The Small Rental Assistance Program, SRAP, was designed by the Mississippi Development Authority, MDA, to assist coastal MS in disaster recovery. The SRAP program provided property owners forgivable loans up to $40,000 per unit for properties utilized in a rental capacity for 5 consecutive years from the SRAP “loan” date.

The SRAP program is over and the remaining portion of this post has been removed as it is deprecated.

I recently had an investor contact me about a property he was in escrow to purchase and he had some rather interesting news about how he was “maneuvered” by a group that does investing tours. Now, don’t get me wrong, all these guys who do investing tours are not bad, but my take on it has always been – “Don’t buy an investment based on data you are getting from real estate agents who live hundreds of miles away from your purchase area!”

In order to be in real tune with what is going on in a market – you have to be a full time agent in that market. It is equally important that you speak with a full time investment real estate broker if you plan on investing in that market.

Anyways, now that my rant is complete, I will move on with the story. He bought his property in a new subdivision, and was told that he could get Go-Zone and SRAP, making this an unbelievably great deal – which it would have been a great deal. Unbelievably great? Probably not – I am sure I could have gotten him a better ROI, but a good deal nonetheless. The problem is that he was given the run-around, not told what was going on, and then ‘OOPS’ – SRAP is not available to him anymore.

Now, Andries and I told all of our people to close on their lot deeds as soon as possible, time is of the essence, and reinforced that. We had no clue that the MDA would kill off new construction when they did – but we did know the guidelines specifically stated that it was first come first served and you did not want to be at the back of the line. You should have shown ownership prior to December 15th if you really wanted success. Unfortunately, this investor who called me was not told the same thing. He was pushed off because the agent writing the contract was scared they would lose the sale and was hoping to string him along. He was more than prepared to pay more money to close the lot deed to improve his chances of getting SRAP if someone would have told him.

Now, we move to another important issue. The investor states that he was unable to find an Agency Disclosure form anywhere in his documents. This is a required form by Mississippi State Law and is often called a “Working with a Real Estate Broker” form. While the agent who wrote the contract says they have a copy, he is unaware of signing it. This brings a potential licensing issue if there is not a signed one. If there is no agency disclosure form, this investor can file a complaint against the agent, and the agent’s broker for not disclosing agency relationship. This will most likely not help him personally (unless it was later used for suit against the agent), it would show a disciplinary action against the agent and hopefully help someone else from having the same problem.

As for a potential suit against the agent….
What could happen in this scenario, since the agent knew he was trying to obtain SRAP, and the agent did not inform him of his options to move forward, the investor could sue the agent and the agent’s broker. This would typically be covered through their errors and omissions (E&O) insurance and he would most likely win the case for at least his out of pocket expenses (give or take around $15k). It was the agent’s duty to give him information on the program and the steps to take to increase the chances of success. It was the agent’s duty to do this because of the way it was pitched, and not necessarily because of a fiduciary responsibility on part of the agent. That being said, their may have been a fiduciary responsibility under an implied agency relationship, although that is far beyond the realm of this document.

What are the other options?
If he were to walk away from the deal right now, he would be out around $15k, which his only hope of recovery would be by way of lawsuit.
If he were to move forward, complete the construction of the home, and resell it – the numbers look much better. Remember, he did get a good deal on the house. I feel pretty confident that I could at least get a break even on a resell for him although it may offer some slight complications with title seasoning at least for the first few months if it were to sell by way of FHA or VA loan.
Even in a worst case scenario, I doubt he would lose more than a few thousand dollars doing it my way. Then, instead of being out $15k, he would only be out a few $k. He may also be able to get relief from a civil suit against the other agent’s and broker’s E&O for the difference (any money he lost). A number of less than $10k difference would most likely be settled by the insurance carrier than fought because his case is pretty strong.

The ultimate question would be “since SRAP was heavily pitched and he was banking on it for a great investment – could he also get the equivalent of SRAP ($36,500) in a suit against the agent and broker”?
The answer is possibly, but probably not. Also, the time to push that sort of suit would be tiresome and probably not worth the time involvement by the time it was all done with.

Synopsis:
Just build the house, re-list it with me to sell as quickly as possible, and still come out better than walking away.

The Mississippi Development Authority (MDA) Small Rental Assistance Program (SRAP) Round 2 applicants got a startling letter yesterday (See Here – opens in new window). The letter basically was sent to all Option D applicants, which encompassed anyone who bought new construction as a means of receiving the forgivable loan from the MDA. The SRAP program is designed to get affordable rental housing to low and medium income families in the areas hardest hit from the impacts of Hurricane Katrina. You can get more information by clicking on SRAP (opens all posts tagged with SRAP).

This letter, effectively stated that anyone who was under option D and has not gotten proof of fee simple ownerships (at minimum of a lot deed) would be automatically disqualified for the program as of January 14th, 2009. To make things worse, they sent out an email to recipients on Friday evening, right before a three day weekend, making it almost impossible to get any information. Luckily, we found out about it several hours in advance and were able to get a little bit of information from the MDA.

According to a discussion between my business partner (Andries) and an MDA representative, ONLY option D applicants are effected by this. It MAY be possible to change from option D to Option B (least likely depending on circumstances) or Option A (no completion bonus). It was also said that if your deed was RECORDED at the courthouse prior to January 14th, there is a possibility that you may still qualify under option D IF you get the recorded deed to them ASAP. Note that this information was received via a telephone call and I am still waiting on an official WRITTEN response from the SRAP 2 officials.

For those of you that were using SRAP in conjunction with Go-Zone, have no fear. SRAP and Go-Zone are two different things and the denial of SRAP will in no way effect your Go-Zone eligibility.

I expect to have much more information on this by Tuesday (MDA offices will most likely be closed on Monday for MLK day) and will update this post, and my clients as soon as I know more. If you would like to get notification of the update, or if you have additional questions that I may be able to help with, please do not hesitate to Contact Me.

If you are not familiar with the SRAP (Small Rental Assistance Program) offer on the Mississippi Coast, it would be a good time to read more about it. The Small Rental Assistance Program is designed to help address the affordable housing issue on the Mississippi Gulf Coast and awards up to $40,000 per door to investors who want to rent to moderate and low income families for at least 5 years.

The SRAP program is one of the single best programs for investors because it allows them to easily obtain properties that can cash flow considerably from day one. The problem that many investors have seen with this program is that real estate brokerage companies and builders have teamed up to push new construction products as the only means of getting it when this is not true.

Utilizing existing inventory is generally a much quicker way of getting approval – and getting your money, not to mention it offers some tremendous opportunities for cash flow potential.

LowestRealEstate is a website managed by us where we have put together some of the best deals available for cash flow. We have pulled properties that would cash flow very well with only minimal down (albeit we generally recommend 20% down due to lending guidelines and better positioning). Many of these properties have CAP rates in the 9% – 11% range before applying SRAP and some have 20%+ CAP rates when utilizing the Small Rental Assistance Program funds. These CAP rates are unheard of! We do have limited inventory so jump on them as quickly as possible. We have put together options on these to protect our interest but if you do not see anything you like we will be more than happy to help you find other properties that the numbers will still work out beautifully on.

The properties listed on LowestRealEstate.com are put together as good investments with or without SRAP. As with any government program, you never can be certain you will receive it, albeit the likelihood is great so long as you are within the guidelines. If you do not get it for whatever reason, the properties will STILL make good investments – unlike those new construction duplexes you have been pitched time and again.

Take a look at LowestRealEstate and contact us for more information – before time runs out. The deadline to apply is December 15th – and you should have the deed in hand when applying…

The Mississippi Development Authority’s Small Rental Assistance Program (SRAP for short) round 2 is here and applications are being processed. For anyone wanting to take advantage of this program, you need to do it BEFORE December 15th 2008.

SRAP round 2 started on October 15th 2008 and offers some of the nicest incentives to put rental property into the market and create affordable housing. A typical, three bedroom home can receive $36,500 in the form of a forgivable loan provided the guidelines are met with the program for a period of 5 years.

The Small Rental Assistance Program is very unique and round 2 has many of the same guidelines as round 1 of SRAP but there are some minor differences. The forgivable loan amounts are as follows, and come directly from the SRAP Guidelines:

Then, you can get an additional “completion bonus” if it is in use within 9 months of the approval:

As you can see, the benefits can quickly add up and that is the nature of the program – to get as many lower rate rentals as possible to attract more people back to the coastal counties most effected by Katrina.

SRAP round 2 does have a few minor changes including the fact that you have to OWN the property. Round 1 allowed you to have them under contract or have options to purchase and be able to apply. Because of significant issues, they have changed this. Directly from the SRAP round 2 guidelines:

MDA is now requiring that an Applicant OWN the property prior to application processing. A lease, contract for purchase, option to purchase, or a reservation will not meet this requirement.
For the purposes of this program, property ownership is defined as “fee ownership”. In other
words, the applicant must be able to provide MDA with a recorded warranty deed, quitclaim
deed or other documented proof of ownership.

In round 1, people were trying to make sure they would get the loan as a means to buy the property and this created a LOT of headaches. What this does mean is that less people will be taking the chance on getting this on new purchases which leaves a better chance for you to be able to take advantage of it!

If you are considering buying investment rental property, give us a call (or email) and we will go over some properties that will KNOCK your SOCKS off.

My partner and I spend a lot of time putting properties together for our investors – come see what all your investor friends have been keeping from you

See the Official SRAP page on the MDA website HERE.

I get numerous calls every week from new real estate investors, most of which just read a book or watched a DVD that they bought off a late night infomercial and the first thing they say is that they want me to help them find investment properties.

Me: Great – so what are you looking for?
Them: Investment properties.
Me: Yes, but what type of investment properties?
Them: The kind that make money…

While the conversations usually are a bit more drawn out and have all the niceties of a professional real estate broker added in there, this would be the basic gist of it. A recent case happened to me today where the investor was looking for properties to buy in the Go-Zone that qualified for SRAP. He had been talking with another agent who put on investment seminars which were basically a disguise to get people to buy properties through her, mostly in the condo market, most of which are outrageously overpriced. He had no idea that he really could not make any use of the Go-Zone credits nor did he realize the $400,000 condo she was trying to get him to purchase would have had a negative cash flow more than he made in a month because SRAP has to conform to HUD rental rates.

Know what you are looking for.

When you are going to start investing in real estate, as a new real estate investor, you should start planning your goals. Are you looking to make passive income from rentals or are you looking to just get in and out for quick money? Do you want to buy low and then hold for a few years to maximize profits or are you comfortable with a quick $10k for your efforts?

Many new investors do not have a plan of action when they start investing in real estate and they usually end up with some idiot part-time Realtor® who “does” real estate on the side once they get out of their job as someone else’s secretary. Keep in mind – NEVER take advice on investing your money from someone who is a part-timer in this business. There are too many variables that change daily and you need someone that monitors these changes and knows the market from handling hundreds of transactions.

Most people investing in real estate that fail do so because they had a bad plan of action or were working with an agent who did not know what they were doing. If you fail to plan – you plan to fail.

Know what your goals are and then come to talk to me to get started making the right decisions. Right now we are in a buyers market and the best time to buy for maximum appreciation for those wanting to sell in a few years.