What I want to describe for your are what effects the new legislation, which is termed Dodd Frank, it’s actually the Dodd Frank Wall Street Reform and Consumer Protection Act, how that’s going to outcome real estate investors, those who are invested in real estate.
How does it effect everything?
What’s it going to do ?
Exemptions
I’m going to start with the exemptions. Why? There’s a big gaping exemption as it relates to real estate investing. An exemption is where you don’t have to follow and match the employment guidelines of this. This is any place where it’s non-consumer.
What is non-consumer ?
That’s going to be anything where you’re reselling a property to overseas investors. I’m going to say investor transactions. What I necessitate by that although those that you are selling to an investor and in situations where you’re buying from a homeowner but you’re overseas investors. The goal of this law, this is my reading of it … By the route, I’m not yielding legal advice on this blog. Please reach out to an attorney if you want to know if exactly what you’re doing fall within these guidelines or not.
The Intent of the law
The purport was to protect “consumers interests”. We had an absolute fiscal melt down in 2006 through 2009, 2010. That’s where this legislation was birth from. It’s geared toward shoppers. Specifically in the many parts of the practice it was written, it’s focusing on the way the loan periods are and who can get a loan. If you’re not making loans for the owneds you’re selling, which I’m going to get to in a moment, I don’t ever do that, then in most cases this won’t even affect you. If you’re throwing a property to overseas investors, you won’t even fit into the guidelines of this because it’s non-consumer. If you’re to purchase a property from a seller and you’re doing owned financing, well, you’re buying as an investor so, is again, you’re in that exemption. Does that does appreciation?
Transactions
If you watch any of my videos and you know anything about which is something we do, that’s a pretty including part of which is something we do. That pretty much cover-ups virtually every transaction. There are a couple of deals where shoppers are committed where you might be originating a loan or a quasi-loan. Let’s talk about that.
Rent to Own
This is a big one, rental alternatives. I call it a rent to own, but some people use that phrase. I call it a rent to own. When I’m selling owneds, I often sell them to the ultimate retail buyer who’s going a loan and they’re going to cash me out. However, sometimes I will take over a dimension subject to the existing financing or perhaps do property owners financed transaction where the marketer grows the bank. In either of those cases, I may actually move individual into the dimension on a rent to own basis where what they’re going to do is they’re going to place down a down payment that’s more than a rental sediment, so it’s probably in the range of like four to 5,000 sometimes more for owneds nicer. Then they’re also going to pay rent.
Set Up Two Different Agreements
One agreement is the lease. One, I have the lease. Then, two, I have this option agreement. Now, for a long time hour this idea of a rental option … First of all, in some parts of the country, you do have to know the rules on that like Texas, there are certain rules that you can’t have longer than six months. Otherwise, what happens is it could be considered like an installment marketing for IRS roles. In most parts of the country, you can do a two, as much as three time. I’ve always done two time rental alternatives or rent to owns.
My lease is for two years and they have an option to purchase for two years. Now, this could potentially be construed as originating the loan to a consumer which would fit into this Dodd Frank. Now, what Dodd Frank talks about is this idea that you have to have some qualifications before you can repeat, originate a loan.
9 Criteria for Rent to Own Tenant
Now, what’s interesting about this is any time I do a rent to own with individual, I employed them through the ringer. I pull recognition . I do responsibility proof like serious responsibility proof . I’ll find a way to contact the company , not through the figure they gave me, but through a different figure. Sometimes they give you their cousin’s figure.” Yeah, he’s worked there for 12 times .” I call the real company. I go to the backdoor way.
Verify where they lived , not just where they’re coming from because if they’re moving out and their landlord detests them, the landlord may say,” Yeah, this person is a great holder ,” when in fact they’re not. Instead, I’ll go to the one before they were at. I’ll contact that landlord and they’ll tell me the truth. I do a lot to check their income situation, their indebtedness to see if they are unable even compensate. If they can’t stir the payments, I don’t want them is moving forward. Does that make sense?
That’s a really big part of Dodd Frank. They have these nine criteria that you want to cover, most importantly it will be obligation to income ratio, taken to ensure that these people can actually yields it, that you actually have criteria to be able to verify that they can move in.
This is somewhat quasi whether or not it even is appropriate to here. It could or it could not. Since that’s the way I control regardless and that is I do a very, very heavy scrutiny of the application they provision. I actually call their cites or I have my aide do it. We attest what’s going on with that person. We turn down a lot of applications. To get into one of my rent to owns, it’s kind of you’re a needle in a haystack. You got to have some coin for a down payment .
It’s okay if you have poor recognition so long as that was from something in the past because I don’t want to see anything recent where they’re not paying their greenbacks. I’m talking if it was three years ago. They had a divorce. They had something going on back then. Then , now, they’ve had these two years of great track record . I’m okay with that.
What’s interesting is the course that I either I educate my mentors, my mentees, I do it personally, is that I actually scrutinize the heck out of these parties before I move them in, which is exactly what Dodd Frank requires in the legislation. They want you to verify , not just let anybody in and create a new loan.
Owner Financing
Now, what I don’t do is I don’t give owned financing to the new buyer. I hear of other persons and other investors that do that. More ability to them. Those parties are certainly fit within Dodd Frank and they only “re going to have to” do this criteria which is not a big deal.
I don’t ever offer that and here’s why. If you give owned financing to a new buyer and they move in … Let’s say they give you a down payment, and all that great substance, and all their substance checks up. They’re fine. They have good recognition and they are unable stir the payments. Then they stop paying you. It’s not if but when. Most proprietors will tell you that, at some stage, the tenants stop paying you.
Now, what I love about a rent to own is I get an option remittance, 3, 4, $5,000 which can help offset the empty remittances. If you have an owner financed transaction where you are letting the new person move in, they grow the owner and they don’t spend you, you were supposed to foreclose to get them out of there. Do you know how long it takes to foreclose? A long time. No is important that country you’re in, it takes a long time. That’s expensive. Plus, if you do the foreclosure incorrect, of course, the advocates are going to charge you a lot of coin. You see what happens to these banks that have to foreclose. It’s a nightmare. Now, recollect, the banks aren’t lending their own coin and they have basically unlimited funds, basically. Being able to pay for foreclosure isn’t the end of the world to them, but it could be to you.
Do Your Homework
I don’t ever offer owned financing. From that position, I don’t have to deal with that part of the Dodd Frank. Surely, when I give a rent to own to a consumer, although it should be considered a rental and then there’s just a separate option, that’s the way it often works, just to be on the safe slope, do what is economically essentially regardless and scrutinize the heck out of them. Pluck their recognition. Do a obligation to income ratio check. Do all the things that you need to do to verify that they can actually do the payments. Does that make sense?
Now, undoubtedly, there are some other far-reaching and perhaps parties watching this video could share in specific comments below some other knowledge about what could possibly happen as a result of this legislation such as reaching the foreclosure process longer, reaching it more difficult for parties to get mortgages because now there’s legislation that require certain investigation and all sorts of other potential guess at what could happen. That’s what they are. They are guesses.
Forecasting
One thing you’ve perhaps learned from me if you watched my other videos is I’m a big, big follower of the book The Signal and the Noise by Nate Silver where he quarrels, and I think he does a great undertaking of doing it, that the united states was human beings are awful at forecasting. We’re terrible at guesstimating what’s going to happen tomorrow, especially on huge thoughts like their own economies. For example, a lot of parties were saying that in 2012 we were going to have a double immerse in real estate whereby the market would put even more because of all the the shadow armory. Do you remember that? Well, if you’re brand new to real estate, you may not be considered that duty. This was a big deal.
You get towards the end of 2011, the sky was falling again. There’s massive quantity of shadow armory these banks had. We’re all going to be thrown on the market and then the market was going to downfall some more. You know what happened? For the first time in history, Wall Street got involved and inaugurated buying tens of thousands of single household homes and then hiring them out. Then another landmark component, they securitize these speculations, and they sold them on the alliance sell. They actually have a alliance. They have a rating like the AA rating or something, the last I checked.
What many of the scholars didn’t predict was that as these market prices went so low, of a sudden, a knot of hedge funds would buy up tens of thousands of single household the house and, thereby, went rid of a large portion of the shadow armory. That’s why we never had the double immerse. That’s why the real estate market has rebounded. Now, we’re hoping it’ll continue to rebound. Whether it does or it doesn’t, we’re going to be constructing abundance of fund because we know how to make money up and down markets.
I don’t know all of the long-term effects could be and these major changes that could occur. I do know, as it relates to on the granular stage doing deals, be kept in mind that if you’re doing anything with individual consumers, and you’re originating a lend or, in this case, doing a hire to own, you want to make sure to evaluate such person or persons, applied him through mention, underwriting process. I’ve done that my entire investing vocation though. My mentor showed me that. Never applied someone in a property that you don’t fully know what their fib is because it can be a nightmare to get them out of there. It’s a lot easier to get a renter in the dimension as to get them out.
Conclusion
I hope this has helped to give you a little bit of understanding of the Dodd Frank Act and how that can play a role to you as a real estate investor. As you can tell, it’s not that big of a transaction but there are some details you may want to focus on and some things that you may want to get a little more detailed about. You can examine it online or talk to an attorney. They can give you a little bit more insight.
I anticipate the key here is this. If you’re dealing with investors, you don’t have to worry about it at all. For the most duty, I’m selling these properties to customers that are going to move in. It’s only when I’m dealing with the lease option that this even remotely comes up as an issue.
What’s the other thing I learnt you? Do not sell properties on proprietor financing to somebody else. Now, you can buy them from someone with proprietor financing but don’t sell them because, boy, it can be a nightmare to have to foreclose on somebody.
All right. I’m Phil Pustejovsky with freedommentor.com. You can learn more about me on that website. You can also watch some more of these blogs. I get a lot of great notes. If “youve had” more the issues and notes, delight applied them exactly below here. I try to get to those as rapidly as I can. Formerly again, thanks so much for watching and have a great day.
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