1.HOOD ESTATETHE MANUALBy Leonard Person Jr.

2. LEONARD SPAR PERSON JR. Novel Written By: Leonard Spar Person Jr.Novel Transcribed By: CO. Isadore JohnsonNovel Published By: Hood Estate LLCISBN# 978-0-9799904-0-3Printed in U.S.A.Copyright: 2007Editor: Leonard Person JrPublished: 2007Graphics By: AR-C DesignsAll rights Reserved. No part of this book can becopied or reproduced in no shape, form or fashionwithout the exclusive written consent of the author. 2 3. LEONARD SPAR PERSON JR. This book is dedicated to my little cousin Tavian Gaineswho died battling his fight with cancer in September of2007. He was only 6 years old ( We all miss and Loveyou little man. RIP) To the strongest mother on theplanet, my Aunt Venisha Gaines, keep your head upAunty, youve done a wonderful job. Love You. Phenomenal Thank You ToMy Lord and Jesus Christ without you Life isnt possible. Thank You so much for rewarding me byblessing me and answering my prayers for my hardearned work. I would forever server you with my heart, flesh and soul. Thank You!Special Thank You To My Daughters Heaven Ivy Lewis Person and LyricNevaeh Lewis Person you gave me the motivation,determination, inspiration and sacrifice to succeed. You3 4. LEONARD SPAR PERSON JR. defiantly was a blessing from God. I love you foreversweeties and you will always be DA DA BABBIES.Thank You to Valarie Person (Mom), Leonard Person SR (Father),Ellease Ward (great grandma), Tiffany Person (sister),Christopher Person (brother), Christina Person (sister), Brandi Bostick (Fianc) Rachel Lewis (Baby Mother),Octavia Lewis, Nasir Martinez, Kevin Person, GaryStewart, Isadore Johnson, Khalis and David Ward,Myron and Ronnie, DJ Evil Dee and Family, Butta L, Vernal Shaw, Ravin Jagoo, Adonis Hill, Brenda Person,Johnny Brown, Abraham Hoschander , Kathy Denington, Kester D., Brian Person, Chaka Virgil, Nazaam Shinn,Tanzia James, Deetrek Davis, Enoch and David Forbin,Gerod Huggins, Ramel Davis, Anthony Russin, Everton Young Rico, Donald Edge and Family, Vincent Gaines,Dee Dee and Ellis, Taron McCleod, Shamika-Javon and4 5. LEONARD SPAR PERSON JR.Larry Gaines, Khalif Gaines, Alan Person, GrandmaPerson, Uncle Tyrone, Jack Mann and Mark From ValleyFunding, Ben Frankle, Raymond and Alicia From CapitalHomes, Cash Flow Funding, ASAP Appraisal, MoneyMaking Moves, Cash and Ryan, Pat-Charles-Derrick and Chris from Imperial aka Axiom, Diamond Title, Roger Crawford, Roselyn Valentine, Jamel George,Infenie Fortune,5 6. LEONARD SPAR PERSON JR. 6 7. LEONARD SPAR PERSON JR.ContentsIntroduction1. Leonard Spar Person Jr. Biography................. 17 CHAPTER 1: Establishing Credit/Repair ............................ 23 1. Establishing Credit ................................................. 272. Disputing Negative Accounts ...............................383. Building Trade Lines ...............................................404. Increasing Your Fico Score ..................................435. What Destroys Your Credit .................................447 8. LEONARD SPAR PERSON JR. CHAPTER 2: Looking For The Right Mortgage Program ...................................................................... 4 1.What is a Mortgage ...............................................47a) Pre-Approval ....................................................... 48b) Grace Period ....................................................... 48c) Prepayment Penalty ...........................................50d) PITI, PMI & Escrow Accounts........................ 512.Loan Programs ......................................................... 53a) 100% Financing Loans ........................................53b) Stated Loans (No documents) ........................548 9. LEONARD SPAR PERSON JR.c) Power Option /Arm Programs .........................56d) Interest Only Loans ..........................................58e) FHA Loans............................................................ 59f) Fixed Rate Mortgages ...................................... 61g) Adjustable Rate Mortgages ............................62h) Balloon Mortgages .............................................64i) First Time Homebuyers .....................................65j) No Point - No Fee Programs .............................66k) Imperfect Credit Programs ............................67 9 10. LEONARD SPAR PERSON JR. l) Home Equity Line of Credit ..............................68 m) Refinancing ......................................................... 69 CHAPTER 3: Purchasing The Right Property ..................... 71 1. Multi-Units ............................................................... 732. Commercial Units .................................................... 763. Foreclosures ............................................................ 784. Buying 3 Properties at Once ................................805. Short Sale Properties ........................................... 8110 11. LEONARD SPAR PERSON JR.6.Tax Certificates ..................................................... 847.People You Know that Own Property ..................85 CHAPTER 4: Submitting An Offer .......................................... 87 1.Submitting an Offer Sheet .................................882.Denied Offer ........................................................... 883.Getting A Building Inspection ..............................89 CHAPTER 5: Collecting Cash Flow From Properties ........ 91 1.Working People Rentals ......................................... 9211 12. LEONARD SPAR PERSON JR.2.Government Programs Rentals .............................943.Single Room Occupancy Rentals ..........................964.Home Daycare Programs .......................................975.Senior Citizen Rentals ...........................................99 CHAPTER 6: Selling Your Property ..................................... 101 1.Renovation Sale ..................................................... 1022.Vacant Sale ............................................................ 1053.Occupied Sale ........................................................ 1064.As Is Sale ............................................................ 106 12 13. LEONARD SPAR PERSON JR.5.Foreclosure Sale (Save foreclosure)............... 107a) Deed Transfer .................................................. 107b) Giving the Property Back to the Bank......... 109 CHAPTER 7: Flipping Properties ......................................... 111 1.Buying Under Market Value................................. 1122.Buyer Lined up to Buy From You ....................... 1123.Assigned Contract ................................................ 1134.Auction Properties ............................................... 11413 14. LEONARD SPAR PERSON JR. CHAPTER 8: Choosing The Right Lawyer ......................... 115 1.Choose a Lawyer that Deals Directly with RealEstate ....................................................................... 1162. Research a Lawyers Track Record................... 1163. Consistency ............................................................ 1174. Lawyers Can Blow Deals....................................... 117 CHAPTER 9: Finding The Right Appraiser ....................... 119 1. Looking for the Best Market Value .................. 1202. Consistent Work in a Timely Fashion ............... 121 14 15. LEONARD SPAR PERSON JR.3.Pay Half Up Front and the Rest at Closing ..... 1214.Build a Strong Relationship ................................ 1225.Specialize in Area being Appraised ................. 1226.Gathering the Right Data ................................... 123 CHAPTER 10: Choosing The Right Title Company......... 125 1.Getting a Title Search & Title Insurance ....... 1252.Schedule A ............................................................. 1263.Low Fees ................................................................. 1274.Trustworthiness with Escrow Accounts .......... 127 15 16. LEONARD SPAR PERSON JR. CHAPTER 11: What are Closing Costs ................................ 129 1. HUD 1 ...................................................................... 1302. Transfer Taxes ..................................................... 1303. Mortgage Taxes .................................................... 1304. Mortgage Brokers Fees ...................................... 1315. Pay-offs .................................................................. 1316. Brokers Commission and Title Fees ................. 132 16 17. LEONARD SPAR PERSON JR.From Bushwick, Brooklyn, NY introducing SPAR. Heresa brief description of this business savvy young man onthe rise: SPAR is definitely a Jack of all trades. But before hegot into all the entrepreneurial ventures, Hip hop orrather Street Music was his first love. He was inspiredby a lot of MC's such as Nas, Biggie, Tupac, Jay-z, LLCool-J, Krs1, Ice Cube, Busta, Rakim, Kool G Rap,Redman, Method Man. The closest he got to taste the fame was beingunder the wing of Black Moon, break dancing and tryingto freestyle at local parties with the foundingmembers. When the group finally made it SPAR knewthat he could make it too because he had been aroundand saw how they came from nothing and made it. Hestarted rhyming at the age of 12 years old when hiscousin Dave taught him how to flow. He shortly realized17 18. LEONARD SPAR PERSON JR.he had a knack for words, a way with sound and talentthat could move a crowd. Making his way with severalother rhymesters he formed several groups that wouldnever rise to become anything but hood celebs. Not toolong after he hooked up with Freedom, who was theleading act of music group C & C Music Factory. Hewould go on to sign a management deal with Freedomand travel on tour with him as well. Although theexperience was great, it never sparked anything big forhim; Soon after he found himself back on a musicalgrind. Every year he tried to get noticed by recordlabels but nobody responded with a good deal. He neverstopped improving his craft but it wasnt helping himget anywhere. So he went back to his books in hopes ofcombining book knowledge with some street smarts.After graduating from Maxwell Vocational High in 98,SPAR formed Money Making Moves Entertainment thelabel. He followed that with what was soon to become18 19. LEONARD SPAR PERSON JR.the DDF Crew. On his right hand was his closest friendand current business partner Twin. He attempted againto make a name for himself performing at differentvenues, as it goes in the game no one saw his genius.Again the game and his dreams took a back seat to reallife. He got a job at Marriott Hotel in Manhattan forthe next 5 years in hopes of keeping together a familythat was slowly falling apart and maybe getting hismoney up to do it all his way. He wasnt going to wait onthe support of a big label. He had ideas and a hungernot easily suppressed. While he was working crazyhours washing dishes, mopping and sweeping at thehotel his family problems were getting worse. At homehis mother and father were breaking up and the housein Bushwick was being auction off. Everybody was out onthe street, having to deal with the NYC shelter systemand a slew of other problems plaguing the homeless.With his parents finances in disarray and their main 19 20. LEONARD SPAR PERSON JR.focus being on the younger siblings, he was living on theedge and sleeping anywhere he could. SPAR kept hishead up and prayed for the Lord's help. SPAR kept hisfaith even after being fired from the Marriott. He didwhat most black men in his day and age tend to do, hetook to the streets. His family depended on him and sohis grind became relentless. He started selling clothes,CDs, DVDs, weed and a bunch of other shit; courtesy ofseveral childhood friends also in similar situations. Totop it all off he was collecting an unemployment check.Already building a life with his girl and a child, he soonfound out he had another one on the way. With anothermouth to feed he realized that a life behind bars wasnot an option. Too many people counted on him.A change of fate.Through the many people he had come in contactwith he met a man that would soon become the answer 20 21. LEONARD SPAR PERSON JR.to his prayers. SPAR met his inspiration and currentbusiness partner Ravin aka Mr. Money Bags, a mortgageconsultant. He was the same age as SPAR but had atleast 5 cribs and 250k in his bank account. From thereSPAR and his Mother started working as sales agentsat an investment company owned by two brothers. Theygave SPAR the opportunity and the foundation for whatwould soon become a money making empire. Along theway SPAR has met and worked for countless people whowould give him the seeds he would need to make a wayof his own (which he had planned on doing one way oranother). SPAR worked on commission and in 3 monthshe made 60k for himself and 1.5 million for thecompany. He became the most unlikely employee comingto work in his jeans and timbs, yet the most dedicatedemployee in this small company. With his way withwords and the confidence he gained from countlessrhyme battles SPAR knew that he couldnt fail. He now 21 22. LEONARD SPAR PERSON JR.had all the things he needed to start his own business.SPAR resigned and opened up his own investmentcompany Heaven Homes LLC., named after his new babygirl. He started flipping property and hired everyhustler he knew to come and work for him. Hence HoodEstate was born. He taught a lot of young dudes thegame and how they could generate income for themovement taking place, but also for themselves;Because at the end of the day everyone wants to betheir own boss. SPAR now owns Money Making Moves Ent.,Heaven Homes LLC, Hood Estate LLC, Tipsi Liquors LLCand countless other investment ventures that include,credit repair, construction, interior design, clothes,movies and books. Though his many ventures keep himbusy he has enough people on his team to return to hisfirst love. The Rap Game. And he has all the money heneeds to finally do it all his way! 22 23. LEONARD SPAR PERSON JR.Chapter One Establishing Credit/Repair When it comes to being successful in life thereare many different roads to travel down to arrive atthat destination. One thing is for sure, whichever roadyou do decide to take, there is no shortcut. To all mydudes out there in the game and on the grind, we allknow no matter how good it treats us in the beginning,we also know where that shortcut leads us sooner orlater I have found these phrases to be perhaps two ofthe truest of all statements Ive ever heard mentioned.23 24. LEONARD SPAR PERSON JR.The reason being is that in order to realistically achieveimportant goals or obtain noteworthy things in life,certain requirements are just absolutely necessary. Inthe world of real estate, Ive found the same as beingtrue. There is nothing more critical and straightforward when dealing with real estate than the issue ofcredit. Without it, you dont even exist to banks,creditors or any of the other essential entities thathold the critical keys to finance countless real estateopportunities. The only way around this chapter is ifyoure already rich and dont need the assistance ofloans from an outside source. Even then, credit isimportant because who wants to put up their own cashwhen you dont have to. In this chapter, I have broken down all thebasics in order to begin your journey to establishingsufficient credit. This will also include how to repaircredit that has been damaged. 24 25. LEONARD SPAR PERSON JR. ? What is a credit bureau?Credit bureaus are also known as creditreporting agencies. Credit reporting agencies are thegatekeepers of consumer credit information and aremajor players in what we refer to as the credit cycle. A credit agency is an entity that assemblesconsumer credit information and other information onconsumers for the purpose of selling the information(in the form of a credit report) to third partysubscribers. While there are over 2,000 credit reportingagencies in the United States, three giants dominatethe industry Experian, TransUnion and Equifax. Theyare big and they are powerful. They maintain some 750million credit files on over 200 million Americans. Theyare also intimidating.25 26. LEONARD SPAR PERSON JR.With the advent of the computer, the credit bureaushave become powerful private investigators into yourfinancial life. Whether you like it or not, they aretracking your every financial move. Most of the banks rely on these credit bureausto determine if you are a credit worthy individual. Youshould do everything in your power to make sure thatyour information in your credit report is correct. Mostinstitutions such as banks, credit card issuers,department stores, car dealers, etc., report to thesebureaus regarding the way you pay your debts. If youare late it is recorded, together with how much youowe. Hood Estate can help you challenge and disputethe incorrect information and have items deleted fromyour report.Also keep in mind that no one may have access to yourcredit information without your written permission.26 27. LEONARD SPAR PERSON JR. 1) Establishing Credit Almost everyday someone seeks to purchasesomething only to find that from a cash point of viewthey just cant afford it straight up. Some people spendcountless weeks, months, even years trying to save upfrom their earnings to buy whatever it is they havetheir hearts set on. The method nowadays to getaround all that is through the use of personal credit. For the person who has never had credit, theycan begin by applying for a credit card from a bank inwhich they have established an account. You can alsoapply directly to a credit card company such as Visa,MasterCard, etc. Being that the credit lender doesnthave any way of determining whether or not to grantyou credit, you will most likely be required to leave adeposit in the amount that the credit card will be 27 28. LEONARD SPAR PERSON JR.issued for. This is called a secure credit line. As youuse this card to make purchases and pay your monthlybills on time, you will build a credit history andeventually the use of leaving a deposit will no longer beneeded. Why is credit denied? The most common reasons for rejection falls into thelast two categories: Poor Payment History and Errors inthe Credit File. While little can actually be done toremove accurate late payment data from your creditfile, information can be challenged, deleted or modifiedthrough the techniques created by Hood Estate. Remember, your credit report is not only thefirst impression of your credit worthiness; its the onlyimpression that you leave. As credit consumers, wemust arm ourselves with the best weapons possible:knowledge and information. 28 29. LEONARD SPAR PERSON JR. Hood Estate is pleased to have the opportunityto help you gain a new understanding of the consumercredit system and help you raise your credit scores soyou can be approved for a loan from Hood Estate. Get Credit Worthy again with Hood Estate.There are nearly 60,000,000, (thats 60 million)Americans with mediocre credit or bad credit (known incredit reporting as negative or derogatory credit). Many of them are not even aware they have poorcredit, having never seen their credit reports. Somewith bad credit are not aware that theres anythingwrong with their credit because their credit reportscontain someone elses derogatory information butagain, may be unaware that their good names havebeen ruined through no fault of their own. Most people with bad credit are not aware thatthey can do something to restore their credit and raisetheir credit scores. And still others may have given up 29 30. LEONARD SPAR PERSON JR.hope of owning a major credit card because theyperceive they are too far down the road of bad credithabits to correct their situation.Fortunately, Hood Estate can help.How do you protect your Credit Status?The law provides for two reasons to contest an entry onyour credit report: not mine and not accurate. Notmine is fairly self-explanatory. A listing that is notaccurate may include (but not limited to) the following: a) Closed accounts listed as open b) Information, which is outdated (more that 7 years old) c) Data entry errors (i.e., a $7.00 overdue remark listed as $700.00) d) Incorrect payment information e) Bills that you havelegally refused (i.e., 30 31. LEONARD SPAR PERSON JR. merchandise you returned to a store for credit which is listed as unpaid) f) Lack of current personal information (address, marital status, job, etc.)? Why are so many people spending so much money torepair their damaged credit?Its simple. If you have bad credit, try buying a car,jewelry, a home, getting a school or cash loan, or eventry to open a bank account. Now compound thenightmare if you know that your credit is good but thecredit reporting agencies are telling the loan officersthat you have a bad record. And if this isnt bad enough,the average American is completely intimidated anduneducated as to their rights and abilities to overcomethe Credit Monster. Lets face it; The Big 3 creditreporting agencies seem to have all the power over yourcurrent life as well as your future. It is time to become31 32. LEONARD SPAR PERSON JR.EDUCATED and EMPOWERED! With KNOWLEDGE, youcan and will become determined, committed andorganized.With Hood Estate, you can succeed!Hood Estate will help you legally remove any inaccurateor misleading information from your credit files asquickly as possible. We can also help remove otherderogatory items through technicalities,, again usingonly legal methods. Hood Estate becomes your secretweapon to repair your credit and qualify you for thehome you deserve.Furthermore, your credit file may vary from creditreporting agency to agency. All creditors do notsubscribe to every bureau, which means that they donot report their information to every bureau. And, thecredit reporting agencies do not share information with32 33. LEONARD SPAR PERSON JR.each other, including the good information that onewould want all potential creditors to see. Most credit reports include the following generalcategories of information: a) Biographical Information Your full name, current address, previous addresses (especially if youve been at your current address less than two years), social Security Number, Date of Birth, and Place of Employment, if known. It is important to note that self-employed persons are often listed as unemployed on their credit reports. If you are self-employed, be sure to check your credit report for this error and contact the credit reporting agency for immediate correction. 33 34. LEONARD SPAR PERSON JR. b) ACCOUNT INFORMATIONName of the creditor/issuerDATE ACCOUNT WAS OPENEDOriginal balance or limitCurrent balanceTERMS OF THE ACCOUNTCURRENT STATUSc) PUBLIC INFORMATION Marriages, Divorces, Judgments, TaxLiens, Arrests, Convictions, or Lawsuits againstyou. Public Records information as contained inthis section is usually maintained in the office ofthe County Clerk. 34 35. LEONARD SPAR PERSON JR.d) INQUIRIESAn inquiry is listed on your credit reporteach time a creditor or potential creditorrequests a copy of your credit report. Whilethis activity is not negative activity, it is oftenviewed as a ding against you, especially ifthere are inquiries and no new accounts weresubsequently opened.In this case, otherpotential creditors may assume you are pilingon new credit and, therefore, new financialobligations.ACCESS TO YOUR CREDIT FILES Who, in addition to yourself, has the right to obtainyour credit report? The Fair Credit Reporting Actestablished the specific circumstances in which yourreport can be released. These are:35 36. LEONARD SPAR PERSON JR.- By court order- Upon Request by the consumer- When the Intended Use is for:+ Credit transactions initiated by the consumer+ Employment purposes+ Applications for insurance+ Licenses or other benefits granted by governmentalinstrumentalities+ Other legitimate business needs Credit reports are not always easy to understand. Uponreviewing your own, be prepared to spend the time thisexercise deserves. Understanding your credit report isan important first key step to the dispute process.Hood Estate will walk you through the process.36 37. LEONARD SPAR PERSON JR. DONT BE INTIMIDATED. Hood Estate CAN HELP! Negative information in credit files, including,anything from late payments to bankruptcy, becomesobsolete after a certain period of time and must beremoved from your credit files. By law, credit-reportingagencies must maintain a reporting process thatprotectsthe consumer from having obsoleteinformation contained in their credit reports. Section605 of the Fair Credit Reporting Act sets forthsomething akin to a statute of limitations for creditoffenses and other offenses.EX: lets suppose one of your accounts wereturned over for collection eight years ago. Thatinformation is now irrelevant to your credit profile.Under the Fair Credit Reporting Act, this outdatedinformation must be removed from your reports. 37 38. LEONARD SPAR PERSON JR.2) Disputing Negative AccountsIn the course of utilizing your newly obtainedcredit cards it will be your complete responsibility toensure that you do not abuse your privileges in any formor fashion. Always stay within your means to pay.Turning credit into unaffordable debt is defeating yourwhole purpose for obtaining credit in the first place.Now despite all that I have just mentioned, there havebeen situations where a creditor(s) will make a claimstating you made a late payment or in some instanceseven failed on a payment. Most of the time creditorsclaims turn out to be accurate as a result of peoplesirresponsibility in managing their finances. There aretimes though where the creditors do make mistakes andreport errors. In those instances, its your duty toconfront these claims in formal manner(writing/online)to one or perhaps all three of the governing credit38 39. LEONARD SPAR PERSON JR.bureaus; Experian, TransUnion, Equifax. There, you canmove to rectify your credit history and move forward.As a consumer, you have the right to dispute anyinaccuracies contained in your credit files. The FairCredit Reporting Act mandates that the credit-reporting agency must reinvestigate any item ofinformation disputed by you. EX: when disputing your derogatory accounts youmust do so online at one of the credit agency sites. Youcan also dispute it in writing by providing factual proofclearing you of the negative account. Once the matteris clarified, its optional to ask for a credit deleteletter and settlement letter. The credit-reportingagency must respond in a reasonable time period andmust record the current/corrected status of thatinformation. By law, the credit-reporting agency mustdo as above, unless there are reasonable grounds tobelieve that your request is frivolous or irrelevant.39 40. LEONARD SPAR PERSON JR. Hood Estate provides a comprehensive system so thatyou can chart your course of action and keep track ofyour progress.3) Building Trade Lines Another way of establishing credit is throughthe use of a method called piggyback riding or OPC(Other Peoples Credit). This means that you will seekto establish credit by becoming an authorizedborrower on someone elses credit account. Becauseyour social security number is added onto the account,the credit bureaus will receive monthly reports on yourpurchase/payment activity. This along with the factthat the person who has put you on their account willalready have substantially good credit; you in turn willreceive a significant boost in your credit rating. 40 41. LEONARD SPAR PERSON JR. Another way of establishing credit is by becoming aJoint Account Holder on someone elses credit account.There is a difference between being a Joint AccountHolder verses an Authorized Borrower. AuthorizedBorrower accounts show up on your credit report asjust that, authorized borrower (AB). When youre aJoint Account Holder, your account will show up as aprimary account (meaning, it will appear that you arethe owner of the account).The disadvantage of making someone a Joint AccountHolder is that they have access to your account. AJoint Account Holder can make changes to your accountjust as you would do. Also, if you want to removesomeone from your account, you would have to appearwith that Joint Account Holder in person in order forthem to sign their name off of your account. In other 41 42. LEONARD SPAR PERSON JR.cases, the credit card company will send you a formthat requires both the Joint Account Holders and theprimary account holders (YOU) signature. If for somereason the Joint Account Holder decides they dontwant to sign any papers to remove their name from theaccount, you will have to close your account completely.So, the point is, if youre going to add someone as aJoint Account Holder, make sure that its someone youcan TRUST!Another disadvantage is that most of the time youreonly allowed up to 2 joint account holders as opposed toan authorized borrower account, where in some casesyou may have up to 100 authorized borrower accounts.Now that you have opened the door to becoming aresponsible credit user, after a period of usually sixmonths to a year you can begin to branch off on your42 43. LEONARD SPAR PERSON JR.own. You can apply for credit cards from places likeMacys, Target, J.C. Penny and use them to further buildyour history. The revolving credit from these places iswhats called building Trade Lines.4) Increasing Your FICO Score The abbreviation FICO stands for Fair, Isaacand Company. Its meaning is how lenders determine themanner in which to deal with you as a borrower.Measuring your credit history along with the frequencyof credit use is the formula they utilize. The ratingoften ranges as low as 300 to high as 850. The higheryour rating the better the terms will be for you as aborrower. For those with lower ratings, the oppositeapplies. EX: Ryan applies and receives a credit card fromMacys for $500. Throughout the first year, he makes43 44. LEONARD SPAR PERSON JR.nearly a dozen purchases. At the end of each month, hepays off his bill in full. Once the year ended, RyansFICO score increased significantly. Also because of histimelypayments, his spending limit with Macysincreased as well. This make his FICO score increaseonce again. 5) What Destroys Your Credit Once your credit is on the road to establishingitself, it becomes essential to understand all thefactors that may lead to destroying it. Things likemaking late payments and overdrafts are the mostcommon with credit cards. Going into collections andmaking settlements for debt is even worse. That typeof activity will reflect on your credit report for a longtime. There have even been instances when lendershave completely washed their hands with a borrower by 44 45. LEONARD SPAR PERSON JR.dismissing an account with biasmeaning that once theysettle or close out your account based on debt, theywant nothing else to do with you. When it comes to property, things like foreclosures,judgments and liens can inflict quite a bit of hauntingdamage to ones credit.Even having too many creditcards (more than eight credit cards) or having too manycredit checks AKA (Inquiries) in a short period of timecan be harmful (running your credit more than 12times in a year can reduceyour fico score 2 to 3points each time its ran). Another thing to take intoaccount apart from all previously mentioned is not toallow the ratio between your credit limit and balance tobecome too high. EX: if your credit limit is $500, your balance ofdebt should never exceed ($250) half of that amount.45 46. LEONARD SPAR PERSON JR. Please refer to these links to get updated mortgageprograms or mortgage help for default loans.http://www.recovery.gov/http://financialstability.gov/Chapter #2Looking For The Right Mortgage Program Now that a history of credit has been created,lenders will have a foundation and boundaries in whichto conduct business with you as a borrower. Your next46 47. LEONARD SPAR PERSON JR.step now towards the world of acquiring property/realestate is to search for the right mortgage program. Imentioned search because this area is an importantone. The outcome of the choices made here determineshow much of your money will actually go towardspurchasing property, how long it will take to pay for it,and at what interest rate. There are many types oflending institutions and assisting programs out there toease the process of becoming a first-time buyer.1) What is a Mortgage? A Mortgage is a loan that constitutes a lienagainst the real property. It usually consists of a two-party agreement between the lender and borrower. Themortgage pledges a described property as security forthe repayment of a loan under certain terms andconditions. 47 48. LEONARD SPAR PERSON JR. Down below are some of the miscellaneous terms anddefinitions that buyers overlook but are the mostimportant when it comes to receiving a mortgage.a) Pre-approvalThe very first move a borrower has to make to beginthis process is to find a mortgage company and seekwhats referred to as a pre-approval. This is where themortgage company sets out to determine how muchmoney you as a borrower are eligible to receive from abank or other lending institution based on income &credit.b) Grace PeriodA grace period is a specified time frame after48 49. LEONARD SPAR PERSON JR.the payment due date in which the payment must bemade in order to prevent incurring a late fee. Forexample, a mortgage may allow a payment due on thefirst of the month to be paid up until the 15th day ofthe month without the borrower being in default. (P.S.If you make your payment after the grace period youwill be charged a late fee from the bank but, it wontreport on your credit report unless your payment is latemore than 30 days. By acquiring a late fee this will insome cases prevent you from refinancing your home,give you a higher rate when you do refinance or less ofa LTV (Loan to Value) when you want to cash out. If youare late more than 30 days then you will get charged alate fee and it will report on your credit report as alate which will drop your score 100s of points. Thiscould possibly prevent you from getting anything everagain. So be an on time payer, or YOURE DONE! 49 50. LEONARD SPAR PERSON JR.c) Prepayment PenaltyWith the business of real estate thriving, a lot ofinvestors realize that the quicker they can flip aproperty, the better the profit. This fast buy and selltactic although good for the person borrowing moneyfrom the bank, isnt so pleasurable for the banksthemselves. These sort of transactions, dont allow thebanks to profit because the interest they charge to theborrower doesnt get paid because of the short amountof time that the money is being used. As a safetymeasure, a clause hasbeen legally implementedpreventing the buyer/borrower of the property to sellor refinance for a specified amount of time. This isdone so that the lending institution can profit as well.There are ways around this. If you know that yourintentions are just to flip properties, make sure thatduring negotiation time you specify that you want the50 51. LEONARD SPAR PERSON JR.contract to include that you DONT want a prepaymentpenalty.d) Principle, Interest, Taxes, Insurance, PMI andescrow accounts Principal is the amount of money raised by amortgage or other loan, as distinct from the interestpaid on it. Interest is the money paid for using someoneelses money. Property Taxesare a government LEVY basedon the MARKET VALUE of privately owned property.Sometimes referred to as AD VALOREM TAX or REALESTATE TAX. Insurance is a coverage from an insurancecompany that protects you as a buyer from hazardousdamages that may occur when owning a property. Such 51 52. LEONARD SPAR PERSON JR.damages include (but are not limited to) fires, floods,hurricanes, tornados, vandalism to your properties,robberies, jewelry, furniture and certain clothes suchas Fur coats. An Escrow Account for mortgages is an accountfor your property taxes and insurance fees attached ontop of your mortgage payment and to be paid as one fullmortgage payment. This insures the bank that you aredefinitelykeeping yourpromise of paying yourinsurance and property taxes. Private Mortgage Insurance (PMI):This is an insurance to protect the bank from losingtheir money that theyve financed you, just in case ahome owner falls into default with the mortgage. Thisinsurance is paid by the borrower every month in yourmortgage payment. PMI makes your monthly paymentvery high but you can have it removed within a year anda half with some banks. 52 53. LEONARD SPAR PERSON JR. 2) Loan Programs Here are some of the loans that you can qualifyfor depending on the qualifications of the bank. P.S. some of these mortgage programs no longerexist since the SUBPRIME BANKS balloon burst in thehome finance market. A lot of banks went out ofbusiness. Call around to different banks to inquireabout these different loan programs and see what thenew guidelines and qualifications are.a) 100% Financing LoansThe result of these findings can prove extremelyrewarding to certain borrowers after review. Zeromoney down which is known as 100% financing is 53 54. LEONARD SPAR PERSON JR.offered in some instances when ones income issufficient joined by an average credit score from thecredit bureaus of 700 or better. (This varies from bankto bank). A popular way in which loans are offered today isthrough the 80/20 method. This is where the bankloans out two separate loans. Example: If a borrowerseeks 100% financing, instead of the bank justoutright lending the money in one lump sum they willprovide a loan for 80% for the desired amount. Theywill then lend out a second loan to cover the remaining20%. This is usually offered to first-time buyers. b) Stated LoansSome borrowers utilize whats called a Stated Loan.This type of loan doesnt require the showing ofdocuments like: pay stubs, bank balance, tax returns orW2s etc. To be an eligible applicant of this, your FICO 54 55. LEONARD SPAR PERSON JR.score has to be sufficient. Some lenders however mayrequire certain documents to be completed, such as aV.O.D. (Verification of Deposit) or 2 months bankstatements to show reserves that you at least have 2to 3 months worth of monthly mortgage payments foremergency; just in case you were to ever default onpayments. A V.O.E. (Verification of Employment) is aform that the bank sends to your employer for them tofill out to verify that your employment is still active(PS. When verifying your employment the bank is notallowed to ask the employer how much you make bylaw. The only thing they can ask is how long youvebeen employed there and whats your title in thework place). A V.O.R. (Verification of Rent) is a formthats sent from the bank to your landlord ormanagement company (if you live in an apartmentbuilding, co-op or condo) to verify that you live thereand how many months or years youve resided there.55 56. LEONARD SPAR PERSON JR.Also the bank is allowed to ask how much rent you paymonthly and if you are a good tenant or have ever beenlate in making monthly payments. These 3 documentsthat I have mentioned (V.O.D., V.O.E., and V.O.R.) provesufficient holdings in banks, accuracy in employmentand place of residence.The disadvantage of this loan program is that theinterest rates are much higher than the other types ofloans. c) Power Options This leaves the borrower the choice to pay the principalof the loan or the interest. This type of loan isdesigned for the investor who is seeking to buy and re-sell property. The advantage of the Option Arm Loan (PowerOption) is that your monthly mortgage payment will bebeyond low. This gives you room to pay the mortgage56 57. LEONARD SPAR PERSON JR.and collect a large cash flow every month. EX: My friend Vernal has a 3 Family house inBrooklyn, New York. Each apartment has 3 bedroomsplus a kitchen and bathroom. The going market rentalrate for a 3 bedroom apartment in Brooklyn is $1,500 amonth. The total rent roll he collects every month is$4,500. His monthly mortgage is $3,500 and out ofthat the principle he pays towards the house is $500dollars the rest of that ($3,000) is interest paid to thebank. Now with this Option Arm program he has thechoice to pay the interest or the principle every month.Of course he chooses to pay the principle to pocketmore of the rent role which is $4,500. So He walksaway with a profit every month of $4,000.The disadvantage of this program is that you can onlypay that principle or interest for a certain amount oftime. If you dont sell your house or refinance for a 57 58. LEONARD SPAR PERSON JR.fixed rate within that amount of time then you couldowe all of that money youve been deciding not to pay.For EX:My friendJamelchose to pay theprinciple($500) insteadof the Interest($3,000)payment every month, but the terms of that loan wasfixed for only 2 years. He lost track and went over theterm time and forgot to refinance the house for a 30year fixed rate. Now he owes all of that interest($72,000) to the bank on top of the principle pay off.P.S. Pay Attention to the term time or YOUR DONE! d) Interest Only Loans This definition is pretty much self explanatory. Itswhere the borrower pays on the interest of the loannot the principal. This is ideal for the investor oraverage individual who doesnt plan on keeping theproperty for a long period of time. If your credit score58 59. LEONARD SPAR PERSON JR.is at least 700 and you have three active trade linesthat youve had for over a year, you can qualify for100% financing. This may require a V.O.D., VO.E. andV.O.R. (pgs 46, 47). The advantage of this loan is thatyou have several payment options and lower monthlypayments since youre only paying interest. Youre ableto borrow more. You can have this loan fixed for up toten years. This is great if youre not planning to live init more than ten years. If you and the wife/hubby areplanning to have kids and raise them along with the cat,dog, etc, then this is not for you. The end result couldbe foreclosure and your home could end up for sale atthe auction and I might just be the one buying it backagain. e) FHA Loans The Department of Housing and Urban Development(HUD) is the agency responsible for the policies and 59 60. LEONARD SPAR PERSON JR.programs that address Americas housing needs. HUDplays a major role in home ownership by underwritingloans for low/moderate income families. The FederalHousing Administration (FHA) assists those whootherwise would be able to meet the requirement fordown payment or conventional loans by providingmortgage insurance to private lenders. Everyone whohas a satisfactory credit record, enough cash to closethe loan, and sufficient steady income to make monthlymortgage payments can be approved for an FHA insuredmortgage.To get an FHA insured loan you need toapply to a HUD approved lender. FHA loans areavailable in urban areas for single family homes or two,three and even four unit properties. This is true forcondominiums as well. The interest rates are generallymarket rates while down payment requirements arelower than conventional loans. Down payments can be aslow as three percent and closing costs can be wrapped60 61. LEONARD SPAR PERSON JR.into the mortgage. With an FHA insured mortgage, youcan make extra payments towards the principal whenyou make your regular monthly payments. By makingextra payments you can repay the loan faster and saveon interest. You can also pay off the entire balance ofthe FHA insured at any time.f) Fixed Rate MortgageThese rates come in 15, 30, 40 and in some situations,50 year terms. The advantage of this loan is that yourmonthly payments are fixed for the lifetime of theloan. So when interest rates fluctuate your rates willremain the same as when you first purchased theproperty. If the rates go down, you have the advantageof refinancing your loan to obtain a better rate. If thishappens, make sure you get a better fixed rate and notan adjustable one -or you will end up having to refinance 61 62. LEONARD SPAR PERSON JR.again. The disadvantage to all of this is that because itis a fixed rate your rate and mortgage payment will behigher.My opinion about fixed rate mortgages is ifyoure planning to reside in a home for a significantlylong time, for example 30 years or until you leave thisworld, then a fixed rate mortgage is the right choicefor you. This way you can obtain a good rate in thebeginning and it will never change. As long as you canmaintain your monthly payments you will be okay. If youonly plan to reside in the home for a short period oftime (1-3 years or 3-5 years), you will be better offwith a different type of loan program. Im going to getinto that shortly. g) Adjustable Rate Mortgages This type of loan is available for 1, 3, 5 or 10 years withthe most common ones being 3 to 10 years. The62 63. LEONARD SPAR PERSON JR.advantages are that you will receive lower monthlyrates and if overall rates improve it will bring your ratedown as well. You may qualify for a higher loan amountbecause of the adjustable rate. There are also noballoon payments involved. Keep in mind there aredisadvantages. The rates can change over time, ifoverall rates go up your rate will be affected. Forexample just say you get an adjustable rate on a housefor three or five years. Your interest rate is 5%. Afterthe 5 years is up, you are then subjected to the marketrate. At that point you have the option of selling thehome or refinancing and getting a fixed rate, So thinkcarefully before you get this type of loan. My opinion is,if you plan on staying for a long time a fixed rate isbest for you. Anything shorter than that, go with theadjustable. Investors who are constantly buying andselling are prone to this type of loan. 63 64. LEONARD SPAR PERSON JR. h) Balloon Mortgages This means low payments are going to be lowerpayments for a pre-determined period of time. Itoffers an option to renew the loan at the end of thespecified term. Its normally 5 to 7 years. Thedisadvantage here is that you risk the interest ratebeing higher at the end of the agreement term. You canfind yourself easily in foreclosure if you cant make theloan payments, refinance, or for not exercising theconversion clause. Balloon payments allow you to sell orrefinance the house opposed to a fixed rate loan with a30 year term. The catch is that once the term endsyou HAVE to either refinance or sell because if theinterest rate goes up drastically then the mortgagepayment amounts may become a problem. Bottom line; ifyoure an investor looking to buy and sell then this is foryou; otherwise avoid this type of loan situation.64 65. LEONARD SPAR PERSON JR. i) First Time Homebuyers This has a very low rate and is very easy to getapproved for. You may be subject though to income andproperty value limitations. You may be required to signa pre-payment penalty agreement which prevents youfrom selling or refinancing the property for a specifiedamount of time. This ensures the lender that they willmake their money off of the interest. You will have toget a summary course on the different types of loanswhich shouldnt be a problem because you should doyour research before you buy anything. Now-a-days,your Fico has to be at least a 700 to obtain 100%financing for approval for the 80/20 loan program.That leaves a lot of available cash on hand to put intothe hole. If you understand all of this you will be okaybecause for the first time homebuyer it is great.65 66. LEONARD SPAR PERSON JR. j) No Point-No Fee ProgramThis arrangement has no out of pocket cost at closing.Costs are paid from the lender rebate /discountpoints, and less money is required to close.You canrefinance without increasing your loan amount. All ofthis is very good. Again, the disadvantage is the highinterest rate, higher payment, and some lenders havewhat is called a short payoff penalty. This is usuallycharged to the loan broker but may be passed on toyou. Some require prepayment penalty for the first 1-5years. The bottom line to all of these different typesof loans and programs is that they offer an array ofdifferent options to sometimes benefit the buyer ifthey know what theyre actually looking for. All in all, inorder to receive, you have to give a little. 66 67. LEONARD SPAR PERSON JR. k) Imperfect Credit ProgramThrough this avenue, you have the opportunity to re-establish your credit status by paying your mortgage ontime. The new history will help you a great deal becauseit reflects on your credit report. You can also use thisif you go for debt consolidation. When a bank isconsidering your eligibility for this program, your Debtto Income Ratio on your credit report must be under acertain percentage (usually 50% - 55%). Thedisadvantages again are the high interest rates andterms may not be as favorable. You have to realize thatyou have imperfect credit from the start. The overallgood thing about this is that although you have badcredit, you can still buy a home. Just say if you comeacross a home for $200,000 but its really worth$400,000. You can use this program, but just know that67 68. LEONARD SPAR PERSON JR.the interest rates will be higher than normal. Eventhough you will have a prepayment penalty on your loan,once you sell the house and pay off the loan andprepayment penalty, youll still walk away with a stackof money. The point is, when you have an opportunity tobuy an investment property, programs like ImperfectCredit can still help you succeed.l) Home Equity Line Of CreditThis loan is for people that already own a property. Thebasis of this loan is that you only borrow what you need.You pay interest only on what you borrow. The interestmay be tax deductible and you may be free fromclosing costs. This can also serve as an excellent sourceof emergency income if set up in advance. It can alsohelp you consolidate your debt and lower your personalmonthly payments (ex: credit cards, car notes, etc.). 68 69. LEONARD SPAR PERSON JR.The terms of the loan are more favorable than if youtake out a regular loan. Example: if you have $100,000equity in your home and you borrow say $50,000. Youwould only have to pay interest on the $50,000. Andsay out of the $50,000 you only end up using $20,000,you will then be required to pay interest only on the$20,000.You dont have to pay any closing costs toborrow the money.The disadvantage is that theinterest rate can change, making your payments higher.This is reflected by the fluctuating market rate.Getting an approval for a Refinance is harder for firsttime homebuyers as well.m) RefinancingThis loan is for the property owner who is repaying at arate which most likely was unfavorable to them becausethey didnt meet all of the necessary requirements to 69 70. LEONARD SPAR PERSON JR.receive a more suitable loan. Now that time has passed,they have accumulated home equity, better credit, etc,so they can go back to the bargaining table and take outa new loan with better terms and rates to offset theearlier loan. Some people go this route to cash out onthe savings left over. Others just want to lower theirinterest rates. Here you also have to pay closing costsall over again. This will take money from your equity.*Note: If you are seeking a loan for a property contactus at www.hoodestate.com or dial 212-360-236070 71. LEONARD SPAR PERSON JR. Chapter #3Purchasing The Right Property Having great style is a fantastic characteristic topossess when it comes to clothing and cars. When itballs down to property, you have to be cautious on whatjust looks good. Choosing the right property is a skilledtask--similar to a diamond collector on the hunt for theright stones. In his or her quest, they know exactlywhat and what not to look for in making their purchase.Things like cut, clarity and carat will determine the 71 72. LEONARD SPAR PERSON JR.current and future holding value in his stones. A personinvesting in property looks for certain key things whendetermining what type of real estate to acquire. One ofthe main points is the size of the property. Go towww.propertyshark.com. This is a great website toobtain foreclosed property and property going intoforeclosure. It gives the names and contact number ofthe seller of the property. Through them you can getauthorization from the seller to contact the bank orlender who has the property in foreclosure so that youcan negotiate a steal on the buyout. This can prove tobe profitable because the lender now has a chance tocash out on the defaulted property instead of riskinggoing to an auction and receiving less. The lender maynot accept your first offer but will counter offer untilyouve both reached a mutual agreement. 72 73. LEONARD SPAR PERSON JR.1) MULTI-UNITSThis type of property refers to anything more thana single residence but less that a five family. Ex: A twoor three-family home can be considered a multi-unit aswell as a building containing four individual apartments.Anything beyond that is a commercial unit. Theprofitability of this is reasonable and can generateenough cash through renting to pay for itself. Whenpurchasing a multi-unit there are key points to look for. 1) How many bedrooms are in each apartment?(Having a lot of bedrooms equals more rent roll!) 2) The plumbing and electric must be in workingcondition 3) How old is the boiler? (If boiler is over 10 yearsold it might need to be replaced or upgraded.) 4) How old is the roof and does it need to bereplaced? (If the roof has present leaks or is73 74. LEONARD SPAR PERSON JR.more than 25 years old, then it should bereplaced). 5) What are the highest value sales in the areathat is comparable to your house? (Just in caseyou run into a financial situation and you mightneed to sell quick, make sure you have enoughroom in the house (equity) to sell and make aprofit as well). If these outlooks work out inyour favor then this could be a good deal for youdepending on the price of the home.ADVANTAGES OF OWNING A MULTI-UNITOne ADVANTAGE of owning a Multi-unit is that you cancollect a good rental cash flow depending on how manyapartments you have within the house and how manybedrooms each apartment has in it. The location alsomatters when it comes to getting top dollar rent roll 74 75. LEONARD SPAR PERSON JR.for your rental. Another advantage is:If youre moving into a property thats a multi-unit, therent roll from the additional apartment(s) can eithercover the whole mortgage or at least help with a goodportion of your mortgage payments. The point is, youwill definitely be paying less out of your pocket.DISADVANTAGES OF OWNING A MULTI-UNIT (1) Expenses are higher than a one family home. (Water, Heat, Electricity, etc) (2) Youreresponsible for all tenants and maintenance of the building. (3) When youre ready to sell the property, having it occupied makes it difficult to sell fast. 75 76. LEONARD SPAR PERSON JR.2) Commercial Units and Mix-Use Properties This is where the property contains space tohold more than five separate families. Projects, highrises or any building possessing more than fiveapartments/offices/storesare prime examples ofcommercial property. A mix-use property will have a 2or 3 family that has a store front. The profitability ofthis can be substantially rewarding. Being that it holdsmore occupancies and commercial business space, it cangenerate enough income to pay for itself and heftyprofit.ADVANTAGES OF A COMMERCIAL UNIT & MIX-USE PROPERTY(1) The rent roll/cash flow is more rewarding 76 77. LEONARD SPAR PERSON JR.than a multi-family or single residenceproperty(2) It has space to put a commercial businesswhich createsan opportunity forentrepreneurship and an additional incomealong with your monthly rent roll. DISADVANTAGES OF COMMERCIAL UNIT &MIX-USE (1) Huge monthly utility and housing expenses.(2) Some commercial businesses operated out ofthe premises may need a license to operate,such as: restaurants, sports bars, clubs, etc.This can become a huge expense in thebeginning but will be very profitable in thelong run. 77 78. LEONARD SPAR PERSON JR.(3) Refinancing a commercial property or mix- use property can be difficult.(4) Sellingacommercial property can be difficult as well because buyers are obligated to put a down payment of at least 20-25% of the purchase price and not everyone has that amount of cash available to them. Therefore it may take a longer time to sell. 3) Foreclosures Now that you are familiar with some of the basictypes of property, were going to move on to how youcan actually buy them. Property is sold and bought inmany ways; directly from the owner, through or from abank, fromReal Estate Brokers & Investmentcompanies, etc. The most popular way in which someproperties are sought after today is by foreclosure.Foreclosure is when the bank seeks to take possession 78 79. LEONARD SPAR PERSON JR.of the property from the owner after lack of severalpayments on the loan. This type of action broughtagainst the owner places a person seeking to buyproperty a hefty advantage. They can either wait untilthe bank has taken possession of the property toattempt to buy it or can seek to bail out the owner on abuyout by picking up the payments minus the equity. EX.: My boy Damon owns a house in Bedford-Stuyvesant (Brooklyn, NY) and he is backed up in hismortgage payments by 6 months. He owes a mortgageof $300,000 and his 6 months of backed up payments is$10,000. His house is worth $550,000. Now, what Isuggested to him was that he give me the banks numberso that I could contact the bank and buy into hismortgage. How this works is that, the bank will have tocheck my credit and financial records to see if I ampre-approved to qualify for a mortgage. Then if I ameligible, Ill pay off the $10,000 default payments he79 80. LEONARD SPAR PERSON JR.owes to the bank and then take over the mortgage andthe ownership of the property. Four months later I soldthe property and made a profit of about $240,000 andonly invested $10,000 (his 6 months of defaultpayments) to make that profit. This makes sense to doonly if the property has a huge amount of equity in itand the monthly mortgage payments are reasonableenough for you to handle. (Now, where else can youinvest $10,000 and make $240,000 in 4 months???) 4) Buying 3 Properties At OnceSounds like a dream come true? Well its a realitypeople do it all the time. How? For first time homebuyers there are several benefits offered by banks andother lending institutions. The simple fact that youqualify for first time home buyer loan programs itselfis enough to cover this area. What the borrower would 80 81. LEONARD SPAR PERSON JR.do in this case is simply use your excellent credit, go tothree different banks and acquire loans to purchasethe properties. The key here is that it has to be doneright after one another, before the Credit Bureaus(Equifax, Experian & TransUnion) report your first loanand the banks realize that you have actually taken outseveral loans. If the banks wouldve noticed that youhave another home loan already, you wouldnt qualify fora first time home buyer loan program. Its legal so whatare you waiting for go for it!!5) Short Sale PropertiesThis technique of purchasing a property before itgoes into foreclosure is one of the greatest profitablepurchases you can make in Real Estate. A Short Saleoccurs when a property is in the beginning stages offoreclosure. This is beneficial to both the bank and thepotential buyer (YOU) because you get to buy the81 82. LEONARD SPAR PERSON JR.property for cheaper than what the last ownerpurchased it for and the bank doesnt stand to lose asmuch money as they would if the property getsauctioned off. Heres how it works: (a) You get the owner to sign a Letter ofAuthorization which basically says thatthe owner gives the bank permission todiscuss and release information abouttheir loan to you. (b) You contact the bank and ask for theLoss Mitigation Department to findthe person assigned to this specificloan account. You let the assignedspecialist know what property you arecalling on behalf of, tell them that youare interested in doing a Short Saleand thatyouhave a Letter of 82 83. LEONARD SPAR PERSON JR. Authorization from the owner that you are prepared to fax to them.(c) Once youve faxed them the Letter of Authorization the sellers(owner) lawyer has to submit a legal binding contract between the buyer (YOU) and the seller (Owner) , and a Good Faith Estimate HUD 1 to the bank. The contract will contain your offer price for the property. The Good Faith Estimate HUD1 basically breaks down all of the numbers and expenses and gives the bank an idea of how much money they will be able to clear. Your offer price will definitely be lower than the amount that the owner owes. (Before you submit your papers with83 84. LEONARD SPAR PERSON JR. your offer price make sure you find out exactly how much the seller owes the bank {ex. $550,000}) (d) Once these papers are submitted you have to wait and see if the bank approves your offer. The bank will counter offer if it doesnt accept your offer and you will negotiate with the bank until you come to a mutual agreement. . (e) Once the offer is accepted you begin your Loan process. 6) Tax CertificatesThis a document that certifies money/taxes owedby a property owner. There are two ways to acquirethese certificates. It varies from state to state. You 84 85. LEONARD SPAR PERSON JR.can go to auctions. Also you can go to land listings andpurchase certificates that havent been bought at theauctions. Once you have the tax certificate, this ishow it works; ex: Say you bought a certificate for$1,000 against a property. Now the property ownerowes you that $1,000 plus interest which falls in theform of a tax lien against the property. Depending onthe laws governing from state to state, the redemptionperiod can vary anywhere from 3 months to 2 years.Bottom line, if the debt isnt paid by the required time,the property owner will lose his property to thecertificate holder for the said amount. Meaning, aperson can lose a $300,000 home for a mere $1,000. 7) People You Know That Own Property Another great way to acquire property is bypurchasing it from someone you know. Whether it is a 85 86. LEONARD SPAR PERSON JR.family member, friend, colleague or drinking buddy,buying property from someone that you personally knowwill most certainly provide some sort of bargain.86 87. LEONARD SPAR PERSON JR. Chapter #4Submitting An Offer Negotiating a price for a specific property takessavvy and know how. The owner of the property will askfor a certain amount based on current property valuerate, time & money invested among other factors. Youas the buyer will naturally go for the best pricepossible by counter offering. Thats just how businessgoes.87 88. LEONARD SPAR PERSON JR. 1) Submitting an Offer SheetOnce you have decided on an offer price you must fill out and submit an offer sheet to the real estate broker for that property. The broker will present the offer to the seller at which time it is the sellers decision to accept the offer or not. The broker will then contact you and let you know the sellers decision. If the seller accepts your offer, you will start the loan process.2) Denied Offer Again, after the owner of the property hasheard your offer, he/she may either accept or deny it.If he/she denies it, you will have to counter offerthrough strong negotiation. If persuasive enough, youmay talk him/her into selling for a better price. 88 89. LEONARD SPAR PERSON JR. 3) Getting An Inspection Just like when buying anything, you alwayscheckout the merchandise before finalizing thepurchase. Just like you wouldnt buy a car withoutmaking sure the engine is running properly; you have tobring in a professional to inspect certain aspects of theproperty. The main points to focus on are; the roof, thepresence of lead, and the boiler. If there is a problemwith any of these three things, then they need to bepointed out and dealt with beforehand.89 90. LEONARD SPAR PERSON JR.90 91. LEONARD SPAR PERSON JR. Chapter #5Collecting Cash Flow From PropertyTake a moment out to congratulate yourself onofficially becoming a property owner, but dont take toolong because there is money to be made!Depending on the quantity and type of property youveacquired, your rate of income is about to change. You asan owner want to make sure that the level of income isas fruitful as possible.91 92. LEONARD SPAR PERSON JR. 1) Working People RentalsIf you want to rent out space but at the sametime keep things simple and traditional, you can rent outyour property to ordinary working people for a setmonthly price. If the property is decent enough themoney charged will hopefully cover the mortgage,insurance and utility costs and maybe at the end of theday will yield you some sort of profit.a) The advantage of renting to people that work is aslong as theyre working you can receive your money ontime. If they have a good job where they receiveraises and bonuses you may just be able to go up on therent every year. Working tenants are a lot moreresponsible and reliable than government assistanceprogram services.92 93. LEONARD SPAR PERSON JR. For EX: One of my tenants in my building was ona Section 8 program; the others were working classpeople. I always got the rent from the working familywith no problem, but the Section 8 Department staffdoesnt speak to landlords if the tenants rent isnt upto date with you in some cases. That was a majorproblem because the Section 8 tenant and I hadproblems and we werent on good terms, so to make along story short the Section 8 Department put a stopon my check, and even when the tenant and I resolvedour issues it still took months for them to reimburseme the rent. I had to pay out of my pocket for thoseadditional months.b) The disadvantage is if the working class person losestheir jobs, unfortunately you take a lost as well. Andthe scary part about that is you never know when your93 94. LEONARD SPAR PERSON JR.job is going to fire you, so nothing is guaranteed orlasts forever. 2) Government Program Rentals Some property owners come to find out that byrenting property to the normal working class leavesthem vulnerable to dealing directly with tenants.Collecting rent can become a real hassle if a tenantdecides not to pay for whatever reason and you as theowner can not evict them without going through thelegal process.An alternative to avoid this is to rent out space totenants, but not directly. Instead, you contract yourproperty out to the Federal Government for a set fee.They in turn will fill the property with tenants who areeligible for federal assistance. This is called subsidizedhousing. 94 95. LEONARD SPAR PERSON JR.For EX: I rented out one of my apartments to afederal program called Section 8. The good thing aboutthis program is that they paid me first months rent,security and they were always on time with payment. Inever had to go to the tenant in person and ask for myrent. I also didnt have to worry about the tenanthaving a job or losing their job because everything wasfunded by the government.The disadvantage of this program is when you start theprocess of registering your building for approval, it cantake from 4 to 6 months to get approved. First youhave to view and interview every tenant. Then you haveto order a Section 8 inspection which takes almost 2weeks for the inspectors to come out to your property;And god forbid if you miss them the first time you haveto reorder the inspection and thats another 2 week 95 96. LEONARD SPAR PERSON JR.wait. After that you can move the tenant in but eventhen you dont receive the check because you will haveto wait until your application is fully processed and thatcould take up to 3 months. Basically you have to have 4months of mortgage payments saved up to follow thisprogram through. The only good thing is after yourapplication is processed they will reimburse you for allthe months they didnt pay.3) Single Room Occupancy Rentals This option if done safe and correctly, can bevery profitable. You can take a piece of sufficientproperty and restructure it to accommodate severaldifferent tenants. They will each have the privacy oftheir own room and may share the bathroom andkitchen areas.96 97. LEONARD SPAR PERSON JR.P.S. Make sure the Property is S.R.O (Single RoomOccupancy) certified.This allows you to rent outrooms legal without breaking the law because the housewas built and registered for that purpose to rent onlyrooms. If the houses Cof O (Certificate ofOccupancy) is a 1, 2, 3, 4, 5 family, commercial or mixuse then you are not allowed to rent rooms by law.4) Home Daycare Programs Here for the new millennium caring for seniorcitizens and children has become one of the fastestrising businesses. With parents and family membershaving to work, they dont have the time or resourcesto stay at home and care for their loved ones, so thisservice has come to the rescue. If you, the personyoure renting to and your property qualify, you cancreate an entity that caters to the children/elderly.97 98. LEONARD SPAR PERSON JR.You can do this privately or through contractual workfor the State of Federal Government. Keep in mind thatwhen it comes to caring for people, regulations are verystrict. You can and will be fined for the simplest ofthings. If not corrected and enforced you will be shutdown and barred from daycare completely. So dont justlook at this as money in the bank if your professionalismisnt up to par. In order to successfully reap the vastwealth in this area you will have to stay on top ofthings.a) The advantage of this program is that, whenqualified, the government pays you up to $150 to $200a week per kid. Depending on what type of program youchoose to do, you could have from 6 to 12 kids in yourhomedaycare. The government also gives youeducational money vouchers for computers, learningappliances, toys, food vouchers for breakfast, lunch,snack and dinner. Now lets do the math if you are98 99. LEONARD SPAR PERSON JR.getting top dollar ($200) from all 12 kids, you will bemaking a gross profit of $2400 a week and $9600 amonth, and thats only for one apartment in a 3 familybuilding. There are still 2 more apartments that you canrent out and receive more cash flow.5) Senior Citizen RentalsIn many cases, elderly people refuse to be dropped offin some old folks home, (as they call it). Theyd ratherspend their time alone in the comfort of their ownapartment specially designed for them. Most of thesetypesofestablishments have aroundtheclockmonitoring staff and the apartments are equipped toaccommodate their needs and limited ability. Becauseof the level of personalization, living arrangements ofthissort can providea propertyowner withconsiderable income. 99 100. LEONARD SPAR PERSON JR. P.S. There are other Government programs you canregister your building under to collect a cash flow likeDAS (HIV Tenants), Jiggits (rental Assistants) anddomestic violence shelters for woman. To get moreinformation about these programs go to a officialgovernment website EX: (www.nyc.gov) 100 101. LEONARD SPAR PERSON JR.Chapter #6 Selling Your PropertyOwning a piece of property doesnt necessarily meanthat you will always keep it. Not that you cant, but formany different reasons you may just not want to. Inthose instances, you will move to sell. Depending on thetype of property you own, the condition that its in andthe financial status that its under you may have to go acertain route in order to successfully find a buyer.101 102. LEONARD SPAR PERSON JR. 1) Renovation Sale If the property that you have isnt in the bestliving conditions, fixing the place up will surely makeyour task of selling much easier. This type of action isvery common and has proven to be successful. Someonelooking to buy property wants nothing more than toacquire something already up to standards. The moreluxury your renovations are the more money you can askfor to rent the location. The key rooms to renovate in ahouse or apartment is the kitchen and bathroom. Theserooms are the eye catchers, especially when you havecompany or if you want to sell your property andreceive top value.The Disadvantage of renovating a property is dealingwith contractors that arent consistent, loyal,102 103. LEONARD SPAR PERSON JR.professional or licensed. You might try to save moneyby dealing with a family member or friend whom youknow that does contracting work and is willing to giveyou a better deal of course. The thing is, since you havesome type of relationship with them, its not based onbusiness anymore and sometimes your kindness gettaking for weakness. Before you know it, youve spentmore than what you budgeted and the work still isntfinish.My advice to you is to go with the professionalcontractors that have a good track record and can getthe job done. You might end up paying $100s more inthe beginning but will save $1000s at the end with thework done in a timely fashion.For EX: I remember when I bought my one family homein New Jersey. I tried to save money by getting my dad103 104. LEONARD SPAR PERSON JR.and father-in-law to do the work. It took damn near 9to 11 months for them to renovate my house and it stillisnt finished til this day . I am grateful to have hadthem in my corner anyway but damn, I spent over 125kand the contractors were only going to charge me 75kto 80k to renovate the whole property within 4 to 5months in the beginning. But one thing I could say aboutmy dad and father-in-law is that they stood by me untilthe end and made sure the work was done with qualityand not rushed.P.S. Dad (when are you going to finish my shit Lenny?)LOL! and Bats I still owe you $5,000 but can you putmy closet poles up, Im tired of putting my clothes ingarbage bagsLOL! 104 105. LEONARD SPAR PERSON JR.2) Vacant Sale At the time of sale, your property may or maynot be occupied with tenants. This factor has a lot ofbearing on the sale itself. Vacant property is alwayseasier to sell, although selling occupied property is notimpossible. It really depends on the intentions of thebuyer.The advantage of buying vacant property is that you asa buyer do not have to inherit bad tenants. You donthave to rebuild a relationship with them or be looked atas the new enemy on the block. For example: you mightbring to their attention a new set of rules likeincreasing their rent and because theyre so use topaying what theyve been paying for so many years itwill probably become a problem collecting your rent inthe beginning105 106. LEONARD SPAR PERSON JR.3) Occupied Sale When the property is occupied with tenants thiscan work for you or against you, as far as pricenegotiations are concerned. Some buyers are nit pickyabout inheriting tenants, especially ones they dontknow anything about. This can cause a mountain offuture problems. For example: any promises made bythe previous owner will for sure also be inherited aswell. On the other hand, the buyer may welcome thefact that there are tenants already in place. Now theissue of finding tenants is out the window. With thisrent load, the purchased property can immediatelybegin paying for itself.4) As Is Sale Plainly put, it is what it is. What you see is what 106 107. LEONARD SPAR PERSON JR.you get. The owner puts out a price, the buyer checksout the place and makes his or her decision. Take it orleave it. 5) Foreclosure SaleWhats being done here is not actually aforeclosure sale. The potential buyer in this instance isseeking to acquire the property before the foreclosuretakes place. Knowing that the owner is in a financialjam, the buyer will bail out the owner by paying off thedebt and taking possession of the property.How to get out of foreclosure: There are 2 ways youcan get out of a foreclosure situation.a) Deed Transfer 107 108. LEONARD SPAR PERSON JR.How this works is when you fall in default with themortgage payment you should look for someone youtrust with good credit and a good financial incomerecord to add them onto your deed. The deed transfercan be done with a real estate attorney. It usually costaround $450 to $500 for this transaction and can beactive in 2 weeks, depending on what attorney yourdealing with. By connecting this person to your deedyour giving them 50% ownership of your property andthis gives them the legal right to refinance theproperty to pay off the existing default mortgage andget you out of foreclosure. (The good thing is that theperson you add on cant do anything without yoursignature, but the bad thing is that it goes both ways,you cant do anything without their signature as well).This person cant be a family member, but can be afriend. They also cant have the same last name as youbecause the bank considers that a conflict of interest108 109. LEONARD SPAR PERSON JR.and a bail out. (No family members)b) Giving the Property Back to the BankThis is pretty much self explanatory. If you know thatyou are about to default on your mortgage due tomonetary problems, (EX: losing your job, losing yourtenants, family issues, etc.) you should alert the bank inadvance that you can no longer afford to maintain themortgage note. The bank will make arrangements toeither repossess the property or work out some type ofpayment arrangement with you (This is optional, not allbanks will agree to payment arrangements).If the bank does agree to work out a paymentarrangement that will be good on your behalf. It willprevent your credit from being destroyed. You will havea second chance.109 110. LEONARD SPAR PERSON JR. P.S. If you do have a family member willing to do a deedtransfer just make sure you dont have the same lastname. Also the smart thing to do is after thetransaction is completed and your foreclosure is paidoff and settled you should remove that person from thedeed to take back 100% ownership of your property. Toremove them you have to follow the same procedurethat you used to add them onto the deed through anattorneys supervision. You cant just sign them offyourself; they have to sign off willingly.110 111. LEONARD SPAR PERSON JR. Chapter #7Flipping PropertiesIn todays real estate market, it seems like the name ofthe game is the quick flip. Buyers are on the hunt foranything that they can get their paws on so that theycan do whatevers necessary to turn around, sell andmake that quick profit. To come out on top, you have toknow how to move. This means looking in a prime and111 112. LEONARD SPAR PERSON JR.safe location to buy a flip property and when to strike1) Buying Under Market Value Many times while out on the prowl you willstumble upon property that you will be able to buybelow and sometimes even well below its current marketvalue. Maybe the property needs considerable workdone and the owner doesnt have the cash but in turnneeds cash. There are many case scenarios where theowner may be willing to get rid of the property for aprice that is a steal on your end.2) Buyers Lined Up To Buy From You Somebuyersdo things with considerableforesight-premeditation. When they buy, they alreadyhave someone lined up or in mind to re-sell to. Having a 112 113. LEONARD SPAR PERSON JR.buyer lined up, is perhaps the true meaning of a quickflip. You acquire the property for a negotiated priceand sell it to make a profit. 3) Assigned Contract The art of buying and selling property for thequick flip isnt always as easy as it appears. Whenbuying the property, you have to let the previous ownerknow what your intentions are. Better yet, you shouldhave your attorney state that in the contract so thatthere wont be any misunderstandings down the road.Here with an assigned contract, you will be obtainingthe property more or less as a middle man only to buy itand then sell it to the end buyer. Thats why it isessential that the original seller is aware of whatsgoing on.113 114. LEONARD SPAR PERSON JR.4) Auction Properties State, Federal Government and other agenciesat certain times of the year auction off numerousamounts of prime real estate. These events are greatopportunities to grab property at incredible prices. Ifyoure an average person looking for a home, then thatcould be the ideal place for you. For buyers that areseeking to buy multiple properties for the purpose offinancial gain, you have to possess certain credentials inorder to do so. 114 115. LEONARD SPAR PERSON JR.Chapter #8Choosing The Right LawyerWhen dealing with a market such as realestate, choosing the right lawyer makes all thedifference in the world. A lot of contracts filled withtechnical jargon are involved and a lawyer with skill andcommon sense is necessary. The relationship you twoshare will have a strong bearing on your level ofsuccess.115 116. LEONARD SPAR PERSON JR. 1) Choose A Lawyer That Deals Directly With RealEstate You have many types of attorneys out there;Criminal, Civil, Entertainment, etc. You even have somethat deal with more than one field. Make sure the oneyou choose specializes in real estate. Do not accept thedibbing and dabbing lawyer who tries to juggledifferent hats.2) Research A Lawyers Track Record In order to be certain that a lawyer is the rightone for you, you must check him out. You have to checkhis/her track record for competence, professionalism,etc. Ask the lawyer for references; old and currentclients, so you can do your search with the Bar116 117. LEONARD SPAR PERSON JR.Association. Usually they will have the answers you arelooking for.3) Consistency Just like a ship in motion full stream ahead, soshould be the consistency of your lawyers actions. Heshould be prompt with his duties and complete what hesays he can get done. In real estate you dont need anyunforeseeable red tape and if your lawyer is on top ofhis/her job then you rarely will.4) Lawyers Can Blow Deals Prompt response and attention to a matter ordeal is a requisite of a good attorney. Deals worthhundreds of thousands and sometimes millions havewent down the drain or slipped out of an investors 117 118. LEONARD SPAR PERSON JR.hands due to untimely and lack of proper attention. Thismost often becomes the case when a lawyer has a largeroster of clients and/or too much work on his/herplate. Also, not to seem bias or racist, but when dealingwith lawyers of certain backgrounds, a vast amount oftime off from work due to religious worship can conflictwith business that needs a sharp response. So you haveto choose your lawyer wisely. 118 119. LEONARD SPAR PERSON JR. Chapter #9Finding The Right AppraiserThe whole purpose of getting involved in theworld of real estate is to make the most money off of aproperty. To accomplish that, you need have some typeof understanding about negotiating and be familiar withthe legalities of the real estate market. You have toalso evaluate the property that you seek to acquire. Ifthe property is no good or isnt worth investing time 119 120. LEONARD SPAR PERSON JR.and money into as far as renovations, then you stand tolose. The person that can ensure that you come out ontop with property worthwhile is called an Appraiser.This individual or sometimes, team of individuals, comein andanalyze the actual worth of the property inquestion. An appraisal, which is the outcome of theirfindings, will let you know whether the deal is really adeal or not. 1) Looking For The Best Market Value Competence is a must when choosing anappraiser. Anything short of that and you will paydearly. There are so many things to consider whendetermining if a piece of property holds or has thepotential to mature to its best market value. He/shehas to be able to see beyond the surface of the game.Key factors when looking for property are squarefootage, number of units, compared to the price. When 120 121. LEONARD SPAR PERSON JR.the appraiser does comparisons in that particular area,this will determine the best deal in relation to currentmarket value.2) Consistent Work In A Timely Fashion You need an appraiser thats going to come outand do his/her job and not waste your time. Their dutyis to show up on time and appraise the said property inan efficient manner. Be thorough when seeking anappraiser because the evaluations that he/she will makeon your property will determine whether or not actualprofitability exists.3) Paying Half Up Front/Rest At Closing For satisfying results, they should be paid onthe spot upon completion of the task or half up front121 122. LEONARD SPAR PERSON JR.and the balance once theyre finish. This process hasalways proven to stimulate motivation when it comesdown to work for hire.4) Building A Strong Relationship More than just an understanding will be requiredwhen dealing with an appraiser. A bond is more soneeded. His/her duties are extremely critical to you.An appraiser must know what it is that youre trying toaccomplish from any said piece of property and evaluateaccording to your standards. If that connection is madein a respectable and efficient manner then you as aninvestor will always remain ahead of the game.5) Specializing In The Area Being Appraised Bottom line; an appraiser needs to be familiar122 123. LEONARD SPAR PERSON JR.with the area being appraised. He/she should also haveexperience with the specific types of property inquestion. Despite the types of software available today,it will be of little use if no personal knowledge is thereto support. Take heed to this because if not you will bewasting a lot of your valuable time and money. 6) Gathering The Right Data When dealing with appraisers, make certain thatthey are compiling accurate and relevant informationwhen evaluating the property. This is one of the mostcommon errors being made today. Lack of properresearch will offset the true value of the soughtproperty leading to possibly a very bad investment. 123 124. LEONARD SPAR PERSON JR.124 125. LEONARD SPAR PERSON JR. Chapter # 10Choosing The Right Title Company This area of expertise is necessary as a means ofprotection. It lets the parties involved know that youare knowledgeable and cautious. When going into anydeal of purchasing property, those attributes need tobe felt front and center. 1) Getting a Title Search & Title Insurance125 126. LEONARD SPAR PERSON JR.Basically all you have to do is look for a companythat performs title searches and title insurance. Thisinsures you against buying property from someone thatclaims to be the owner of the property but then downthe line you come to find out otherwise. This alsoprotects you from the loan that was taken out from thebank and all the other steps you put forth to acquirethe property. 2) Schedule A Isa file that iscreated from doing aresearch/financial background check on the buyer andseller. This will bring up any issues of child support,alimony, liens or judgments that exist; and sometimesdown to parking tickets. This area has to be addressedbefore clearance is given to close on a deal. 126 127. LEONARD SPAR PERSON JR.3) Low Fees Like with shopping for anything, you will alwaysseek and compare prices when looking for a titlecompany. Warning: Do not allow better pricing tocompromise quality and service. Doing this will defeatyour whole purpose. 4) Trustworthiness With Escrow Accounts In the process of the title company ensuringthat you, as the buyer, do not inherit any type ofjudgment, liens, fees, etc, there will come a time wherethe buyer and seller will disagree on something that wasmade clear earlier on and has become an issue at thetime of closing. For example: the seller may havepromised the buyer that at the time of closing there127 128. LEONARD SPAR PERSON JR.wouldnt be any tenants occupying the property butwhen the time came to close, the tenants were stillthere. Or something was agreed upon to have beenrepaired by the time of closing but hasnt been fixed.These discrepancies would call for an escrow accountto be created in which the seller would deposit acertain amount of cash there to compensate for thematter at hand. The title company would hold onto thismoney until the specified date the buyer and selleragreed upon that their matter would be addressed. Ifthe matter wasnt addressed, then the title companywould have been required to relinquish the money overto the buyer as compensation. Be weary of the titlecompany who has done business with the sellerpreviously and may have an ongoing relationship. If athorough reference check on the title company isntdone, you may find yourself receiving the short end ofthe stick. 128 129. LEONARD SPAR PERSON JR.Chapter # 11What Are Closing Costs? This is a cost of many fees that you have to paywhen borrowing money from a bank to purchaseproperty. It extends from mortgage taxes to transfertaxes to mortgage brokers fees, etc. To cover thesecosts, sometimes the buyer will seek a larger loan fromthe bank to cover it, instead of coming out of theirpockets. The seller/owner has to approve of this inorder for it to be accepted. This is called a sellersconcession. 129 130. LEONARD SPAR PERSON JR.1) HUD 1 This is a giant, legal document that breakseverything down to the exact dollar and cents. Itincludes every transaction of the closing costs betweenthe buyer and seller. So if you want to know if theseller and any other party involved actually made aprofit from the property, you can look there. 2) Transfer Taxes This fee is paid to the government whenever thedeed of a property is transferred from one party toanother. (Uncle Sam has his hand in everything). 3) Mortgage Taxes 130 131. LEONARD SPAR PERSON JR. This is a tax that has to be paid by the buyer tocover taxes charged to the mortgage broker. 4) Mortgage Brokers Fees The mortgage broker makes his/her money bysearching for a lender who will loan you the money topurchase the home. For example; In New York theycharge on an average, 3% of the loan amount for theirservices. In other states, the points charged by thebrokers are either higher or lower. 5) Pay-Off This is directed to the seller. If he/she had a