What Is a Mortgagee? Hint: It’s Not a Typo

Are You a Mortgagee or Mortgagor?

It’s mortgage Q&A time! Today’s question: “What is a mortgagee?”

No, it’s not a typo. I didn’t leave an extra “e” on the word mortgage by mistake, though it may appear that way.

Despite its striking appearance, it’s actually a completely different word, somehow, simply with the mere addition of the letter E.

Don’t ask me how or why, I don’t claim to be an expert in word origins.

Seems like a good way to confuse a lot of people though, and it has probably been successful in that department for years now.

You can blame the British English language for that, or maybe American English.

Anyway, let’s stop beating up on the English language and define the darn thing, shall we.

A “mortgagee” is the entity that originates (makes) and sometimes holds the mortgage, otherwise known as the bank or the mortgage lender.

They lend money so individuals like you and I can purchase real estate without draining our bank accounts.

It could also be your loan servicer, the entity that sends you a mortgage bill each month, and perhaps an escrow analysis each year if your loan has impounds.

The mortgagee extends financing to the “mortgagor,” who is the homeowner or borrower in the transaction.

So if you’re reading this and you aren’t a bank, you are the mortgagor. It’s as simple as that.

Another way to remember this rather confusing word jumble; Who is the mortgagee? Not me!!

Mortgagor Rhymes with Borrower, Kind Of

mortgagor

  • Here’s a handy way to remember the word mortgagor
  • It kind of rhymes with the word borrower…
  • Or even the word homeowner, which is also accurate if you hold a mortgage on your property

I was trying to think of a good association so homeowners can remember which one they are, instead of having to look it up every time they come across the word.

I believe I came up with a semi-decent, not great one. Mortgagor rhymes with borrower, kind of. Right? Not really, but they look and end similar, no?

Anyway, the real property (real estate) acts as collateral for the mortgage, and the mortgagee obtains a security interest in exchange for providing financing (a home loan) to the mortgagor.

If the mortgagor doesn’t make their mortgage payments as agreed, the mortgagee has the right to take possession of the property in question, typically through a process we’ve all at least heard of called foreclosure.

Assuming that happens, the property can eventually be sold by the mortgage lender to a third party to pay off any attached liens, or mortgages.

So if you’re still not sure, you are probably the mortgagor, also known as the homeowner with a mortgage. And your lender is the mortgagee. Yippee!

What makes this particular issue even more confusing is that it’s the other way around when it comes to related words like renters and landlords.

Yep, for some reason a landlord is known as a “lessor,” whereas the renter/tenant is known as the “lessee.” In other words, it’s the exact opposite for renters than it is for homeowners.

But I suppose it makes sense that both landlord and mortgage borrower are property owners.

What About a Mortgagee Clause?

mortgagee clause

  • An important document you may come across when dealing with homeowners insurance
  • Stipulates who the lender (mortgagee) is in the event there is damage to the subject property
  • Protects the lender’s interest if/when an insurance claim is filed
  • Since they are often the majority owner of the property

You may have also heard the term “mortgagee clause” when going through the home loan process.

It refers to a document that protects the lender’s interest in the property in the event of any damage or loss.

It contains important information about the mortgagee/lender, including name, address, etc. so the homeowners insurance company knows exactly who has ownership in the event of a claim.

Remember, while you are technically the homeowner, the bank probably still has quite a bit of exposure to your property if you put down a small down payment.

For example, if you come in with just a 3% down payment, and the bank grants you a mortgage for 97% of the home’s value, they are a lot more exposed than you are.

This is why hazard insurance is required when you take out a mortgage, to protect the lender if something bad happens to the property.

Conversely, if you buy a home with cash, as opposed to taking advantage of the low mortgage rates on offer, it’s your choice to insure it or not.

But more than likely, you’ll want insurance coverage on your property regardless.

In summary:

Mortgagee: Bank or mortgage lender
Mortgagor: Borrower/homeowner (probably you!)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

How to Negotiate Lower Rent With a Potential Landlord

It starts with determining your leverage.

By Alex Starace for MyFirstApartment.com

When you’re looking for an apartment, you might be under the impression that the list price is the only price. In some cases, that’s true. But if you’re a bit savvier, you could end up negotiating your way into a great deal. Before you approach the landlord, however, make sure you’ve done your homework.

Determine your leverage     

Are you in a tight or loose rental market? In tight markets — where there are more renters than available apartments — it’s unlikely a potential landlord will negotiate. Why? If three or four other people are willing to pay list price for the apartment, a landlord has little motivation to lower the price for you.

A good way to determine whether you’re in a tight rental market is to browse apartment listings for a few days. How many open units are in each building? How quickly do listings disappear? The longer the listings are on the market and the more listings per building, the looser the market. Another way to tell: Have you had any apartment showings canceled because the place was suddenly rented? If not, this again points to a looser market.

In loose markets, landlords will be anxious to rent their place, even at a rate lower than list price. After all, an empty unit is a money-sink for landlords. If you’re offering to fill the vacancy, the landlord might be happy to lower the price, especially if the choice is between renting to you or letting the apartment sit on the market a month longer.

Can you demonstrate that you are a responsible person? Even in a tight market you can have personal leverage. Landlords want security and predictability. In the long run, these things save a landlord a lot of money. If you can demonstrate that you have these qualities — the primary attributes landlords look for are a steady job and good credit — you may get a landlord to knock a bit off your rent or to make other concessions.

Can you show commitment to staying? If you’re planning on staying in the apartment for two or three years or longer, that’s a big benefit in a landlord’s eyes. When a landlord has to rent an apartment to a new tenant every year, he or she loses a lot in transaction costs (repainting, brokers fees, professional cleaning fees), as well as in the simple effort of finding a new tenant. So if you’re planning on staying a while, highlight this when discussing what makes you a great potential renter.

Negotiate from strength

After you have determined where your points of leverage are, it’s time to make your move. When approaching the landlord, the key is to be confident and calm. Avoid hyper-aggressiveness or a mouse-like timidity. A good way to strike the right balance and show confidence is to know your stuff. Know what an average apartment rents for in the neighborhood. Compare the amenities in the apartment to those available in nearby complexes. Have in mind a price you think is fair for your potential place, and have reasons why — whether it’s because the kitchen is too small, or it doesn’t provide parking, or it’s simply too expense relative to comparable places in the neighborhood. And emphasize your points of leverage — that you’ll be a responsible, long-term tenant.

When negotiating, ask for an even lower price than you’re hoping to pay. Do this for two reasons: First, you might end up getting it. Second, if the landlord is at all interested in bargaining, you’ll likely need to meet halfway between your initial offer and the list price. If you give a low (but not unreasonable) initial offer, meeting somewhere in the middle will be a win for you, and both you and the landlord will feel like you’ve made a good deal.

In the end, successful negotiating is all about knowing the market, doing research about the specific apartment in your sights and negotiating calmly and rationally. If you do all this, you have a good chance of paying lower monthly rent. Good luck!

 Related:

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

Source: zillow.com

5 Tips for Finding a Rental With a Large Dog

It’s not uncommon for pet-friendly apartment communities to have weight and breed restrictions. What should the owner of a large dog do?

Finding an affordable and comfortable apartment can be an incredibly time-consuming process. Add a large dog to the mix, and it’s next to impossible.

That’s what Jan Even, owner of a 90-pound Rottweiler mix, experienced during her Bay Area apartment search. She was planning to rent in San Francisco or the East Bay and began her search by looking at pet-friendly apartments.

“I couldn’t find a single place that would accept my dog. She’s perfectly well-behaved, but a lot of the places that bill themselves as pet-friendly have restrictions about types of dogs they will accept,” she said. “Eventually we concluded we weren’t going to be able to find a rental because of our dog. Now we’re looking at real estate to buy.”

It’s not uncommon for apartment communities — even those that are dog-friendly — to have weight and breed restrictions. So, what’s the owner of a large dog to do?

Look into single-family rentals

Large apartment complexes are mostly likely to have size and breed restrictions in their pet policies. Landlords of individually-owned properties are more likely to be flexible and accept large dog breeds on a case-by-case basis. Use keywords like “pet friendly” or “dog friendly” in your search filter to narrow down rental listings.

Use advocacy groups as a resource

There are plenty of other dog owners who have been in your shoes. The Humane Society of the United States has a list of tips for finding rental housing with pets. Your local animal shelter, breed rescue or advocacy group likely has a list of apartment communities that will accept your specific breed. For example, the website My Pit Bull is Family has a list of pit bull-friendly rental housing providers in each state.

Have all your documents prepared

In addition to preparing documents like obedience training and vaccination records, ask your landlord or veterinarian to write a reference for your pet, vouching for your dog’s behavior.

“A reference from a previous landlord can be huge in changing the mind of the landlord,” said KC Theisen, director of pet care issues at the Humane Society of the United States. “One other thing I recommend, in addition to pet resumes and references is a pet interview. If your dog is a great dog, offer to bring them by the rental office for a meet and greet. It’s very hard for a landlord to look at a sweet, well-mannered dog in the eye and say no.”

Plan extra time for the search

Understand that finding a rental with a large dog may not be easy. Allot additional time to find the right home for you and your dog. If you’d normally give yourself one month to find an apartment, double that to two since a good majority of rentals won’t be pet-friendly. If you really need extra time, consider getting a short-term rental and boarding your dog while you continue your search.

Be flexible

Finding a rental with a large dog may require flexibility on your end. Understand that you may be required to pay an additional pet deposit, pay extra for insurance that covers your dog’s breed or even rent on a month-to-month basis until your pooch earns the landlord’s approval. Follow the pet guidelines to show that you and your dog are model tenants and willing to work with the landlord.

As you look for a place to rent, above all, sell yourself as a responsible pet owner. “The thing about big dogs is that they’re not that different from a small dog in terms of the amount of space they need or damage they’re going to do,” explained Theisen. “Each dog is an individual.”

Do you have any tips for finding a rental with your large dog? Share your experience with us in the comments below.

Related:

Source: zillow.com

What is Rent Control?

Did you ever wonder how Monica and Rachel in “Friends” could afford rent in a two-bedroom New York City apartment on a waitress and chef’s salary? Well, the answer is rent control.

Rent control is a rare policy that fixes the price of rent indefinitely and falls under the umbrella term “rent regulations.”

It sounds great, right? Before you get too excited, you need to understand exactly what is rent control.

We’ll talk about the difference between rent control vs. rent stabilization, explain how it really works and give you a few advantages and disadvantages of living in a rent-controlled apartment.

Rent control vs. rent stabilization

Both rent control and rent stabilization are concepts centered around the idea of protecting tenants from major increases in the price of rent. The goal is to keep housing affordable while also enabling landlords to increase rent.

While people often confuse the two, there is a big difference between them.

Rent stabilization

Rent stabilization is the more common practice and means that landlords or property owners can only increase rent by a specific percentage year-over-year. In areas that have rent stabilization in place, the state sets the rate at which landlords can increase rent. Because this is a state issue, not a federal issue, it can vary drastically state-by-state. For example, Oregon limits yearly rent increases to 9.2 percent while Los Angeles County in California limits yearly rent increases to a mere 3 percent.

This is a more common practice and you’ll likely have an easier time finding a rent-stabilized apartment than a rent-controlled apartment.

Rent control

Rent control is a policy that means landlords cannot increase a tenant’s rent. Effectively, rental rates remain set and won’t increase. Rent-controlled apartments have a set price for rent that will not increase whereas rent-stabilized apartments will see price increases but there is a cap on how much the rate can increase each year.

Rent-controlled apartments are incredibly rare, so if you live in or can find a rent-controlled apartment, you’re very lucky.

Friends apartment in NYC.

In fact, there are only 22,000 rent-controlled apartments out there. Even if you can find a rent-controlled apartment on the market, you have to meet a specific set of criteria to qualify for one. This includes:

  • You cannot make more than $200,000 for two years in a row
  • The building must have been built before 1947
  • The apartment must have been lived in by the same family since at least 1971
  • The apartment must be passed from family member to family member
  • The person who inherits the rent-controlled apartment must have lived in it for two years straight before officially inheriting it

Now, it makes sense how Monica had such a great apartment in New York — she lived in the apartment with her grandmother for two years prior to inheriting it from her. This allowed her to take over the rent-controlled apartment and keep it in the family.

Where is rent control most common?

Out of the 50 states, only five have specific rent control policies in place. The other 45 exempt rent control or have no active policies in place.

The five states that have some rent-controlled apartments are California, Maryland, New Jersey, New York and Oregon.

Map of rent control.

Photo source: National Multifamily Housing Council

Pros and cons of rent control

As with everything, there are pros and cons to rent control depending on your perspective and situation.

Pro: Cheaper for tenants

Because rent-controlled apartments have a fixed price for rent, they are very affordable. You will pay the same price for rent year after year, even as your neighbors experience price increases. Rent-controlled apartments are cheap.

Pro: Affordable even when wages don’t increase

It’s common knowledge that rent prices are rising faster than wages are. So, you can live in the same apartment at the same price and still afford it, even if you don’t see a pay bump on your paycheck very often.

Pro: Foster safe neighborhoods

Rent-controlled apartments offer renters financial stability because they know that they can live on a fixed income. When there is financial stability, people will stay in the same location, develop relationships with neighbors and decrease renter turnover. All of these factors contribute to a safer neighborhood and environment.

Pro: Automatic lease renewals

When you live in a rent-controlled apartment, you automatically get the first right of renewal on your lease. Basically, you always have a place to live and can always re-sign your lease at the same rate.

Con: Not always well-maintained

Because of the fixed rent price in a rent-controlled apartment, landlords don’t maintain, update or refurbish them as often because it isn’t profitable for them. At times, rent-controlled apartments have outdated appliances because no one invests in them.

Con: Hard to come by

As we mentioned earlier, there are roughly 22,000 rent-controlled apartments in the wild, so they are incredibly rare and hard to come by. As such, you’ll be frustrated looking for one as the supply is so low.

Con: Landlords often lose money on rent-controlled apartments

If you’re a landlord of a rent-controlled apartment, you’re likely losing money compared to other landlords who can increase the price of rent each year. If you’re a tenant, this is great. But, it’s a con for the property owner.

Reviewing and signing a lease.

How to find a rent-controlled apartment

Rent-controlled apartments are a unicorn in the real estate world. When you have one, hold onto it as they are very rare and you likely won’t have a better deal anywhere, especially in an expensive metro like New York City.

If you want a rent-controlled apartment, you have two ways to find one.

  1. You can inherit a rent-controlled apartment
  2. Research the city or state’s database of rent-controlled apartments

If you can’t find or qualify for a rent-controlled apartment, don’t fret. Rent.com has thousands of affordable apartments all across the country that would be perfect for you. Start your search today!

The information contained in this article is for educational purposes only and does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional legal or financial advice as they may deem it necessary.

Source: rent.com

5 Mortgage REITs for a Yield-Starved Market

Income is a scarce commodity these days, and that has investors looking for yield in some lesser-traveled areas of the market. And that includes mortgage REITs (mREITs).

Even after months of rising yields, the rate on a 10-year Treasury is a paltry 1.6%. That’s well below the Federal Reserve’s targeted inflation rate of 2%, meaning that investors are all but guaranteed to lose money after adjusting for inflation.

The story isn’t much better with many traditional bond substitutes. Taken as a sector, utilities yield only about 3.4% at current prices, according to data compiled by income-focused index provider Alerian, and traditional equity real estate investment trusts (REITs) yield only 3.2%.

If you’re looking for inflation-crushing income, give the mortgage REIT industry a good look. Unlike equity REITs, which are generally landlords with brick-and-mortar properties, mortgage REITs own leveraged portfolios of mortgages, mortgage-backed securities and other mortgage-related investments.

In “normal” economic times, mortgage REITs have a license to print money. They borrow money at cheap, short-term rates, and invest the proceeds in higher-yielding longer-term securities. A steep yield curve in which longer-term rates are significantly higher than shorter-term rates is the ideal environment for mREITs, and that’s precisely the scenario we have today.

Mortgage REITs are not without their risks. Several mREITs took severe and permanent losses last year when they were forced by nervous brokers to make margin calls. Investors worried that the COVID lockdowns would result in a wave of mortgage defaults, leading them to sell first and ask questions later. And many have a history of adjusting the dividend not just higher, but lower, as times require.

But here’s the thing. Any mortgage REIT trading today is a survivor. They lived through the apocalypse. Whatever the future might hold, it’s not likely to be as traumatic as a once-in-a-century pandemic.

Today, let’s take a good look at five solid mortgage REITs that managed to survive and thrive during the hardest stretch in the industry’s history.

Data is as of April 21. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.

1 of 5

Annaly Capital Management

Annaly Capital Management logoAnnaly Capital Management logo
  • Market value: $12.3 billion
  • Dividend yield: 10.0%

We’ll start with the largest and best-respected mREIT, Annaly Capital Management (NLY, $8.80). Annaly is a blue-chip operator with a $12 billion-plus market cap that has been publicly traded since 1997. This is a company that survived the bursting of the tech bubble in 2000, the implosion of the housing market in 2008 and the pandemic of 2020, not to mention the inverted yield curves and nonstop Fed tinkering of the past two decades.

Annaly was hardly immune to last year’s turbulence. But  able to skate by the turbulence of last year due to large part to its concentration in agency mortgage-backed securities (MBSes), or those guaranteed by Fannie Mae and Freddie Mac. Investors were confident that, no matter what unfolded, mortgages backed by government-sponsored entities were likely to get paid.

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At current prices, Annaly yields 10% on the nose, which is about average for this stock. In its two decades of trading history, Annaly has yielded as much as 22% and as little 3% – in part because of price variance, but also because NLY isn’t shy about making dividend adjustments in boom and bust times. But it always seems to come back to the 9% to 10% range.

Still, if you’re new to mortgage REITs, Annaly is a good place to start.

2 of 5

AGNC Investment

AGNC Investment logoAGNC Investment logo
  • Market value: $9.3 billion
  • Dividend yield: 8.3%

Along the same lines, AGNC Investment (AGNC, $17.44) is a solid, no-drama income option.

Take a minute and say “AGNC” out loud. It sounds like “agency,” doesn’t it?

That’s no coincidence. AGNC Investment specializes in agency mortgage-backed securities, making it one of the safest plays in this space.

For most of AGNC’s history, the stock has traded at a premium to book value. This makes sense. AGNC can borrow cheaply to juice its returns, and we as investors pay a premium to have access. But during the pits of the pandemic, AGNC dipped deep into discount territory. That discount has closed over the past year, but shares remain about 2% below book value.

The yield is a very competitive 8.3% as well. That’s a little lower than some of its peers, but remember: We’re paying for quality here.

3 of 5

Starwood Property Trust

Starwood Property Trust logoStarwood Property Trust logo
  • Market value: $7.3 billion
  • Dividend yield: 7.6%

For something a little more exotic, give the shares of Starwood Property Trust (STWD, $25.38) a look.

Unlike Annaly and AGNC, which both focus on plain-vanilla single-family home mortgage products, Starwood focuses on commercial mortgage investments. Starwood is the largest commercial mortgage REIT by market cap with a value north of $7 billion.

Approximately 60% of Starwood’s portfolio consists of commercial loans, with another 9% in infrastructure lending and 7% in residential lending. And unlike most mortgage REITs, Starwood also has a property portfolio of its own, making up about 14% of the portfolio. This makes Starwood more of an equity REIT/mortgage REIT hybrid than a true mREIT, though clearly the business leans heaviest toward “paper.”

This time last year, Starwood’s property portfolio had its points of concern. As a commercial mortgage REIT, it had exposure to hotels, offices and other properties hit hard by the pandemic. But as life gets closer to normal by the day, those concerns are evaporating. And frankly, they were always overstated. Starwood runs a conservative portfolio, and the loan-to-value ratio for its commercial portfolio is a very modest 60%. So, even if delinquencies had become a major problem, Starwood would have been able to liquidate the portfolio and safely be made whole.

Today, Starwood is an attractive post-COVID reopening play with a 7%-plus dividend yield. Not too shabby.

4 of 5

Ellington Residential Mortgage REIT

Ellington Residential Mortgage REIT logoEllington Residential Mortgage REIT logo
  • Market value: $148.6 million
  • Dividend yield: 9.3%

For a smaller, up-and-coming mortgage REIT, consider the shares of Ellington Residential Mortgage REIT (EARN, $12.04). Ellington began trading in 2013 and has a market cap just shy of $150 million.

Ellington runs a portfolio consisting mostly of agency MBSes, but the company also invests in private, non-agency-backed mortgage securities and other mortgage assets. As of the company’s latest earnings report, the portfolio was weighted almost exclusively to agency securities. The REIT held $1.1 billion in agency residential MBSes and had just $17 million in non-agency. Ellington opportunistically snapped up non-agency MBSes when prices collapsed last year and has been slowly taking profits ever since.

Despite being a small operator, Ellington navigated the COVID crisis better than many of its larger and more-established peers. Its stock price lost 65% of its value during the March 2020 selloff, but by the beginning of the third quarter, Ellington had already recouped all of its gains.

Today, the shares yield a mouth-watering 9.2% and trade at a respectable 10% discount to book value. Considering that the industry itself trades very close to book value, that implies a healthy discount for EARN shares.

5 of 5

MFA Financial

MFA Financial logoMFA Financial logo
  • Market value: $1.9 billion
  • Dividend yield: 7.0%

Some mortgage REITs had it worse than others last year. A few really took damage as they were forced to sell assets into an illiquid market to meet margin calls. But some of these less fortunate mortgage REITs now represent high-risk but high-reward bargains.

As a case in point, consider MFA Financial (MFA, $4.26). MFA got utterly obliterated during the COVID crisis, dropping from over $8 per share pre pandemic to just 32 cents at the lows. Today, the shares trade north of $4.

MFA will never fully recoup its losses. By liquidating its assets at fire-sale prices during the margin calls, the REIT took permanent damage. But today’s buyers can’t worry about the past; we can only look to the future.

At current prices, MFA could be a steal. The shares trade for just 77% of book value. This means that management could liquidate the company and walk away with a 23% profit (assuming they took their time and weren’t forced to sell at unfavorable prices). They also yield an attractive 7%.

There is no guarantee that MFA returns to book value any time soon. But we’re being paid a very competitive yield while we wait for that valuation gap to close.

Source: kiplinger.com

Real Estate Crowdfunding – How These Investments Work, Pros & Cons

Real estate offers a fantastic counterbalance to stocks in your investment portfolio, especially in an era of low interest rates and bond yields. But not all of us have $300,000 just sitting around to start snapping up properties.

Enter: crowdfunded real estate investments. A relatively recent addition to the arsenal of investment options, crowdfunding allows thousands of investors to pool their funds, so each investor can invest a small amount of money in larger projects.

Like all investments, real estate crowdfunding has its own pros and cons, and comes in many flavors and varieties. Before you invest a cent in any asset, you must first understand the risks, rewards, and the role the investment plays in your portfolio.

How Does Real Estate Crowdfunding Work?

On the simplest level, real estate crowdfunding involves many people each contributing a small portion of the greater cost of a real estate-related investment.

But “real estate-related investment” can carry many meanings. Keep the following variations in mind as you explore real estate crowdfunding investment options.

Equity vs. Debt

When you invest money through a crowdfunding platform, does the money go toward the direct purchase of new properties, or toward loans servicing other people’s properties?

If you know publicly traded REITs, you understand the difference between equity REITs and mortgage REITs. The former buys and manages real estate; the latter lends money secured against real estate.

Crowdfunding works similarly. In fact, many real estate crowdfunding investments are REITs — they’re simply sold privately rather than on public stock exchanges subject to traditional SEC regulation (more on regulation differences shortly).

Many private crowdfunded REITs offer both equity and debt REIT options. As a general rule, debt REITs generate more immediate dividend income, while equity REITs include an element of long-term appreciation in addition to income. For example, Fundrise offers several broad basket portfolios weighted more heavily toward either real estate equity or debt investments.

Not all real estate crowdfunded debt investments come in the form of REITs, however.

Peer-to-Peer vs. Fund Investments

In the case of private debt REITs, you invest money with a pooled fund, and the fund lends money to real estate investors as it sees fit. The alternative model for crowdfunded real estate debt involves lending directly to the borrower.

Crowdfunding platforms that follow this model allow you to browse individual loans, so you can pick and choose which loans you want to put money toward. For example, Groundfloor caters to real estate investors — mostly house flippers — lending them money to buy and renovate fixer-uppers. As a financial investor, you can log into your account and review available loans, including details about the project and borrower, and then put varying amounts of money toward as many or as few loans as you like.

Your loan is secured by a lien against the property. If the borrower defaults, Groundfloor forecloses to recover all investors’ money.

Property Type

Some real estate crowdfunding platforms specialize in residential real estate, while others focus on commercial.

Within each of those wide umbrellas, there’s plenty of variation as well. Residential properties could mean single-family rentals, or it could mean 200-unit apartment complexes. Commercial real estate could mean office buildings, or industrial parks, or retail space.

Before investing, make sure you understand exactly what you’re investing in — and more importantly, why.

Availability to Non-Accredited Investors

Some crowdfunding services like FarmTogether only allow accredited investors to participate. Others are open to everyone.

To qualify as an accredited investor, you must have either a net worth over $1 million (not including equity in your home) or have earned at least $200,000 for each of the last two years ($300,000 for married couples), with the expectation to earn similarly this year. So, most Americans can only invest with crowdfunding platforms that allow non-accredited investors.

Before doing any further due diligence, check to see whether prospective crowdfunding platforms even allow you to invest. Otherwise, no other details matter.


Advantages of Real Estate Crowdfunding

These relatively novel investments come with plenty of perks, especially for everyday people with few other paths to invest in large real estate projects. I myself invest in several real estate crowdfunding platforms.

As you compare crowdfunding investments to other types of real estate investments, keep the following pros in mind.

1. Low Cash Requirements

Through crowdfunded real estate investing, investors gain access to expensive investments like hotels, office parks, and apartment complexes that would otherwise remain unavailable to them. I don’t have $5 million to buy an apartment building. But I do have $500 that I’m happy to invest in a private fund that owns apartment buildings.

Although every crowdfunding platform imposes its own minimum investment, some of those minimums remain quite low. Groundfloor, for example, allows investments as low as $10.

Other platforms impose minimums of $500 or $1,000, keeping the minimums within reach of middle-class earners. It marks an enormous advantage to investing in real estate indirectly: you don’t need a full down payment plus closing costs in order to diversify your investments to include real estate.

2. Easy Diversification

With crowdfunding investments, you can easily include real estate in your asset allocation.

And not just through publicly traded REITs, which often move in greater sync with the stock market than with real estate markets because they trade on public stock exchanges. You can invest money toward any type of real estate, residential or commercial, in any grade of neighborhood, spread across many cities in the U.S. or even around the world.

For example, I have a little money invested in commercial office space through Streitwise, and a little invested in residential real estate (equity and debt) through Fundrise’s REITs. I also have money spread among a range of individual loans through Groundfloor. All in all, these investments expose me to real estate in 15 states.

Imagine how much harder that exposure would be if I had to go out and buy individual properties in 15 states?

3. Strong Income Yields

Crowdfunded real estate investments tend to pay reasonably high income yields. Which is always welcome, whether you’re pursuing financial independence at a young age, looking to build more retirement income, or simply enjoy earning more passive income each month. Because when you have enough passive income to cover your living expenses, work becomes optional.

I’ve consistently earned income yields in the 8% to 9% range on my investments with Streitwise and Groundfloor. With Fundrise, I earn around 5% in dividend yield, plus long-term appreciation.

Not many stocks or ETFs offer those kinds of yields.

4. No Labor and Little Skill Required to Invest

As a direct real estate investor, I can tell you firsthand how much skill and labor it takes to find good deals, analyze cash flow numbers, renovate properties, hire and manage contractors, and so forth.

With crowdfunded real estate investments, you outsource all of that to someone else. You just click a button to invest your funds, and sit back and collect the returns.

Don’t get me wrong, direct real estate investment comes with many of its own perks, such as the potential for higher returns, greater control, and real estate-related tax advantages. But you have to earn those advantages with sweat and knowledge, much of it required before you even buy your first property.

This ease of investing through crowdfunding platforms comes with a side benefit: you can automate your investments. Set up monthly or biweekly investments to avoid emotional investing and build wealth and passive income on autopilot.

5. No Property Management Required

It takes an effort not to laugh out loud when tenants call you complaining that a light bulb burned out, and ask you to come over to replace it. Unless the call comes at 3 a.m. — that’s less funny.

Few landlords enjoy managing rental properties, between chasing down nonpaying tenants, hassling with constant repairs and maintenance issues, and all-too-frequent complaints from tenants and neighbors — “this person plays their music too loud,” “that one smells like weed when they pass in the hallway,” ad nauseum. It’s why so many landlords end up hiring a property manager to take the headaches off their plate.

You don’t have to worry about any of that when you invest in crowdfunded real estate investments.

6. Protection Against Inflation

“Real” assets such as commodities, precious metals, and, of course, real estate all have inherent demand. Regardless of the currency you pay with or its value, you pay the going rate based on the underlying value of these physical assets.

That makes these assets an excellent hedge against inflation. If rents drive inflation higher, rental properties only become more valuable, with higher revenues. If the dollar loses value, people pay more for housing and commercial space.

In contrast, investors actually lose money — in terms of real value — on a bond paying 2% interest when inflation runs at 3%.


Disadvantages of Real Estate Crowdfunding

No investment is perfect, without risks or downsides. Thoroughly review these drawbacks and risks before parting with your hard-earned money.

1. Poor Liquidity

It takes a few clicks to sell a stock or ETF. Investors can liquidate their holdings instantaneously, leaving them with cold hard cash.

Real estate is inherently illiquid. It takes months to market and sell properties, and for large commercial properties it can involve hundreds of thousands of dollars in costs. So investors usually hold them for at least five years, and when these investments are funded through a crowd of financial investors, that means individuals can’t easily pull their money back out of the deal.

Most crowdfunded real estate investments advise prospective investors to plan on leaving their money in place for at least five years. Some do offer early redemption to sell their shares, but not instantaneously, and usually at some sort of discount or penalty.

Don’t invest anything you might need back within the next five years.

One notable exception includes short-term peer-to-peer loans secured by real estate, such as those offered by Groundfloor. These loans usually repay within nine to 12 months. Even so, you still can’t easily pull your money back out before the borrower repays the loan in full.

2. Complex Regulation and Performance Transparency

The regulation on crowdfunded investments can quickly make the average investor’s eyes cross. For a quick taste, investors have to navigate between Regulation D investments that fall under either 506(b) or 506(c), and Regulation A and Title III investments — also known as Regulation Crowdfunding or Reg CF.

Regardless, investors can’t use the familiar brokerage account tools that they’re already familiar with to research these investments. The SEC does require crowdfunding platforms to disclose a wide range of information, but it will look and feel unfamiliar for many retail investors.

There is one huge advantage that crowdfunded private REITs have over publicly traded REITs: the flexibility to reinvest profits to buy more properties. Publicly traded REITs must distribute at least 90% of all profits to investors in the form of dividends. That leaves them with high dividend yields but poor prospects for appreciation and asset growth. Private REITs like DiversyFund can employ far more flexibility to build their portfolios.

3. Limits on Participation

The SEC puts limits on how much money non-accredited investors can put into crowdfunded investments each year. Those limits are as follows:

“If either your annual income or your net worth is less than $107,000, then during any 12-month period, you can invest up to the greater of either $2,200 or 5% of the lesser of your annual income or net worth.

“If both your annual income and your net worth are equal to or more than $107,000, then during any 12-month period, you can invest up to 10% of annual income or net worth, whichever is lesser, but not to exceed $107,000.”

They provide a table by way of example:

Annual Income Net Worth Calculation 12-month Limit
$30,000 $105,000 greater of $2,200 or 5% of $30,000 ($1,500) $2,200
$150,000 $80,000 greater of $2,200 or 5% of $80,000 ($4,000) $4,000
$150,000 $107,000 10% of $107,000 ($10,000) $10,700
$200,000 $900,000 10% of $200,000 ($20,000) $20,000
$1.2 million $2 million 10% of $1.2 million ($120,000), subject to cap $107,000

Still, these speedbumps serve as reasonable cautions and protections for the average investor. These investments do come with an element of risk, and shouldn’t make up 70% of your retirement portfolio.

4. Less Protection from Default Than Other Real Estate Investments

When you own a rental property and your tenants stop paying the rent, you can evict them. You own the property, you can insure it against damage, and it comes with a certain amount of inherent value.

Real estate crowdfunding investments don’t come with these protections. You typically own paper shares of a fund, not all or part of a physical asset. Your investments aren’t even secured against the underlying properties with a lien in most cases.

Exceptions do exist, however. For example, when you invest fractionally in loans on Groundfloor, those loans are secured by a lien against real property. If the borrower defaults, Groundfloor forecloses in order to recover most or all of your money.

5. Lack of Control

Although stock investors have little control over the performance of their share prices, direct real estate investors do enjoy control over their returns and management. They can make renovations to boost the rents and property values, can tighten their tenant screening criteria to avoid deadbeats, can even insure against rent defaults.

But when you invest in real estate indirectly through crowdfunding, you surrender control to the fund manager. If they do well, you (hopefully) earn a strong return. If they mess up, you get stuck with the costs of their bungles.


Where Does Real Estate Crowdfunding Fit Into Your Portfolio?

While stocks belong in just about every investor’s portfolio, not everyone feels comfortable with real estate crowdfunding. Still, these investments offer a fine counterweight to stocks when used responsibly.

Your ideal asset allocation is personal to you, and depends on factors ranging from your age, target retirement horizon, net worth, and risk tolerance. I recommend thinking of crowdfunded real estate investments as an alternative to higher-risk, higher-yield bonds and public REITs.

For example, say you aim for an asset allocation of 60% equities and 40% bonds. Those equities include 57% stocks and 3% REITs, and your bonds include 30% low-risk government bonds and 10% higher-risk corporate bonds. You could take part of the 13% of your portfolio earmarked for REITs and higher-risk bonds and test the waters of crowdfunded real estate investments. If you like what you see, you can then move a little more, up to your comfort level.

However, real estate crowdfunding should not take the place of extremely low-risk investments in your portfolio, such as Treasury bonds or TIPS.


Final Word

With real estate crowdfunding, you have the luxury of investing small amounts to gauge the performance of your investments and your comfort.

These investments can play a role in any investor’s portfolio, but that role should start small. Don’t invest any money that would financially cripple you to lose, and do your homework on any crowdfunded investment’s past performance and risk management measures.

Most of all, always keep these investments in the perspective of your broader portfolio and asset allocation. These investments don’t exist in a vacuum — they play a role in a larger performance.

Have you ever invested in crowdfunded real estate? If so, what were your experiences?

Source: moneycrashers.com

Eviction Process: What to Do If You Receive an Eviction Notice

Follow these steps if you receive an eviction notice.

The eviction process is stressful. But losing your home isn’t inevitable. It’s possible to delay or prevent eviction. Help is available — you just have to know where to look. And you need to act fast.

What to do after receiving an eviction notice depends on your lease, your state and even your ZIP code. Knowing and defending your rights, working proactively with your landlord or property manager and accessing local, state and federal resources can keep you in your home.

What is an eviction?

“Eviction is a legal process that may be undertaken to remove a tenant from a rental property,” explains a definition on LegalDictionary.net. “The majority of evictions are the result of a tenant’s failure to pay rent, or the tenant’s frequent violation of the terms of the lease or rental agreement. Regardless of the purpose of the eviction, the landlord must follow a process specified by the law.”

Legal grounds for eviction

Landlords and property managers must follow particular steps and a certain order during the eviction process. They’re required to document every step so the eviction will hold up in a court of law.

Landlords must have a legal reason to evict a tenant. Legal grounds for eviction include:

  • Non-payment of rent
  • Incomplete rent payments
  • Criminal activity
  • Committing an act of domestic violence
  • Not abiding by community health and safety standards
  • Not vacating a property when the lease is up
  • Violating the term of the lease by subletting (or subleasing)
  • Housing an unauthorized tenant who doesn’t appear on the lease
  • Keeping an unauthorized pet not specified on the lease
  • Causing significant damage to the property

eviction notice

How long does the eviction process take?

The eviction process varies from state to state. Check the eviction process in your state.

The Eviction Lab provides an overview of eviction rates across the country. The site’s Eviction Tracking System also details the weekly eviction rates in 27 U.S. cities and five states and lists if a state eviction moratorium is in place.

How does the eviction process work?

The eviction process is specific to your state. But the key steps are similar across the country.

The eviction notice

The eviction process begins when a landlord or property manager gives the renter an eviction notice. This is often called a Pay or Quit notice or a Pay or Vacate notice. It serves as a formal, documented warning that a renter violated the lease.

Landlords may post this on the door of a unit. But they usually send it by certified mail so there’s a legal record of the sent and received dates.

This notice tells the renter what they need to do to comply with the lease and avoid eviction. It also lists the number of days permitted before the official eviction notice is filed. The time in between these steps is often just a few days, so it’s important to act immediately.

If you get one of these notices, don’t panic. If you take steps to resolve the issue, your landlord may not file the eviction.

Eviction filing

You must comply with the terms of the lease by the deadline specified in the Pay or Quit Notice. If you don’t, the landlord will file an eviction complaint form to begin the eviction case.

Once a court date is on the books, you’ll receive a summons to court. Both documents will come via delivery by local law enforcement.

Court hearing and judgment

A judge will review documentation in the eviction case. This can include the lease, the payment record and all relevant communication between you and the property owner or landlord.

After reviewing the facts, the judge will issue their ruling. If they find it in your favor, you’ll be allowed to stay in your home.

Even if you win your case, the court case remains part of the public records for up to seven years — just like an eviction. If your next landlord doesn’t read the details of the case, this can negatively influence your background check. That’s why it’s so important to stop the eviction process before it gets to this point, if possible.

If the judge sides with the landlord, you’ll be forced to leave your home. Depending on the rules in your state, unclaimed belongings will be removed through the court process, put in storage or set out on the curb.

Man upset holding an eviction notice.

What to do if you get an eviction notice

It’s normal to feel shocked or overwhelmed by an eviction notice. But since the time between an eviction notice and an eviction filing is short, it’s important to act quickly to stop the process early.

The effort is worth it. An eviction stays on your record for seven years and makes it difficult to rent an apartment in the future. Unpaid rent can damage your credit for years to come. And the stress of eviction has negative physical, mental and emotional effects on the entire household, especially children.

Review the steps below and reach out for help the moment you get an eviction notice or know you’ll be short on the rent. Every step takes time, so pursue multiple resources simultaneously. Don’t wait to hear back from someone before moving down the list.

1. Review your lease

If you’re served with an eviction notice for violating the terms of your lease, review your copy. Make sure any violations you’re accused of are actually listed in the lease.

Paperwork errors can happen. And vague or general language can lead to confusion. If you find an error or wording that’s open to interpretation, contact your landlord for clarification immediately. Document all correspondence.

2. Correct any lease violations

If you’re violating the terms of your lease, change your behavior right away. Unauthorized roommates and pets must find a new place to live immediately. Repair any property damage.

Document your compliance in writing. Supply photos and receipts for repairs. Communicate all positive changes to your property manager or landlord.

3. Make a payment plan

If you’re behind on the rent, create a payment plan and present it to your landlord. This document should tell them why you’re experiencing financial difficulties. It should also give a reasonable repayment schedule.

You can request to delay payments, make smaller payments or ask for rent forgiveness, depending on your financial situation. Stay realistic about what you can afford.

Property managers aren’t obligated to accept your plan. But many would rather have some income and a realistic plan for repayment instead of dealing with the eviction process.

Woman calculating numbers on her laptop.

4. Take advantage of temporary eviction moratoria

If you lost your job during the pandemic (or experienced a loss of income) fill out the CDC Declaration Form and provide a copy to your landlord immediately. The eviction moratorium suspends the eviction process during the COVID-19 public health crisis. This temporary stop to evictions for non-payment of rent extends to June 30, 2021.

This is not a rent forgiveness program. Your rent is still due. But it could buy you some very valuable time to access rent assistance programs and find employment.

Many states are also halting evictions during the pandemic. Regional Housing Legal Services displays temporary state eviction moratoria on an interactive map.

5. Access federal, state and local funding resources

Federal, state and local governments offer emergency rent assistance programs and other resources to help renters secure more affordable housing. You may qualify for more than one program, so reach out to as many as you can, as soon as you can.

The Apartment Guide Eviction Resource Guide lists federal eviction resources. It also helps renters search for service organizations and government programs in their home states. Charitable organizations also offer grants and emergency rent payment assistance.

HUD

The U.S. Department of Housing and Urban Development (HUD) provides affordable housing options across the country. Contact a Public Housing Agency (PHA) for rental advice at (800) 569-4287. Or search by state for an agency near you.

Renters who already receive assistance from HUD may qualify for lower rent through income recertification or hardship exemptions. A PHA representative can help you file the correct paperwork.

The NLIHC

The National Low Income Housing Coalition (or NLIHC) maintains a list of emergency rental relief programs by state. It also offers rental assistance.

The CFPB

The Consumer Financial Protection Bureau (CFPB) features comprehensive advice for renters facing eviction in eight different languages, including Spanish and Tagalog. It includes resources for active duty service members and a list of emergency rental assistance programs across the country.

211

Get help with housing expenses by calling 211 or searching 211.org. Renters can connect with local health and human service agencies, food and clothing banks, shelters and utility assistance programs.

talking to lawyer about eviction notice

6. Know your rights

If you receive an eviction notice, review your tenant’s rights. These vary by state, but there are commonalities. Your eviction is not valid if a landlord has discriminated against you, violated your rights, harassed you or provided a home that is not safe.

Property managers and landlords can’t discriminate against a renter because of race, religion, national origin, gender, age, sexual orientation or physical or mental disability. A landlord can’t evict you because of your marital status, whether or not you have children or the language you speak.

Landlords cannot harass you until you move out or cite personality conflicts as a reason for eviction. They can’t change the locks, throw you out without proper notice or prevent you from entering your home.

Housing law states that tenants have the right to live in clean homes that protect from the elements. They must have working heat, plumbing and electrical systems. Homes should meet all health and housing code standards and be safe and accessible for residents.

7. Contact a fair housing organization

If these rights are violated, call in the experts at your local fair housing agency. These organizations can also help renters facing eviction examine their options. Services and programs vary by state.

“Almost every state has a fair housing organization. And there’s a National Fair Housing Alliance that can help as well,” said Michelle Rydz, executive director of High Plains Fair Housing Center in Grand Forks, North Dakota. “We can help them fill out the paperwork and find money to pay for rent. And we have lawyers that work with us that can help clients when they have a court date.”

8. Get a lawyer

Finding a lawyer might sound like an unnecessary cost. But the eviction process moves quickly and the financial consequences of a judgment are dire. Seek council at the first sign of trouble.

“I think that tenants should seek the advice of counsel at the notice stage,” said Emily Benfer, law professor at Wake Forest School of Law and the chair of The American Bar Association’s COVID-19 Task Force Committee on Eviction.

Retaining an attorney can stop an eviction from becoming part of a renter’s permanent record. Attorneys also help more renters win their cases and stay in their homes.

“Nationwide, only 10 percent of tenants are able to secure representation in eviction cases, compared to 90 percent of landlords,” Benfer said, “Where tenants are not represented, the vast majority lose their case.”

A study conducted by The Kansas City Eviction Project found that 72 percent of tenants without legal representation had monetary damages and/or an eviction judgment entered against them. For renters with attorneys, the percentage fell to 56 percent. Benfer’s article cites a study that shows that 84 percent of New York City renters represented by an attorney remained in their homes.

Free and affordable legal resources

Paying for a lawyer is a major concern for people facing eviction. There are resources available for renters on a budget.

The American Bar Association’s FreeLegalHelp.Org connects low-income renters with federally funded legal aid services. It also includes pro bono attorneys who volunteer their services for free.

Search LawHelp.org for legal assistance and free legal aid programs by state and a list of legal resources. Or visit JustShelter.org to find resources listed by state. The site also links to several legal aid organizations across the country.

woman looking at tablet

How to get an apartment after an eviction

It isn’t easy to get an apartment after an eviction. But it can be done. Some basic tips can help you build up your credit and get back on your feet.

  • Rebuild your credit: Work with a credit counselor, consolidate your debt, reduce your expenses and pay all your bills on time.
  • Get a co-signer: Ask someone you trust with good credit to co-sign your lease to help lessen your landlord’s financial risk and share the financial burden.
  • Find a roommate: Move in with friends or family to minimize expenses, pay off debt and save money for a larger deposit
  • Demonstrate your credibility: Dress to impress and be polite. Tell landlords (ideally in writing) about your eviction and provide evidence that it won’t happen again.
  • Show financial responsibility: offer a larger deposit upfront to minimize the landlord’s financial risk. Produce paycheck stubs and reference letters from your employer and demonstrate how you’re rebuilding your credit.

Keep calm and take action

Eviction isn’t inevitable. By understanding the eviction process, acting quickly and using all your resources, you can hopefully delay or prevent eviction and stay in your home.

The information contained in this article is for educational purposes only and does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional legal or financial advice as they may deem it necessary.

Source: rent.com

Renting an Older Home: 5 Red Flags to Look Out For

Often, the oldest homes are in some of the most desirable neighborhoods and are more affordable than something brand new in the same location.

It’s tough to beat the charm and character you’ll find when renting an older home or apartment.

However, it is important to remember that older buildings come with their own unique set of quirks.

While some characteristics commonly found in older homes are easy to upgrade or simply based on personal preference, there are a few red flags to keep in mind that might make or break your decision when considering signing a lease.

1. Potential utility costs

Ask your new landlord if they are willing to share a previous month’s utility bill so you can get a sense of how much you’ll be spending on utilities. Efficiency wasn’t necessarily a priority in the past, and things like electricity, heating and water can add up quickly.

Many older homes run on gas heat (or oil!), often a new expense for many.

Ask if any previous tenants have experienced any electrical issues, and take note of outlet placement as this is something you can’t really change once you’ve moved in.

Interior of older home.

2. Check out the windows

Older homes and older windows can often mean cold drafts in the winter months.

Ask your potential landlord if the windows are single or double pane windows — this will be critical when it comes to outside noise and maintaining the temperature you want inside the home.

3. Test appliances and fixtures

Older buildings have their quirks, and it’s likely you’ll deal with one or two if you decide to move forward with renting.

Make sure you know what you’re signing up for by giving things a quick test when you view the unit – flush the toilets, turn on the sink, turn on the stovetop, see if you are familiar with the heating system, etc. For example, if you notice things like slow-flowing drains or a toilet taking forever to flush, it might be a sign of larger plumbing issues down the line.

4. Ask about maintenance and repairs

There’s no way around it – older homes and apartments are generally going to require more maintenance and repair than brand new buildings. Ask the landlord about any major projects or upgrades they have planned for the near future.

Plans to replace kitchen appliances may entice you to stick around. Plans to replace the roof could deter you depending on your situation. As things age, they start to wear out, so be aware that you’re more likely to deal with regular maintenance issues.

Older home, kitchen interior.

5. Watch out for lead paint

Lead paint was banned in the U.S. in the late 70s, so if the building you’re considering existed before then, watch out for lead-based paint in the home or apartment.

Federal law requires landlords to warn tenants of the presence of lead paint at a rental property, which many do through a Lead Warning Statement built into the rental agreement. Additionally, landlords must provide renters with EPA-approved information on lead-based paints and potential hazards — it’s required.

Don’t hesitate to approach this topic before you get to the lease signing process, and keep an eye out for any noticeable peeling paint that may exacerbate the issue.

Renting an older home

Older rental properties might not have all of the luxury amenities of a brand new building, but you are more likely to find a one-of-a-kind space to call home.

Keep these considerations in mind when renting an older apartment or home. Make sure it’s the right fit for you.

Source: rent.com