4 Tips to Secure Investment Property Financing

CI - Jason Hartman Rental Property InvestingAs an investor, perhaps nothing is more frustrating than locating a killer of a positive cash flow deal, only to run into a snag trying to secure financing. While there is no magic wand to we can wave to cure all your lending woes, the list below provides some ideas that you might not have considered. Just remember. No one said this would be easy.

Pump Up the Down Payment

Since mortgage insurance won’t cover investment properties, be prepared to come up with at least a 20% down payment, though 25% earns a better interest rate. With a second mortgage on a property becoming increasingly hard to come by, expect that you’re going to need a chunk of cash to get the best deal.

Credit Score Matters

A credit score below 740 will likely cost you money in terms of a higher interest rate or a fee to keep a lower rate. And if you allow your score to drift too far down there’s a good chance you won’t be able to get a loan at all. Don’t let this scare you – let it motivate you to value your credit score like valuable diamonds.

Don’t Forget Neighborhood Banks

The truth is that multi-national conglomerate banks like Bank of America are quite inflexible when it comes to a borrower who might be a perfectly good risk but has extenuating circumstances. If you fall into this category, it could be worth your while to take a walk down to a locally owned financial institution. You might find they have more flexibility with the money they loan.

Seller Financing

Seller financing used to mean that you were a poor slob who couldn’t get traditional financing. These days, with lending standards prohibitively tightened up and many sellers highly motivated to move their property, it’s a legitimate way to get a deal done so don’t be afraid to ask.

And if all the preceding strategies fall through, but you still have your heart set on a particular income property deal, it might be time to get even more creative. Don’t forget other sources of cash like a home equity line of credit, credit cards, or even cashing out a life insurance policy. We don’t make these suggestions lightly because racking up thousands or tens of thousands of dollars in credit card debt should only be done after careful consideration, but these are options to at least take a look at when all else fails. (Image: Flickr | 401 (K) 2013)


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In This Booming Rental Market, Rates Should Increase

First Time Home Buyers are a Vanishing Species


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In This Booming Rental Market, Rates Should Increase

CI - Jason Hartman Rental Property Investing (1)In many ways, commercial investing and residential investing are different. In other ways they are the same. One area of similarity is the need to periodically raise rents to keep up with ever-present effect of inflation. For landlords who aren’t sure how they should go about doing the deed, here are some general suggestions. First, what not to do.

LANDLORD TO TENANT: “I see you just blew up another dishwasher. That means your rent goes up seven hundred and fifty dollars next month. Have a nice day.”

Landlord departs while tenant stands in open-mouthed shock.

TENANT (speaking to the empty room): “Uhhh…what?”

In case you think this scenario sounds perfectly legitimate, it’s not. Even if you have clear wording built into the lease agreement, raising rents is not a matter of unilaterally deciding to do so. For example:

• If there is a lease agreement, rent cannot be raised during the term of the lease, unless provided for by the wording of the lease. Even then, take care. Some states allow a tenant a 21 day window to get out of the agreement.

• In month-to-month agreements, the landlord must provide 30 days advance written notice of a rent increase if the
increase is 10 percent or less. An increase of more than 10 percent requires a 60 day notice.

How often do you raise rents? If you can’t remember the last time, maybe you should start thinking about it. Obviously, rent increases can become a point of contention with both landlords and tenants. A tenant, of course, would like the rate to stay the same in perpetuity. Landlords counter with the argument that, due to inflation, the cost of everything else is rising. Why should housing be immune?

Which begs the question: When is the best time to raise rents? Experienced landlords have different opinions on the matter. Some work in smaller annual increases while others wait until a tenant leaves, then remodel the unit and rent it out at a higher price than before.

How much should rent be raised? Once again, there is no hard and fast rule to follow. One popular choice is to index the raise to the rate of inflation. At least then you have a number to point to that has a basis in reality. Of course you could pull a number completely out of your hat if you want. That’s the beauty of being the boss.

Jason Hartman points out that there’s no time like the present to begin planning your next rent increase. With fewer first-time home buyers than normal, thanks to the continuing fallout from the foreclosure crisis, the pool of renters is large and competition for available units keen. (Top image: Flickr | yeshe)


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First-Time Home Buyers are a Vanishing Species


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First-Time Home Buyers are a Vanishing Species

CI - Jason Hartman Rental Property InvestingNumbers don’t lie. It used to be that 40 percent of the resale market was populated with first-time buyers, according to the National Association of Realtors. By April of 2012, in the wake of the foreclosure crisis, the number had drifted down to 28 percent. That’s a huge drop. We think it’s worthy of further exploration. Luckily, someone already did.

We could stand here blindfolded and throw darts at the wall all day but, instead, let’s turn to Zillow economist (and not former San Diego Chargers quarterback), Stan Humphries. What about it, Stan? Where did the first-time home buyers go to? Humphries points to three reasons.

High Down Payment Requirements

Ten years ago, financing to buy a new home was fast and loose. Down payments ranged from five percent all the way down to nothing. The end result of all this government-induced lending insanity was, predictably, the foreclosure crisis that began in 2006 and continues today. One of the most noticeable effects of the hangover is that most lenders require at least 20 percent down for a home mortgage today, and some have pushed that all the way up to 25 percent. For recent college graduates with mountains of education loan debt, the numbers simply don’t add up.

The Underwater Problem

Another bit of fallout from the foreclosure crisis is a large percentage owners of start-up homes find themselves “underwater” on their mortgage. This means they owe more on the loan than the house is worth on the open market. Obviously, many are opting to hold onto their house rather than sell it, and keep their fingers crossed that the market recovers enough to put them back into the land of profitability. Until then, there’s not much they can do except hunker down and hold onto their property, which removes many of the affordably-priced options from the market. Strike two against first-time home buyers.

Deep Pocketed Investors

The last problem Humphries points to is the presence of real estate investors with lots of cash. This type of buyer swooped in when the market tanked and has been buying up every low to moderately priced house in sight ever since. First-time home buyers are having a hard time competing with that kind of cash.

What does all this mean to us as income property investors? It’s a good thing, according to Jason Hartman. Every person that isn’t a home owner is going to be renting, unless they have moved back in with dear old mom and dad, and for us, the more renters the better. (Top image: Flickr | danielmoyle)


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Donald Trump’s For-Profit University Under Fire

Landlords: Are You Missing These Deductions?


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Donald Trump’s For-Profit University Under Fire

CI - Jason Hartman Rental Property InvestingAs a self-professed news-addict, Jason Hartman can’t resist a good Donald Trump scandal, and since everyone’s favorite real estate mogul turned reality television star can’t seem to keep himself out of the spotlight for more than thirty seconds, here we go again. Hang on tight.

The charges and counter-charges are flying fast and furious in the $40 million lawsuit filed against “Trump University” by New York Attorney General Eric Schneiderman. The state’s case claims that developer and reality television star (Apprentice and Celebrity Apprentice), Donald Trump, used the “university” as nothing more than an “elaborate bait and switch” scheme designed to sucker people into spending “thousands of dollars they didn’t have for lessons they never got.”

Trump appeared on Fox and Friends to question the legitimacy of the lawsuit, suggesting that President Obama, in a snit over The Donald’s incessant public bashing, dreamed up the idea of suing Trump’s profit-oriented, unlicensed school.

During his appearance, Trump said: “They meet on Thursday evening – I get sued by this AG Schneiderman – Saturday at one o’clock. Think of it. What government in the history of this country has ever brought a suit on Saturday? I never heard of such a thing.”

He went on to allege that the legal action could be an IRS/Tea Party type witch hunt, saying, “…They obviously did it very quickly, but probably Obama – maybe this is a mini IRS. Maybe we have to get the Tea Party after these people, because this could well be a mini IRS.”

Schneiderman made an appearance on CNN, where he said the subject of the discussion between himself and the president was not the real estate mogul. “The president and I have much more important stuff to talk about than Donald Trump,” he said. “I’ve never discussed Donald Trump with the president.”

Regardless of who ultimately wins this game of he said / she said, Mr. Trump can’t help but be happy that his name is being plastered all over the headlines again. The man is living, breathing proof that all publicity is good.

So what is “Trump University” being accused of? Essentially, there have been scattered complaints that $35,000 spent on “tuition” earns a student little more than a photograph with a life-sized Donald Trump cardboard cutout and a front row seat at the school’s lectures (or infomercials as some say). One complaint filed in U.S. District Court in San Diego says, “The primary lesson Trump University teaches its students is how to spend more money buying more Trump seminars.”

While Trump’s lawyers say the seminars have a customer satisfaction rating of 95 percent, the Better Business Bureau has awarded the program a D-minus rating. In case you’re wondering, that ain’t good. Where do we go from here? Who knows? Only time will tell how this drama plays out. One thing is for sure, when Donald Trump is involved, it’s guaranteed to be interesting. (Top image: Flickr | Imaginary Museum Projects: News Tableaus)

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Landlords, Are You Missing These Deductions?

Cherry-Pick Austin Investment Properties


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Landlords: Are You Missing These Deductions?

CI - Jason Hartman Rental Property InvestingOne of Jason Hartman’s mantras is that real estate is the most tax-favored asset. As a landlord, skim the list below and make sure you’re taking the maximum allowable deductions approved by the IRS. Since your rental property is a business, most related expenses should qualify to reduce your tax burden.

1. Interest: This is often the single biggest deductible expense, so don’t overlook it. Interest deduction examples are mortgage interest payments on loans used to acquire or improve rental property, and even credit card interest for stuff you buy for maintenance or repairs.

2. Depreciation: Unlike many rental property expenses, you can’t deduct the entire cost of purchase in the year you buy it. Instead, you are allowed to depreciate a portion of the amount over a set number of years until it is completely depreciated.

3. Repairs: Just like in any other business, ordinary, necessary, and reasonable repair expenses are fully deductible in the year incurred. Things like painting, fixing leaks, or replacing broken windows certainly qualify.

4. Local Travel: Driving somewhere to perform a task related to your rental activity? You are allowed to either deduct your actual expenses or use the standard mileage rate, which is 56.5 cents per mile.

5. Long Distance Travel: Stuff like airfare, hotel bills, and meals are deductible. It’s not even illegal to mix business with pleasure but make sure you have records and receipts. The IRS is picky in this situation.
6. Home Office: This topic is a book in itself. Refer to the IRS website or a variety of books before calculating this deduction. Generally speaking, a percentage of expenses related to maintaining your house can be written off to your business.

7. Employees and Independent Contractors: Wages paid to independent contractors or employees are fully deductible as a business expense.

8. Casualty and Theft Losses: Damage from natural disasters like fire and flood or even losses from theft are deductible to some extent, though usually not for the full property value. Like home business deductions, this is a complex topic. Your deduction depends upon how much of the property was damaged and whether or not you had insurance.

9. Insurance: A smart landlord carries fire, theft, flood, and landlord liability insurance. The bad news is all these come with a premium. The good news is that premium expenses are deductible. Health insurance and workers’ compensation costs related to employees are also considered legitimate business expense.

10. Legal and Professional Services: Last but not least, professionals you hire like lawyers, accountants, real estate investment advisors, and property managers fall under the category of operating expenses if their activities are related to your rental property business.

The bottom line is that there are LOTS of legal deductions a landlord is entitled to by the tax code. Take them! (Top image: Flickr | MoneyBlogNewz)


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Cherry-Pick Austin Investment Properties

Hard Money Specializes in Non-Conforming Loans


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Cherry-Pick Austin Investment Properties

CI - Jason Hartman Rental Property Investing (1)Despite the hue and cry from the national media decrying the demise of the housing industry, some markets never went away, maintaining a steady economy in the face of the foreclosure crisis. Austin, Texas, is one such city. Jason Hartman has had his eye on this area for a while now and is ready to take prospective investors’ on a personal tour.

But we’re not going to sit here and thump our chest like braggarts. We want to prove it to you and will do just that on September 28, 2013, at the Austin Executive Property Tour. This thriving Texas city is just one of many affordable markets that offer stable returns that usually far exceed anything Wall Street is doing. The “market” might be down in general but you can still make money. Lots of money.

Before you think we’ve gotten uppity, we call this tour “Executive” because we respect your time and have made it as schedule-friendly as possible. In the past we’ve offered area property tours that covered two and sometimes part of three days. This time we’ve condensed it, leaving time for you to fly in and out the same day, losing the minimum amount of time from your family or business obligations but gaining life-changing wealth creation ideas in the process.

Why Austin? The economy in Austin is one of the best around. Tenant rates are high, and interest rates are at an all-time low, making the perfect combination for cash flow and future appreciation. Some Austin area properties are generating cash flows of up to $300 per month.

This tour will not only introduce you to our Local Market Specialist (LMS) team but showcase purchase-ready properties that have met Jason Hartman’s exacting criteria and should start generating solid returns the day you buy. Since the tour is limited to 20 attendees, you’ll have plenty of chances to have all your questions about income property investing answered. Some of the topics we’ll cover during the day are:

  • Property Acquisition and Analysis
  • Financing Options
  • Property Management
  • Renovation Budgeting
  • Project Management
  • Property Insurance
  • Title and Escrow

If you’re interested in joining Jason’s Austin Executive Property tour, please visit http://www.jasonhartman.com/. The cost is only $297, which includes breakfast and lunch. Best of all, as with all property tours, you won’t be bombarded with gimmicks or upsells to bootcamp or mentoring programs. Everything you need to become a real estate investor will be given to you on that day. If you’re interested at all, we suggest you register quickly before all the spots are gone. (Top image: Flickr | THE Holy Hand Grenade)


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Hard Money Specializes in Non-Conforming Loans

Storage Scores: Buying and Selling Storage Lockers


The Commercial Investing Center Team

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Hard Money Specializes in Non-Conforming Loans

CI - Jason Hartman Rental Property InvestingBoth residential and commercial real estate investors sometimes run into problems qualifying for a loan through the traditional lending industry. Time to throw your hands in the air, give it all up and become a worm farmer? Not just yet. There are alternatives and one of them is hard money lending. It’s not for everyone, and you have to take GREAT care in choosing your lender, but keep reading to learn more.

Borrowers frustrated by difficulty in qualifying for traditional lending sources are sometimes tempted to turn to hard loans, which is not always a bad thing, but extreme care is a must. There are plenty of legitimate, reliable lenders, and there are others who are little better than loan sharks.

First, a definition. A hard money lender is one that makes short-term loans using the value of the real estate as collateral rather than the borrower’s ability to repay based on personal income or assets. Expect to pay a higher interest rate since these types of loans do not conform to bank standards.

Step 1: Before you even go to the trouble of locating a property, make sure you can qualify for a hard money loan. Since many of these sources exist outside the regulation and relative safety of traditional lenders, you might feel like you’re dealing with loan sharks, and maybe you are.

If it makes you uncomfortable, you might be better served by buying some nice, safe treasury notes. (*Caution: Dirty Harry flashback approaching) When it comes to choosing a hard money lender, you’ve got to ask yourself one question: Do you feel lucky, punk? Well, do you?

Step 2: Once you’ve decided that you do, in fact, want to throw caution to the wind and buy investment real estate with hard money, the first step is to locate a piece of property that can be purchased well below appraised value. Usually this means a foreclosure or wholesaled property. Unless he’s been taking drugs, even a hard money lender wouldn’t provide funds for a deal with no room to rehab and flip it for a profit.

Step 3: This step is pretty straightforward. Get in there and rehab the thing as quickly as possible. Remember, you’re paying a high interest rate until you can rent the thing out or get it refinanced at a new, higher appraised value. Many hard money lenders allow you to do this after six months.

Step 4: Rinse and repeat – or not.

We hope it’s obvious to readers that choosing a hard money lender should not necessarily be your first choice when it comes to real estate investing. However, to a new investor low on the funds trying to find a way to get into the game, it is one option. Do we recommend it? As a general rule, heck no! But every situation should be evaluated on its own merits and this strategy certainly can be a handy tool in the right hands.

For anyone offended by the headline up there. Lighten up. We’re not insinuating that all hard money lenders are loan sharks, but you have to admit the potential is there. (Top image: Flickr | Jesse Wagstaff)


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Storage Scores: Buying and Selling Storage Lockers

Real Estate Investing: The Key to Quitting a Day Job

 

The Commercial Investing Center Team

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Storage Scores: Buying and Selling Storage Lockers

CI - Jason Hartman Rental Property InvestingWith the advent of reality television programming, we’ve recently seen an influx of shows focused on the repossession of storage units. Shows like Storage Wars and Auction Hunters center around teams of buyers who travel, sometimes across the country, to storage units that have been repossessed or otherwise abandoned. Once on site, these buyers engage in bidding wars to claim the usually unidentifiable contents of the unit. Sometimes, a buyer gets lucky and uncovers objects worth large amounts of money—antiques, memorabilia. Other times, the value of the contents are more immediately obvious—electronics, DVDs, etc. But most of the time, these units represent a relatively normal household and contain extra linens, childhood stuffed animals, the occasional human ashes.

These shows have recently come under fire for their claim that what is happening on screen is in fact “real”—at best, a stretch. Valuable objects are planted in units, down-on-their-luck teams are given money to make bidding more competitive, things are carefully edited to give a certain sort of impression. But, as viewers of so-called “reality” television, it seems fair to say that we usually suspend our disbelief willingly.

In the real world, the process of buying delinquent storage lockers is a bit different. While these shows make it seem like the bidding pool consists of five or so teams of people, the actual pool is much larger, and the auction winner is anyone’s guess. And very rarely do units contain such treasure (to see the top five finds from 2011 go here)—usually, their contents are a great fit for garage sales, swap meets, eBay, flea markets, and thrift stores. Seldom do things actually sell for the inflated numbers presented by show cast members and even more seldom is the task, from auction to resale, accomplished in such a short amount of time.

If you’ve got an interest in buying and selling, storage auctions might actually be a great fit for you. To begin, perform an online search for storage auctions in your area or call local storage facilities. Reading online reviews for places might give you a good idea of the type of people using the business and provide an early idea about what kind of things you might find there.

Consider going to an auction prior to the one where you think you’ll buy to get an idea of how that particular auction functions and how financial transactions are conducted. When you are confident that you’d like to participate, arrive a few hours early so that you are able to take a look around and ask questions. Set a budget for yourself, and don’t exceed it. Remember that you’ll likely not find a hidden stash of treasure that will make you instantly rich. After you’ve acquired a unit, make sure you have a plan. It might be helpful to categorize the items by their value and perceived audience (trash, flea market, eBay) and have designated vehicles or trips to dispense the items.

The key to successful storage locker buying is in managing your expectations. And there is no reason to forget your favorite storage war show–remember the go-get-it attitude of the cast members as you embark on your next business venture! (Top image: Flickr | John Picken)

 

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The Key to Quitting a Day Job

38% ROI on this Atlanta Income Property
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Real Estate Investing: The Key to Quitting a Day Job

CI - Jason Hartman Rental Property Investing(Our thanks to Brandon Turner for his excellent post HERE that got us thinking about the topic)

The sad reality of human existence is that most of us have to work a day job. Even more vexing is the fact that nearly two-thirds of Americans say they are not happy at work. That’s a lot of unhappiness walking around out there. Let’s see what we can do to improve the percentage. Pardon us while we channel LeBron James for a moment and say real estate investing offers not one, not two, but at least three ways to leave the soul-killing rat race behind for good.

Keep in mind we never said real estate would fulfill your wildest dreams and make you instantly rich. What it has been proven to do by people like Jason Hartman is build a steady reliable wealth base over time. Here are three strategies to create financial independence through real estate investing.

Wholesaling: This is probably the method most often touted by industry “gurus” as the quick and easy path to wealth untold. While wholesaling is a simple method that works, don’t confuse it with being easy and quick. Basically you apply hard work, motivation, and good negotiation skills towards uncovering great real estate deals, which you then place under contract and sell to another buyer, often an investor.

Flipping: This approach involves finding houses at greatly reduced prices and often in need of repair, buying them, fixing them up, and selling them at a mark-up to retail buyers. Flipping is a great way to leave the day job behind but, once again, it is no panacea. It takes money, contacts, and the ability to answer these three questions:

1. How will I fund my flipping activities without a job?

2. How will I make monthly payments without a job?

3. Is my geographic area good for flipping?

Buy and Hold Cash Flow: This is the one that we like. REALLY like. Basically it involves buying a piece of property with some form of housing on it and renting it out. Our method is to take out a long-term, fixed-rate mortgage attached to a single-family residential house. Here’s the true brilliance of it: you buy the house with mostly borrowed money; income from tenants pays the expenses and even monthly mortgage, hopefully leaving you a positive cash flow; at the end of the mortgage, you own the property.

We actually suggest refinancing every five to seven years and using the proceeds to buy even more income property but that’s a topic for a different day. Lots of small cash flows eventually add up to a serious income. For now, realize that you are NOT stuck in a day job you hate forever. The tools to escape and live a life that more closely matches your daydreams are freely available to those with the motivation to seek them out. (Top image: Flickr | dickuhne)

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38% ROI: This Atlanta Income Property Won’t Last

Social Media: New Version of an Old Idea

 

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38% ROI – This Atlanta Income Property Won’t Last

CI - Jason Hartman Rental Property InvestingSometimes we come across an income property deal so good we can’t keep it to ourselves. With the common client refrain, “But there aren’t any good properties left,” ringing in our ears, we offer the following positive cash flow deal in the Atlanta area. It’s available RIGHT NOW if you have the downpayment ready to go. Here are the details.

This 4 bedroom, 2 bath property occupies 2,154 square feet in the town of Lithonia, which is about 20 miles from Atlanta. With an asking price of $128,900, your downpayment is $25,780. Toss in loan origination fees and depreciable closing costs and your grand total to own the property is $31,709. This one is ready to rent and already has property management in place.

The truth is it’s getting harder to find premium deals like this in the Atlanta area. But right now you’re probably more interested in how much you can make with this income property, right? The average monthly rent for properties like this is $1,150, which yields a positive cash flow of $227 per month once ALL expenses (including mortgage payments) are taken out. This is a perfect illustration of the investing ideas Jason Hartman has been talking about for years.

This is an asset that truly pays for itself one month at a time. You can take an in-depth look at the numbers we calculated HERE but the bottom line is a 9% cash-on-cash return and a 38% total return on investment during your first year of ownership. As we like to say, don’t try that in the stock market, even on a good day.

This particular property sold in 2000 for $141,000 and was foreclosed on in 2006 for $180,000. Any way you look at it, the place is priced to move and we’re not just bloviating when we say it won’t last long. If you’re serious about getting into income property investing or making an addition to your portfolio, please call Sara Liskey, one of our friendly investment counselors, at 714-820-4234. She’ll be happy to answer questions and even get the ball rolling towards a purchase once you’re ready.

Here are the assumptions we made when calculating rates of return:

Real estate appreciation – 6%
Vacancy rate – 6%
Management fee – 8%
Maintenance percentage – 3%

The numbers are our best guess, based on more than two decades of experience, at how your investment should play out. Of course, reality sometimes ignores the best laid forecasts of mice and men.

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Social Media: New Version of an Old Idea

Remember When the Government was Small? Neither do We

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