Urban Economics and Banking. There are serious omissions in these regulations. One third of Americans live in rental housing. Most cities have thousands of small landlords who own less than 5 houses or duplexes. The market for these rental houses and small apartment buildings is currently severely hurt by the lack of any bank or Fannie Mae mortgages for these types of dwellings. The only way to sell them is with owner financing as part of the terms of the sale. THERE NEEDS TO BE AN EXCEPTION IN THE LICENSING REQUIREMENTS THAT EXEMPTS FROM LICENSING OWNERS OF RENTAL PROPERTIES SELLING THEIR PROPERTIES. In truth, no cash is involved in these deals. They do not pose any risks for the financial system. Landlords who buy run-down houses and older mobile homes and fix them up and resell them also have no other source of financing. Generally their retail buyers will not qualify for a mortgage.

Without seller financing, landlords will not purchase these older houses and mobile homes, which will lead to them being abandoned by their sellers causing further decline in the American Housing stock and neighborhoods. Please provide an exception for licensing these fixer-upper landlords also. HUD needs to understand that the poor depend on rental housing markets and be sensitive to them.”

HUD is attempting to require that ANYONE who provides seller financing have a mortgage broker’s license. 

That isn’t providing consumer protection.  All such a move would do is further weaken an already weak housing market. 

What ever happened to free enterprise?  Is free enterprise a thing of the past?

Have these regulators completely lost their minds? 

I have a better idea for some new needed legislation.  Let’s make it illegal to concoct stupid laws that no more help this country and it’s inhabitants than a blindfold helps a race car driver. 

If you are reading this, you probably already know that Section 8 is a government sponsored rental assistance program for low income individuals. 

Everybody seems to be talking about how the great the section 8 program is.  It’s great for the person who getting the benefit because they get at least part of their rent paid by the government.  It’s great for the landlord because they get a check from the government that comes in as long as all the requirements of the program are met.

But just like everything else that sounds too good to be true, the devil is in the detials. 

I’ll give you an few examples.

Yesterday out office got a call from someone who very excited because she just got her section 8 voucher approved for a 2-bed rental.  She said her approval amount was $688 per month, and did we have anything available? 

Now first of all, section 8 doesn’t tell the individual that part of that money, approximately $150, is toward utility allowance.  But the tenat doesn’t know that.  They think the $688 is the amount of rent that section 8 will cover. 

Another bid one is their all bills paid deal. 

From a landlord’s perspective, you have to be careful about doing a contract with section 8 all bills paid.  We attempted last month with a one-bed unit.  The approved amount from section 8 was $565 per month. 

My plan was put a cap of $200 per month for the utilities (electric only, we included water at no extra charge), and make usage above that a lease violation subject to eviction.  Well, even the best laid plans get total messed up.  The day of lease signing, I found out from the housing authority that if we did it that way, we would run up again some affordability index for this person.  It would drop the total rent to $500, all bills paid.  Basically, the housing authority forces a landlord into complying with their model of how they think the world should work. 

Now I doubt the usage will be $200 per month on this unit, but I don’t think I would have agreed to this deal up front if I had all the details. 

The devil IS definitely in the details. 

And don’t get me wrong, I think section 8 is a heck of a good program.  If you are landlord, don’t do just one property like this because their is way too much of a learning curve about inspection requirements and other administrative hassles.  If you plan to 10 or 100, it can definitely be a fantastic money maker. 

Shortly after the first of the year, I put into play some adjustments to my real estate business to grow my portfolio of cash flow properties.

In the past, I’ve set goals and put plans together that have fallen flat. To prevent that from happening to these plans, I used a technique called inevitability thinking.

Inevitability thinking goes something like this: you come up with a set of conditions that virtually guarantee that some result that you’re looking for will come to pass.

Begin with a clear result in mind. For example, that could be a certain amount of money that you have in your bank account by a certain deadline. Maybe it’s a property that you buy within a certain period time. Having a certain timeframe, and it must be something you can measure and monitor along the way. The trick in inevitability thinking is coming up with some external conditions that you put in place that will virtually guarantee your desired result will happen. That’s kind of abstract, so let me give you a specific example.

If you’re anything like me, you’ve had a goal of losing weight before. Now I suppose that you have a goal of dropping let’s say 15 pounds in in two months. So I put myself on the scale and boy you see your right at 200 pounds. That means my goal is get down to 185 pounds within 2 months. If I just set that goal, “Yeah I want, I want to be 185 pounds” and then I flip on the tv and grab a beer, I’m not really moving in the right direction.

What I’m lacking is an external condition that would virtually guaranteed that I’m going to start loosing weight. What am I talking about? For example, I could get a gym membership down at the YMCA and hire a personal trainer. But I wouldn’t want to just leave it at that. I would want to set up an appointment with the trainer to work out three times a week. In addition, I could put in place a penalty for missing an appointment. Let’s say if I missed any of those appointments that you set up with the personal trainer then I would pay a hundred dollars each time to a charity.

All those conditions would serve to motivate me to get to the gym and work out. If I work out, I’m much more likely to start loosing weight. I could do the same thing with diet.

Back to the adjustments I decided to make to my business. The conditions I put in place were to increase focus on the vision for my business. To do that, I decided I needed to do pay close attention to my overall vision, and take a close look at that vision at least once per week. During that once per week look, I needed to put together a weekly plan.I committed to send an email to a friend of mine letting him know that I’d done my weekly planning.If I failed to do my weekly planning, I had to pay $50 to his charity. I also set up a monthly planning meeting to plan out my next month. I got several other people to agree to meet on the last Tuesday of each month at a specific place and time. We would all work on plan for the coming month.

This system of planning has worked very well in helping me to focus more on my vision.It is helping me to move closer toward this vision.

Tuesday night Robert and I interviewed Cory Boatright.  Cory had some really good stories to share. 

He also shared some great insights into why he started getting into doing short sales, and how he makes a lot of money with that technique. 

We had some challenges with people not being able to get onto the call.  So we decided to go ahead and send out a link to the recording of the call. 

We’ll keep up the link for the time being, so get it now if you want it. 

CLICK HERE TO GET THE INTERVIEW WITH CORY NOW.