Bi Solutions Private Lending 101

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Private Mortgage Lending 101 …

… Secure, Hassle Free, High Yields

- Ron Nawrocki- Jim Williams – Joe Stachon Mortgage

- Lynn Simonar – DHI Title

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WELCOME

We’re glad you found the time to be here

Hopefully you’ll be glad you came!Feel free to ask questions during, at

end, and 1 on 1 during our time wandering in the gardens

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About Me

Jim Williams, Senior Mortgage Consultant, Joe Stachon Mortgage Residential lending & refinancing Conventional & Jumbo FHA, VA, USDA Asset distribution income Use of self-directed IRA’s

Partner with B.I.Solutions Corp. on using O.P.M.

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Investment Disclaimer

Nothing presented in this financial education seminar shall constitute the provision of investment advice by the presenters or any company sponsoring this seminar, and nothing provided or stated in the seminar should be interpreted as such.

In addition to and not in limitation of the foregoing disclaimer, the sponsors will not provide investment advice regarding any specific security or fund during this financial education seminar and nothing should be interpreted as such. No specific recommendations for the purchase or sale of any particular investment shall be deemed given to any attendees of this financial education seminar, and the mention of any particular security or investment is for example only.

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Outline

Brief IntroductionWhat is a Private Lender?Why do it?How? … an overviewLegal, Tax, RisksSimplified, Safer LendingWine down!

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Introduction

How do banks make money?Borrowing cheap – lending for more !

Do you think you could make money …Borrowing at 0.5% … typical CDLending at 5.5%? … typical mortgage

How about lending at 6.5%? … real estate investors pay 1% more

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Bank Example … residential loan

Borrow Lend Profit

Amount $160,000 $160,000

Interest rate 0.5% 5.5% 5.0%

Monthly $ 67 $ 733 $ 667

Annually $ 800 $ 8,800 $ 8,000

Banks make money on us!

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Bank Example … investor loan

Borrow Lend Profit

Amount $160,000 $160,000


Monthly $ 67 $ 867 $ 800

Annually $ 800 $10,400 $ 9,600

Banks make more money on investors!

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Example … loan using O.P.M.

Borrow Lend Profit

Amount $160,000 $160,000


Monthly $ 733 $ 867 $ 133

Annually $ 8,800 $10,400 $ 1,600

An opportunity to earn using O.P.M.?

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Conventional wisdom …

The year 2005 … Invest with big name gurus with

high returns You can’t get ahead with

guaranteed fixed return investments

MYTH

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Reality on gurus with high returns …

Some are crooks Know who you’re dealing with Read what they’re investing in

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Google:

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Who is Ron (The Ronald) Nawrocki?

Phoenix area resident since 2007 Lived & worked in Europe from 1994 - 2007 Cornell Univ. Engineer and MBA in Finance Manager at Xerox, Scott Paper, Bell Atlantic CFO at Pepsi, Hortex, Pioneer Investments,

McLane Rotarian, Toastmaster, Who’s Who of

Entrepreneurs, AZREIA, SW Valley Chamber, CrimShield, BBB

Author – “Investor Insights” in Hungary & Poland Investor – 30 years Full-time investor since 2001, CPS since 2007

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Evaluating any Investment … 4 tests

1. Liquidity2. Safety3. Rate of Return4. Tax Consequences5. Other: Social benefit

Will Rogers: "I am more concerned about the return of my money, rather than the return on my money”

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Outline

Brief Introduction What is a Private Lender? Why do it? How? … an overview Legal, Tax, Risks Simplified, Safer Lending Wine down!

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References …

“MAKE YOUR MONEY “PRIVATE MORTGAGE MAKE MONEY FOR YOU” INVESTING” - Amarjit Ahluwalia - Teri B. Clark &

Matthew Stewart Tabacchi

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What is a Private Lender

Survey …How many here are Private

Lenders?

Any famous examples?Warren BuffettCarlos Slim

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Carlos Slim

Interested at 14%?

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Definition …

A private individual or company lending money against some collateral

Examples: Bank CD’s … collateral is FDIC Bonds … company assets as collateral Loan to your relatives … collateral? Tax liens – up to 16% in ArizonaHow many here are Private Lenders?

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More examples …

“Hard Money” loans to real estate investors … backed by deeds

Mortgage loans on income producing real estate … backed by deeds

Loan backed by Mortgage Loan (Deed)Collateral Assignment

These are Private Mortgage Loans

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Outline


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Why be a Private Mortgage Lender?

Bank CD’s pay you (private lender) 0.5% - 1.5%

Real Estate investors pay banks 6.0% - 7.0%Cut out the middle man - earn 5.5% - 18+%

Why did Carlos Slim lend to NY Times vs. put money in CD’s?

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4 Tests for any Investment

1. Liquidity Monthly interest checks Can have short maturities (6 mo. – 10+ yr.) Can be sold or used to get Loan

2. Safety Backed by Deed, Title policy, Insurance Real estate does not go to zero Value does not drop as interest rates rise

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But Banks are in trouble …

Do NOT: Sell your loans with Credit Default

Swaps Lend 100% of the purchase price Give the buyer Title to live in the

Property

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But Banks are in trouble …

Lend only: On income producing real estate

(not owner occupied) To investors with good credit &

assets With a Corporate and/or Personal

Guarantee

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3. Rate of Return 6.0% and higher Linked to mortgage rates for investors

4. Taxes Fully taxable O.P.M. used is tax deductible Unless in an IRA

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Financial Headlines

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‘The Ronald’ on Problems …

1. Biggest Problem – Banks aren’t lending

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More Headlines

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‘The Ronald’ on Problems …

1. Biggest Problem – Banks aren’t lending

2. There are no problems – Only Opportunities disguised (Pepsi mantra)

3. (1+2) Banks aren’t lending is the Biggest Opportunity – For Who?

Private Mortgage Lenders !

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5. Social Benefit Private Lenders help the Economy …

more than the Government !

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The Benefits …

We help people make money in Real Estate …

Who?Home buyers who can’t get a mortgage

Fix & Flip Investors

Cities & Towns

Realtors

Mortgage Brokers

Title CompaniesPrivate Lenders !

Electricians

Plumbers Inspectors

Appraisers Painters

Landscapers

Bank shareholders!

Investors !Phoenix Economy!

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Outline


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How? … an overview

YOU are the Bank !Find & Check BorrowersEvaluate the Deals Determine what YOU wantNegotiate & Agree T&C’sClose with Title CompanyCash your checks !

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Know the Documents

Note: Your agreement with Borrower Personal Guarantee or Recourse Property Taxes & Insurance kept current

Trust Deed: Pledges property if Note T&C’s not met Must be recorded

Lender’s Title Insurance Insurance: You must be Co-beneficiary or

MortgageeLender’s Instructions: How you want the deal

handled Good News: Title Company handles all these !

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Find Borrowers

Banks aren’t lending – Borrowers everywhere

Tell your network you are Private Mortgage Lender

Attend Business Mixers, Investment ClubsTell Real Estate Agents, AppraisersMortgage Brokers?Simplest: Call ‘The Ronald’

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Check Borrowers

Experience in Real EstateAre they making money?Credit Report/Score References, BBBVisit properties (Current & Past)Do they know more than you?

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Evaluate the Deals …

Fix & Flip vs Income ProducingSize of loan vs Your funds availableTerms requestedLocation – NOT too importantCondition of propertyReview a few before Lending

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Determining Value (ARV)

AppraisalMost accurate, Most expensive Difficult in Today’s Market

MLS (imapp) CompsSquare Footage & Value basisSome neighborhoods have only REO

(bank owned) sales

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MLS Comps

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Determining Value (Cnt’d)

County Appraiser, Recorder & Taxeshttp://www.maricopa.gov/Assessor/Parcel

Applicationhttp://recorder.maricopa.gov/recdocdatahttp://treasurer.maricopa.gov

For Income ProducingValue based on Rental IncomeHint: Value ~= 120 rent payments

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Appraiser

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Appraiser

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Recorder

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Recorder

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Mortgageable Equity

or Investable EquityNot for Fix & Flip – Key for:

Income Producing PropertyLending against Mortgage Note

Factors in Equity, LTV; Interest rate(s), Cash Flow to make all payments

Best Ref: Greg Pinneo (approx. $3,000 course)

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To do it on your own …

Come to our 4 hour course - $49You’ll be ready to start looking for

Clients that dayWe have TOO MANY Clients!Banks aren’t lending … great

opportunity

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Outline

Brief Introduction What is a Private Lender? Why do it? How … an overview Legal, Tax, Risks Simplified, Safer Lending Wine down!

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Legal Aspects

Private Lending is not complicatedTitle Co. handles most paperwork B.I.Solutions has Lawyer retained with

volume of loans taken & made – will soon get:SEC registrationHard Money lender license

Mortgage Pools require SEC registration – Avoid

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Legal Aspects

Lending to investors: “Commercial loan on Residential Property”Does not fall under residential mortgage

licensing

Several lenders partnering - Use LLCNOT mortgage poolSimple Operating Agreement to designate %

Or Largest takes 1st position, next 2nd …

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Tax Aspects

Interest Earned is fully taxableIncome tax deferred/avoided if loan in IRA

Must be self-directed

Borrower (if Company) should issue 1099-INTPrivate Lender, like Financial Institution, must

issue 1098 & 1096 to individual borrowerCan issue for company

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Tax Aspects

Using O.P.M.: must issue 1099-INT & 1096 to private lender to be investment interest (tax deductible), exceptCorporation – Bank or B.I.SolutionsUsing mortgage or HELOCCredit Card 0% offer - transfer directly to

borrower

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Tax: 1099-INT

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Tax: 1099-INT

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Tax: 1098

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Tax: 1098

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Risks

Lower risk than tax liens, bonds, stocks, angel investing, private equity, personal loans …

Borrower Performance (You’re the bank)Foreclosure cost $2,000 - $4,000Handled by Lawyer or Title Co.

Property ValuationCost & Time to resell propertyMoney on the side-lines earning ~0%

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Outline

Brief Introduction What is a Private Lender? Why do it? How … an overview Legal, Tax, Risks Simplified, Safer Lending Wine down!

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Do it Yourself Lending

Property? Property Property

Client Client Client?

? ? ?

Lender

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Simplified Lending

Prop1 Prop2 Prop3 … PropX Client1 Client2 … ClientY

B.I.Solutions

Lender Lend2 Lend3 … LendZ

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Simplified Lending … B.I.Solutions Corp.

Plus: No need to find & check Clients! Local, with track record of success, references Backed by $multi-million portfolio, strong cash flow Guaranteed repayment & interest payments

Regardless of Client payment

Referral based Clients calling weekly Handles Credit checks, Valuation, Mortgageable

Equity

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Simplified Lending … B.I.Solutions Corp.

Plus: Chooses the best tenant/buyers and borrowers to fund Handles all tax filings (except 1096 signature)

Including those for OPM borrowed

Low $10,000 Minimum – many loans to chose from

Minus: Slightly Lower interest rate – How’s your wife?

But much higher than CD’s, T-Bills But money invested the whole term

Only residential properties (for now) Minimal involvement in multiplex apartments

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The Business

B.I.Solutions Corp. - 2 Divisions …

1. Buying Solutions – Home buyers – who can’t qualify for a mortgage

2. Investing Solutions – active real estate Investors who need “Fix & Flip” loans

Banks aren’t lending – we have backlog of Clients

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1. Fixed Rate*, guaranteed

“BI MP3” 6 mo.– 6.0% (No early withdrawal penalty) 12 mo. – 6.5% 3 yr. – 7.0%Monthly interest checks … $10,000 minimum Investment backed by full portfolio of properties Plus my personal guarantee

* Rate based on investor mortgage rates at time of investment

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2. Fixed Rate*, guaranteed

Investment backed by a specific Deed plus my personal guarantee

12 mo. – 6.5% 3 yr. – 7.0%

Creative investing: Convert Bank CD, earn $00’s more Take mortgage on home and earn $000’s/yr.

* Rate based on investor mortgage rates at time of investment

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Interest Payment

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Some Trust Deed Loans

Loan to Value (LTV) 65%; 1 yr; 6.5%*Phx03: $130,000; 4-plex; collateral

assignmentPhx04: $180,000; 3-plex; “Phx05: $94,500; “Phx06: $94,500; “AvonX: $100.000; “ (pending)

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Toll1: 9416 W. Williams St

1,761 sf; 3 Bdrm / 2.5 bath Parcel: 101-27-602 $1,295 lease payment (25% rebate) Cash flow of $269/mo Option for $194,900 – $205,470 Current 1st position loan - $114,000 Mortgageable Equity (6.5%, 90% LTV): $26,000

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Some Trust Deed Loans

Loan to Value (LTV) 90%; 3 yr; 7.0%* Toll1: $ 26,000; 2nd position

$140,000; 1st position Toll2: $ 29,500; 2nd

$146,000; 1st

Avon1: $ 32,000; 2nd

$150,500; 1st

Glen1: $145,800; 1st (best deal)

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More Trust Deed Loans

Loan to Value (LTV) 90%; 3 yr; 7.0%* Phx02: $145,500; 1st (pending) Mesa2: $162,000; 1st position VerrX: ~$215,000; 1st (new) Phx04: $500,000; 7-plex; 1st

* Interest Rate & payments guaranteed, regardless of Client’s payments

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Bribe to fill-out Questionnaire …

We need your feedback to improve the seminarIf you fill-out the form:

1. Enter in today’s drawing

2. We cover your CD pre-payment penalty to get into a similar maturity Private Loan with B.I.Solutions (thru 6/30/2009)

3. We buy you dinner for people you refer that become B.I.Solutions private lenders (they might buy you 2 dinners!)

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Questions?

Q&A time

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BBB Website

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Website

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Contact

Ron Nawrocki (The Ronald)

B.I.Solutions Corp.

Verrado

1-623-249-4792

[email protected]

www.TheRonald.us

Proven, Profitable, and Positioned for Growth

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Security – Private Mortgage Loan

Any Private Mortgage Loan (should) have:

1. NOTE

2. DEED OF TRUST

3. LENDER’S TITLE POLICY

4. PROPERTY INSURANCE

B.I.Solutions also provides:

5. CLIENT INCOME

6. B.I.SOLUTIONS CASH FLOW & ASSETS

7. RON NAWROCKI’S PERSONAL GUARANTEE

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4 Ways to Invest in Real Estate

OWN LOAN

1. Fix & Sell4. Private

2. Lease-to-Own Mortgage

3. Fix & Rent Lending

5. Do Nothing

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B.I.Solutions’ Investments

OWN LOAN

1. Fix & Sell4. Private

2. Lease-to-Own Mortgage

3. Fix & Rent Lending

5. Do Nothing

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Using IRA’s

IF you have a choice which money to use:

Use IRA - these are fully taxable:1. Fix & Sell

4. Private Mortgage Lending

Use taxable money - these have tax breaks:2. Lease-to-Own

3. Fix & Rent