In todays email:

• 👂️ State of real estate: Rates, house prices, vacancy, and inventory.

• 🤓 Deep dive: How to stay compliant when selling a house with owner financing.

• 🥶 Cool tools: How to quickly find what a house will rent for

State of Real Estate

• Interest rates have come up and are staying steady and probably will remain elevated in 2023. As of June 1, the 30-year fixed is at 6.8%.

• The median sales price of a home as of the end of Q1 is around $436,800 which is slightly down from the peak. Q2 will be interesting to see the final number since the prices seem to be back on the rise in many areas.

• National vacancy rates in the first quarter 2023 were 6.4 percent for rental housing and 0.8 percent for homeowner housing. The rental vacancy rate was higher than the rate in the first quarter 2022 (5.8 percent) and higher than the rate in the fourth quarter 2022 (5.8 percent). The homeowner vacancy rate of 0.8 percent was virtually the same as the rate in the first quarter 2022 (0.8 percent) and virtually the same as the rate in the fourth quarter 2022 (0.8 percent). The homeownership rate of 66.0 percent was not statistically different from the rate in the first quarter 2022 (65.4 percent) and not statistically different from the rate in the fourth quarter 2022 (65.9 percent). 

• The housing inventory (in terms of Days On Market) is now 43 days and has come down from the spike in January 2023 of 72 days. The overall housing inventory is about half of what it was in 2016-2019. People are staying or renting their properties.

Deep Dive

Seller Financing Rules Made Simple

As I explained in prior newsletters, seller financing your property is an excellent way to make income and not have all the headaches of being a landlord or sell for a higher price. However, there are many rules you must follow to be compliant when selling with owner financing or land contract. Today, I will give you an overview of what those rules look like and how to stay compliant.

But first, below are some of the benefits to seller financing your home versus an outright sell as discussed in prior newsletters.

9 MAIN REASONS:

1. You can sell home faster since many people in the US have poor credit score and therefore a larger pool of potential buyers. Many of these people can afford the house but a conventional lender will not give them a loan since the FICO below a certain level.

2. Reduce tax burden. Pay taxes on the downpayment (only 1st year) and interest income for that tax year and subsequent years. If sell entire house with conventional financing and get cashed out then you will pay tax on the entire amount for investment property.

3. Steady income stream which last for years.

4. Yields are higher than putting money to work in a bank, money market, CD (certificate of disappointment), or bonds. The cash you receive upon sale is dead money and produces no income.

5. Command a higher price since people with less than perfect credit cannot get traditional financing.

6. Less liability versus renting home. If some trips and falls then it is not your problem…you do not own the house since you are the lender.

7. No maintenance - buyer maintains and improves the property.

8. Buyer’s have homeowner mentality and not rental mentality. Therefore, the house is kept up and the yard mowed.

9. Better liquidity.

   • You can sell the entire note faster than selling property.

   • You can sell a partial note for super fast cash.

OVERVIEW OF DODD-FRANK?

• 2010 - Barack Obama signed into law the 2,314 page Dodd-Frank Wall Street Reform and Consumer Protections Act.

• Dodd-Frank Act (DFA) restructures the oversight of financial regulation and amends the TILA (Truth in Lending Act).

• These laws effect seller financing deals originated on or after January 10, 2014 and occupied by buyer as primary residence. i.e. Owner occupied.

• Commercial transactions (which includes rentals, fix and flip, etc.) and the sale of raw land are not effected by DFA.

WHAT IS DODD-FRANK AND HOW AFFECT SELLER FINANCING?

Part of DFA is requirement that a licensed mortgage loan originator (MLO) must oversee originations in which the buyer intends to occupy the property as their primary residence.

However, 2 exemptions to this rule are:

1. “Single property exemption” every 12 months

2. “Not more than 3 properties exemption" every 12 months

Single Property Exemption Explained

Any nature person, estate or trust who provides seller financing to an owner occupant only one time in any 12 month period. Cannot be a LLC, corporation, etc. Loan can include a balloon and seller does not have to prove borrowers ability to pay. However, there are some restrictions as shown below:

• Interest rate fixed for first 5 years and no negative amortization.

• Adjustable rate allowed but restrictions on the amount of increase and frequency of rate adjustments.

• Seller must not be the builder.

• Seller must have owned the property.

Not More Than 3 Properties Exemption

Any person or entity cannot provide seller financing to an owner occupant more than 3 times in a 12 month period without using a MLO. The loan cannot include a balloon. Seller does have to prove borrowers ability to repay. In addition, there are the same restrictions as we discussed above for the single property exemption and it applies here as well:

• Interest rate fixed for first 5 years and no negative amortization.

• Adjustable rate allowed but restrictions on the amount of increase and frequency of rate adjustments.

• Seller must not be the builder.

• Seller must have owned the property.

More Than 3 Properties You Must Use a MLO and Comply With All Regulations Such As:

• The loan cannot include a balloon.

• Seller does have to prove borrowers ability to repay.

• Interest rate fixed for first 5 years and no negative amortization.

• Adjustable rate allowed but cannot adjust more than 2% per year or more than 6% over life of loan.

• Seller must not be the builder.

• Seller must have owned the property.

The “Ability To Repay” rule is simply you checking to ensure that the buyer has enough income or resources to comfortably make the payments without experiencing financial hardship. This assessment is important to minimize the risk of default or non-payment, protecting both parties involved in the transaction.

To determine the buyer's ability to repay, several factors are typically considered:

1. Income: The buyer's regular income is evaluated to assess its stability and sufficiency to cover the loan payments. This can include employment income, self-employment earnings, rental income, or any other reliable sources of funds.

2. Expenses: The buyer's existing financial obligations and living expenses are examined to understand their financial commitments and determine if they have enough income remaining to afford the payments.

3. Credit history: The buyer's creditworthiness is often considered, including their credit history of managing debts. A good credit history indicates a responsible borrowing behavior and increases the likelihood of timely payments.

4. Down payment: The buyer's ability to make a down payment or provide a significant upfront sum may demonstrate their commitment to the purchase and reduce the risk for the seller.

By assessing these factors, the seller can gain confidence in the buyer's ability to repay the loan, making the seller financing arrangement more secure. It helps ensure that the buyer can fulfill their financial obligations and reduces the chances of default or financial strain, benefiting both the buyer and the seller.

Cool Tools

This newsletters cool tool is rentometer.com 

Rentometer is a great place for renters and real estate professionals who want to understand what rent prices are in their market. I use it often to understand what is going on with rent prices and it helps me make sound decisions about how much cash flow I will get from a rental or note I am buying. It is very easy to use. Just type in an address and the number of bedrooms and get the average and median rents in that area. Better yet, as you can see from the images below, you get each individual property address that is used in the calculation so you see if it is similar type of house, etc.

Yes, you could go to a property management company or your local agent with access to the MLS but this is time consuming. Rental price data is essential to making informed real estate decisions quickly and with confidence. Rentometer is a good first pass to see if the property even makes sense to pursue if your main exit strategy is to lease or lease to own.

Over the last 15 years, Rentometer has methodically built a sophisticated rental data system – including rental data collections, surveys, data staging, and data analysis. They collect and analyze approximately 10 million rental records per year by deploying a mix of automated rental data collection systems and specially trained rent researchers.

You can get a report (see images below) in a pdf format to show prospective tenants or turnkey rental buyers.

🖐️ IF YOU HAVE A QUESTION, PLEASE RAISE YOUR HAND AND ASK BY SIMPLY REPLYING TO THIS EMAIL.

Last weeks POP QUIZ was…What is an allonge?

ANSWER: An allonge is a separate sheet of paper that is attached to a note when there is insufficient space on the note itself to write endorsements. An allonge is commonly used to continue endorsements or add new ones. Just to clarify an endorsement is a signature on a negotiable instrument, such as a check or a promissory note, that transfers or assigns the rights to the instrument to another party. It's a way of endorsing or authorizing the instrument to be payable to someone else.

This weeks POP QUIZ: What is a “request for notice”?

Check out next weeks newsletter for the complete answer.

PLEASE RECOMMEND THIS NEWSLETTER TO OTHERS. THE BIGGER THE COMMUNITY THE BETTER FOR ALL. NO SCARCITY MINDSET HERE!

We would love to get your feedback and thoughts! Let us know what questions you have and topics of interest. You can just respond by replying directly to this email…we like to make it easy 😌.