Launching the Women of Mid-Finance – Real Estate Brings Security

I had known Cecilia for several years and had spent many evenings at her flat near Coit Tower enjoying the view of North Beach and Russian Hill. She made a good income and paid a large amount in rent for the beautiful view she enjoyed. But to me it was not a smart use of money (to me, it was a no brainer for her to buy a place).

The problem was she did not have a down payment saved. So together we brain stormed solutions and determined that the best path to homeownership for her was to partner with someone and buy a 2-unit building with them. She needed a partner that had cash for the down payment and of course wanted to buy property. Her friend Catherine came to her mind almost immediately.

After consulting with Catherine they gave me my mandate: to find a 2-unit building with enough space to accommodate both of them as well as Catherine’s roommate, Lynne.

The challenge for me was to stay within their price range and find a building large enough and in good enough shape for them to move into.

After showing them property in the Castro and Noe I found them a 3 unit property with an illegal in-law unit, located in Lower Pacific Heights. This was actually a 2-unit Victorian structure (in-law behind the garage facing the rear garden) and a cottage at the rear of the property.

The property was not without issues, which is why the price was appealing. It had tenants in all three units and an abatement by the City due to the illegal in-law (an abatement is an order by the City to remedy a code or zoning violation).Finding a lender that would loan on a building that had an abatement filed against it was quite a challenge!

In the end, though, after much negotiating, the seller agreed to remedy the abatement prior to closing. However, this raised the sales price of the property, such that Catherine’s cash was not quite enough for the downpayment. After a bit of thinking, I located a private lender willing to provide second liens in order to bolster purchasers’ down payments. In those days, lenders allowed what was then called an 80-10-10 financing scenario (10% of the purchase price from the buyer in cash, 10% from a private lender and then 80% from the primary lender). After a few months of going to and fro, the deal closed and Cecilia, Catherine and Lynne moved into the property. Lynne in the cottage, Cecilia in the upper unit and Catherine in the lower unit.

Years later, looking back it was the best thing that Cecilia and Catherine could have done, from a personal and financial prospective. Catherine lived in the lower unit for 6 years and then sold her unit as a TIC interest to a third party and sold her interest in the Cottage and the in-law space to Cecilia. Catherine was able to parlay her money into several properties and is now a real estate developer in her own right! Cecilia was able to rent the cottage, live the in the upper unit and use the space that was previously the in-law for her home office. Cecilia and her new TIC partner then entered the condo conversion lottery and, after a few years, won a spot and were eligible to convert to three condominium units. Post conversion Cecilia sold the cottage (the third condominium).

The property has enabled Catherine to move on with her dream of buying and selling real estate and has given Cecilia the security every single mother desires. They are all still the best of friends, and are regularly in touch. Indeed, their purchase helped form a lasting bond such that they refer to themselves as the “Women of Mid-Finance”.

“Purchasing the property on Bush Street was a life changing discussion. A decision I would have never had the opportunity to make if my Realtor didn’t envision the potential for me and Catherine. It was a lot for two single women to take on, but my Realtor was an endless resource to us and we were good students under his tutelage. He changed my life.” – Cecilia.

Real Estate and Franchising

It is often discussed in Business Management Program or MBA School history books that Ray Kroc’s McDonalds was successful due to the fact that they controlled the real estate underneath every store, and the appreciation was their true asset. There is some truth to this, but that is not the only thing that made Ray Kroc successful.

Nevertheless, a business-person who can control their costs through owning the real estate and their business location, has a huge advantage and franchisors know the value of being able to control the real estate. Most franchisors, which sell franchised outlets that include locations, at minimum want to have a master lease, which allows them to terminate a franchisee, kick them out and control the location, until they put in a new franchisee.

Franchisors often have site selection teams, and now there are tools used by Commercial Real Estate people, along with ESRI software, can give location intelligence in a heartbeat. Smaller Franchisors just starting out use all sorts of strategies, some use very simple solutions, as all you need is someone who knows how to run it, in a room with a computer, online, even a stay at home mom, former Real Estate person. Then quick overview of the area or territory from locals. Large franchisors of course, have large real-estate departments.

Not all Franchised businesses need locations, those that do, well their franchisees can use help in securing funding, but owning the real estate does not “Always” make sense. When it does, it pays to have a real-estate person to be a go-between with franchisees, franchisors and locals who understand the market. Real Estate is a big part of modern day franchising for many franchised companies.

International Real Estate – Buying A Home In The U.S If You Are Not A U.S. Citizen

I have mentioned it many times before. Often, my newsletter topics come from real-life situations and clients.

A few weeks ago, an agent who reads my newsletter came to me with a challenge. He represented a man from Japan, who didn’t speak English. This man is buying a non-warrantable condo, as a second home, with stated income, and his lender had just turned him down on the day of closing. He came to me and we got his loan closed.

He was very happy and he said, “Aaron, you should write a newsletter about Foreign National homebuyers, because not many people understand it.” He was right!

The American dollar is weak today compared to many other foreign currencies. In addition, American banks offer very creative loan financing and low interest rates. As a result, many foreigners are looking to invest their money in American real estate and Las Vegas is one of the most popular markets for them.

People who are not American or who are not legal resident aliens are classified as Foreign Nationals.

In Las Vegas, experts say the high-rise condo industry would not be able to survive without the Foreign National buyer. According to a recent article in Fortune Magazine, foreign buyers have purchased as many as 30 percent of the condo units in the new Mandarin Oriental, part of MGM CityCenter, that is supposed open in late 2009. The entire Mandarin Oriental building is nearly sold out.

Some people estimate that close to 10% of all purchases in Southern Nevada are Foreign National buyers. When you are talking about Florida, some say this number is as high as 15-20%.

These clients come to the States to purchase both Second Homes and Investment Properties. However, the recent challenges in the lending guidelines have made investment loans difficult for Foreign Nationals. However, primary resident and second home purchases are very easy for the borrower to obtain.

There is a real marketing opportunity for real estate agents who can promote themselves to this niche and you don’t have to be from their country to do so. It’s important to understand how they will secure financing however.

Although many loan programs have different requirements, here is a pretty standard list of what they will need:

o A credit score helps. Many companies now can offer foreign credit reports but if they have one domestically that will work too.

o If they don’t have a credit score, they will likely be asked to provide three letters of reference from financial institutions in their home country that shows they are in good standing. Or they can sometimes show one credit reference letter from a large internationally known banking institution that also attests they are a good client.

o A valid unexpired passport or visa. If the visa will expire within six months from the date of the loan application, they will likely have to provide a copy of their extension.

o Many banks want the borrower to have opened an account in a U.S. based bank and have at least a two month history there.

o Employment verification. This can be a very short, simple letter from a CPA or other third party in the borrower’s home country verifying the employment and line of work.

o If the property is being purchased as a second home, plan on a down payment of 20-25%. If it’s a primary residence, and he has lived here less than two years, plan on 20% down. If the he has already been living in the U.S. for at least two years, he may be able to qualify for up to 95% financing, regardless of country of origin. If he has lived in the U.S. less than two years and he is a citizen of Canada, UK or Mexico, he may be able to qualify for 90% financing.

It’s important to note that when a non-U.S. real estate owner sells the real estate he has bought here, the IRS requires that 10% of the sales price be withheld at closing for an estimate tax payment.

There are exceptions to this. If the non-U.S. real estate owner sells the property to someone who plans on using the property as his primary residence, and the sales price is $300,000 or less, the seller is exempt from the withhold. You can also request that less be withheld if you believe the tax liability at the end of the year will be less.

According to many experts, there are 10 things you will want to consider when working with foreign real estate buyers.

1) You need to be able to overcome the language barriers, if they exist. If you are marketing to European buyers or Canadian buyers, this won’t be as big a challenge however if you choose to market to other areas like Asia, the buyers may not speak fluent English. Plan on having an assistant who can speak the language of the area of the world you want to try and market or securing the services of a company like translators.com.

2) You should have a great understanding of the local market conditions and legal issues. These buyers are usually very well educated and successful in their country. However, they may not understand our market. They will look to you for your expertise.

3) Be very respectful, even when there are communication challenges, and be very careful not to demean or talk down to anyone.

4) Focus on a single country you want to market to when you first get started. It’s important that you become familiar with the culture in order to start to build a network of contacts and referrals.

5) Be patient. There are many cultures that believe that some important decisions require more time and thought.

6) Develop a networking group of resources for them to deal with on any of their questions like a group of tax experts, attorneys, lenders, escrow agents and others who understand the laws and intricacies of foreign ownership.

7) Understand the foreign currency conversion tables. Be able to tell the client that 300,000 U.S. dollars is 223,441 euro. And if you need help, use this website. http://www.xe.com/ucc/

8) Understand there could be challenges and delays. Not many lenders have experience in dealing with Foreign Nationals. Due to the nature of the documentation the borrowers are asked to provide, you can expect there to be more requests from the lender than normal. Because the client is sometimes out of the country and not readily available, this can create untimely delays.

9) Communicate the process. It’s important that you clearly communicate the entire real estate purchase process from start to finish. Its likely that our process here differs from that in their country and you want them to understand ours as well.

10) Stay on top of foreign currency exchange rates and market conditions. Let’s say you had a buyer from the U.K. who thought the $300,000 home you showed him last month was “a bit too pricey.” But let’s say that next month, the dollar drops further compared to the Euro and now this $300,000 is actually costing him $292,000 compared to the Euro, you may be able to make a sale without the market moving at all.

The National Association of Realtors even has a certified designation for international property specialists through their International Division. In today’s tighter market, it may make sense to expand your niche marketing and Foreign Nationals provide an area where there is not as much competition. How do you begin to find these buyers? Developing a presence in the international market can often start with local contacts.

In addition, the largest ethnic groups have a local Chamber of Commerce.

Finally, your Internet sites should definitely and prominently market your expertise in understanding and assisting the Foreign National.