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Ethical Creative Real Estate Investing

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There are rules of the road. Sometimes we call these laws and regulations but not always. The rules don’t tell you so much what to do but rather what not to do. That leaves the investment road wide open to creative ideas as long as you do it responsibly. The single largest hurdle regarding creative investing deals is the level of business acumen or sophistication that all participants in the deal possess. By definition, creative financing (or creative deals) are nontraditional. The average consumer or Joe Q. Public does not use these techniques. The result is there are fewer rules and regulations governing them. Creative deals contain more complexity.

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Bad apple investors use this lack of rules and higher complexity without scruples to defraud others. When this happens enough times, new rules and regulations are put in place to prevent it. Legitimate investors don’t benefit from more rules. For the sake of your own business reputation and the industry as a whole, it is always best to create ethical deals and even build in protections for less sophisticated investors and/or Joe Q. Public. 

Know How Sophisticated the Other Person Is

This is just plain good business sense. If the other person in the transaction has a deep knowledge of the type of deal you’re involved in and is unethical, you could be the one holding the short end of the stick. But that isn’t what I’m referring to here. This is about you being ethical when you encounter people that are unfamiliar with the type of deal that you are trying to put together. There are times when it’s better to walk away from a deal even if you could have made a killing. At times, sandwich lease options and seller financing can be these types of deals.

I’m a firm believer that sandwich lease options need to be win-win-win deals. For the seller, for you as the investor, and for the tenant/buyer. You are the sophisticated investor in the middle of the deal. Most of the time, the seller and the tenant/buyer are Joe Q. Public. They are depending you to put the creative transaction together. You MUST be sure everyone in the deal fully understands what the intended outcomes are and what the unintended outcomes could be.

Sandwich Lease Option Rules of the Road

The seller should be relatively secure in the deal since he/she holds the property title until the deal completely closes. However, this person could be highly dependent on the rental income until the deal closes. As an ethical creative investor in the middle, you have a responsibility to understand how dependent the seller is on that income and assure they receive the income – even at your own expense if your tenant/buyer doesn’t make the monthly payment. An unethical investor could force the seller to miss several payments until he/she is forced to sell for pennies on the dollar that was never the stated intention of the deal. As the investor, you should enter the deal prepared to keep the seller “whole.” If you find yourself in a position of not being able to do this, you should unravel the deal even if it means no benefit to yourself.

Understanding the sophistication of the tenant/buyer carries at least the same amount of responsibility for the investor. Failing to work earnestly with tenant/buyers is most the common cause for sandwich lease options to be considered unethical. It happens when an investor churns the large option fee. The typical lease-option buyer struggled to save most of the down payment needed (lease option fee) and is an entry-level buyer with a limited salary. But he/she can’t quite qualify for a mortgage at this time. This is an unsophisticated buyer. Investors have an ethical responsibility to assure these people fully understand the terms of the deal. Investors have a responsibility to strongly urge that the tenant/buyer seek outside legal advice. Investors have a responsibility to be sure the tenant/buyer has a reasonable opportunity to obtain a mortgage within the lease option period. This often means working with a mortgage broker and/or a respectable credit repair service. An ethical investor wants the tenant/buyer to succeed. There is no better word-of-mouth advertising than a tenant/buyer who has succeeded in purchasing the home.

Unethical Property Owners Usually Get Their Due

I was once involved with a person who grievously took control of a small portion of valuable land through adverse possession. It involved 11 feet of expensive lakefront property owned by an elderly man with Alzheimer’s. The standard lot had 60 feet of waterfront. The man with Alzheimer’s and the adjacent property owner both had double lots or 120 feet of waterfront.

The trespassing neighbor planted a hedge that angled from the common upper property line to cross over the line 11 feet at the water’s edge. This happened at about the time the elderly man was diagnosed with Alzheimer’s. He verbally complained several times about the hedge but never took legal action. Following his death, the heirs filed for the property title but the neighbor clouded the title by filing for adverse possession of the 11 feet. The heirs could not afford to pursue a legal challenge.

I purchased the contested lot for fair market value based on the 49 feet of waterfront the heirs could deliver and a promise to legally pursue the adverse possession. At a cost of about $8,000, I did pursue the case in court but lost. The legal requirement to obtain adverse possession in Washington s State is to have active possession for a minimum of 10 years. The trespassing neighbor was able to show photographs of a family event partially on the disputed property. The date of the event exceeded the statute by 3 months.

Although the trespassing neighbor received legal title to the 11 feet, he paid a dear moral price. He too was retired, elderly, and living in a small rural waterfront community. The entire community took great exception to his actions and fully shunned him. His social life ended for the remainder of his lakeside retirement. Such is the price paid for being unethical.

Please comment with your thoughts and experiences about ethical real estate investing.

Our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to askbrian@realtybiznews.com.

Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 12 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, near a national and the Pacific Ocean.

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Are Sallie Mae Student Loans Federal or Private?

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When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances

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Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit

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Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.

 

 

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