PRIVATE MONEY OUTLINE Mindset Why is Private Money Available? What are the Alternatives? Forms of Private Money Self Directed IRA Flowchart Who are

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2 Disclaimer This information is designed to provide general information regarding the subject matter covered. However, laws and practices often vary from state to state and are subject to change. Because each factual situation is different, specific advice should be tailored to the particular circumstances. For this reason, the reader is advised to consult with his or her own legal, accounting or other professional advisor. The presenters have take reasonable precautions in the preparation of this information and believes the facts presented in the written and audio material are accurate as of the date it was produced. However, the presenters assume no responsibility for any errors or omissions. The presenters disclaim any liability resulting from the use or application of the information contained in this manual and all accompanying audio, video and written media. The information is not intended to serve as legal advice related to individual situations.

3 OUTLINE Mindset Why is Private Money Available? What are the Alternatives? Forms of Private Money Self Directed IRA Flowchart Who are Private Lenders? Why use Private Lenders? Areas to avoid looking for Private Lenders Example Deals (Rent & Flip) Establishing Credibility

4 OUTLINE Overview of Entrust Retirement Services Negotiating/Establishing Terms Who NOT To borrow from Closing Documents SEC Guidelines Case Studies Forms & Bonuses ACTION STEPS!

5 WHAT IS TODAY ABOUT? This is an educational event that will show you some of the opportunities that are available for you to grow your real estate portfolio during this economic downturn While also, providing private individuals an alternative means to invest and grow their retirement and other investment funds

6 WHAT IS TODAY ABOUT? This is an educational event that will show you some of the opportunities that are available for you to grow your real estate portfolio during this economic downturn While also, providing private individuals an alternative means to invest and grow their retirement and other investment funds

7 WHAT TODAY IS NOT: We are not offering you an opportunity to invest with us, nor are we offering to sell an investment of any kind We are not talking about ANY recommendations for any investment products, nor are we the agent for any investment provider

8 WHAT IS PRIVATE MONEY Private Money/Lending, is a relationship based lending relationship between a private individual and another private individual or company

9 GOLDEN RULE Rule no. 1: Never lose your investors money Rule no. 2: See Rule no. 1

10 MINDSET Whether you think you can, or think you can t, your right ~Henry Ford

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12 DON T BE STOPPED BY LACK OF CASH Perhaps the most used-or overworked-excuse given for not investing in real estate today is, I m waiting until I get enough money together to start. Money is NOT what you need most CREATIVE THINKING is what you need

13 PRIVATE MONEY LAW OF ATTRACTION THE MONEY IS ATTRACTED TO GOOD DEALS AND TRUSTWORTHY Investors

14 Can I Really Get The Money I Need To Fund My Deals In Today s Market?

15 YES! There Are Literally Trillions Of Dollars Available For Your Deals

16 WHY? The downturn in the market has created a desire for investors to seek alternative places to earn Safe and Secure rates of Return

17 Folks, Real Estate Should PUT Money In Your Pocket, Not Take It Out

18 DIFFERENT FINANCING OPTIONS 1. Conventional Financing 2. Subject-To 3. Owner Financing 4. Hard Money And.

19 PRIVATE MONEY

20 FIRST, Let s Explore The Alternatives.

21 CONVENTIONAL FINANCING More difficult to obtain in today s market, but If you can get approved, use it for Long Term Wealth and Cash-Flow Down Payment Required Develop relationships with bankers In time, seek blanket & portfolio loans

22 SUBJECT-TO Buying Subject-To means that the sellers loan remains in place, you are not assuming it. You are simply making payments to it Typically better for rentals not flips Be informed of the Due On Sale Clause, but not fearful

23 OWNER-FINANCING This can be the one of the preferred types of financing when you learn to negotiate good terms, like the following: Long-Term PayOff Low Interest Rates No Due on sale clause No Prepayment penalty No late fee in note Great for Rental and a retail Option

24 HARD MONEY Most Popular form of financing for Flips Must have an exit strategy Don t let the interest rate discourage you from Doing the deal

25 Most Common Forms of Private Money

26 CASH In today s market, you must know how to properly leverage real estate and business transaction Note: See Inflation & Printing Money Cash is King still applies, but would be better stated as, Those with Access To Cash are King So, Why Not Use Other People s Money?

27 Self Directed IRA s

28 Who Are Private Lenders?

29 Private Lenders actually look more like this

30 Who Are Private Lenders? Basically, Everyday People Some are retired, some work, some are rich, some just have a little IRA money that they are not using

31 WHY USE PRIVATE LENDERS? Speed No Credit Check Cash-Flow (accrued & lower interest) Better Deals (with cash) Close more deals No Down Payments No Pre-Payment Penalty No, or fewer points Reduced Closing Costs Cash At Closing (It make s its own gravy!) YOU SET THE RULES!

32 A Where Can I Find PRIVATE MONEY LENDERS??

33 Ok, So Where Can I Find A Private Money Lender? Here s A Better Question: Where should I NOT find A Private Lender?

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35 We do NOT Recommend Looking Here: Radio Public Advertising Internet Newspaper Outside of your state

36 Instead, look here: Friends & Family Business Contacts Seminars Referrals Real Estate Clubs Networking Groups Accredited Investors

37 Be Ready

38 Your Goal Should Be For A One-on-One Meeting Then,

39 Begin to work with 1 Private Lender Develop the relationship & credibility Then you will see how quickly word spreads & how fast The the Money Banana tree Can Grow tree

40 Establish Your Private Money Rules: 1. Loan Minimums 2. Accrued Interest (unless it is a rental) 3. 1 Private Lender per promissory note 4. 70% LTV 5. ALWAYS KEEP YOUR WORD!

41 Remember, The return OF my money is more important than the return ON my money" Mark Twain

42 Private Money Rules, FLIP Example Purchase Price: $50,000 Repairs: $15,000 ARV: $100,000 Total Loan Amount: $70,000 12% Interest: $700 per month (Paid or Deferred) Points?

43 Private Money Rules, RENTAL Example Purchase Price: $50,000 Repairs: $15,000 ARV: $100,000 Total Loan Amount: $70,000 10% Interest: $583 per month Points?

44 Private Money Rules, RENTAL Example Rent: $1,000 Loan: $583 Insurance: $60 Taxes: $150 Cash-Flow: $207

45 Ease your Private Money Lender s biggest concern Show them how they will get their money back!

46 Establish Credibility

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48 Educate Prospective Lenders

49 Create a Credibility Kit Brief Bio/Resume Experience Licenses Letters of Recommendation Recognition Letters Professional Affiliations Highlights about yourself, training, education, etc Team Information (Realtors, Contractors, etc) Basically, anything in your past that provides confidence in your potential lenders that you will safely return their investment and do as you agree to do

50 Establish Trust & Credibility Here is an example of a power point presentation we have created for our Private Money Lenders.

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52 Private Lending In Your IRA or 401(k) What s in it for you? Fixed Minimum Returns High Yields Secured and Insured Investments Earnings are Tax Deferred or Tax Free

53 Your Protection You Receive: Note Deed of Trust or Mortgage Hazard Insurance Policy

54 How It Works These are the Steps: Houston Capital Group will locate a property to buy at a significant discount below market value Houston Capital Group approved investor will borrow funds from private investors to purchase and renovate the property. Investor will sell the property for profit or hold the property for cash-flow and potential appreciation.

55 Private Lender Private Lender contributes funds for purchase and renovation Purchase Transaction occurs at title company with Title Insurance and 3 rd Party Property Appraisal. Renovation/Resell or Lease Investor manages the rehab and resell/leasing of the property Property Sold Private Lender receives payoff upon closing Lease of Property Management Company will put Tenants in place, maintain the property and handle accounting (including payments to your 3 rd party administrator). Title of the policy will typically be held in LLC for asset protection and management purposes. Holding Period Private Lender can either hold the note for long term (2-5 years), or investor will utilize a bank or credit partner to refinance into a permanent loan to cash the lender out.

56 How Can We Buy Houses So Far Below Market Value? We specialize in distressed properties that usually need renovation. We know where to look, what to buy, what NOT to buy and how to renovate. We create value by purchasing ugly, vacant homes and turning them into clean and functional family homes.

57 Client Selects From Available Terms Cities or Specific Properties Term of Note (6 months to 5 years) Monthly, Quarterly, Annual or Accruing (balloon) Interest Payments Maximum Loan-To-Value is 75% Based on ARV (After Repaired Value) appraisal Typically, our deals are even below 70% of value

58 What If I Don t Have A Large Balance In My IRA? 1 st Position Notes start at a minimum of $50,000. Junior Position Notes start at a minimum of $10,000 If you have less that the minimum, we may be able to create a custom investment to get you started.

59 Example Project

60 BEFORE & AFTER

61 BEFORE & AFTER

62 BEFORE & AFTER

63 BEFORE & AFTER

64 More Pictures

65 More Pictures

66 Financial Breakdown Of Project $52,000 Purchase Price +$20,000 Renovation Costs +3,000 Closing Costs = $75,000 Total Cost Private Loan from investor: $77,000 Loan-To-Value Ratio: 70% based on $110k ARV Appraisal

67 Earnings Comparison Example CD or Money Market May Have Early Withdrawal Penalties 3% Interest Total Earned: $2,550 Annualized Yield: 3% HCG Private Lender 1 st Position Deed of Trust No Early Withdrawal Penalty 6 month Note (or longer) 1.5 points Upon Funding - $1,275 12% Interest = $5,100 after 6 months Total Earned: $6,375 Annualized Yield: 15%

68 What Happens If My Note Matures And HCG Is Not Ready To Fund My Payoff? There are multiple exit strategies: We can offer you a Note renewal We can re-finance your Note with another lender We can bring in a credit partner to refinance We can sell the property quickly at a discount to another investor

69 Why Invest In The Houston Market? >New Home Construction down 61%, but Population is increasing by over 100,000 per year! (Projected to be 11.7 mil (double by 2040) >Light Rail Project Approved $1.6 billion project >UTMB- $1.4 billion planned expansion >Port received $140 mil stimulus for repair/expansion >1st time home buyer Tax Credit > Fixed low rates and 'low prices compared to East & West Coasts >General public is beginning to understand (or they're being incentivized by Gov't) that it is a good time to buy >Possibly increase $8k credit to $15k AND, Open to everyone! >Inventory 2009: 45,282 (6.2 months) This is extremely low!!! > *National Average: months >10 most undervalued markets: Houston is #6 (-36.9%)! >Lowest industrial vacancy 8.9% (3rd in nation) >Rent rates up 16% >Gov't, Industrial & Multi-Family construction increasing This means jobs!

70 What Happens If HCG Goes Out Of Business? Your funds have been invested in a property that is now renovated and probably tenant occupied or ready for resale Your investment is secured by the property at a maximum of 75% of its value You could sell the property or retain it in your IRA as an investment rental property and make more money than you did as only being the private lender! Lastly, HCG is only a consortium of investors and Houston area real estate professionals, so you would have a network of other investors should Brant or Jack no longer be available to provide you any deals

71 A little more about us Brant Phillips - Co-Founder of Houston Capital Group, Brant has purchased, rehabbed, rented and sold Houston housing for himself and partners with great success. He has personally purchased dozens of investment properties in the Houston Market and works with investors to achieve above market returns with their Real Estate Investments. Brant takes great pride in transforming a house that has little value to it s owner or the community and turning it into clean and functional, affordable housing. As a licensed contractor and co-owner of RentReadyContractors.com, Brant helps his project managers oversee rehabs, make-readies and property maintenance for Houston Real Estate Investors. Brant is a former police officer who prides himself on integrity and serving others. He is a husband and father of two and he also holds a Real Estate License in the State of Texas.

72 A little more about us Jack Mize - Co-Founder of Houston Capital Group and founder of HoustonCashDeals.com and RentReadyHouses.com. Jack has spent the last 6 years involved in purchasing, rehabbing, landlording and mentoring other investors to successfully build assets and better than average cash flow investing in low income affordable housing. Jack is a licensed real estate agent that specializes in the acquisition of below market properties and turning them into safe, clean and functional homes for Houston families.

73 Establishing Terms First Rule of Negotiating: He who speaks first Loses

74 Establishing Terms Ask with the Open Ended Question: What rate of return are you looking for?

75 Establishing Terms However, we re not really negotiating here We are seeking a mutually beneficial lending relationship But, we are seeking terms that work for our deals and lenders that will be satisfied with these returns

76 Establishing Terms Make the terms work for the lender and your deal Utilize Deferred Interest for Short-Term Flips Listen to your lenders request, then structure the deal to satisfy their goals, and make your deal the most profitable as possible

77 Create An Irre$i$tible Offer Split/Share Profits Or, Give them a piece of the Pie Put them in Safe Deals, with acceptable equity portions and multiple exit strategies While still making your deal very profitable to you, offer them returns and terms they cannot refuse!

78 Is There Anyone I Should NOT Borrow From? Anyone that is totally dependent on that source of funds Anyone you do not get along with Unstable, erratic individuals **Remember, this is potentially a long-term business relationship!

79 Closing Documents 1. Promissory Note/Mortgage 2. Insurance 3. Title Commitment 4. Insurance 5. Survey (recommended) 6. Disclosure Statement (recommended)

80 SEC GUIDELINES Real estate investors are offering private lenders securities when they ask them to lend their funds. Securities must be offered either under an exemption or by registration with the state. Every state has its own securities regulator and its own set of laws, rules and regulations. As long as you only work within your home state, you can use a home state exemption or registration and a federal intrastate exemption. Many students work in states that don t require any filing when using an exemption, including when you stay under the threshold number of private lenders to whom you offer or sell securities.

81 SEC GUIDELINES Other states do require filing paperwork. When you cross state lines, the Federal SEC gets involved with its own set of laws, rules and regulations. It s legal to advertise securities, as long as you do so in compliance with appropriate securities laws. Do NOT make Public Offerings (this is our main exception) HOWEVER WE DO NOT RECOMMEND YOU ADVERTISE FOR LENDERS ONLY PRESENT WITHIN YOUR PERSONAL NETWORK

82 CASE STUDIES PURCHASE: $135,000 LOAN AMOUNT: $140,000 (covered all closing costs, taxes, 1 point paid back to lender, etc) CASH AT CLOSING: $5,000 MONTHLY CASH-FLOW: $1150! Private Money Loan At 6% Interest For 5 years Interest Only To Purchase a 4-Plex AND CASH AT CLOSING!

83 CASE STUDIES PURCHASE: $29,500 LOAN AMOUNT: $50,000 (covered all closing costs, taxes, 1 point paid back to lender, etc) REPAIRS: $10,000 Private Money Loan At 12% Interest For 1 Year Without ANY PAYMENTS! $10,000 CASH AT CLOSING! CASH AT 1 st CLOSING: $20,000! ($10k for Repairs, so, net to us at closing: $10k) CASH AT 2nd CLOSING: $6,000 (Net To Us At Closing: $10k)

84 CASE STUDIES Purchase: $37,000 Rehab: $12,000 Private Money Loan Amount: $55,000 Rehab time: 25 days Days On Market: 0 PITI: $725 Rent: $975 Cash-Flow: $250 Cash In Pocket: $6,000 Value: $85k

85 CASE STUDIES Purchase: $70,000 Rehab: $23,000 Private Money Loan Amount: $95,000 Days On Market: 1 Day Cash In Pocket When We Bought: $3,000 Sales Price: $124,500 Total Profit: $21,150

86 CASE STUDIES PURCHASE: $53,000 REPAIRS: $22,000 LOAN AMOUNT: $75,000 (covered all closing costs, taxes (10k) and 1 point paid back to lender) Rehab time: 30 days Days On Market: 11 days Sales Price: $110,000

87 CASE STUDIES Purchase: $20,000 Rehab: $14,000 Private Money Loan Amount: $40,000 Rehab time: 30 days Days On Market: 0 Value: $70,000 Cash-Flow: $200 Cash In Pocket When We Bought: $6,000

88 REVIEW FORMS On CD

89 FORMS & BONUSES 12% To Do List Basic Letter Build Wealth In A Hurry Could you use an additional 15%? Cover Sheet Elizabeth s Story Implementation Plan Investor Marketing Strategy Loan Docs Magic Words Mail Letter My Rules Newspaper Ad Payment Schedule Presentation for Lead Conversion Script Private Lender Q & A Promissory Note Questions you should be able to answer Special Report Tracking Report

90 FORMS & BONUSES POWER POINT: Private Lender Presentation Today s Presentation Slides Audio: Earn A Safe Return REHAB FORMS: Foundation Repair Doesn t Have to Be Scary General Repair Estimate Tips on Working With Contractors Lead Based Paint Rehab Estimate Check List

91 FORMS & BONUSES SEC FORMS: A Short Disclosure Advertising Disclaimers Typical Disclosure Statement Website Disclaimer for Students What is a Disclosure Statement

92 FORMS & BONUSES Landlord Forms: Check Out Requirements Inventory & Condition Form Lead Based Paint Addendum Lease Extension Notice to Vacate Pet Agreement Prospective Tenant Screening Criteria Rent Talk Packet (Power Point) Rental Property Template Residential Lease Tenant Application

93 FORMS & BONUSES LEGAL & IRA Forms: Article on Beneficiary Designation Basic Concepts of Prohibited Transaction Analysis Basic Rules of Prohibited Transactions Bill of Sale Deed to Trustee IRA Top Strategies IRA Top Ten Lending Strategies IRA Top Ten Mistakes Lending from an IRA Retire Rich, Never Pay Taxes Top Top IRA Myths

94 TAKING ACTION 1. Make a list of 20 people that you will contact this week 2. Create your own Personal Elevator Speech 3. Prepare personal Credibility Kit Information 4. Schedule yourself to attend Entrust Client Mixers and Small Group Meetings 5. Schedule One-on-One Meetings and Do A Deal!

95 RECOMMENDED READING Investors in your own backyard -Asheesh Advani How to get all the money you need to buy property -Alan Cowgill How to Invest in Real Estate With Your IRA and 401k & Pay Little or No Taxes -Hubert Bromma (Owner of The Entrust Group)

96 Thanks For Your Attendance Best Of Luck!