What I want to describe for your are what effects the new legislation, which is Dodd Frank, it’s actually the Dodd Frank Wall Street Reform and Consumer Protection Act, how that’s going to upshot real estate investors, those who are invested in real estate.

How does it affect everything?

What’s it going to do?

Exemptions

I’m going to start with the exceptions. Why? There’s a big gaping exemption as related to real estate investing. An exemption is where you don’t have to follow and equal the employment guidelines of this. This is any lieu where it’s non-consumer.

What is non-consumer?

That’s going to be anything where you’re reselling a dimension to overseas investors. I’m going to say investor business. What I concern 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 purpose of the new law, this is my perform of it … By the street, I’m not creating legal advice on this blog. Please reach out to an advocate if you want to know if exactly what you’re doing fall within these guidelines or not.

The Intent of the law

The allege is to safeguard ” customers attentions “. We had an ultimate monetary melt down in 2006 through 2009, 2010. That’s where this legislation was delivery from. It’s geared toward customers. Specific in the many parts of the practice it was written, it’s focusing on the way the lend interims are and who can get a lend. If you’re not readying gives 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 change you. If you’re hurling a dimension to overseas investors, you won’t even fit into the guidelines of this because it’s non-consumer. If you’re to purchase a magnitude from a marketer 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 almost every busines. There are a couple of business where customers are devoted where you might be originating a lend or a quasi-loan. Let’s talking here that.

Rent to Own

This is a big one, rental alternatives. I call it a payment to own, but some people return that term. I call it a payment to own. When I’m selling owneds, I often sell them to the eventual retail purchaser who’s going a lend and they’re going to cash me out. Nonetheless, sometimes I will take over a proportion subject to the existing financing or perhaps do property owners financed busines where the marketer prospers the bank. In either of those cases, I may actually move individual into the proportion on a payment 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 likewise going to pay rent.

Set Up Two Different Agreements

One agreement is the lease. One, I have the lease. Then, two, I have this alternative agreement. Now, for a long time hour this idea of a rental alternative … 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 personas. In most areas of the two countries, you can do a two, as much as three hour. I’ve always done two hour rental alternatives or remittance 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 lend to individual consumers which would fit into this Dodd Frank. Now, what Dodd Frank talks about is this idea that you have to have some suitabilities in order to be allowed to procreate, originate a loan.

9 Criteria for Rent to Own Tenant

Now, what’s interesting about this is any time I do a payment to own with individual, I exerted them through the ringer. I draw discovery . I do responsibility proof like serious responsibility proof. I’ll find a way to contact the company , not through the above representations they gave me, but through a different framework. Sometimes they give you their cousin’s framework .” Yeah, he’s worked there for 12 ages .” I call the real busines. I go to the backdoor course .

Verify where they lived , not just where they’re coming from because if they’re moving out and their proprietor abhors them, the proprietor “re saying” ,” Yeah, this person is a great owner ,” when in fact they’re not. Instead, I’ll go to the one before they were at. I’ll contact that proprietor and they’ll tell me the truth. I do a lot to check their income place, their indebtedness to see if they are unable even overcompensate. If they can’t animate 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 be obliged to income ratio, assuring that these people can actually grows 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 restrain regardless and that is I do a most, very heavy scrutiny of the application they adding. I actually call their cites or I have my aide-de-camp do it. We show what’s going on with that person. We turn down a lot of applications. To get into one of my remittance to owns, it’s kind of you’re a needle in a haystack. You got to have some copper for a down payment.

It’s okay if” youve had” poverty-stricken discovery so long as that was from something in the past because I don’t want to see anything recent where they’re not compensating 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 2 years of immense track record. I’m okay with that.

What’s interesting is the itinerary 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 queries in the laws and regulations. They want you to verify , not just let anybody in and create a brand-new loan.

Owner Financing

Now, what I don’t do is I don’t give owned financing to the brand-new purchaser. I hear of other private individuals and other investors that do that. More ability to them. Those defendants are surely fit within Dodd Frank and they are” 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 “youre leaving” owned financing to a brand-new purchaser and they move in … Let’s say they give you a down payment, and all that immense element, and all their substance checks up. They’re fine. They have good discovery and they are unable animate the payments. Then they stop compensating you. It’s not if but when. Most proprietors will tell you that, at some stagecoach, the tenants stop compensating you.

Now, what I love about a payment 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 busines where you are letting the new person move in, they originate the owner and they don’t outlay you,” youre 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 misguided, of course, the counselors are going to cost you a lot of copper. You check what happens to these banks that have to foreclose. It’s a nightmare. Now, recollect, the banks aren’t lending their own copper and they have basically unlimited funds, mostly. 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 statu, I don’t have to deal with that the members of the Dodd Frank. Surely, when I leave a payment to own to a consumer, although it should be considered a rental and then there’s just a separate alternative, that’s the way it often manufactures, precise to be on the safe rising, do what is economically mostly regardless and scrutinize the heck out of them. Snatch their discovery. Do a be obliged 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, definitely, there are some other far-reaching and perhaps defendants watching this video could share in specific comments below some other a an understanding of what are potentially happen as a result of this legislation such as contacting the foreclosure process longer, contacting it more difficult for parties to get mortgages because now there’s legislation that require particular 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 become aware of me if you watched my other videos is I’m a big, big-hearted partisan of the book The Signal and the Noise by Nate Silver where he spat, and I think he does a great assignment of doing it, that the united states was human being are distressing at foreshadowing. We’re terrible at guesstimating what’s going to happen tomorrow, especially on vast conceives like their own economies. For exercise, a lot of parties were saying that in 2012 we were going to have a double submerge in real estate whereby the market would return 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 accept that job. This was a big deal.

You get towards the end of 2011, the sky was descending again. There’s big summing-up of shadow armory these banks had. We’re all going to be thrown on world markets and then world markets was going to downfall some more. You know what happened? For the first time in history, Wall st. got involved and opened buying tens of thousands of single household homes and then hiring them out. Then another landmark ingredient, they securitize these hypothesis, and they sold them on the coalition forces sell. They actually have a partnership. They have a rating like the AA rating or something, the last I checked.

What many of the academics didn’t foresee was that as these market prices get so low-spirited, of a sudden, a bow of hedge fund would buy up tens of thousands of single household the house and, thereby, get rid of a significant portion of the shadow armory. That’s why we never had the double submerge. That’s why the real estate market has rebounded. Now, we’re hoping it’ll continue to backlash. Whether it does or it doesn’t, we’re going to be creating abundance of money 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 stagecoach doing business, be borne in mind that if you’re doing anything with individual consumers, and you’re originating a lend or, in that case, doing a hire to own, you wish to make sure to assess these person or persons, referred him through mention, underwriting process. I’ve done that my entire investing chore though. My mentor been demonstrated by that. Never referred person 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 proportion as to get them out.

Conclusion

I hope this has helped to give you a 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-hearted 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 question it online or talk to an advocate. They can give you a little bit more insight.

I see the key here is this. If you’re work together with investors, you don’t have to worry about it at all. For the most chore, I’m selling these magnitudes to patrons 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 speak you? Do not sell magnitudes on proprietor financing to somebody else. Now, you can buy them from person 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 “ve got a lot” of immense records. If” youve had” more the issues and records, amusement referred them exactly below here. I try to get to those as quickly as I can. Formerly again, thanks so much for watching and got a great day.