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BEWARE: Social Media Fakes Make Poor Tenants

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By Stewart Levine

Image from Pixabay

Are unprecedented legal changes and scam tenants making it time to rethink rentals as investments?

Even for long-time real estate investors with decades of experience, things have changed.

Social media platforms like TikTok and Instagram seem to be spawning an increasing number of phonies and scams from cryptocurrencies to NFTs, tech startups and real estate gurus.

Image from Pixabay

For the average investor, becoming entangled with just one of these scammers can bankrupt them and rob them of their life’s work.

So, how are they operating? Who do investors and property owners, in general, need to watch out for? How have recent policy changes negatively impacted things?

NOT “As Seen On TikTok”: Scam Tenants Will Cost You Huge

One of the new catchy fads has been things being advertised “As Seen On TikTok.” It has replaced the old “As Seen On TV” infomercial controversies. For better or worse, the highly controversial TikTok platform surpassed Google as the most popular website in 2021.

One retired doctor and long-time investor recently found out just how dangerous it can be.

This is a medical professional who has been investing in real estate for decades. It enabled him to retire at just 51 years old after running a successful dental practice.

He bucked common advice and the tradition of investing in public stocks with stockbrokers that don’t have their customers’ best interests in mind.

Image from Pixabay

During a recent interview he shared some of his early lessons in real estate. He did well, and it enabled him to take control of his own future, along with gaining many tax breaks. Yet, he ran into early issues when actively investing in rentals. He discovered the headaches of vetting deals, the costs of management, and both cash and Section 8 tenants that didn’t perform.

Eventually, he graduated to the point where he had built up enough capital that he wanted to spend more time actually relaxing and enjoying life, and began investing through private funds, private money lending, and other passive real estate strategies.

Still, when it recently came time to move from the Northeast to Florida, he ran into a combination of new and old problems.

Like many others he decided to put his home in the Northeast up for sale right during COVID.

It was a great home in Colts Neck, NJ. Boasting 7,000 square feet, and which this doctor had enjoyed living in for many years himself. However, it was September 2020. Lockdowns meant that real estate agents were hardly working, and most buyers couldn’t get to viewings or were too scared.

An agent representing the tenants brought them a prospective renter as an alternative. The agent sold their clients hard. They included a ‘wealthy DJ’. An online ‘influencer’ and entertainer, who supposedly has 3M followers on TikTok, where he recently bragged about being put in jail by his ex-girlfriend, and 275k on Instagram where he likes to show off fake money, and even promote NFTs.

Image from Pixabay

He was presented under his real name as Anwar Gavilanes, aka DJ Diddy. Along with Adam Zakaria under his business name Pizza Crave, and Frank Baldassare. They were supposedly rich and successful and had a nice car.

After signing the lease, this landlord told us that he never received any rent, after the first payment. On which was supposed to be a two-year lease for $7,300 per month.

Normally, that wouldn’t be a huge issue. Tenants don’t pay, you get an attorney and have them kicked out.

Unfortunately, the government went to the extreme of issuing an eviction moratorium, and shutting down the courts. His attorney simply couldn’t process the paperwork to get them removed. While the president went to extreme lengths to protect rogue occupants like this, landlords paid the price. He says he felt they ruined his life’s work on this property and jeopardized his finances. Those moratoriums were eventually overturned by judges who found them unconstitutional, but many may be asking where the compensation is for landlords.

These tenants continued to occupy the property, without paying any rent for a whole year!

It wasn’t until late 2021, when he was finally granted a Zoom court meeting to get the tenants evicted.

When the landlord was finally able to access the property again, it was a disaster.

Image from Pexels

There was a soccer goal set up in the living room. No basic maintenance had been taken care of on the property in a year. The garage door was busted. Plus, broken fencing, damaged landscaping, and scratched and broken wood flooring which had to be completely replaced. The destruction ended up costing Levine $80k in repairs to restore the property to prepare it for sale. They found fake $100 bills in the property and all types of other craziness leftover from parties.

They even found out the occupants had been renting out the house to others on Airbnb, with no permission to sublease the property in their contract, taking their money, and still not paying the rent. They had even been advertising parties on the home on Eventbrite, at which they had been found serving alcohol to the underaged, and possibly drugs, which resulted in a summons from the police. It is unknown whether they have disclosed the income they illegally made from this operation to the IRS or not.

To make it worse, the utility companies started coming after him as the property owner. The occupants had never paid any utilities, and the utility companies had never bothered to cut them off or bill them, because of ‘COVID’.

WANTED: Social Media Con Artists & Real Estate Fraudsters

Thankfully this property owner’s attorneys have been able to track down two of the perpetrators, and have served them legal papers. He estimates they owe $125k in back rent and legal fees. Not including the actual damages, and utilities. He says he doubts the courts will accept those phony $100 bills as payment.

Image from Pixabay

Anwar, aka DJ Diddy, who turned out to just be a fraud, is still at large, and “hiding out like a rat.” He is still posting on social media, promoting a virtual party online each week on Sundays. The attorneys are very interested in any information that can be provided to track him down, and ensure he is served and brought to justice.

They are also looking for the renters’ real estate agent involved for their role in misrepresenting and failing to vet the tenant. They have been served, but have since been hiding out, without a response.

The Big Takeaway: Things Are Different Now

Most of all this landlord agreed to share his story with us as a warning to all other real estate investors, landlords and homeowners out there.

Be on the lookout for these fraudsters. Don’t become their next victim.

Image from Pixabay

Be sure you are on the alert for other social media phonies as well. In addition to questioning some of those promoting scams like these, and encouraging others to Airbnb out homes they don’t own, or to try and pull scams to take over people’s properties.

He says he is not excited about renting out his personal homes again.

There is just too much risk. Too much fraud. With the new dictatorship we appear to be living in, there is no more security, and very little private property rights and protections.

If you are going to rent out a property, we strongly suggest using a well-vetted, third-party property management company, and having a great real estate attorney on retainer.

However, he is not giving up on real estate as an investment at all. Though he is certainly doing it differently, and more carefully vetting those he works with.

If you spot these fraudsters, let someone know, and share your stories, and alert others in the business to scammers, so they aren’t the next victims.

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.

LLC for Real Estate Investing

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Image from Pixabay

By Stephanie Mojica

A critical step for new and existing real estate investors is to form an LLC or Limited Liability Company. In the simplest of terms, an LLC protects an investor’s personal assets — whether those are cash, bank accounts, or personal property.

Whether the investor is into flipping houses or being a landlord, an LLC ensures that the person himself or herself does not actually owe any debt. The company is responsible for any contracts, debts, lawsuits, leases, and liabilities.

If business goes bad, the people and companies that believe they are owed money can only pursue the LLC — not the individual(s) behind the company unless fraud or another crime was involved, according to Yahoo! Finance.

However, there are some critical steps to take even after a real estate investor forms an LLC. Any properties must be purchased in the company’s name, not an individual’s name. This ensures the ultimate protection.

If someone buys a home to flip or rent out and ends up owing more on the mortgage than the property is worth, the bank cannot come after the individual if the home is officially owned by the LLC.

Image from Pixabay

A caveat is that many banks do not want to issue mortgage notes to a new LLC, because it’s risky for them. That’s why a business plan is so important. (See our past article “House Flippers Need a Business Plan” for a more in-depth discussion on this topic.)

Other potential drawbacks to an LLC come at tax time and when an individual transfers assets to it, so an attorney is probably a necessary resource, according to LegalZoom.com. Also, each state has different laws regarding an LLC.

However, done properly, an LLC seems to have more benefits than downsides. Other good news is that the costs are usually minimal. As always, before making any major decisions in such areas speak to a qualified real estate attorney.

Sources for this article:

https://finance.yahoo.com/news/form-llc-real-estate-investing-194323289.html

https://www.legalzoom.com/articles/forming-an-llc-for-real-estate-investments-pros-cons

http://reiwealthmag.com/house-flippers-need-a-business-plan/

Join Us for a Wealth Through Real Estate Event

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Ladies, Please Join Us at this Unique Investor Event. Gentlemen, Please Forward this to a Special Lady in Your Life.

Hello Investors,

You know I always love to share amazing opportunities when I find them.

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We are coming together on March 4-6 at the LAX Westin in Los Angeles, CA. (Once you register you will get an email with all of the details)

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Make sure to grab your spot before it sells out. It’s going to be an epic event.

Have questions?

Email [email protected] or call 888-352-4412.

How Much a Home Equity Loan Can be Useful to Pay Off Credit Card Debts?

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Image from Pixabay

By Catherine Burke

You are not alone if you have recently faced financial challenges, such as a loss of employment, significant medical bills, or a tragic incident. The majority of the world’s population is affected by the COVID scenario. Over 57% of American adults, for example, are unable to pay medical costs, which are the leading cause of personal bankruptcy.

Some people may attribute their financial difficulties to illogical spending or bad saving practices. If you’re one of them, and you have a significant outstanding balance on one or even more credit cards, you might be finding it difficult to get out of debt. If you can only afford to make minimum monthly payments, paying off your credit cards might take several years, if not decades.

If you own a home, you might apply for a home equity loan and use the funds to pay off your credit card debt. You might be able to handle high-interest unsecured debts like credit card debt or payday loans using a home equity loan. Let’s look at the best ways to do that through a home equity loan.

But before going further, let’s know a bit more about Home Equity loans.

What is a home equity loan?

A home equity loan helps you borrow against the value of your home that has grown over time. If your home is currently worth $500000, but you owe $200,000 on your home loan, you have $300,000 in equity.

A financial institution, credit union, or other lenders might be willing to give you a home equity loan equivalent to a percentage of your equity, depending on this information. Other criteria, such as your credit score, will influence how much you may borrow and if you can get a loan at all.

Requirements to borrow from home equity

Image from Pixabay

Analyze your requirements, how they would fit into your finances and style of living before taking out a home equity loan. The criteria differ depending on the lender, but in general, you’ll need:

  • A specific amount of equity in the house (15 percent to 20 percent)
  • Creditworthiness
  • Low debt-to-income ratio (DTI)
  • Having enough income
  • A decent payment history

The balance between the amount you owe on your home loan and the home’s market value is known as equity. Lenders use this number to compute the loan-to-value ratio, or LTV, which determines whether you meet a home equity loan criteria.

How can you qualify for a home equity loan?

Image from Pixabay

You would be able to qualify for a home equity loan too easily before the COVID-19 issue. It was simple to obtain one if you had a consistent salary, a good credit score, and a home with sufficient equity. It’s now more difficult but not unachievable.

Building on sustained gains since the conclusion of the Great Recession a decade earlier, U.S. homeowners increased their equity share by $590 billion to a record $19.7 trillion during the first qtr of 2020, up 6.5 percent from a year ago.

While lenders’ criteria and risk appetite vary, their authorization processes are based on fundamentally the same factors.

Borrowers must typically maintain 20% ownership interests in their homes after taking out a loan, with few exceptions. Only $60,000 will be accessible for borrowing in the given scenario (if the house value is $200,000, with $100,000 equity).

This minimizes the risks for lending institutions. A borrower who has engaged at least $40,000 in a property is unlikely to abandon it. Homeowners would also be prohibited from renting their property to someone who would damage the property. This $40,000 also protects lenders from losing money if the borrower surrenders the assets during a market slump.

When evaluating applicants with substantial collateral, Lenders have more flexibility, but they still rely significantly on credit ratings when determining the loan’s interest rate. A credit score of less than 600 is considered bad, and obtaining a home equity loan will be challenging.

Are you worried about your credit score? Consider seeking credit counseling from a non-profit credit counseling organization for advice on how to improve your score before applying for the home equity loan.

Information you’ll need to apply for a home equity loan

Image from Pixabay

Collect all of your financial records and essential papers ahead of time to make the home equity loan application as simple as possible.

The following is the list of information that you may need to submit with your home equity loan application properly:

  • The number given by the Social Security Administration
  • The alimony and child support documents
  • Proof of your previous work experience (at least two years), as well as the contact details for your last employer
  • Proof of your income for the last two years
  • Proof of ownership and house insurance declarations
  • A copy of your most recent pay stub
  • Statement of the current mortgage
  • W-2 statements from the previous two years
  • An appraisal or valuation of your home
  • Existing debts and liens on your home

You’ll also need to produce various signed paperwork that your lender would want. It’s time to approach a lender about filling out a loan application once you’ve gathered all of the necessary information. You’ll be on your way to closing once your banker has submitted your home equity loan application.

This period, however, varies from one homeowner to the next. The money will be yours as soon as all documents are finalized and closed.

How to pay off credit card debt with a home equity loan

To use a home equity loan to pay off credit card debt, you must be first eligible for a home equity loan. A home equity loan, often known as a second mortgage, will allow you to take a lump-sum payment on a portion of your $100,000. You can spend the money as you wish and repay it over up to 30 years.

The long payback period and fixed, lower interest rate can help you get out of debt quickly. Furthermore, if you stop taking new credit card debt, your home equity loan can assist you in making steady progress toward debt elimination.

If you get a home equity loan to pay off your debts, remove your credit cards from your wallet and put them away. This way you won’t be tempted to use them for impulse purchases.

Image from Pixabay

Many experts recommend cutting them up at this point so that they can’t be used. However, you should have at least one in case of an emergency, such as a significant medical expense or home repair or a backup while traveling. However, keep it hidden most of the time to avoid temptation.

The benefits of paying off debt with a home equity loan

The main benefit of getting a home equity loan and repaying high-interest debts such as credit card debt or payday loan is that you’ll typically get a lower interest rate than you would on those debts.

Unsecured personal loans have rates that range from little under 6% to 36%, based on factors like your credit score, yearly income, and debt balances. Consider an interest rate of roughly 20-25 percent if you have an issue in any of these areas. So, getting a personal loan to pay off debts like credit cards or payday loans will be difficult.

With the Federal Reserve’s 10-year-bond yield hovering around 0.6%, Jan 2022 home equity loans are available starting as low as 4%. The average interest rate on a home equity loan is just 5.96%, whereas the typical credit card is 19%, and the average interest rate on a payday loan is 391%.

When you utilize a home equity loan to pay off several credit cards, you’ll be able to consolidate your multiple credit cards through only one monthly payment on the home equity loan. On the other hand, you may also use that money to settle your credit card bills and pay them off with significant savings. If you similarly deal with your high-interest payday loans, you may get rid of them by choosing the payday loan consolidation method or payday loan settlement option. You can use money taken from your home equity loan in both cases.

But you should remember one important thing. The interest on a home equity loan a borrower paid to the lender was once tax-deductible. But this significant benefit of home equity loans has been stopped until 2026. Interest on home equity loans is now deductible only if a borrower uses the loan to “purchase, build, or substantially renovate” the home, according to the Tax Cuts and Jobs Act of 2017.

Author Bio: Catherine Burke is a financial writer for online payday loan consolidation. She provides information on successful cash loans and payday loan consolidation to help people get over a difficult patch. She lives in Kansas and has earned a frame in the matter of payday loans.

VIDEO | Overcome Low Inventory and List or Buy More Properties | Expert Training Series

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Join national trainers, Christoph Malzl and Jonathan Metoyer, as they show agents and investors where to focus their time and energy in the current market to find more properties. They will provide actionable steps for consistent lead generation, discuss strategies, tools, habits, and systems that work right now, and show you how to create a constant stream of fresh buyer leads using technology and automation. You’ll get links to download free scripts and tools that are being used by top agents and investors to consistently get 3 to 5 more properties a month to list or purchase!

The Non-Owner, No Income (NONI) Loan Solution 

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Image from Pexels

By Rick Tobin

Are all loans second to NONI (Non-Owner, No Income) for cash flow purposes? Does your investment property give you a positive annual cash flow with or without significant vacancy rates, repairs, nonpayment of rents due to tenant moratoriums or other reasons, and costly management expenses? How many investment property owners are stuck with high 7% to 10%+ private money or an expensive 30-year fixed mortgage that creates negative monthly cash flow? The NONI interest-only loan or fully amortizing loan with 7, 10, 30, and 40-year fixed terms is an exceptional financial choice.

NONI Interest-Only Loans

First off, can you afford your monthly mortgage payment? Without positive cash flow and the ability to pay your mortgage payments on time, your investment properties may be at risk for future forbearance, loan modification, or distressed sale situations where you could later lose your positive equity in a future foreclosure. The combination of positive cash flow and compounding equity gains should be the primary goal for investors instead of having unaffordable mortgage payments.

Here’s some eye-opening NONI loan products highlights that keep customers coming back for more NONI products, especially if the investor owns 2, 5, 10, or 20+ rental properties:

  • Starting interest-only rates as low as 3.875%*
  • Designed for business purpose 1-4 unit residential loans in most states
  • No income or employment collected on the loan application
  • Loan amounts to $3.5 million for non-owner properties
  • No 4506-T, tax returns, W-2s or pay stubs
  • Qualification is based on property cash-flow, NOT borrower income
  • First time investors allowed
  • Multipurpose LLC allowed
  • Unlimited cash-out up to 75% LTV
  • As little as 0 months reserves (use cash out for reserve qualifications)
  • NONI doesn’t care how many properties a borrower owns
  • The lower I/O payment (when I/O option is chosen) is used when calculating DSCR and cash reserves
  • 85% LTV available for purchase and rate/term transactions (680+ FICO)
  • Rental income is taken from an existing lease or the rent survey from the appraisal and compared to the mortgage payment to determine debt coverage ratio. (all program guidelines and rates subject to change and qualification)

For traditional loan programs, many lenders will take 75% of your gross rents to qualify for a new mortgage loan because the lender assumes that you have vacancies, repairs, and property management fees. For easy math, a rental property with $1,000 per month in gross income is underwritten as if it were $750 per month and another pricier property with $10,000 per month in rental income is analyzed as if it were $7,500 per month.

Image from Pixabay

For NONI, on the other hand, you can qualify at 1.0 DSCR (Debt Service Coverage Ratio) or break-even levels. For example, your rental home averages $2,000 per month, so your newly proposed mortgage payment (including property taxes, insurance, and homeowners association fees, if applicable) must be equal or lower to that same gross rental income. As a result, it’s much easier to qualify for a NONI loan product than any other residential mortgage loan that I know of today.

30-Year Fixed vs. 10-Year Interest-Only

A 30-year mortgage payment doesn’t usually begin to pay down any significant amount of loan principal until after the 7th year. The average mortgage borrower keeps their loan for nearly 7 years, so an interest-only loan product can be a much more solid choice today for many borrowers.

Let’s compare the fully amortizing 30-year fixed payment with a 10-year interest-only payment with cash-out options to see the difference for the same 3.875%* rate:

Loan amount: $250,000
30-year fixed rate payment: $1,175.59/mo. (principal and interest)
10-year fixed interest-only: $807.29/mo.

Loan amount: $500,000
30-year fixed rate payment: $2,351.19/mo. (principal and interest)
10-year fixed interest-only: $1,614.58/mo.

Loan amount: $750,000
30-year fixed rate payment: $3,526.78/mo. (principal and interest)
10-year fixed interest-only: $2,421.88/mo.

Loan amount: $1,000,000
30-year fixed rate payment: $4,702.37/mo. (principal and interest)
10-year fixed interest-only: $3,229.17/mo.

Loan amount: $2,000,000
30-year fixed rate payment: $9,404.74/mo. (principal and interest)
10-year fixed interest-only: $6,458.33/mo.

Loan amount: $3,000,000
30-year fixed rate payment: $14,107.11/mo. (principal and interest)
10-year fixed interest-only: $9,687.50/mo.

*APRs from 4.79%: The 10-year fixed loan converts to an adjustable for the remaining 20 or 30 years with 30-year and possible 40-year loan term options. There are also 30-year and 40-year fixed interest-only loan programs at higher rates (all rates and programs subject to change)

Increasing Inflation and Rates, Decreasing Dollar Value

The more money that is created together between the US Treasury and Federal Reserve, the lower the purchasing power. Inflation can severely damage the purchasing power of the dollar while generally benefiting real estate assets.

US M1 Money Supply (February 2020): $4 trillion
US M1 Money Supply (March 2020 – October 2021): From $4 to $20 trillion

Image from Pixabay

Or, 80% of today’s M1 Money Supply, or an additional $16 trillion dollars in circulation, was created within just 22 months (March 2020 to October 2021).

Most Americans create the bulk of their family’s net worth from the ownership of real estate, not hiding cash under their mattress or holding stocks or bonds. Inflation is also a hidden form of taxation. One of the best ways to offset weaker dollars is to buy and hold real estate as a hedge against rising inflation while also generating monthly cash flow.

Today’s younger investors may not remember 10% to 20% fixed mortgage rates from years past. If your rental properties are losing money at a 3% or 4% fixed rate today, then any future properties purchased with higher rates will lose even more money unless you select a much more affordable interest-only loan product.

Let’s take a look next the average published 30-year fixed rate for owner-occupants who qualify with full income and asset documentation by decade:

● 12.7% in the 1980s
● 8.12% in the 1990s
● 6.29% in the 2000s
● 4.09% in the 2010s

The common link between each of these decades was that perceived inflation risks were usually a core reason why the Federal Reserve increased interest rates in order to quash inflation. Today’s published inflation rates are at 40-year highs. Yet, they are still underreported and are actually much higher as partly noted by annual used car prices rising almost 48% in just 12 months near the end of 2021.

Doubling Asset Values

If you keep the old Rule of 72 (how long it takes to double an asset value by the annual gain or interest return projections) in mind with rising inflation trends continuing to boost housing prices, you will clearly see the potential to boost your net worth. For example, a home doubles in value based upon the gains such as a 7.2% annual increase that will take 10 years for the home to double in value (72 / 7.2% = 10 years).

Image from Pixabay

Between November 2020 and November 2021, it was reported that the average home price, including distressed properties, increased more than 18%. If that home price gain trend continued at the same annual pace, the average home price could double in value every 4 years (72 / 18 = 4 years). In many pricey coastal regions, homes have appreciated 30% to 35%+ per year over the past few years. As a result, many investors have seen their home values double in just two or three years.

As rates are more likely to increase than decrease in the future, the interest-only loan products that can be fixed for 7, 10, 30, or 40 years make more sense from a cash flow and peace of mind standpoint.

While NONI keeps your payments low, your net worth may be boosted sky high as the soaring inflation trends continue and properties may double or triple in value!

Rick Tobin

Rick Tobin has a diversified background in both the real estate and securities fields for the past 30+ years. He has held seven (7) different real estate and securities brokerage licenses to date, and is a graduate of the University of Southern California. Rick has an extensive background in the financing of residential and commercial properties around the U.S with debt, equity, and mezzanine money. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), equity funds, and foreign money sources. You can visit Rick Tobin at RealLoans.com for more details.

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.