Mighty Mortgages

If you’re scratching your head when I say the words “mortgage backed securities”, you’re not alone. But these may be the words that will lead to you to a financial breakthrough, not only in terms of understanding, but also your investments. To take the risk or not take the risk? To answer this, one must define first what a mortgage backed security, or MBS, is. So, what exactly is a mortgage backed security?

A mortgage backed security is a type of bond that is supported by a pool of personal loans that may be used to pay for the buying of home or other types of real estate property. While these loans are being paid off, the mortgage payments then are passed to the bondholder. These bondholders will be the ones to receive payments which typically are made up of principal and interest. Take note, these types of security are also called “mortgage related security” or “mortgage pass through”.

When a mortgage loan is extended by bank, commonly a commercial, savings and loan, or thrift bank, this process starts. The lender can sell these loans one by one and have them pooled by the purchaser, or the lender can group similar mortgages before selling. What happens subsequently is that after these mortgages have been pooled into their different groups, they are then securitized and eventually sold.

Sorted into how the payment process is done, there are three main types of mortgage backed securities: collaterized mortgage obligations, stripped mortgage backed securities and traditional pass-through securities.

First, collaterized mortgage obligations are characterized by the way they permit the creation of bonds with a possibility of risk and return. Cash flows are taken from a pass-through security into what are called “tranches”. These tranches are formed to accomplish distinct return goals, and manage risks efficiently.

Secondly, the stripped mortgage back securities create one or two new securities with cash flows from the original mortgage pass-through. Each of these new securities receives either principal, interest of a combination.

Lastly, traditional pass-throughs are known to give each investor in the pool a proportional distribution of the principal and interests formed by the homeowners.

Mortgage backed securities are beneficial because they usually give a higher yield than many other types of fixed income securities. However, the risks involved with mortgage backed securities are the sensitivity of the type to interest rate movements. Prepayment speeds, in particular, have a great hand in these types of securities, because if prepayment speeds are faster than planned, the bondholders are risking that their principal will be returned earlier than expected, as well as in a lower interest rate environment.

All in all, the essence of mortgage backed securities is that they are a type of asset-backed security that secures itself through a mortgage or a set of mortgages. You are in fact lending money to a home buyer or business, or vice versa. They are often used to redirect the interest and principal payments from a pool of mortgages to shareholders.

Foreclosures are bad news to property owners or mortgage borrowers. But to some enterprising and clever people, foreclosures can be very rewarding. If there is money in garbage, there can be more money in foreclosures. But it is not as simple as it sounds. It requires patience, hard work, time and a lot of guts.

If you are not a real estate investor yet, you should do your homework first before you can even begin to think about making money with foreclosures. Fortunately, there are a lot of self-help or how-to-do-it books about this subject. There are also breeze courses or long-term courses about investing in foreclosures. The important thing is that you should know what you are getting into.

Investing in foreclosures is filled with risks and you should be equipped to handle each one of these. Buying and selling foreclosures require a great deal of patience and skills. It is also good to learn from the best get tips from real estate investors who have ventured into foreclosure investing.

It takes real investing savvy. Not everything you hear about foreclosure investing is true. It is not as good as it sounds. There are a lot of myths. The way to the pot of gold at the end of the rainbow foreclosure investing can be rough and tough. Brace yourself.

Some of these myths that foreclosure investors should be wary of and understand are: foreclosed houses always sell at a steep discount or less than their market value; there are foreclosures everywhere and all the time; any individual can make money in foreclosures; and that it is a sure win or success.

Foreclosure investors are really bargain hunters. They know a good bargain when they see one. But as they say, not everything that glitters is gold. So good bargain hunters know a real deal from miles apart. It is a skill that is learned and acquired through practice.

In order to avoid getting entangled in legal wrangling and battles, foreclosure investors especially entry-level ones should first study about the foreclosure laws in the state or area where they intend to operate or invest into. These can be accessed via the Internet by using the search engines. Better yet, you can consult or hire the services of a reputable lawyer or attorney in the area, who can explain the nitty-gritty and even advise you about possible legal traps to avoid. The laws vary from one state or area to another.

Investing in foreclosures as cited earlier is a risky business, because it involves many factors, and sometimes it is also subject to legal implications and regulatory policies. As an investor, you should be prepared for any results, positive or negative. As they say, no pain, no gain. The amount of time you spent on preparing will bear fruits in eventually when you make your first profit or money from foreclosure investing. If you prepared well for it—did your homework, created a solid plan, and weighed the pros and cons—then you have good chances of succeeding and make money with your foreclosure investments. Good luck and happy bargain hunting!

Bird-dogging or real estate jobbing is a great way to get started on a career in real estate investing. A bird dog is a property locater or deal finder for an established real estate investor. The bird-dog is paid a fee for finding these potential real estate deals. The amount of the fee can range anywhere from a few hundred dollars to several thousand. It all depends on the extent of the bird-dog’s involvement in the deal and the work he or she puts into it.

To earn top dollar as a bird-dog you are expected to see the homes, perform an analysis and negotiate the best price. You then present your detailed findings to your investors.

Bird-dogs will carry out their own marketing in effort to locate potential investment properties. This can include newspaper ads, direct mailings and physically driving around with a keen eye for opportunities. For more information on finding real estate bargains check out my previous post Where the Half-Price Homes Are and How to Buy Them.

There is a blurred line between bird-dogging, flipping and wholesaling. The difference lies in whether or not you get the property under contract. A wholesaler or flipper with actually get the property under contract and then assign the contract. This of course carries a lot more risk then simply presenting a deal and collecting a modest finder’s fee. If you get the property under contract you will be entitled to the difference between what you have it under contract for and what you sell it for. If you negotiate to purchase a $150,000 home for $110,000 and then sell it to an investor for $120,000 you will earn $10,000 instead of the standard bird dogger’s fee of around $1000. Investors like it when you have it under contract because then they know you are in control of the deal.

Which brings us to the question of whether or not bird-dogging is legal. In most states if you are brokering a deal between a buyer and seller, you required to be licensed. The key is that your fee is contingent on the closing of the deal. Many bird-dogs are in fact operating illegally. Again getting the property under contract bypasses this as you are then a principal to the deal and have something at stake. It is generally alright if you are merely identifying leads and selling the leads to investors. In this case you are paid a fee regardless of the deal closing. As always, consult with a professional in your area to be sure.

Another way to get started is with Maveric Real Estate Investments. They train you to find commercial real estate deals that they will fund.

The best advantage to starting as a real estate bird-dog or real estate jobber, is it gives you an opportunity to get your feet wet with investing in real estate, without assuming all the risk of a full-time investor. It gives you an opportunity to work closely with experienced people and begin to build your network. You will find you begin to develop mentor relationships which will prove to be extremely valuable.

If you own a rental property you collect a monthly rent check, but you also carry a load of responsibilities such as maintenance and repairs etc. What if you could get the tenants to take on these responsibilities, but still give you a monthly check? Better yet, what if they were eager to do it? It is possible to have your cake and eat it too; let me explain. (more…)

You may be wondering how to sell a house quickly and for the best price.  It has always been common sense that if you want to get top dollar when you are selling your home, you need to make sure that it appears as attractive as possible. However, over the last couple of decades this notion has spawned an entire industry. Professionals now make a living by preparing homes for sale, before they go on the market. This is known as home staging, home enhancement or home redesigning. The results are homes that sell faster and for more money.

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If you are willing to be a little creative and you have some flexibility, I will show you how you can sell that home now for even more money than you are currently asking.

Seller financing, or owner financing as it is sometimes called, is when the seller of a property agrees to provide the financing for all or a portion of the purchase price. Instead of cash at closing he agrees to take a promissory note (a legal term for an IOU) for this amount. This is generally done when for one reason or another, the purchaser is unable to obtain full financing from a traditional mortgage lender or financial institution. For example the bank may only be prepared to lend up to 80% of the purchase price yet the buyer only has 5% to put down. So if the vendor doesn’t need the money right away he could agree to receive the remaining 20% in the form of a note. The note would specify the terms of the repayment including the length of time and the interest rate to be paid.

So why would a seller do this? (more…)

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Foreclosure rates are at an all time high. While this is unfortunate for those who have lost their homes, it is an opportunity for you to buy a home well below its market value. In fact with with patience and a little leg work you can purchase a home at a 20% to 40% discount.

Homes go into foreclosure when the owner fails to meet their financial obligations with respect to the mortgage against it. The bank or government agency is forced to repossess the home and then sell it to cover the outstanding loan. It is important to realize that these companies do not want to be in the business of owning real estate. They want to be rid of it as quickly as possible and in some cases they will even let it go for less than the amount owing on the loan.

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If you own a rental property for 10 years and charge $750 per month in rent, that is $9,000 a year or $90,000 in total income. Now what if you have two? The income to be earned from owning revenue properties is significant and needs to be managed diligently. If you lack the time and resources to do this yourself, professional property management can step in and do it for you. Here are seven ways hiring a rental property manager can help you make money, save money and save time. (more…)