Archive for the ‘Real Estate’ Category

Stand By Letter of Credit (SBLC)/Bank Guarantee (BG) Program

(SBLC Financing)

A Stand-By Letter of Credit (SBLC) is an assurance that your company has the financial resources to perform as agreed under contract. The issuing Bank essentially substitutes its credit standing for that of your company in order to facilitate the contract. Stand-By letters of Credit are legal documents that support contractual agreements between two parties. The standbys are concerned only with the contractual agreement you have made with another party and are payable only when the appropriate documentation as outlined in the letter of credit is presented by the beneficiary. If the customer defaults, the beneficiary may draw funds against the letter of credit as penalties or as payments, whichever the terms of the credit provide.

STAND-BY LETTER OF CREDIT PROGRAM SUMMARY

REAL PROPERTY STAND-BY LETTER OF CREDIT FINANCING PROGRAM

1. Purchase of Standby Letter of Credit (SBLC), generally at a $20,000,000 face value. SBLC has a term of one year plus one day (see below for SBLC Purchase Program features).
2. Transfer SBLC to Lender, together with 15 yr interest only Note, interest rate of LIBOR +2%.
3. Lender funds 95% of face value of SBLC ($19,000,000), less 10% of face value in fees (all fees included), so borrower receives 85% of face value of SBLC.

Clients can use Stand-by Letters of Credit for many reasons such as:

• Leverage Funding for Large Commercial Projects
• Funding a Trading Platform
• Credit Enhancement
• Blocked Funds
• Qualify for Financing
• Net Worth Requirements
• Providing Evidence of Proof of Funds
• Commodities / Petroleum Transactions
• To provide assurances of our Client’s ability to perform under the terms of a contract
• To fulfill bid-bond and performance-bond requirements
• To help secure third-party financing

General terms and conditions:

SBLC 85% funded amount must be paid in one year and one day. May be extended up to a total of five years at a cost of 8% for second year, 6% for third year, 4% for fourth year or 2% for fifth year.

Needs List and Procedures:

First Capital Funding Corporation utilizes these SBLC instruments to collateralize commercial property loans.

Letter of Credit Request Procedure:

A request for a Letter of Credit is made from a client directly or may be referred to FCFC. FCFC requires all the documentation and information indicated below.

FCFC will issue a Letter of Engagement to the client, which discloses the points associated with this transaction, which is separate from the Lenders fees. The fee is generally 2 points. Once the letter of Engagement is executed (signed) and returned to FCFC, FCFC will proceed with the request. (Up to this point no monies have been collected unless indicated on Letter of Engagement.

Information Required for an SBLC Request:

• Executive Summary describing project and use of funds.
• Proof of Funds for SBLC request: (need to see a minimum of 10% of SBLC request)
• Bank Statement (recent within 30 days)
• Bank Letterhead indicating the account holder, account number and amount in that account that is available and accessible funds for our client (an escrow letter alone is not sufficient.)
• In the event there are silent partners/ investors that are not principals, proof of funds from them may be used as long as a paper trail evidencing that the principals have access and is permissible to use these funds for the specific transaction. This must be noted in writing from the account holder.

Proof of Funds for commitment fee for lender: (need to see where the commitment fee is coming from if different than proof of funds for SBLC)

• Bank Statement (recent within 30 days)
• Bank Letterhead indicating the account older, account number and amount in that account that is available and accessible funds for our client (an escrow letter alone is not sufficient)
• Corporate ID (Articles of Incorporation or Articles of Organization indicating principals along with Corporate ID#)
• Drivers License (for all principals)
• Passports for International deals (for all principals)
• Name of Corporation, Address, Phone#, Fax#, and email address along with names of all principals indicating the main contact person.
• Referral Name, Address, Phone#, Fax#, and email address
• Sources and Uses (to indicate the breakout)

Note: In the event you have multiple LC requests, they should be sent independently. Executive Summaries will differ.

Once the above documentation has been received it will be forwarded to the SBLC provider. The SBLC provider will then process the request and issue an SBLC draft and send to FCFC within 3-5 business days depending on the complexity of the request and documentation received.

When FCFC receives the SBLC draft, we then will forward a copy to the lender along with the above noted documents (as indicated above required docs for SBLC)

Lender will notify FCFC of their decision, and if approved a commitment letter will be generated and forwarded  to FCFC to forward onto the client. All terms and conditions of the loan along with the amount of the commitment fee will be outlined in the commitment letter. The dollar amount of the commitment fee will depend on the loan amount. The commitment fee will be required at the time the borrower signs the commitment letter. The Lender’s bank wiring instructions will be included.

The commitment letter will be signed by the client and returned to FCFC who will then forward the information to the lender.

Commitment fees outline in the commitment letter will be wired to the designated account simultaneously with the commitment letter.

Once the signed commitment fee is received by the Lender, the Lender will issue a letter outlining all bank  and swift information which confirms their receipt of the commitment letter and a commitment fee. This letter will be sent within 3-5 business days (original) via DHL/FedEx and also faxed the day issued.

Once the letter is received, the SBLC issuer is notified to swift the collateral (the Official SBLC) they then will fund via SWIFT within 3-5 business days.  The Stand-by Letter of Credit Program process above is a general rule and will vary depending on the transaction.

Non-Leased Cash backed SBLC or BG

There are instances when a client requires a non-leased cash backed Bank Guarantee or SBLC to be able to borrow against it at higher levels.  We can provide that in amounts of 10 MM to 10 Billion.  Make sure you mention this particular instrument when you call or contact us.

This process is excellent, because:

• You have real instrument, it is not a leased one
• Do not require to have the instrument fees in a bank account, they are simply deducted from the requested amount
• Your bank will be the beneficiary
• You can use the instrument as credit enhancement
• This is a third party transaction, therefore you can tell your bank what to do, not the other way round

After all parties have signed the “hard” contracts the bank of the investor will talk to your bank.  They can arrange for a MT199 (stating that the investor bank is RWA to send) Only after that your bank prepares the MT103/23 (not sending it) Then the bank to bank negotiation starts with MT799 and MT760.

From start to finish this process takes about 3 weeks.

* IMPORTANT:  You will be checked out thoroughly so make sure that you are “real” and able to pay for the fees before applying.  And they only work with A and AA rated banks.

The fees on this program are higher than the leased SBLC/BG however, you can obtain the desired instrument without any cash, only a viable project and A and AA rated bank

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Note: All Accounts require strict compliance with International. Money Laundering Regulations and the US Patriot Act.

Here is an excellent blog post from Bryan Ellis that I think most RE investors will enjoy:

To be clear, I do not think real estate investors are criminals (as a whole).  To the contrary:  The involvement of real estate investors is and forever will be a central key to the recovery of our real estate market and the economy as a whole.

That’s why it’s so frustrating that the Obama administration (including his appointees) is so clearly extending their campaign against profits from just big businesses all the way to individual real estate investors like you.

I keep getting asked if this economy is good for real estate investing and I keep answering “YES”.  The fact is that there are more deals now than ever before.  The trick is and has always been to buy “right”.  If you overpay in this market or any market you will get a good lesson in economics.  Many people are sitting on the sidelines wondering what to do and how to approach this market.  To me is rather simple.  Wanna know if you have a good deal?  get a buyers list and shop your deal to your buyers first.  If you have a eager and willing audience for your offering, chances are that you have a deal.  This will also help you be on the safe side.  By knowing your paperwork, you can secure your deal without spending any money and even head to closing once you have both sides of your deal secure.

With banks liquidating assets left and right, you can make amazing profits by just being in the middle.  Get in the game!

How To Owner Finance Your Home

You’ve probably seen the real estate ads in the classifieds section of the newspaper:

“Owner Financing Available” or “Owner Will Carry” or “Owner Will Finance”

This is often seen as a sign of a motivated seller.  It can also be seen as someone who understand the value of equity and how to properly access all his/her equity.  See, when an owner finances a home, he/she can usually demand higher price for the home that if it asks for an all cash purchase.

Time Value of Money aside, this is an intrinsic understanding of someone who finances things.

An owner financed real estate transaction enables the buyer of the property to make payments directly to the seller instead of a financial institution.

This allows the buyer to purchase the real estate without having to apply for a mortgage from a bank or financial institution who perhaps has more stringent qualification requirements such as debt to income ratio or even a set credit score.

The seller of a home with owner financing can decide what credit rating he/she will accept if any.  A well versed seller will also know that in order to obtain a highly rated seller financed note that can be sold for the most cash in the future. such note needs to have some important attributes.

When creating a note with its future sale in mind, a seller needs to understand that there are lots of variables that work into a price offer including type of property, location, age of house, equity, is the buyer making the monthly payments, etc.

Most note investors buy these seller financed notes for the purpose of collecting the payments, not foreclosing.  Because of this very reason they look at the tangible positives of the note.

Understanding these factors will assist the seller in creating the best possible note that can provide the best return while being held and would demand the highest value when sold should the need arise.

ADVANTAGES OF OWNER FINANCING THE SALE

1. Sell Your Property For Your Desired Asking Price. A buyer may be perfectly happy to pay market value (and maybe more) for a house that requires a smaller down payment and that a bank won’t help them finance.
2. Charge a Higher Interest Rate Than the Bank’s going rate.  By charging a higher interest rate than a bank (say 7.5 – 8.5%) you are, in effect, increasing the overall sales price of the property, and making the note more attractive for an investor.
3. Faster Sell. You can sell a home with owner financing a lot quicker than with bank financing and there can be tax advantages in spreading the buyer’s payments out over time (talk with an accountant about that).
4. Great Monthly Cash Flow Investment. Many owners simply like the idea that they can receive a monthly income and a high interest rate from a property even after they have sold it – and no longer have to worry about repairing leaky roofs or replacing dead water heaters.
5. Sell The Note To An Investor. A seller who owner financed the deal also has the option of selling that note to an investor for cash either right after closing or after waiting a number of months or years (Call 800-346-0136 or complete this online form to get more information about selling your note).

DISADVANTAGES OF OWNER FINANCING THE SALE

1. Cash At Sale = Small Down Payment.  Depending on your needs this can be an advantage.  Usually the Seller receives only a small or even no down payment when seller financing.  This can be by design due to the tax implications of the sale.  A shrewd seller will know that a good note is created taking a sizeable down payment, usually 10%.
2. Buyer Stop Making the payments. The seller takes the risk that the buyer will not make payments and will have to be foreclosed on.   This can often be prevent by a well created note that includes placing the deed in escrow in case of delinquency.  See your attorney for details.
3. Due-On-Sale Clause on the first lien.  The first lien holder can enact the due on sale clause if it determines that title has been transfer, which is the case of an owner financed transaction.

As you can see there are things you must know before deciding to owner finance a home.  What is important to remember is that the sale of a home is a serious matter and as such selling it via owner financing can result in a great investment if one takes the time to do the proper research and take the proper precautions.  Lets suppose that you want to sell the home that you own free and clear for 100,000 all cash.  The cash that you get at closing is subject to capital gains tax unless you use the proceeds to buy another primary home.  What is left after taxes you take it and put it in the bank at 4% or in mutual funds at 6-12%, if you don’t know what you are doing, your investment can evaporate before you know it.  If by contrast you sell the same home for $100,000, take 10% down or $10,000 and finance the $90,000 at 10% for 20 years, you stand to get a better return secured by a piece of real estate that you are familiar with.  You will initially only pay on the $10,000 down payment and the interest payments for your first year.  That can be more appealing to you, specially in this economy.

Shortsales and Foreclosures