## What is your Retirement Number?

February 20, 2015

Guest Article by Paul McGarigal:

When asked, “What is your number?” many people have no idea what you are talking about. The number, of course, is the amount you will need to retire. Let’s take a look at how to figure out your retirement number.

If you now live on \$7,500 a month gross combined income, that’s a \$90,000 per year family income. Sounds like a lot to most people, yet this income amount puts you in the top 15 percent of all families in the United States. If each person in a retiring couple receives about \$1,500 a month from Social Security, then that’s only \$3,000 a month toward the \$7,500. Where will the other \$4,500 a month come from?

Here’s one scenario: If you manage to save \$300,000 in your IRA/401K by the time you retire at a 5 percent annual return (of which there may not be too many offering that return) that would be \$15,000 a year or \$1,250 per month, which is not enough. But how about \$1,200,000 at 5 percent? That’s \$60,000 a year, or \$5,000 a month, which when added to your \$3,000 Social Security benefit will put you closer to what you need to live the same as you did when you worked.

So if \$1,200,000 is your retirement number, how are you going to get that amount in the years you have left to work? Let’s say you are 40 years old and will work 25 more years. The math is easy. \$1,200,000 divided by 25 is \$48,000. This is the amount needed each year to add up to \$1,200,000 over 25 years.

How are you going to get \$48,000 a year, you ask? Real estate. You can purchase a home for 3.5 percent – 25 percent down, depending on its use. Then, with the help of a real estate professional, you can learn how to have tenants pay your mortgage for the next 15 – 25 years, while you receive tremendous income tax advantages. This may be the only way you will ever come close to saving or accumulating a \$1,200,000 nest egg for retirement.

Just three houses at \$250,000 each now will double in value over the next 25 years, assuming only a 2.9 percent average rate of appreciation. So, \$250,000 multiplied by three is \$750,000 and multiplied by two is \$1,500,000. Selling them at age 65 would fund your nest egg and help you enjoy 20 to 40 years of retirement.

Of course, this is the short version of a much more complex formula that will be different for each couple. But hopefully you are at least thinking about your retirement number and now see how real estate and a knowledgeable real estate agent can help you get closer to reaching your goal.

Paul McGarigal has been in the top 1 percent of all Realtors in Central Florida every year for the past two decades. He is also very involved in his community and volunteers with youth sports and the YMCA, among many other non-profits. This article was also featured in the April 2013 edition of  Central Florida Lifestyle

## It All Starts With Saving

February 3, 2015

Article by NuView president, Glen Mather:

We generally become the summation of our habits, the outgrowth of our discipline, and the energy of our ambitions.

Ever hear anyone say, when challenged about their attitudes and habits, “I’m sorry, but that’s just the way I am?” I’m certain that they don’t mean to convey that they are unwilling to evolve or change, even in a positive way, but those statements reinforce the sense that they feel content with their current situation no matter how negative it may be.

When is it too late? Only when you can no longer effect change. As long as a conscious effort can be exerted, you still have time.

Last month, I read a wonderful book called Cash Flow Diary by J Massey. When I met Massey, I saw him speak in front of hundreds of investors, and later I invited him to speak at our annual Planning for Prosperity conference in Orlando. I had a very unusual response to his book on real estate investing – I started flossing regularly.

I was struck by Massey’s assertion that he had come to the realization that there were a few tasks that he routinely did every day, and if he had to perform them, why not do each well? His thought was, “I’m already at the sink, just brushed my teeth – flossing will only take about 2 more minutes.” He then purposed to make it a habit, and after 30 days flossing became routine, so much so that he referenced it in his book.

If Massey could do it, so could I, and it’s true… I just returned from my annual dental check-up and received high marks from my hygienist that my gums were the best ever. Who knew that it would be so easy to establish such a sensible habit?

Most of our negative habits are formed, not by thinking, but by the absence of thought. I have little doubt that most people’s attitude about money is formed the same way. Do you see the extra dollar in your pocket as a measurement of what you can consume, or how much more you can invest?

My friend Greg tells me that he drives an older model truck, despite his ability to afford something new, because for the price of a \$40,000 truck he can buy a run-down property that he can rehab and rent for \$600 per month. Greg, instead of purchasing an asset that quickly depreciates, is purchasing a type of an annuity with an income stream of about \$5,000 per year after expenses, and Greg gets a bigger kick out of his balance sheet than what is parked in his garage.

Unfortunately, most Americans do not share Greg’s values. According to a recent survey by the Federal Reserve, about 1/3 of non-retired US Households have no retirement savings or pension. Among those aged 55-64, more than half said they expect to work “as long as possible” rather than work full time to a set date and stop working. (Federal Reserve Report on the Economic Well-Being of US Households, Aug 7, 2014)

Why is such a large portion of our citizenry unable to prepare for retirement? For a small number of households, it may be due to dire economic hardship. However, for most the habit of saving was probably never established in the first place.

I can see it with our clients – there are those who have been faithful savers as well as those who waited way too long to start with retirement age rapidly approaching.

Just think of savings like flossing. It is far more valuable if you start young, yet any day you start will produce results immediately and will accrue long-term benefits once it is established as a habit. So rather than setting a large savings objective, just start with a percentage of your earnings, and as your earnings improve just increase the percentage. Then teach your children and grandchildren to do the same.  Better yet, when those savings are in a self-directed retirement plan you avoid the tax bite – and that’s an idea to sink your teeth into.

## Demographics and Scarcity Converge: The Boomers Move South

Guest Article by Michael Cobb:

If you had a time machine and could see the future, would you be able to make better decisions? Would you be a better investor? They seems like silly questions, but we would make better decisions if we knew the future, wouldn’t we? If we could see what was going to happen, we would develop products and services that everyone wants and needs, and then of course, we’d do very well for ourselves.

While we can’t go forward in time for a sneak peek, we can spot emerging trends. When the macro-demographics line up behind that trend, get ready. There is going to be a lot of money to be made by somebody. Why not you?

I was among those fortunate enough to be a part of the early computer wave of the late 1980’s and early 90’s. Now the truth be told, it wasn’t foresight that put me there…just plain luck. But there I was, and it was a great time to be in the computer business.

The major reason the tech sector performed so well when it did was the combination of two factors. The Baby Boomers moved into management positions in industry at the same time that the personal computer became a product mature enough to be of significant useful value for individuals and corporations. It was a powerful convergence of two factors that lead to the great adoption of PC’s and their massive widespread use. It also helped that the Baby Boomers generally rebelled against centralized authority.   Remember the Apple commercial railing against Big Brother?

The success of the PC and the fortunes made is a great example of the convergence of demographics and scarcity. More people wanted PC’s more than were available for a significant period of years. It produced huge opportunities for investors and entrepreneurs. Profits from computer and software sales were enormous because initially scarcity reigned. Consumers demanded a product and production facilities were not in place to produce the quantities demanded.

Over a period of about 10-12 years, the scarcity element waned because thousands of factories were built to supply the components needed to assemble the millions of PCs required each year. Prices and profits fell. The number of players in the market also constricted substantially leaving only the companies that produced a high quality product.

Interestingly, the names of these companies are largely the same as the ones who entered the market first, IBM, Dell, HP, Toshiba, Apple, and Microsoft. Those that arrive first, and perform well, stake a strong claim in the most fertile territory, and reward customers and shareholders alike for the long term.

A huge convergence of demographics and scarcity is happening again. This time it is in preparation to serve Baby Boomers as they retire and age.  There are numerous sectors like health care poised to do well, but much of that future success has already been priced into the market. In order to really profit from this convergence, one must look under different rocks as my friend Steve Sjuggerud says.  Find opportunities others are overlooking. That is where the real pay dirt is.

One such opportunity is under our noses right now. We all know that the real estate sector has been hammered over the past 5 years and rightly so. In many parts of the world, price gains were fueled by a speculative bubble. The true consumer demand wasn’t there to feed the ultimate usefulness of the product and prices tumbled in response. It was a bloodbath for many, but the strong survived. The companies in business right now are those that stayed true to the consumer and produced a product that people wanted to own and use.

Products People Want – Sun City South-of-the-Border

The most successful retirement community brand in North America is Sun City. The developer, Del Webb, wanted to provide real community to active senior adults, and then let the retiree decide what part of the United States made the most sense for them. They developed communities in the deserts of Arizona, along the coasts of Florida and California, in Texas and the Mid-West, and the piedmonts of the East Coast. Del Webb knew how to build the services and amenities that everyone wanted and then offered clients the option to choose what type of climate and environment suited their needs and wants best. Their success has been unparalleled in the industry.

It is now possible to advance the Sun City concept one step further and create a menu of attractive lifestyle options to serve the millions now searching for retirement homes in Latin America. This is an already large market and it continues growing quickly. However, once outside of North America, a new set of considerations becomes critical.

Today’s consumers largely take for granted the basic comforts of reliable electricity, excellent water pressure, high-speed bandwidth for internet, access to top notch medical care, and quality construction.  In Latin America, many developers fail to provide even these basic services. They are often little more than a collection of barren lots with limited infrastructure. Most have few or no homes or residential product in place. The major reason that so few projects achieve this lever of product is that it requires that significant resources be invested up front. These “ghost towns” are likely to remain just that.

Boomer retirees want life, activities, neighbors, and community, something that the majority of these projects, sadly, cannot offer. Only a few developers deliver the excellent infrastructure and amenities needed for a high quality of life experience that North Americans have come to expect. A “Sun City of Latin America” would provide high quality products in a variety of climates like a home along the Pacific or Caribbean coasts, in the cool tropical mountains, or in the arid, high deserts of South America. Investors and companies who can provide such a product are likely to do very well.

The Demographics

The Baby Boomers represent more than 84,000,000 individuals in the United States and 9,000,000 in Canada. Over the last 60 years almost everything that was popular with the baby boomers became a huge commercial success. They have produced a disproportionate impact on the economy at each stage of their lives and companies that placed themselves in the path of this “age wave” did very well. This wave of opportunity continues right now as they enter the age of retirement.

Today 500,000 U.S. retirees receive Social Security checks overseas. These are people who were born before 1946 and are not part of the huge demographic bubble about to hit the market. The Baby Boomers proper, people born 1946 to 1964 are just now entering retirement and many will be relocating and building warm-weather, retirement and second homes in Latin America.

With a half a million already retired outside the US, the projected demographic data is even more powerful. Several large surveys map the nature of emigration attitudes in North America. The Zogby Company surveyed 103,000 Americans and discovered that 18% of the respondents representing more than 26,000,000 Americans have a desire to move or own property outside the United States. 4,500,000 listed Latin America as their first choice.

TD Waterhouse recently surveyed Canadian Baby Boomers. 45% of the respondents plan to spend one month or more outside Canada in retirement. With 9.3 million Canadian Baby Boomers this equates to over 4 million retirees who will be renting or owning property outside Canada in their golden years.

The bottom line is that Baby Boomer retirement will largely drive this market over the next 20 years. The trend is in its infancy. As many more retirees look to the tropics for affordable, yet enhanced retirement lifestyles, phenomenal growth in these in these already large numbers is likely.

Why Latin America?

The region of Latin America is growing by leaps and bounds. Proactive policies on the part of the countries themselves have become instrumental in attracting foreigners, and hence their capital, to the region. More than 1,000,000 North Americans reside in Mexico part or full time, 40,000 Americans have homes in Costa Rica, and 20,000 call Panama home part of all of the year. Each country in the region has its own attractions and incentives that draw tourists and permanent residents alike, and they are all competing to provide excellent retirement packages.

Latin America is in the middle of a successful transformation with real GDP increasing at a rate of over 5% per annum through 2008. While the period 2009 – 2010 slowed, the region is already rebounding economically and GDP growth for 2011 was over 6%. Growth in conjunction with improving economies and regional stability drives the improvement of infrastructure, economic situation, and position in the global marketplace. These, in turn, make the region more viable economically, while at the same time improving quality of life, safety, and marketability of the countries therein.

But perhaps the most important reasons retirees are looking at Latin America are the “soft” factors like proximity to the US, Canada, family, and friends. Flying north to south limits the time zones crossed to two or three making travel and communications back home simple and easy. Safety, stability, and services are important base lines, but convenience is perhaps just as, or more important in the end for consumer satisfaction.

Financial Factors and Emigration

Ernst & Young produced a study in July of 2008 that predicted 60% of US retirees would need to cut back on spending in retirement or face the prospects of outliving their nest eggs. What would you cut back, food, medicine, heat? Imagine living your life every day wondering if you were going to outlive your funds.  It’s a scary proposition.

In addition, the U.S. Commerce Department reports that Baby Boomers are now saving almost nothing. Although the recent economic shocks are changing that trend, for most Boomers, there is simply not enough time to accumulate what was not saved or lost in the markets in 2008. Even today, almost half of U.S. Boomer retirees (48%) expect to count on Social Security during retirement and 15% expect to rely on it for most or all of their retirement needs.

This is a dire situation for many. Where can they do that and have a high quality of life in North America? The ability to enjoy the kind that they’ve always dreamed of is simply not feasible in the United States on the limited funds and Social Security payments they posses. More retirees will look elsewhere, many to Latin America, looking for ways to cut costs in retirement. Wonderfully they will also discover that they can enjoy a higher quality of life on a budget that they can afford.

Capitalizing on a Crisis of Supply

When one examines the supply of high quality home sites in the region, one quickly sees the impending shortage. If one considers the amount of residential product with world-class infrastructure and amenities, the shortage is magnified immensely. Knowing why there is a shortage of supply is critical to understanding why investment in the region makes so much sense.

Most developers in the region sell a speculative type of product. It has also been called “cut and run.”  This literally means that a developer buys a large tract of land, adds the minimum infrastructure like dirt roads and electric poles, then sells the lots to speculation buyers. Large expenses like water and sewage treatment are often offloaded onto the consumer, who must drill wells and build septic systems if they decide to build a home. In many cases soils are heavy clay which won’t perk, and water tables are located deep underground. In addition to the obvious environmental issues, this ends up costing buyers much more than their share of a centralized system.

A 2009 developer survey by Christopher Kelsey & David Norden clearly points to the growing consumer demand for products with high levels of infrastructure, amenities, and “reality.”  Prior to the real estate and economic crisis in 2008, most consumers were willing to “bet on the come” and buy pre-construction and speculative product. Today their attitudes are very different.

When surveyed again in 2011, developers agree by an overwhelming 94% that consumer’s expectations for clarity and commitment from the developer for the delivery of promised amenities will be greater. 92% agree that consumers will want to see the infrastructure and amenities complete before purchase. 85% see an increased trend by consumers to purchase completed homes and condominiums rather than vacant lots and pre-sales opportunities.

Consumers who are now retiring want and need something different as the Norden survey and other research data suggests. Retirement overseas is already happening with more than 500,000 receiving Social Security checks outside the United States. If the Ernst and Young State of Retirees report is accurate, then we will see this trend grow even faster as more people search for ways to lower their cost of living without giving up the important quality of life issues.

The Sun City of Latin America

The Baby Boomers are about to enter their next stage of life with more time and more money than any other demographic group of people in history, this even after the 2008 meltdown in the financial markets. As a result of longer life expectancies, these consumers know that they will have many more years of life after retiring than the majority of their predecessors ever did or do. With this time, they want to travel, continue working, and even start new careers. They want infrastructure, amenities, activities, neighbors and community. They are willing to pay a premium to get it.

Latin America offers exceptional and diverse climates with a high quality of life at an affordable price.  Our company, ECI Development is already serving this market and is, right now positioned to capture an even larger segment as it grows and expands.

You may want to look at what we are doing and how you can participate. Visit our website and be in touch. The opportunities are dramatic and timely. We don’t often get the chance to spot the trend this early with vehicles in place to ride the wave. Seize the moment. You’ll be glad you did.

Michael Cobb

Chairman and CEO

ECI Development

www.ecidevelopment.com

## 15 Critical “Must Ask” Questions When Buying Real Estate Overseas – Part 3

December 29, 2014

Guest article by Michael Cobb:

Part three of the 15 Critical “Must Ask” Questions when Buying Real Estate Overseas deals with “Knowing the Developer” and using the marriage analogy here is appropriate. Not many of us meet a girl in a bar and get married the next day, but it does happen. When it does it might fall under the category of “Margarita Madness,” a malady that sadly affects many travelers to Latin America as well as they are struck by marriage at first site.

So when you decide that you want to own a piece of property outside North America, you should consider it like a marriage. Generally, we get to know several ladies in our lives, find one that is a very good fit, court her for weeks, months, or even years, and then after we know her pretty well we ask her if she’ll marry us. If she says yes, we tie the knot.

Tie the knot is a great way to look at owning real estate overweas. In the previous article we discussed big brother and here is the good news/bad news about big brother again. Good news, he isn’t generally around much south-of-the-border. Bad news, you are responsible for what happens. Just as there are few or no zoning laws as discussed in part two of this series, there are also no bonding agencies, or fair reporting commissions to protect you from outright lies at one end of the spectrum, or just good intentions gone awry at the other.

Again, owning a piece of property is like a marriage. If it’s a good one you’ll be happy. If not, you’ll be stuck with the developer for the next decade or two. You might want to know who they are a little better than what you can learn over a few drinks under some palm trees in paradise.

A great sales psychologist states that “we buy emotionally and justify logically.” Margarita Madness sets the euphoric mood to buy emotionally. These 15 critical questions, the last 5 of which are below, show us how to justify logically. Both parts of our brain, the emotional and the logical, are critical for happiness and satisfaction with property ownership. It’s a marriage after all. Get it right the first time. Divorce is expensive.

Knowing the Developer

How will you build your home from thousands of miles away? Who can oversee the construction of the home, and what is included? Look for projects that show homes as examples of what you will actually receive. What are the written specifications? What do the Architectural CC&R’s dictate? Are you in agreement with them? Have they planned property for 220v water heaters and air-conditioners, are there hot water lines to all the sinks and showers? Are lights, fans, faucets and other fixtures included in the price? Are appliances and AC units included? Is there a dryer vent or a water line to the fridge? How about the telephone and cable TV wires? Are they included in the price? What are the engineering guidelines? Who is going to validate these specifications as the home is constructed? All of these things and more we assume as North Americans. Verify and assume nothing. Remember, you get what you inspect, not what you expect.

Is the Development Company financially solid and do they have a record of success? Is financing available for Property Ownership? Remember buying a property in a foreign country is like getting married. You should know very well who you are marrying. Hopefully the developer will be around for many years and, if so, you want to be sure you are comfortable with the long term association. Ask to see a copy of a business plan. Ask to see financials. You are the buyer and you have every right to ask to see financials, especially if they’ve promised something like future amenities. You need to know who they are and if they will be around for a long time. Remember, you are going to send them your hard earned money. There are no bonding agencies holding their feet to fire to complete anything they promise. You are counting on the people and company involved to make good now and for upcoming years.

If they’ve promised an ROI on rental return, ask to see cancelled checks to owners. If they’ve returned 8-12 percent returns to owners, they’ll be proud to show you the cancelled checks. In addition because financing is rare in the region, the developer should provide a form of financing as a buyer’s option. This shows financial stability. It also will indicate that they are not using your money to build promised infrastructure and amenities. Build outs based on sales flow can stall in down markets leaving buyers with half built projects to complete and fund as a HOA.

Is there a central sewer system? This may seem like an odd question to put under the heading of “Know the Developer,” but here’s the logic. When a developer doesn’t plan a central sewer system, what they are in fact doing is pushing the cost of the waste disposal off to the property buyer. Depending on soil type, this may or may not be a big issue. But either way, property owners will be responsible for paying for and installing septic systems. If septic is the provided solution, request to see a copy of a perk test. Many soils of Latin America are heavy clay. Lot owners may be forced to install expensive systems to meet environmental codes. Worse, without proper zoning and environmental inspections from big brother, many property buyers may not install what is hygienically required leading to a nasty situation, especially in rainy season.

What about safety and security access? Around the clock security should be provided at any public entrance with cooperating backup from local and national police. Generally, the municipalities will not have the funding or staff to provide the kind of security North Americans are used to. Prevention and deterrence is the key here, and a strong visible presence prevents the kind of petty theft so often happening in the region. Be sure it exists and works. Were you let through the gate no problem? Who else can get through? A tough time getting in through the gate yourself, means others will face it as well.

What kind of title guarantee can be provided? If you can’t get title insurance, you should seriously reconsider the purchase. There are no legitimate reasons you should not be able to get this protection from a major company like First American or Stewart. This is a black and white issue. Either the seller has title and you can get a policy, or you should walk away. There will always be a story. Believe it at your own peril.

At the height of a successful career in the computer industry, Michael Cobb left to pursue pioneering opportunities in the emerging markets of Central America. He formed ECI Development, a multi-country developer with projects in 5 countries: Belize, Nicaragua, Costa Rica, Panama, and Ecuador. The model is based on the Del Webb Sun City active senior communities in the U.S., and it serves North American consumers with familiar product in multiple geographies.

## Don’t Forget the Title Insurance

December 10, 2014

Guest article by Greg Fencik:

In real property law, title is the means whereby a person’s right to property is established. Title should not be confused with a deed. A deed is merely a piece of paper that serves as evidence of title. The possessor of a deed may not, in fact, have legal title to the property described in a deed. For example, a deed may be forged. A deed may be one of multiple deeds issued by a prior property owner. A deed may stem from a deed that was one of multiple deeds issued by a prior property owner. There may be a mistake in the description of the property in a deed. In these instances, the person who has the deed may not have legal title.

Title isn’t just a piece of paper, be it a deed or otherwise. Title is the right to do with the property whatever the title holder sees fit (provided, of course, that it’s legal). Title insurance is a means by which buyers of real property and mortgage lenders protect their respective interests in the property against losses due to flawed titles.

Most people are familiar with health insurance, auto insurance and homeowner’s insurance. Each of these types of insurance provides coverage against future losses – things that may occur in the future. For this future coverage, healthcare insurers, auto insurers, and homeowner’s insurers charge periodic premiums from the date of purchase of the respective policy until the policy is cancelled or non-renewed.

Title insurance provides insurance against defects in the title to real property. Title insurance ensures that the purchaser/owner of real property to which the policy applies has legal title – the right to do with the property whatever the title holder sees fit (e.g. develop the property, sell the property). Unlike providers of healthcare insurance, auto insurance and homeowner’s insurance, title insurers charge a one-time premium for the provision of what is essentially a lifetime insurance policy. There are a number of title insurance providers in Florida – First American Title, Stewart Title Guaranty Company, Old Republic National Title Insurance Company, and Fidelity National Title of Florida, to name just a few.

In Florida, title insurance is regulated by statute and by administrative rules. See, generally, Fla. Stat. §§ 627.7711 – 627.798.

Florida statutes define a title insurer as:

Any domestic company organized and authorized to do business under the provisions of chapter 624, for the purpose of issuing title insurance, or any insurer organized under the laws of another state, the District of Columbia, or a foreign country and holding a certificate of authority to transact business in this state, for the purpose of issuing title insurance. Fla. Stat. §627.7711(3).

By statute, title insurers are obligated to perform title searches and to examine information upon which a determination can be made that there is valid legal title:

A title insurer may not issue a title insurance commitment, endorsement, or title insurance policy until the title insurer has caused to be made a determination of insurability based upon the evaluation of a reasonable title search… has examined such other information as may be necessary, and has caused to be made a determination of insurability of title… in accordance with sound underwriting practices. Fla. Stat. §627.7845(1).

A title search is “the compiling of title information from official or public records.” Fla. Stat. §627.7711(4). What constitutes such other information as may be necessary is not defined by statute. It stands to reason that a title insurer will engage in a thorough investigation of title before providing insurance for the title so as to minimize the likelihood that it will have to pay a claim. [1]

Title insurance is issued to owners and/or to lenders (e.g. North American Savings Bank or NASB). Title insurance policies are, thus, referred to as owner’s policies and lender’s or loan policies, respectively. First American Title explains the difference here.

The premium charged for title insurance in Florida is dictated by statute and by administrative rule. SeeFla. Stat. §627.727, Fla. Admin. C. 69O-186.003. The premium charged for an original owner’s policy is a function of the value of the property to which the title applies:

 Per Thousand \$0 to \$100,000 of liability written \$5.75 Over \$100,000, up to \$1 million, add \$5.00 Over \$1 million, up to \$5 million, add \$2.50 Over \$5 million, up to \$10 million, add \$2.25 Over \$10 million, add \$2.00

The premium for a loan policy, which the Florida Code refers to as original mortgage title insurance, is the same. For a one-time premium, title insurance policy holders obtain insurance against a number of covered risks. Covered risks typically include:

1. Someone else owns an interest in the title.
2. Someone else has rights affecting the title because of leases, contracts, or options.
3. Someone else claims to have rights affecting the title because of forgery or impersonation.
4. Someone else has an easement on the land.
5. Someone else has a right to limit the use of the land.
6. The title is defective due to:

6.1 Someone else’s failure to have authorized a transfer or conveyance of the title.
6.2 Someone else’s failure to create a valid document by electronic means.
6.3 A document upon which the title is based is invalid because it was not properly signed, sealed, acknowledged, delivered or recorded.
6.4 A document upon which the title is based was signed using a falsified, expired, or otherwise invalid power of attorney.
6.5 A document upon which the title is based was not properly filed, recorded, or indexed in the public records.
6.6 A defective judicial or administrative proceeding.

In the event a policy holder suffers a loss as result of a covered risk, the title insurance company will generally do one or more of several things:

1. Pay the claim.
2. Negotiate a settlement.
3. Bring or defend a legal action related to the claim.
4. Pay the policy holder the amount required by the policy.
5. End the coverage of the policy for the claim by paying the policy holder the actual loss resulting from the covered risk, and those costs, attorneys’ fees and expenses incurred.
6. End coverage for certain risks by paying the policy holder the amount of the insurance then in force for the particular covered risk, and those costs, attorneys’ fees and expenses incurred up to that time.
7. End all coverage of the policy by paying the policy holder the policy amount then in force, and those costs, attorneys’ fees and expenses incurred up to that time.
8. Take other appropriate action.

Given all of this, it should be obvious why lenders such as NASB require title insurance. To understand why purchasers of real property, such as IRAs should insist upon title insurance for themselves, consider the following hypothetical scenario:

1. An IRA purchases property in Florida.
2. The purchase price of the property is \$100,000.
3. 70 percent of the purchase price (\$70,000) is financed by means of a non-recourse loan provided by a lender such as NASB, which lender requires the purchaser (the IRA) to obtain mortgage loan insurance or loan insurance.
4. All that is obtained is mortgage loan insurance or a loan policy; there is no owner’s policy obtained.
5. The loan policy is obtained from a company such as First American Title.
6. The IRA pays for the title insurance. [3]

In this scenario, the cost of the insurance policy would be \$402.50 (the premium is a function of the amount of the loan, \$70,000, not of the value of the property). That cost would be paid by the purchaser (the IRA) as part of the cost associated with obtaining the financing – it was required by NASB.

In this scenario, because the policy is a loan policy, the policy would only protect NASB. The limits of coverage would initially be \$70,000 (the amount of the loan), not \$100,000 (the value of the property at the time of the purchase). The amount of coverage would decrease as the loan to NASB is paid off until, eventually, when the loan to NASB is paid in full, there would be no coverage at all.

Now, in this scenario, First American Title likely did a good job investigating the title of the property. It was obligated to do so by statute, and good business practices would dictate as much, as well. As such, one might think: though the IRA did not obtain a title insurance policy in its name (an owner’s policy), it did, nevertheless, have the benefit of the title search and assessment of title resultant from the title examination First American Title conducted prior to issuing the loan policy. But bear in mind: title companies are not infallible; they sometimes make mistakes. And if First American Title made a mistake, the IRA would be left to suffer the loss of a title defect on its own, without insurance.

Consider this, alternative hypothetical:

1. The IRA purchases property in Florida.
2. The purchase price of the property is \$100,000.
3. The IRA pays for the property in cash; there is no financing.

In this scenario, there is no financing. That means there is no lender to insist and require that the IRA obtain any kind of title insurance. In the absence of a requirement that the IRA obtain title insurance, the IRA might not obtain title insurance. If the IRA does not obtain title insurance, it assumes the risk that it may have acquired defective title; and the IRA would be left to suffer the loss of a title defect on its own.

Now in either of the two scenarios discussed herein above, the IRA could hire a company to perform a title search. In such a case, in the event the title search company performed a bad search, and the IRA suffered a loss due to a defective title, the IRA might have recourse against the search company.

If the IRA pursued a case against the search company, the IRA’s recourse would be limited by the terms of the contract between the IRA and the search company. It’s likely that the contract would limit warranties of the work performed by the search company. As such, the recourse would be not nearly what the IRA could hope to obtain in the form of benefits from a title insurance policy.

So, consider this hypothetical scenario (a variation of the first hypothetical):

1. An IRA purchases property in Florida.
2. The purchase price of the property is \$100,000.
3. 70 percent of the purchase price (\$70,000) is financed by means of a non-recourse loan provided by a lender such as NASB, which lender requires the purchaser (the IRA) to obtain mortgage loan insurance or loan insurance.
4. A loan policy is obtained.
5. An owner’s policy is obtained as well.
6. Both the owner’s policy and the loan policy are obtained from a company such as First American Title.
7. The IRA pays for the title insurance.

In this scenario, the total cost for the two policies would be \$600. That’s based on a \$575 premium for the owner’s policy and a \$25 premium for the loan policy.

Understand that the premium for a loan policy, alone, in the amount of \$70,000 would be \$402.50. And an owner’s policy, alone, in the amount of \$100,000 would be \$575. In this scenario, because both a loan policy and an owner’s policy are issued, the premium for the loan policy is reduced or discounted to \$25. This is commonly referred to as a simultaneous issuance discount. In this scenario, the IRA obtains the title insurance required by its lender, NASB; NASB is satisfied. And, for just \$25 more, the IRA obtains title insurance for itself as well; the IRA has piece of mind.

The loan policy will eventually cease to exist. The owner’s policy (the IRA’s policy), on the other hand, will last for so long as the IRA owns the property. If the policy issued by First American Title tracks the language of the policy promulgated by American Land Title Association or ALTA (and it likely would), coverage afforded under the policy (the Coverage Amount) would actually increase by 10% of the Policy Amount each year for the first five years following the policy date, up to 150% of the Policy Amount. Thus, the IRA has a title search and analysis and title insurance (essentially, a warranty by the title insurance company, First American Title, of its search and analysis). After considering the various scenarios presented herein above, it should be obvious that an IRA engaged in the purchase of real property should not forget the title insurance.

Greg Fencik is an attorney licensed to practice law in Florida since 1992. He is admitted to practice before Florida state courts, the U.S. Supreme Court, the 11th US Circuit Court of Appeals, and the Federal District Courts for the Middle and Southern Districts of Florida. He is a certified circuit court mediator. He received his bachelor’s degree from the University of Pennsylvania. He received a juris doctorate degree from Tulane University. He engages in business law, business consultations, and real estate law, as well as handles financing placements and credit facilities. In addition, Greg teaches real estate law at the University of Central Florida. He may be reached by email here.

Author Notes

[1]  To get a better idea of what exactly title insurers do when it comes to the investigation of and assessment of title prior to providing a policy of title insurance (underwriting), consider Chicago Title Insurance Company’s 333 page Basic Underwriting Manual.

[2] Many title insurance companies offer online title insurance premium calculators. First American Title, which utilizes policies promulgated by the American Land Title Association (see ALTA.org), provides an online calculator here.

[3] Either the purchaser or the seller of real property may pay for title insurance; in general, it may be negotiated in the purchase agreement.

## Year-End Tax Planning & Retirement Accounts

December 4, 2014

Guest article by James K. Duerr:

So you thought you could defer taxes on your IRA forever?

Sorry, the IRS will not wait forever. Although pretax money going into a Traditional IRA is tax deferred, there is a requirement at age 70 ½, to take RMD’s (required minimum distributions). The minimum distribution is based on tables of life expectancy and the balance in your account. There are worksheets on the IRS website, and many brokerage companies have calculators available to find out your RMD’s. If you do not take the RMD distributions, you may be subject to penalty. Per the IRS, “You cannot keep retirement funds in your account indefinitely”. The penalty could be up to a 50% excise tax on the amount not distributed as required.

Roth IRAs & Roth Conversions

Roth IRA’s, do not require minimum distributions until after the death of the owner. Be careful with Roth 401K’s, as those plans do require RMD’s. That being said, it may be wise to roll the Roth 401K into a Roth IRA, if possible.Many clients consider converting Traditional IRA’s into Roth IRA’s. The amount converted is subject to tax, but is not subject to penalty. If you are in a low income year, you can have your CPA project the tax that you would owe on conversion.  You do not have to convert all of the funds at once. In fact, you can minimize the tax implications by converting the funds a little at a time.

Solo (or Individual) 401K Plans

For people who are in their own business, and do not have outside employees, the individual 401K plan can offer you flexibility and the opportunity to make large pension contributions to the plan.  If made pre-tax, the contributions may lower your tax liability. For example, if you took a \$50,000 payroll, you have the ability for your company to contribute up to \$12,500 to your pension plan, and you could, if under age 50, contribute another \$17,500, for a total of \$30,000 being contributed to the plan, and becoming a tax deduction. Assuming a conservative tax rate of 20%, you would save \$6,000 in taxes. The plan has (2) components, an employer portion (up to 25% of earned income) and an employee deferral portion (up to \$17,500, or if  age 50 and over, \$23,000 with a catch up provision). The employee piece can be either pre-tax, or  Roth, if the plan allows.  Be sure that the original paperwork is completed correctly, and these plans can also allow borrowing rights. Most retirement plans are available as self-directed plans. These self directed plans allow you to have more control over your investments, by purchasing real estate or other assets, such as gold, notes, joint ventures, tax liens, etc.

Maximizing Profits and Minimizing Taxes

Whether you are in your own business, or not, it is smart tax planning to have a professional review your taxes, prior to year end. By doing this, you may be able to make some decisions that could significantly lower your taxes, and provide for your future financial freedom. As I always advise my clients, “It’s not what you make, it’s what your keep.”

James K. Duerr, CPA

## Technology Levels the Playing Field for Self-Directed Investors

Guest article by Matt Lutz:

Anyone with a self-directed retirement account will tell you adding alternative investments to the portfolio can supercharge investment returns and enables investors to participate in asset classes where they are most skilled and knowledgeable. After one learns about self-directed investing, he or she will typically make the same types of investments utilizing the self directed account that he or she would make outside of the account. A real estate investor who owns single family rental properties will use self-directed IRA (SDIRA) funds to buy single family rental properties or a tax lien investor will participate in tax lien auctions using his or her SDIRA. Assets like single family housing and tax liens are great allocations of SD funds. Individual investors with knowledge of the local real estate market have the same advantage as institutional investors. The barriers to entry are very low. Anyone with money can buy a mobile home, a single family home or attend a tax lien auction. The only restriction is the amount of money the investor has. With knowledge and capital the individual investor can continue to participate in the asset classes.

Self-directed investors it seems by nature are an inquisitive bunch and want to learn about other asset classes. Most have looked at businesses and thought “I wish I could get returns like that” or “how do I invest in something like that?” Many of those businesses or investments are often controlled by institutional investors or specialty finance companies who don’t want anyone entering their markets. One thing we know about competition is that it reduces profits. The institutions want to protect the superior yields they are able to achieve. Prior to a few years ago, if an individual investor could break into those markets, it required a tremendous amount of the investor’s time and energy to find deals and then additional time and effort to conduct due diligence. Technology has changed that.

The most recent credit crisis is a great example of how technology has affected different asset classes. Everyone knows the banks were overrun with non-performing subprime single-family mortgages. A very similar thing happened in the late 1980’s to the Savings and Loans Industry with commercial real estate mortgages. The S & L crisis had the highest number of bank failures since the Great Depression with 797 thrifts shuttered and total assets of \$394 billion. The problem was so large the United States government created the Resolution Trust Corporation (RTC) to liquidate the non-performing loans and collateralized assets. The RTC became a massive government institution that existed until 1995 when its duties were transferred to the FDIC. The most recent crisis although much larger (and scarier at the time) was much different. Technology enabled non-performing loans and properties to be sold via online auctions. Not only did technology help liquidate the non-performing loans much faster than the previous crisis but investors, large and small, could participate. Mortgages and REO’s (Real Estate Owned) were sold individually or in pools. An investor with a self-directed IRA could participate in the same auction as a Greenwich hedge fund. The Greenwich hedge fund might have a capital advantage but the individual investor knows his or her local real estate market much better.

So what other asset classes are are now available to individuals because of technology?

Consumer and small business lending are experiencing tremendous changes. Peer to peer lending companies like Prosper and Lending Club allow individuals to apply for unsecured personal loans up to \$35,000. Individual investors can participate by investing as little as \$25. The peer to peer lenders underwrite and service the loans. The investor’s decision is whether to invest and if so, how much? An individual investor has the same opportunity and the same information as a bank or specialty finance company.

A very profitable business controlled by specialty finance companies is buying trade receivables or factoring. Factoring is a \$3 trillion dollar industry run by companies like CIT. What is it? Factoring is the sale of accounts receivable (invoices) to finance companies (factors). The finance company discounts what it pays the seller of the invoice. Example. Let’s say Joe’s Hammer Company sells hammers to Home Depot. Home Depot is Joe’s biggest customer but it’s slow to pay which is normal practice for large companies. Home Depot might not pay Joe for 120 days. That doesn’t help Joe pay his employees or electric bill so Joe will sell Home Depot’s invoice (the legal obligation to pay him) to a factor. Joe receives a discounted amount of the the invoice immediately and the finance company will receive the entire amount in 120 days. The factor determines the discount amount and Joe has to decide to “take it or leave it.” Sometimes the discount can be as much as 30%. It is a very profitable business for the factor because businesses will continually sell receivables to meet their cash flow needs. It’s also a great business because a company like Home Depot (the obligor) has very good credit and is legally responsible to pay the invoice. The odds of not receiving payment from Home Depot are very slim.

Technology has disrupted the factoring business as well. Recently an online marketplace has launched that allows companies to sell their trade receivables to self-directed investors. Allegheny Exchange operates an auction format exchange that allows companies like Joe’s Hammer Company to sell its invoices at a discount to individual investors. The exchange provides credit ratings of the invoice sellers and invoice obligors, validates the invoices being sold and facilitates the payment process between the invoice sellers, buyers and obligors. The sales of the invoices are full recourse to the sellers which means the sellers and obligors are legally responsible for paying the invoice buyers. The exchange is a turn-key solution for investors to participate in a market previously controlled by specialty finance companies. Technology not only allows individuals to participate in the asset class but greatly reduces the time and effort normally required to make investments. The investors only responsibilities are deciding which invoices to buy and how much they will pay for them. The appeal of trade receivable investing is apparent; short-term, high yielding assets with an invoice obligor legally responsible for payment and full recourse to the invoice seller. Because most trade receivables are paid within 60-120 days, they are a superior alternative to money markets and commercial paper to park cash between longer duration investments.

Matt Lutz, a Pittsburgh entrepreneur, has been utilizing a self-directed IRA for the past ten years. He was featured in the June 6, 2012 Forbes Magazine article, ‘Go Rogue With Your IRA.’ He has used his IRA to buy real estate, trade receivables, tax liens, performing and non-performing mortgages, and floor plan loans for car dealerships. He is currently the Managing Partner of Allegheny Exchange. Matt can be reached at mlutz@tarponbaycapital.com or by phone at 412-841-5009.

## 15 Critical “Must Ask” Questions When Buying Real Estate Overseas – Part 2

December 1, 2014

Guest article by Michael Cobb:

Part two of the 15 Critical “Must Ask” Questions when Buying Real Estate Overseas will focus on “Owning Community.” While this seems like a no-brainer to most folks from North America, it really goes to the heart of what big brother does for us in North America and just how much we unconsciously depend on him. Would you think to ask to see a copy of the local zoning laws? You would likely be surprised to find there are none, and that in fact, your neighbor can legally build anything they want next door as far as the government is concerned. This is real freedom isn’t it?

But freedom and responsibility are a double edged sword. You the buyer must take the responsibility to ask the right questions to learn what you need to know so you can make the right decision for you and your interests. But how do you know what questions to ask? How can we know what we don’t know? Obviously we can’t, but a strong dose of humility goes a long way, as does turning off our filters and confirmation bias. These issues were covered in part one of this series in the last issue of To the Point.

Owning community is important, not just in zoning, but also in who will be around, or more importantly, will anyone be around. A build requirement on the part of the developer is a key piece of the community puzzle. Without something to mandate home construction, most projects of Latin America are long to be ghost towns and a collection of sold, empty lots waiting for their investor buyers to come build a home.  Most wont. They bought the lot as an investment to flip in a few years. Maybe they can, maybe they can’t. But a community is something else entirely.

Community is a tough word to define, but the subjective experience is real and we know it when we sense it don’t we? In fact, this soft fuzzy feeling can be and is quantifiable by the free market. Developments that achieve this sense of friendliness and warmth sell at higher prices initially and retain much higher resale values over time. The velocity of sales, even in down periods, outpace projects close by that lack this so important sense of community. Case studies abound and several are contained in ECI’s Business Plan.

Other factors too contribute to community and the financial and personal benefits that accompany it. Walkability is a huge factor. So are spaces where people can meet casually and get to know one another. Sure, there are a few Jeremiah Johnsons out there, but the vast majority of people want to have other people around to golf with, fish with, play tennis, swim, hike, play cards, share a drink or a meal and a multitude of other activities that we enjoy socially. But if there are no other homes around, no restaurant or fun places to congregate, no amenities in place to play a round with friends, how will this happen? Buy what you see is extremely relevant here too.

Owning Community

What kind of construction and design standards are in place and enforceable?  Is there building requirement of any kind? Zoning is almost non-existent in Latin America. Unless the developer has written and implemented CC&R’s, your neighbor can do whatever they want. Read the CC&R’s and make sure you agree with what is allowed and what is not. Know what deed restrictions are in place or you may be unpleasantly surprised by a neighbor whose tastes are radically different than yours. Empty lots on the beach are great for a picnic, but don’t create much of a living environment. Community means homes around you. If you want to have neighbors around, be sure that there is a requirement that property owners build a home in order to avoid living in a ghost town.

Are there amenities for use by owners and visitorsBuy what you see should be the basis for 90% of your due diligence evaluation. Is there a golf course, restaurant, bar, tennis court, fitness center, dock, dive shop, in place and serving clients. Or are they just promised. Promises can be alright, but your due diligence should include the verification of hard funds needed to complete the promised infrastructure, amenities, and services. Without the money, you are buying a dream.

Are there state-of-the-art telecommunications or fiber optics for fast and reliable worldwide communications? This question could fit in either “Buy what you see,” or “Own community.” But in a time where we take internet and phone service for granted, and community is being more and more defined on the web, this vital component must be in place, and in place well. Understand the reality of telecommunications infrastructure. How is the phone service provided? Can you get the bandwidth of internet you need? Is the service flexible and expandable to grow with the future needs?

What about the Home Owner’s Association?  Are the fees high enough to cover maintenance of existing and planned infrastructure? Yes, high enough. You should worry about low fees because they are usually a sales tool to show how cheap the cost of ownership is. Let’s be honest, nobody likes to pay monthly fees. However, please realize that fees set too low equate to unexpected surprise assessments in the future and/or a drastic rise in HOA fees when the developer is gone and the true costs of maintenance are carried by property owners.

What about green belts, common areas, and the future of the development? True community requires spaces and places for people to meet and enjoy each other’s company. Club houses, parks, sidewalks, and maintained open space are critical to foster a spirit of enjoyment for residents. If public spaces are important to you, be sure they exist and are protected in the master plan. Remember too that there needs to sufficient resources for the care and maintenance of these areas. Knowing and agreeing with the vision of a project is important too. Be sure that the developer’s long term plans align with your goals and desires as a homeowner in that project. Ask to see a copy of the developer’s business plan if they have one and make sure it makes sense over the long run for you.

At the height of a successful career in the computer industry, Michael Cobb left to pursue pioneering opportunities in the emerging markets of Central America. He formed ECI Development, a multi-country developer with projects in 5 countries: Belize, Nicaragua, Costa Rica, Panama, and Ecuador. The model is based on the Del Webb Sun City active senior communities in the U.S., and it serves North American consumers with familiar product in multiple geographies.

November 4, 2014

Guest article by Michael Cobb:

Everyone buying property outside of North America needs to remember the famous words of Dorothy to Toto after being dropped into Oz, “I don’t think we are in Kansas anymore.” When going offshore, especially to places that feel familiar, we must be very, very careful. In fact, the more familiar it seems, the more caution we should apply. But how do we do that?

Take a look at a favorite saying of mine, “I don’t know what I don’t know.”

Really! But how can we know what we don’t know? We can’t obviously, but we can be open to new possibilities and realities that vary greatly from our assumptions. The analogy that makes sense here is one of a radar screen. A small radar screen is easy to manage. In the world of “North American normal” we can get away with that. But overseas, a larger radar screen serves us well. It makes sense to expand it greatly so that anomalies are picked up way out, not close in.  Give yourself time and space to examine this data, process it, and then understand it.

Humility is the one attribute that really helps us to be open to the fact that we don’t know what we don’t know. It gives us a willingness to listen, hear what doesn’t make sense, acknowledge it and try to fit it into our analysis. It also allows us to let others with more experience guide us in unknown territory. The choice is really humility or tuition.

The other piece of this puzzle is our assumptions mentioned above. Have you seen the word “assume” defined as making an ass out of you and me? When we come to Latin America we bring our assumptions with us. We have to because they are part and parcel of who we are.

Assumptions are like filters. In the back of the brain, right at the top of the spinal cord, resides a special part called the Thalamus. This is one of the oldest parts of the brain and it is the brains chief filtering mechanism. It hears and senses everything. Billions of sensations per second, yet our conscious mind gets only about 1% of that information because that is all the conscious “I” can handle and process.

A good example is when you have a small baby in the house. It is possible to sleep through a raging thunderstorm, but a tiny squeak from a newborn will rouse the mother instantly (and dad sometimes). This is the Thalamus hard at work, sorting out the needed info from the not needed.  This filtering mechanism lets us live our lives. If we had to pay attention to every noise, movement, sensation around us, we’d be overwhelmed. So we filter.

But this filtering mechanism can be an Achilles Heel unless we understand that we are indeed filtering and are prepared to try and turn it off as best we can. But it’s not easy to turn the filters off, live “on your toes,” and be ready to see something that doesn’t make sense. In fact, it can be hard work. But it is necessary to if we want to make wise property ownership decisions overseas.

When you see it, turn off your confirmation bias, acknowledge it, and respect what your logic says. Push your radar screen out further. Give yourself time and space from the awesome emotional experience of palm trees, margaritas, and friendly sales guys. Process the hard data and do your homework. Look for evidence that contradicts what you want to believe.

The bottom line is that there are numerous wonderful properties out there and some of them are right for you. But you are in a different country, with different rules. There is no big brother looking out for you, so be sure you are smartly looking out for yourself.

An educated buyer is a happy owner. The answers to the questions below should be an important part of your property selection process. There is no right or wrong answers, but we’ve found that the things people take for granted or assume are standards in North America, may not be in Latin America. Be sure you know the answers to the following questions and make conscious decisions about what levels of creature comforts are mandatory and which may be optional.

The 15 Critical “Must Ask” Questions when Buying Real Estate Overseas needed for excellent and comprehensive due diligence are broken into three main areas:

2. Own community
3. Know the developer.

The first set below deal with “Buy what you see.” The president of ECI Development has a saying, “You get what you inspect, not what you expect.” Promises are easy to make and difficult to deliver. Be sure you are dealing with existing reality. These first critical due diligence questions are below.

The other two areas, “Own Community, and “Know the Developer” will be presented in subsequent posts.

Is there year around access to the property? What is the drive time from shopping, dining, and the airport? Not all roads are accessible year around in the region. Steams that barely flow or don’t at all, can be raging torrents half the year. Know the road condition in rainy season. Proximity to services is very important. The key factor is the time to reach the destination not the miles. 10 miles on a rough dirt road in rainy season can easily take an hour or more.

What road and public infrastructure exists? Does the current infrastructure include underground utilities, paved streets and sidewalks? Do not take for granted paved roads, street lights or state of the art telecommunications. If these are not in place when you buy your property, they might never be. Rarely, if ever does, the government or utility company provides these services to a developer. If the sales agent says, “it’s coming,” verify y that the developer has the funds to meet his promises. Ask to see a copy of his most recent bank statement showing the millions of dollars it will take to build the infrastructure. Bottom line: Buy what you see! Be sure that the price you pay is indicative of existing reality.

Is there enough fresh water and water pressure? Sometimes it’s the smallest of things that adds greatly to the quality of life. Water pressure is one of them and it must be planned for and paid for. Either the developer has planned and paid for this part of the infrastructure or the lot owner will bear this cost with the addition of storage tanks and pressurizing systems. If you are considering an existing home or condominium, turn on all the faucets, inside and out, the showers, and then flush the toilets. Is there sufficient pressure?

Is the house or condominium plumbed with hot water? Not a silly question. Look under the sinks to see if there is hot and cold service. In many cases, a splitter is used from the cold service to provide water to both faucets. The cost to retrofit a concrete home for hot water to the bathrooms can be high. If you are having a home built, be sure to triple check the plans for a hot and cold service to all bathrooms and fixtures. Architects and builders may design “local” and unless you catch this upfront, change orders become prohibitively expensive.

How far is it to major medical care? How long in dry season, how long in rainy season? Major medical care is critical. Most major Latin American cities have state-of-the-art hospitals. In fact, in many cases these facilities can eclipse regional US hospitals with newer more modern equipment approved for use by the Europeans but not yet passed by the FDA. Be sure to visit the medical facilities as part of your due diligence process. Remember too, it is not how many miles to a major medical facility, but how many minutes by car in both the wet and dry seasons that really counts.

At the height of a successful career in the computer industry, Michael Cobb left to pursue pioneering opportunities in the emerging markets of Central America. He formed ECI Development, a multi-country developer with projects in 5 countries: Belize, Nicaragua, Costa Rica, Panama, and Ecuador. The model is based on the Del Webb Sun City active senior communities in the U.S., and it serves North American consumers with familiar product in multiple geographies.

## Profits Without Ownership: Sandwich Lease Options

November 3, 2014

Guest article by Augie Byllott:

You may be asking yourself, “What’s a sandwich lease option?” It’s an incredible financial instrument for creating profits without ownership. Let me explain.

It gets its name for the way everything is structured between the seller, you (the investor), and the tenant-buyer. You step in and negotiate a long-term option agreement with the seller, which gives you the right (but not the obligation) to close on the property within 1-5 years. Often, you also negotiate in the ability to assign the contract, and to let someone else other than you live in the property.

You then go find a potential tenant-buyer, perhaps someone who is a good person that has had a few financial knocks. Individuals who don’t qualify for traditional financing are prime clients for this sort of transaction. Often they will make ideal homeowners, but simply need a few years of documented on-time payments to help repair a spotty credit record. You then place them in the property with your own option agreement. If you structure it correctly, you can earn a spread on both the sales price and monthly payment amounts that you make to the original seller.

This is, of course, is a highly simplified explanation of sandwich lease options. But my intent is to show you how it is very possible for you to start earning money through sandwich options.

By targeting areas with “pretty” houses in good neighborhoods, you will vastly increase the potential number of buyers you can attract. Since you don’t actually own the home, finding properties that are already in good condition is paramount. To make the most of your investment dollar, you will want to spend most of your money on marketing rather than repairs and cleanup. Additionally, properties in nicer neighborhoods minimize your risk exposure, as you won’t have to worry as much about vandalism or depreciating home values.

Sandwich lease options are an ideal strategy for the new investor because they carry limited
risk and great upside potential. Further, they are an ideal match to the current market
conditions. Motivated sellers and potential buyers with damaged credit are much easier to find. This technique of options has the potential to earn you a nice sum of money, but it does require work.

As with any investing technique, you need to find the right strategy that works best for you, learn it inside and out, and most importantly, TAKE ACTION!

Augie Byllott helps people buy and sell homes and investment properties in all price ranges without using lots of cash or credit. He is a full time real estate investor, speaker and coach with Personal Action Coaching & Training. He is also a founding member of Common Wealth Trust Services, LLC a land trust service provider.