Technology Levels the Playing Field for Self-Directed Investors

December 4, 2014

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.

Small business funding 

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 [email protected] 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.

About Michael Cobb.

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.

15 Critical “Must Ask” Questions When Buying Real Estate Overseas

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.”

Please stop and reread that…

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:

  1. Buy what you see
  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.

Buy what you see

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.

About Michael Cobb

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.

Self-Directing How To: Leveraging IRAs

September 30, 2014

Article by NuView President, Glen Mather:

We’re often asked during our seminars and continuing education classes on self-directed IRAs whether investors can use their IRA to make a down-payment on investment property, and the short answer is yes. But there are two rules to be aware of when leveraging IRAs:

First, the IRA must purchase the entire property, not just provide the down-payment. The property is titled in the name of the IRA (NuViewIRA, FBO (client’s name) IRA). The mortgage then would also be issued in the name of the IRA.

Second, the loan must be non-recourse, which means that in the case of non-payment the lender is limited to only taking the asset secured in the loan that is owned by the IRA. The IRS actually prohibits a disqualified party of your IRA, which includes yourself, to provide credit to your IRA (IRS Section 4975).

There are considerable benefits to leveraging IRAs. It certainly could provide a way for the IRA holder to purchase higher-valued property than the balance their IRA account may allow. While partnering can provide additional funds, leveraging IRAs allows you to retain all of the net gains rather than just a partnered portion. It may also permit several properties to be purchased instead of just one, increasing diversification inside the IRA.

So, is it even possible to get a non-recourse loan? The best source may actually be the seller of the property, although that would normally require that the property has sufficient equity in order for the seller to offer such terms to your IRA. There also are several banks that have created a special loan program for IRAs that clients often find attractive.

Lenders to IRAs normally require not only an appraisal, but also an assessment as to the likely cash flow of the property, including rental history and projections. After all, the lender to an IRA cannot assume that the IRA holder can or will make future contributions to his account. At NuView IRA, we can set up automated payments to the lender, ensuring that available funds are transferred according to the agreed-to terms of the loan.

Before you get started with leveraging IRAs, be sure to seek guidance about potential taxes your IRA could incur, Unrelated Debt Financed Income, which takes effect when an IRA makes a profit of more than $1000 per year from the leveraged portion of the rental property. Also, state laws may differ on the exact protection for the borrower of the loan.

Our transaction experts at NuView to answer any questions on the process of leveraging IRAs, and, as always, tax professionals and advisors can help with specific investment details you wish to make within your IRA.

A Walk in the Woods – Investing in Timberland

September 25, 2014

Guest article by Tom Brickman:

With the stock market at all-time highs, many have forgotten that six years ago everyone’s stock portfolio lost a gut-wrenching 40 percent in eight months, and with money market rates around 0.4 percent, cash is not keeping pace with inflation. High volatility with a low yield is an unpleasant combination for anyone, and while alternatives seem scarce, investing in timberland tends to satisfy many security needs.

People are beginning to turn to timberland investments, in fact in America there are 23 million private timberland owners. Prices for stocks and bonds can go up and down dramatically over short periods of time, sometimes as short as a single day, but timberland values tend not to fluctuate. Over 50 percent of the return from timberland comes from biological growth – trees get bigger at a steady rate independent of market factors. Diversifying a portfolio by investing in timberland can reduce value swings.

What are the different types of timberland?

In the south there are a few different types of timberland: land that will grow pine trees (dryer ground), land that will only grow hardwood trees (wetter ground), and farm land.

The kind of land you buy depends on the mix of motivations you have for buying it. Those motivated purely by financial benefit will seek investment-grade pine properties. In the south, this is land that has been planted with genetically improved loblolly pine. Those more interested in hunting, which means less return, will seek properties that have more hardwood land, perhaps with a lake or river frontage too. Investors motivated by conservation may seek longleaf pine or hardwood land along major rivers. Investors motivated by a farming lifestyle or by crop and livestock markets will seek land suitable for cultivation or pasture. Returns from farmland tend to be more volatile than returns from timberland due to government involvement in the markets. Many investors have a mix of motivations and accordingly seek a mix of land types.

How do you go about investing in timberland?

In general, there are two ways to go about investing in timberland. One way is direct private investment where the investor owns the asset. The other is indirect investment where you purchase stock in a public company that owns the asset. The way you invest depends on your motivations.

Direct Investment

Direct investment gives the investor more control over the decision of when to sell timber. This can have a very beneficial impact on returns. You can purchase land to meet a variety of motivations. Disadvantages include the task of finding assets to buy, discerning fair value, finding asset managers, and finding buyers when you are ready to sell (lack of liquidity).

A key issue with direct investment (mostly affecting smaller non-institutional investors) is that markets for privately owned rural land are notoriously difficult. For example, finding assets to buy is difficult because there is no central clearing house of properties available for purchase and the for-sale-by-owner market is huge (our experience is  up to 50 percent of private land sellers do not use an agent to find a buyer). Also, discerning fair pricing requires expertise in appraising land and standing timber. Consequently, most investors engage professionals to assist with finding, buying, managing and selling land.

Indirect Investment

Publicly traded forest products companies seek to maximize financial return. Buyers with this motivation find a good fit here. Advantages to indirect investment are that it simplifies the task of finding, buying, managing and selling timberland assets. The price is published every day so there is low price uncertainty. And, the companies have professionals to manage the assets (selling timber, planting trees, fixing roads, paying property taxes, etc.). A disadvantage to investing in a public company is that quarterly demand for dividends, which affects share price, forces these companies to sell timber even in poor markets.

Institutional investors (pension funds, endowments, sovereign wealth, etc.) and high net worth individuals often address these issues by investing through Timberland Investment Management Organizations (TIMO’s). These are private companies that specialize in finding, buying, selling and managing timberland assets. Although most have financial return as their mission, some specialize in conservation timberland. The best TIMO’s offer geographic diversity (US & global) and have decades of experience identifying deal flow, managing the purchase process, managing the asset on a day-to-day basis, and finding buyers when it’s time to sell.

People who don’t meet the minimum investment threshold for a TIMO (most investors) can get professional assistance from an enormous network of rural land and forestry professionals. Many of these are small, local companies or individuals with deep knowledge of the asset and long experience with local land and standing timber markets.

Is investing in timberland right for you?

This is a question only you can answer. The purpose of this article is to give you a starting spot for further investigation. Here are some thoughts to consider:

  1. Get professional assistance for direct investment. A key issue is that the hardest mistake to overcome is paying too much. The saying is you make your money the day you buy it.
  2. A diverse portfolio is your best protection against loss of value. So only add land if you are looking for diversity.
  3. Direct investment in land requires patient money. Getting in and out of the asset takes time. So only use funds you can afford to invest for 10 years or more. Using your self-directed IRA to buy land is allowed and is the perfect kind of money to use.
  4. Land does not service debt well. Be careful that your reach does not exceed your grasp.

Learn More:

  1. Data on ownership & financial performance of land:
    1. The National Council of Real Estate Investment Fiduciaries (NCREIF):
    2. The Forest Research Group
    3. U. S. Forest Service Resource Bulletin WO-1
    4. Family Forest Owners: An In-depth Profile. By The Sustaining Family Forest Initiative
  2. Direct investment & management professional
    1. All individuals – farm and timber land:
    2. High Net Worth Individuals and Institutions:
  3. Timberland investment & management professionals
    1. Resource Management Service
    2. Campbell Global
    3. Forest Investment Associates
    4. The Hancock Timber Resource Group
  4. Farmland investment & management professionals
    1. Hancock Agricultural Investment Group
    2. American Society of Farm Managers and Rural Appraisers
    3. UBS – Agrivest
    4. TIAA-CREF Ag Investments

 

Located in Birmingham, Alabama, Tom Brickman has 37 years of experience in timberland investment and management businesses across the United States and Central America. He is a Registered Forester, Certified General Appraiser and Real Estate Broker, and helps people buy, sell, and care for rural land. Tom can be contacted via email at [email protected] or by phone at 205-936-2160, and for more information on buying rural land in Alabama, you can visit Tom’s website at www.CyprusPartners.com.

Investing in Growing Companies

September 4, 2014

Guest article by Evan Greenberg:

Over the past three decades, companies like Microsoft, Apple, Google, and Facebook have emerged, not to mention other powerhouses like Chipotle and Under Armour. They have replaced Chrysler, Woolworth’s, Data General, Digital Equipment, and many others in our dynamic economy. Many of these success stories are examples of why an alternative investment platform for accredited investors is important, as many of these companies were private investments before their IPOs, which came much later in their growth cycles. For example, one of my favorite concepts, Stratasys, a leader in 3D printing, has gone up 100-fold since 2002.

Typically, the primary way people were investing in growing companies was either through a direct investment or a venture capital fund, which could only be done inside of an IRA through an administrator like NuView. As defined by The Motley Fool, a hedge fund is described as “a pool of investment capital that a manager invests on shareholders’ behalf.” The crucial difference between a hedge fund and your run-of-the-mill mutual fund is the complete discretion it gives the fund manager to invest where and how he or she chooses. This allows hedge funds to hold any and all investment types, including alternative assets

Our economy has become more efficient, even in the last 15 years, by utilizing capital investors to quickly monetize and add value to emerging companies. Book value is no longer as important as balance sheet cash.

If I said to you that I expected mid-to-high single-digit returns for the next 10-15 years, then you would say that is a plausible idea. However, if I said that I expected the Dow Jones Industrial Average to hit 50,000 and the S&P 500 to hit 5,000 in the same time frame, you would probably call me crazy. Believe it or not, I forecast that both of those scenarios will occur before 2030.

While all good things come to an end, I’m still predicting this secular bull market will last for a long time. Dow 50,000 sounds like a spectacular number, but it is slightly above traditional market returns after 13 years of sideways action. This may not be a roaring bull to remember, but it won’t be one to forget, either.

 

Evan Greenberg is the Founder and Portfolio Manager for the LegendCap Opportunity Fund, which is an approved hedge fund on NuView’s platform that makes investments in emerging growth companies and allocates up to 20 percent of its assets to alternative investments such as private placements. Evan broadcasts a financial radio show in Phoenix and can be contacted at [email protected] or (516) 662-0303.

Private Lending Basics – An Introduction

August 13, 2014

Guest article by Augie Byllott:

In the world of investment real estate there are myriad ways to buy, sell and finance real estate. The following information is about a particular segment of the business, private lending and most specifically targeted toward the financing of non-owner occupied real estate. With the enactment of the Wall street Reform Act more commonly known by the name of its authors, Dodd-Frank, lending to owner occupants has become a potentially hazardous business fraught with, as of this writing, many unknowns that could negatively impact small lenders.

For many years, private individuals seeking better returns have provided the fuel that keeps investment real estate viable for many small developers, builders and those who buy, fix and sell foreclosures, short sales, probate properties and junkers that are not considered financeable by banks. Their funds have facilitated the acquisition and renovation of literally millions of single family homes, helped small builders to create new housing stock and kept many trades people employed. In a nutshell, private money lenders help the economy while earning above market returns on their capital.

During my first 15 years in the banking industry I had never even heard the term private lending let alone knew what it was, then, I was approached by a talented young builder who had acquired enough property to build 15 houses but needed capital. His plan was to build and sell one house at a time and use the proceeds to repay the loan plus interest that was at least 5 percent more than I could earn at my bank. After reviewing his plan, some of his previous work and the blueprints of what he was going to build I developed a comfort level.

We documented the arrangement and he was off and running. I am happy to report that a formerly vacant piece of dirt now has 15 families living in homes each worth over $500,000 today! That was about 20 years ago. Oh, I more than doubled my original investment in a few short years so I was pretty happy too!

Private individuals seeking to avoid the volatility of the stock and bond markets may find the safe haven they are looking for in the world of private lending. This is sometimes called hard money lending though the two can be somewhat different. If you are prudent and diligent, you can earn solid returns while minimizing risks as a private lender.

Like any business venture private lending requires specialized knowledge; higher and more predictable returns can result when investing in private money loans but it also requires more effort and patience than that needed to push a button and execute a buy or sell order for a stock.

WHAT’S INVOLVED?

At its core, investing in private loans is a lot like investing in a bond that pays a fixed rate of return and pays off at maturity. If you make a loan to a borrower for $100,000 at 8% interest, and require interest-only payments, you’ll earn $8,000 income each year. And when the borrower fulfills their obligation, the loan will pay off at or before maturity and the original principal will be returned.

Liquidity – Do not consider becoming a private lender if you need the money before the maturity date. Even though most loans payoff, many do not pay off as expected. You can sometimes sell loans using an online loan exchange, or broker them to another private investor via a hard money loan broker. But even performing private money loans are typically sold at a discount. If you want to sell notes, even if they are performing, be prepared to take a little haircut.

Collateral Valuation – The underlying collateral for a private loan is very important to the overall security of the transaction. Lenders should carefully evaluate the value of the collateral and use several sources to confirm their valuation. A common practice among private lenders is to “drive the comps yourself.” That means do not just look at photos on an appraisal and assume you have an accurate value.

With the appraisal in hand get in your car and drive to the subject property as well as each comparable property and confirm for yourself that the property value is realistic. Consider multiple sources of value. In addition to an appraisal and driving the comps yourself, consider using an automated valuation model or a Broker Price Opinion (BPO) as well. Some properties are easier to comp than others.

Advances On occasion loans require the investor/lender advance additional funds for a variety of reasons. Advances may be required to cure delinquent property taxes, cure a senior lien position, hire an attorney, pay to defend bankruptcy claims, or even remodel a property if a foreclosure takes place.

Title Be sure your borrower obtains a lender’s title policy that will insure your lien position as a lender and offers fraud protection against forgery. Title insurance is not like homeowners insurance. If you suffer a loss with your homeowner policy, you submit the claim and get a quick reimbursement. Title insurance is an indemnity policy and as such you are reimbursed for a proven loss only and not the potential for a loss. The result may be that even though you will eventually lose money due to a title issue, you may not receive reimbursement for months, or even years later.

Borrower Credit – Carefully reviewing the borrower’s credit application and capacity to make monthly payments is the key to a successful loan investment. Private money loans are often made based on the collateral, but the best loans are those that give equal weight to the borrower’s past credit track record and capacity to make payments and repay the loan when a balloon payment is due, or when the loan matures.

Private Lender Insurance You will need to make sure the property owner has appropriate hazard and liability insurance in the amounts you desire as an investor. The insurance company must also be notified to include the private lender as an additional insured on the policy so in the event of loss, the check is sent to you first.

Documentation Documenting the loan, creating the appropriate security documents and disclosures to the borrower can be complicated and time consuming. There are a myriad of state and federal regulations to be followed, and a violation of these regulations could invalidate the loan and result in lost interest and/or fees. Consulting an attorney or mortgage professional can help you do things right.

SERVICING YOUR LOAN

Once a loan has been originated, payments need to be collected from the borrower, and various tax, regulatory and informational statements need to be sent regularly to the borrower. Lenders can do this themselves or hire a loan servicer to collect payments and provide reporting for a fee.

PRIVATE MONEY AND FORECLOSURE

If a borrower fails to pay as agreed, lenders must be prepared to foreclose on their collateral. This can be an arduous and time-consuming process that requires a significant amount of expertise and expense.

There are also alternatives to a foreclosure; among then are for the lender to accept a deed-in-lieu of foreclosure or a short sale of the property whereby the lender agreed to allow the property to be sold for less than the loan balance.

GETTING STARTED

As you can see, investing in loans is not as easy as it may seem on the surface and certainly more involved than buying a publicly traded security like a stock share or a bond. So, how do you invest in private money loans? How do you get started? How do you take the plunge?

The answer is: very carefully. Learning the private money lending business takes time. But once you understand the nuances and study the business, it can provide returns substantially greater than other investment choices.

There are professionals in the business of helping investors make loan investments. In the past, they have been referred to as hard money lenders, loan brokers, or mortgage loan originators. These are professional business people who are skilled and in most cased licensed by their state at originating private money and conventional loans.

The best part about using one of these sources of assistance to invest in loans is that the fees are typically paid by the borrower and therefore you get the expertise without paying for it directly. You pay for it because of the additional fees you would likely have collected had you originated the loan yourself.

For example, if the borrower was willing to pay 3 points up front for a $300,000 construction loan, you may earn the entire $9,000 fee up front as the sole investor and originator. If you use a loan originator instead, you may still get a piece of that commission; typically 1 point they keep the remainder.

If you’re just starting out, the services of a loan originator can be invaluable and they will help walk you through the transaction. Many investors who are not real estate professionals maintain life-long relationships with their loan originators just as a corporate executive might maintain a relationship with an investment advisor.

 

Augie Byllott is a full time real estate investor who specializes in all facets of residential real estate investing.  He is also a nationally recognized Author, Trainer, Coach and Speaker who teaches creative real estate investing to people from all walks of life.  Augie believes in creating win-win scenarios through the use of Intellectual Capital and Transaction Engineering. Visit him at www.PACTProsperity.com

 

Engaging Client Networking Opportunties

August 7, 2014

Thanks to all our clients who turned out to our cookout this past weekend on August 3rd, despite some foreboding weather. While our event did start with a bit of rain, in 15 minutes it was all clear and the temperature was much cooler after the sprinkle.

We had a great time catching up with our clients and getting to hear about their newest endeavors, and hopefully they were able to connect with a few like-minded individuals over burgers and live music from Keith Eaton.

collage-01Every quarter we strive to bring together client networking opportunities, from more formal dinners after work with engaging speakers to casual weekend networking cookouts. Not only does it give clients a chance to get together with other self-directed investors, but it gives us the chance to actually meet the people behind the paperwork we process.

The rain might have deterred some from joining the recent festivities, but don’t worry there is an even bigger opportunity on the horizon – our second annual alternative investment symposium, Planning for Prosperity. Last year, we brought in a mix of national speakers and local experts to discuss different aspects of alternative investing including syndication, hard money loans, tax deed investing, and more. With more than 125 attendees all asking for more, we knew we had to do it again.

For 2014, we’re flying in the hosts of The Real Estate Guys radio show, Robert Helms and Russell Gray, who have been offering real estate investment advice on air since ’97 with a downloadable podcast garnering tens of thousands of listens. Joining these great guys is the self-proclaimed Pitbull of hard money lending, Leonard Rosen, who was so well-received last year we invited him back again. We are also bringing in experts on angel investing, checkbook control IRAs, and more.

This is a jam-packed, day-long seminar you won’t want to miss, so remember to sign-up today as early bird pricing will only be in effect until Sept. 15th (prices will increase from $99 to $129 on 9/15). All proceeds from P4P will be donated to the Hero Games charity event, which is fundraising for the Wheelchair Foundation.

Serving at Ronald McDonald House of Central Florida

July 2, 2014

A few years ago, NuView employees and management sat down to determine what they felt were the most important tenets of the company, its core values. Included among those values was a desire to constantly be serving others. To this end, NuView challenged its staff to find unique ways to get involved in the community both locally and abroad.

In the second quarter of 2014, NuView was able to secure a sponsorship spot at the Ronald McDonald House. With two houses in central Florida, the charity aims to be a home away from home for families with extremely ill children staying for extended periods in nearby hospitals.

The Ronald McDonald House invites volunteers to help supply, cook, and serve lunches and dinners for the families staying on site, and, after checking the company calendar, NuView signed up to provide both a lunch and a dinner on a recent Saturday.

Group at Ronald McDonald House

For lunch, our volunteers chose a theme, “Classic American,” and decked out the dining hall with red, white, and blue. From burgers hot off the grill to chocolate chip cookies fresh from the oven, the NuView team took it upon themselves to provide not just another meal, but an experience that might help the families forget for a minute the difficulties they have lying ahead.

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At dinner, NuView transformed the dining hall again, but this time with a south of the border flavor – serving up DIY tacos and homemade churros. The best part of the dinner was the kids. NuView made a special announcement inviting all the kids back to the dining hall for a whack a colorful donkey pinata. When the last kid took his final swing, the pinata burst, candy went flying everywhere and with it the kids collapsed to the floor to chase down every last piece. The laughter and smiles through the fake moustaches made the volunteer efforts worth every second.