A Monthly Newsletter for Real Estate Investors September by Susan Lassiter-Lyons Author of Mortgage Secrets for Real Estate Investors

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1 A Monthly Newsletter for Real Estate Investors September 2007 by Susan Lassiter-Lyons Author of Mortgage Secrets for Real Estate Investors All Rights Reserved Lassiter Omnimedia, LLC No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical. Any unauthorized use, sharing, reproduction, or distribution of parts herein is strictly prohibited. Seek Professional Advice. The author or publisher of this document is not responsible for any losses or damages whatsoever due to the information published in this report. This document should not be considered legal, accounting, or any other form of professional advice. This document is provided for educational purposes only. The reader assumes all risk and responsibility for the usage of any information or ideas contained in this report.

2 In This Issue: What is Your Goal? What s Liquidity Got to Do with Me? Insights from Kevin Amolsch Special Investment Opportunities Questions from Investors Updated! Mortgage Secrets for Real Estate Investors Commercial Corner 100% Financing Strategy Hi everyone and welcome to the September 2007 issue of Investor Insights! Hope you all are surviving the current market and are finding some great deals. My property manager just told me that a duplex adjacent to one I already one is now bank-owned and for sale for $5,000 less than what I paid for mine, which means equity of $85,000. Unbelievable. He s been after me for months to buy it so we made an offer earlier today. I LOVE all the bargains out there! If you re not buying you are crazy and if you have ARM s get into fixed rates ASAP! OK, let s get to it What Is Your Goal? It s become clear to me this past month while working with real estate investors, that most don t have a clear investment goal. One of the questions I always ask when designing an investment strategy for a property is what is your exit strategy and profit goal? Usually there is just silence, sometimes a What? and occasionally I hear something like Well, I plan to keep the property for 4 years because my projected cash flow is $300 a month and there s a significant equity chunk that will increase my net worth. After 4 years I think will sell and use the 1031 exchange proceeds to leverage myself into a property with double the cash flow. I love it when I hear something like that. I immediately know that I have a qualified investor and I should start looking for minimum 5-year fixed rate

3 products with features that will protect and improve monthly cash flow like 40-year amortization and interest only. I had a long discussion with my business coach about the guy last month that accused me of not being willing or creative enough to help him with his deal. The reality was that his deal didn t make sense at 85+ ARV and seemed like just a plain bad deal. I asked my coach what I could have done differently to make it a better experience for both my potential client and me. I was expecting the usual, Susan you need to have more patience or Susan, sometimes you are too blunt so you should work on coming across nicer. His answer completely surprised me. He said, Susan, your problem is that you are an ethical mortgage broker. (So, that s my problem! ) He went on to explain that there are so many unethical or just plain clueless brokers out there that will tell the client anything just to get the business that the honest ones are always accused of being unwilling or unable to do the deal. When the reality is that the deal is not doable. Obviously, his answer made me feel better, but I still think that there is a lot more I can do to educate real estate investors. Saying I m a mortgage broker just doesn t cover it anymore. I am a real estate investment advisor and it is my job to help you achieve your goal. In fact, one of my affirmations is I succeed because I help others succeed. If you do not have a clear investment goal, it makes it tough for either of us to succeed. So, to ensure that we are both successful, give some serious thought to your entry, exit and profit objectives to help me help you. I can absolutely help you develop and enhance these goals, but you have to have some semblance of one for us to get started in the right direction. What s Liquidity Got to Do With Me? You may have heard people talk about the liquidity problem in the market. Liquidity is the driving force in the mortgage business. Let s talk about this

4 to get an understanding of how it affects the loan products and rates available today. Liquidity in its simplest definition is the ability to turn assets into cash. For example, money in a bank account is extremely liquid because you can turn it into cash by simply making a withdrawal. On the other hand, assets like antiques or real estate are not very liquid because it takes time to turn them into cash. Liquidity in the mortgage industry refers to the ability of the originators to sell off their newly created loans to investors (mortgage investors, not investors like you and me). This is done to free up cash so they can make more loans. Many loans are pooled together to create a security called a mortgage backed security (MBS). These are sold to investors in the form of bonds. The largest investors in these types of bonds are insurance companies and hedge funds. Because of the rising default rates, losses, and the consistent MBS downgrades from companies like Fitch, it is nearly impossible to sell certain types of mortgages. In an effort to make MBS more attractive, originators like Countywide and Wells Fargo have tightened guidelines and increased rates. Several weeks ago, we could still find 100% non-owner occupied loans. Today the highest LTV that we have found is 90%. OUCH. As investors, this obviously has a huge impact on our business. The same business model that was successful last year may not be relevant today. We need to be more creative and find better deals. Lassiter Mortgage Group stays on top of the market and understands the needs of our clients. We are still doing investor loans and still loaning up to 100% for rehabs. We also

5 have loans available to refinance recently listed homes or to refinance with no title seasoning, including cash out! I have noticed a higher percentage of questions about non-traditional buying strategies and I agree that this may be an alternative for many investors. For a nominal fee, we would be happy to take the time to create a nontraditional investment plan or any real estate financing plan for your specific situation. Times are tough which is why it is more important today than before to have solid advisors. Lassiter Mortgage is happy to be part of your team. Kevin Amolsch is the residential go-to guy here at Lassiter Mortgage Group. He can be reached at Kevin@lassitermortgage.com or ext Special Investment Opportunities Because we work on investment deals all week, we see some pretty amazing opportunities. I get calls and s daily from people out there promoting investment opportunities that they want me to share with my subscribers. Although I take a look at each deal presented, you may have noticed I have never actually promoted any investment opportunity. Since February, I have worked on two large multifamily deals for a buying group out of California that were stellar. One guy finds the deals and then presents them to a group of investors with cash and then they form an entity to invest in the buildings. The deals out there are fantastic and these people are going to realize some significant cash flow. In fact, one investor told me that the $2,500 a month he will receive is enough to allow his wife to quit her job and stay home with their kids. Nice. It got me to rethink my position about putting together investors and opportunities. Especially in the current environment, there are two adages I

6 believe in: there is safety in numbers and two investors (or checkbooks) are better than one! So, here are a couple of opportunities for your consideration. The information contained here is for educational purposes only and does not construe an offer to sell securities. Winter Park, CO Condos and Mixed Use Commercial The project consists of acquisition of 3.54 acres of prime, undeveloped land in downtown Winter Park, Colorado, and development of residential condominiums and associated commercial spaces. The property is located in the center of town and is just two miles from the main Winter Park ski area. Winter Park is approximately 1.5 hours northwest of the Denver International Airport and is the closest major ski resort in proximity to the metropolitan Denver area. This planned community includes the creation of approximately 105 living units, 15,000 to 20,000 square feet of commercial, retail and restaurant space, and a parking facility, all with green, ecophilic designs, materials and fixtures. The project s ultimate market value will be approximately $68 million, with about $62 million in residential condos, and the remainder in commercial. Total project budget is projected to be approximately $52,000,000. For more info including an executive summary and investor questionnaire, me at susan@lassitermortgage.com Performance Equity Private Equity Mortgage Pool The private lending division of Lassiter Mortgage Group recently secured a $10M credit facility to become a direct, hard money lender. The company will make rehab loans to investors for the acquisition and repair of 1-4 unit residential and multifamily properties.

7 In addition to the credit facility, we are funding a $3M mortgage pool to supplement the advance funds from the credit facility. All loans are backed by real estate and all borrowers are pre-approved for a takeout loan in advance to ensure timely repayment of these short-term balloon notes. For more info including an executive summary and investor questionnaire, me at susan@lassitermortgage.com or call Questions from Investors Each month, I get literally hundreds of questions from investors all over the world. I try to answer as many as I can individually and I thought I would share a few on popular topics. Q. Susan, Thanks for taking the time yesterday to talk to me and give me an idea on how I can structure my deals. For hard money, I am looking at commercial multifamily housing that needs fixing up before I can rent them. What are the ratios that hard money lenders will lend for the purchase price and fix up costs. I believe you said it was 70% of After Repaired Value but I can t remember. If I go through hard money, are there programs that would allow me not to pay monthly payments just a balloon payment at the end of the loan. How fast can I refinance to get the money out? Do I have to wait a year or can I refinance as soon has possible. Thanks for your help. --- Ryan A. Hi Ryan, you re looking for a commercial bridge loan which is the equivalent of hard money for commercial projects. Bridge lenders will loan up to 70% of the value of the property but that doesn t usually include repair money. On larger deals, they will also typically insist on an interest reserve equal to the amount of payments over the course of the term to be funded at closing which means you re paying all your payments up front. Not a real attractive option from a down payment standpoint, but there are no prepay penalties and we can arrange a takeout loan that will allow you to get cash back without any title seasoning so you won t be out the cash that long.

8 There is a conventional rehab program that is FHA insured that is a pretty good deal for investors. Repairs have to be $3500+ per unit. If you are using the loan to acquire the property, they ll loan 90% of the estimated rehab costs plus the lesser of 90% of the purchase price or 90% of the estimated value before rehab. If you already own the property, they will loan 100% of the estimated rehab costs plus the lesser of the existing debt on the property or 90% of the estimated value before rehab with low rates around 6.250%. - --Susan Q. Hi Susan, Do you work with refi's at all? We'd like to look at refinancing one of our rentals. We currently have an 80/20 loan. Would like to refi the 80 part if possible. It is an ARM and about to adjust. Please let me know if it's possible to get a fixed rate 30 year loan. ---Andrew A. Hi Andrew, we absolutely do refinances. In fact, we do any loan that an investor would ever need for investment properties or personal residences. We can look at refinancing the first mortgage only into a fixed rate as you requested as long as the second mortgage lender will agree to resubordinate to the first. Some will; some will not. Just give the lender a call and tell them you are going to refinance your first mortgage and ask them if as a matter of policy if they will resubordinate their debt. --Susan Mortgage Secrets for Real Estate Investors Revised and Updated! I spent some time last month revising and updating my e-book for the current mortgage environment. The changes just have to do with: Alternative documentation (new guidelines for stated income) Elimination of 100% conventional loans for investors (max is now 90%) My reversal on mortgage insurance (I m warming up to it now that it is tax-deductible)

9 My reversal on pay option ARM s (negative amortization in a market of increasing rates and declining values is TOO risky). If you don t have the book, order it today! Commercial Corner 100% Strategy Ever heard of a stock loan? I hadn t until a few months ago and the more I learn the more I like it for real estate investors. This product loans up to 90% LTV of your stock portfolio. There are no margin calls for any reason and it is a non-recourse loan. You can default at any time, forfeiting only stocks, even if stocks are worthless and you keep the cash. This cash loan means and you do not have to sell your stock and there is no qualifying required. Your stocks are your passport to a STOCK LOAN. FEATURES OF A STOCK LOAN: Interest rates from 9% with fixed rates available. LTV always 90% Terms from 2-10 years Full upside participation - you keep all upside performance in your stock, no matter how high it goes. Non-recourse, non-callable - No margin calls, no house calls. If your stock depreciates, you have the choice to default without attachment of other assets or effect to your credit rating. No payments at all until unit maturity - All payments are deferred until maturity-since you have no payments to make. Your cash can be free to service other debt or any other cash flow requirements.

10 Quarterly Account Statements - you will receive quarterly account statements to monitor the performance of your asset versus your obligation. 1) Use the money as a down payment on real estate 2) Use the cash to resolve tax issues 3) Buy an annuity 4) Use the money to buy insurance 5) Buy a business 6) Pay off debt 7) Use proceeds for anything except purchase of marginable securities 100% Commercial Financing Example: 80% LTV Multifamily loan of $800,000 Purchase price is $1,000,000 You have a stock portfolio or an individual stock that is valued at say, $250,000. We would lend up to 90% of the portfolio market value, so $225,000. You can use the proceeds from the stock loan as the down payment on the property acquisition. So, you take $200,000, put it down on the property, and use the extra $13,750 for closing costs on the property loan. Property loan = $800,000 Stock loan = $225,000 Lender fee = ($11,250; 5% of loan amount) Proceeds = $213,750 $1,000,000 purchase price and $1,000,000 loan amount.

11 So there you go. Just one more way to achieve 100% financing! Happy investing and have a PROFITABLE month! All the best, Susan Lassiter-Lyons Lassiter Mortgage Group, LLC Visit Us Online: Investor Insights 2007 Lassiter Omnimedia, LLC All Rights Reserved