Seller Financing into Long term debt service products

Memphis, Tennessee

Creative Real Estate Financing

Seller Financing into Long term debt service products

Real Estate Investor · Memphis, TN · Member since 2016 · 405 posts · 132 votes

Hello BP, It's been a while since I have been active in the forums or on the platform. With that being said I have found an opportunity to get back in the game. Looking for some understanding about because of my planned exit strategy.
I have some questions about:

1> Cash Out Refi LTV: Single assets versus multiple properties

2> Terms and best practices:

3> Utilizing a Realtor

4> Personal Guarantees: Stabilized/ Performing vs Personal credit

Set up:

Utilizing non amortized seller financing to acquire the property @ 35000/60 months.

Rehab Estimates are not in in yet the property. Stone outer shell, Burn out.

Engineering Report has declared the property re buildable

Goal to to be all in under 80k

Based on lose comps 120K today would be the resale value to hit as a 3/1.

***as true numbers come in will update post****

This will be my first rehab all time!! pretty excited, in that same excitement, because of my experience in acquisition/dispositions I believe i can find more properties under the same strategy.

Question

1> Cash Out Refi LTV: Single assets versus multiple properties:

If all properties are performing how many should be considered into 1 portfolio loan, or should properties be enter into loans separated then combined?

2> Terms and best practices:

What are some ways to better set myself up to qualify for long term debt service products?

3> Utilizing a Realtor

When should i use a realtor or how could i utilize the aid of a realtor ?

4> Personal Guarantees: Stabilized/ Performing vs Personal credit

Going in all cash on this project, Ultimately want to cash out on the refi, What should personal credit look like (restructuring), Doing the project in my LLC, will my personal credit matter? How does the asset need to perform to qualify?

Thanks for any insight or advice

thanks

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Most Popular Reply

Rose JonesPro Member

Member since 2019 · 57 posts · 18 votes

2y

I would consider using a realtor if the property is 20,000 or more and yours meets that benchmark.

See this reply in the discussion

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Account Closed
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
3y
Quote from @Jamie Parker:

Hello BP, It's been a while since I have been active in the forums or on the platform. With that being said I have found an opportunity to get back in the game. Looking for some understanding about because of my planned exit strategy.
I have some questions about:
1> Cash Out Refi LTV: Single assets versus multiple properties
2> Terms and best practices:
3> Utilizing a Realtor
4> Personal Guarantees: Stabilized/ Performing vs Personal credit
Set up:
Utilizing non amortized seller financing to acquire the property @ 35000/60 months.
Rehab Estimates are not in in yet the property. Stone outer shell, Burn out.
Engineering Report has declared the property re buildable
Goal to to be all in under 80k
Based on lose comps 120K today would be the resale value to hit as a 3/1.
***as true numbers come in will update post****
This will be my first rehab all time!! pretty excited, in that same excitement, because of my experience in acquisition/dispositions I believe i can find more properties under the same strategy.
Question
1> Cash Out Refi LTV: Single assets versus multiple properties:
If all properties are performing how many should be considered into 1 portfolio loan, or should properties be enter into loans separated then combined?

2> Terms and best practices:
What are some ways to better set myself up to qualify for long term debt service products?

3> Utilizing a Realtor
When should i use a realtor or how could i utilize the aid of a realtor ?

4> Personal Guarantees: Stabilized/ Performing vs Personal credit
Going in all cash on this project, Ultimately want to cash out on the refi, What should personal credit look like (restructuring), Doing the project in my LLC, will my personal credit matter? How does the asset need to perform to qualify?
Thanks for any insight or advice thanks

A "Stone outer shell, Burn out" means a complete gut job.

I'd suspect it will cost $40k to $50k to get it into completed status. So, if you buy at $80K and put $40k into it, you lose money at an ARV of $120k
You will have to buy at $30k to $40k to make any money on it.
1 Reply
Jamie Parker
OP
Real Estate Investor · Memphis, TN · Member since 2016 · 405 posts · 132 votes
3y
@Account Closed
I think you helped me confirm
buying @35K + 40K would get me to less that 70%LTV @120KARV.
Im suspecting 4-6 month turn because funding.
on a 580 per month note the project would be about 46k-50k all in.
If these numbers stick, im pretty excited
1 Reply
Jamie Parker
OP
Real Estate Investor · Memphis, TN · Member since 2016 · 405 posts · 132 votes
3y
@Account Closed
I received the Engineering Report, ultimately once it cleaned out will be able to better see what i'm working with as it relates to the flooring. You have any understanding of the information presented? I have more pics where only able to post 2 per post.
Based on our visual structural inspection of the referenced residence, all the roof framing and the

majority of the residence should be rebuilt except for structural members on the front side which

were addressed in this report. This report does not provide any recommendations for the repair

methods. Current building code requirements and local amendments should be considered for

rebuilding the fire-damaged portion of the residence.

The Engineer shall have no liability to the Owners, or to others for the acts or omissions of the

Contractor or any other Persons performing work on the project, or failure of the Contractor to

carry out the work in accordance with this letter, except where specifically inspected and

approved by the engineer and discovery of defect is possible within the normal ability or standard

of care for the industry.

This report is based on a diligent visual inspection of the referenced areas. No destructive testing

was requested or required for this report.

0 Reply
Account Closed
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
3y
Quote from @Jamie Parker:

@Account Closed
I received the Engineering Report, ultimately once it cleaned out will be able to better see what i'm working with as it relates to the flooring. You have any understanding of the information presented? I have more pics where only able to post 2 per post.
Based on our visual structural inspection of the referenced residence, all the roof framing and the

majority of the residence should be rebuilt except for structural members on the front side which

were addressed in this report. This report does not provide any recommendations for the repair

methods. Current building code requirements and local amendments should be considered for

rebuilding the fire-damaged portion of the residence.

The Engineer shall have no liability to the Owners, or to others for the acts or omissions of the

Contractor or any other Persons performing work on the project, or failure of the Contractor to

carry out the work in accordance with this letter, except where specifically inspected and

approved by the engineer and discovery of defect is possible within the normal ability or standard

of care for the industry.

This report is based on a diligent visual inspection of the referenced areas. No destructive testing

was requested or required for this report.

I haven't done a "burn house" so I'm not sure of all of the things to do. The few that I looked at but didn't buy would have had to have all of the wood removed and anything else that smelled of smoke. If you can't get the "smoke smell" out, it won't sell.
1 Reply
Jamie Parker
OP
Real Estate Investor · Memphis, TN · Member since 2016 · 405 posts · 132 votes
3y
Im under contract and with closing set for 1 FEB. This is gonna be a learning experience due to dealing with environmental court. The property is condemned currently and as of June 2022 Will confirm before closing that I have till June 2023 to get the property below 75% deteriorated or whatever verbiage that was used to denote the property being in a degraded condition.

With an estimate in for the roof ($10,000 approximately). My thought process going in was that the roof would be 1/4 of the total rehab budget. Going on a limb and estimating 50k, and additional 10k, to the budget. With purchase and rehab that estimated 35k + 50k = 85k. In a perfect world the property will need to hit an appraisal of 120k to hit 96k @70% for cash out refi.
My first rehab lets see how it goes!
0 Reply
Jamie Parker
OP
Real Estate Investor · Memphis, TN · Member since 2016 · 405 posts · 132 votes
3y
Closed on my First Property!!!
This was a very trying experience for me. It took 3 months to get this closed on a property I've been looking at for nearly 6 months. Let me break down the title experience and what I learned.
January
Under contract early January. $1050 EMD with Title. Closing set for 1 Feb. While staying in contact with seller, Find out about an environmental court date late January. Relay that information to Title, advised to wait till after new search can be completed.
February
February 1: No Closing
Takes a couple weeks for title search to return with updated environmental court information. Environmental Case dismissed and I am to be monitored by the court during rehab process. Still not sure how I feel about doing this or not, but let's go!!!
March
March 1: misread the ALTA. Wire was $1050 short. Bummed. Actually, first time seeing ALTA statement. As a wholesaler, I would get a HUD-1 if the buyer kept assignment in the transaction. I saw all the numbers and decided to do my own math. Bad idea. However now I know what to look for and will make the call if there is a misunderstanding on my part.
Spoke with the seller and offered to pay first payment of the note at closing to which it was agreed to. Scheduled closing for 3 April.
Because Closing would be on a monday I decided to deliver cash to bank to wire the funds early. March 29. Get to the bank After 230 so the wire has to wait till the next day. (local community credit union). March 30 Bank calls and my account is frozen. No Expected date when funds will be release.
April
April: Extremely bummed, almost didn't want to get out of bed. No word from the bank about my cash. Get a call from the Title, "are you closing today?" So I go by and sign papers. with a 48hr funding period. but mostly up to the seller's discretion.
Side note. Because the rapport I built with the seller and the property is pretty much a dump, seller is ok with whatever happens as long as they will be released from the head ache. And the seller called to tell me to keep my head up. There is a lot going on. And I called the bank every day to know any updates.
Bank released the funds, was able to closed the property and now its done!!! but it's only the start ultimately. Now that I understand the process and how I messed up. The next one will go smoother than 4 months to close, but I guess in this market, fixing someone's headache is extremely valuable.
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Jamie Parker
OP
Real Estate Investor · Memphis, TN · Member since 2016 · 405 posts · 132 votes
3y
Ok so the next update on the 1522 Latham 38106 project.
After a series of storms rolled through the area, the grass was not cut in a timely fashion. Landed myself back in environmental court. Because of this, retriggering of the 1 year time table to complete the property to 75% of the value. Basically means that I will have to get the property to a condition that is acceptable for code enforcement during this period.
I sure many would ask, Why would this take so long?
1st lenders in the area will not lend on a burn out. 2nd I am doing this project out of pocket essentially. Because I have no cash reserves to start something like this, this would a way to get my self in the game with buying property. Pretty much a boneheaded undertaking, I see a few things coming to fruition out of just diving in. Doing a Seller Financing deal. Meeting and working with an architect, building a team (GCs, Subs, Title, Lenders).
Since January after going under contract, I have been to a couple RE meetups and begun listening to podcast again. I was burnt out on the business 4-5 years ago. The itch has returned. The drive has been restored. I thank God in the name of Jesus Christ for returning to the industry. I see the value in not being overwhelmed because of a failure to properly build a situation with systems and organization. The focus now is on problem solving and not revenue. LETS GOOOO!!!
1 Reply
Jamie Parker
OP
Real Estate Investor · Memphis, TN · Member since 2016 · 405 posts · 132 votes
2y
Well the drafts are in! It has been a whole deal working on this property but things are beginning to make a little bit of sense. First it was a prayer to God for what to do. Now I can see the plan starting to come together at least for the property.
At this part of the process, understanding what will be put back in its place. First estimate was (without drawings) 150,000 for a full rehab @ 115/sqft. Spending that much money and not having an ideal about whats gonna be put in place is not how I do business.
If you notice on this draft from the architect. The lot shows the existing building envelope next to the proposed renovated floor plan and square foot addition.
According to planning, only 1 and 1/2 story is permitted in this neighborhood.

There are some consideration yet to be taken at this point. Due to the fact that this neighborhood is lacking comps and a severe lack of development, Being conservative on size and cost there is more planning to be done. 2130 sqft down with an additional 565 sqft up. That is a lot of house and a big risk for the area. 2130+565= 2695 sqft @ 120(estimated)/sqft to build= 323,400 to build. Meaning that layout would need to sell for at or around 400K to break even. I think this neighborhood would support that price on new construction at some point in the future. But first let's find the sweet spot! 320K is a bit more conservative in my opinion. There is a 2 new builds in the last 12 months; 1 for 173k and another for 200K. Smaller single story property at around 1000 sqft.
My architech is amazing at what she does and have high hopes that we will be able to have something that can fit into the box.
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Jamie Parker
OP
Real Estate Investor · Memphis, TN · Member since 2016 · 405 posts · 132 votes
2y
Just as I was thinking that I was rounding the corner. Often times moving too fast with a limited margin for error can be a breeding ground for bad days ahead. With that being said, asking for advice and following the counsel of more seasoned individuals should not be overlooked.
After walking the property with local well seasoned contractor, with plans in hand I had to swallow my pride and fixation on what I am hoping to accomplish and start with the basics. My last post showed my ambition to bring to market an overbuilt, high risk and literally terrible ideal. In my haste there were some steps that I did not consider. How did I leave out Profit? WOW. The things that happen when moving to fast.
Target Number: 320,000 -64,000 or 20% (agent fee 6% 19,200, GC Fee ~ 25,000, Title/ Closing/Funding 19,800)     256,000 all in ~40,000 Profit   216,000 -5% Buffer 205,200
So what can be built for 200,000
This puts the build size at 200k/120sqft or 1666.67 sqft
In my gut this still appears to be to much house even with 40k in projected profit.
Enter Comparables: Breaking into a new market within a city is hard enough. So proceed with caution and diligence.;
I am having a tough time figuring the sweet spot on SQFT. Many Of these properties are in the 1000-1400 Sqft range. That puts build cost between 120,000-170,000 respectively. Exit price should hit 250,000-275,000.
Given these comps:
NEW CONSTRUCTION
1 being new construction For sale 256 Lucerne Pl, Memphis, TN 38126
https://www.realtor.com/realestateandhomes-detail/256-Lucerne-Pl_Memphis_TN_38126_M75318-15423?from=srp-map-list
4bed 2bath 1200-1399 sqft
Lot Size 6,250 SqftListed @ $315,000
1 being new construction Sold 2022    365 Edith Ave 38126 https://www.redfin.com/TN/Memphis/365-Edith-Ave-38126/home/163262892#property-details 3 Bed 2 Bath    Lot Size 6,969    Sqft1200-1399 sqft Sold @ $173,000
Rehabs/Renovation
470 Walker Ave Unit 3, 38126
470 Walker Ave Unit 3, 38126 https://www.realtor.com/realestateandhomes-detail/470-Walker-Ave-3_Memphis_TN_38126_M97102-59559?from=srp-map-list
Triplex(2) 1 Bed 1 Bath(1) 2 Bed 1 BathLot Size 5,800 SqftBuilt 1920  Listed @ $299,000

Nearer to subject property These properties are also rehabs and not new construction.    1654 Cameron St, 38106 https://www.redfin.com/TN/Memphis/1654-Cameron-St-38106/home/87657066#property-details
1 bed 1 Bath Built 1922 Lot Size 7405 Sold @ $138,000

1660 Shadowlawn Blvd, 38106
https://www.redfin.com/TN/Memphis/1660-Shadowlawn-Blvd-38106/home/87657026
4 Bed 2 Bath  1454 Sqft Built 1941 Lot Size 7250   Sold @ $133,000

661 E Trigg Ave, 38106https://www.redfin.com/TN/Memphis/661-E-Trigg-Ave-38106/home/60783819#property-details
3 Bed 2 Bath 1000 Sqft Built 2002   Lot Size 6,534 Sold @ 110,000

Rentals
735 Roanoke Ave, 38106https://www.redfin.com/TN/Memphis/735-Roanoke-Ave-38106/home/60745881#property-details    3 Bed 2 Bath   1000-1199 Sqft Built 1923 Lot Size 6,534 Sold @100,000 Rented $1350/month till April 2024

1549 Patton St, 38106https://www.redfin.com/TN/Memphis/1549-Patton-St-38106/home/87658319
3 Bed 2 Baths
1000-1199 Sqft Lot Size 3,049   Built 1953 Sold @ $125,000
Rented $1195/month till February 2024

It is not as much of a long shot as it sounds. However as with any investment there is risk involved the investor is responsible to conduct their own due diligence.
There is an existing property and a lot next door that is a blank slate. Starting on the blank slate may be the best option. And this is where the sqft of the
build is important to hit the sweet spot. A remove some of the limitation that the existing property has structurally. Get a new design and a lowering barrier to entry. And see what become of this as we move foward.
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Account Closed
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
2y
Quote from @Jamie Parker:

Just as I was thinking that I was rounding the corner.
You took action, you learned, you won.
1 Reply
Jamie Parker
OP
Real Estate Investor · Memphis, TN · Member since 2016 · 405 posts · 132 votes
2y
@Account Closed
Thanks for your encouraging words. There is still some work to be done. And you said it right I learned and I won. To God be the Glory. I am remaining diligent with this project because I am rusted around the joints. This project is giving me that taste of doing deals again. It has been a long time but if it had not been for taking action, as you put it, I would not be in the place I am in now. Signed up for PassiveGrowth.com. Very Interested to see what is ahead
1 Reply
Jamie Parker
OP
Real Estate Investor · Memphis, TN · Member since 2016 · 405 posts · 132 votes
2y
Well for the next installment of "here we go"
Construction documents are moving along quite well. Environmental court has become a different thing. The prosecuting attorney seem to be more in favor of tearing the property down possibly at the cost of 6500$. To be honest for a full demo, that is not bad a bad deal. If I purchase another property from the city that would require a full demo, I may let the city do it at that price. This property is different, so I opted to go with receivership on the property. Hearing later on in March.
This is gonna get interesting. Because with a note on the property, roughly 26K remaining on a seller financing note, If a receiver decides to go forward with in a similar path to rehab, how does the city create allowances for notes on the property.
Before I got into this situation, I was in a position to know that it existed. Seeing properties on Zillow being offered as with questionable title or quit claim deed upon sale. This is gonna be an eye opener for sure.
0 Reply
Rose JonesPro Member
Member since 2019 · 57 posts · 18 votes
2y
I would consider using a realtor if the property is 20,000 or more and yours meets that benchmark.
1 Reply
Jamie Parker
OP
Real Estate Investor · Memphis, TN · Member since 2016 · 405 posts · 132 votes
2y
Quote from @Rose Jones:

I would consider using a realtor if the property is 20,000 or more and yours meets that benchmark.

I have done much bigger deals without a realtor (19k-3m) in various roles. There’s no need for a realtor when talking directly to the seller. It’s paperwork, easy peasy. The problems I had would have been there with or without a realtor. Call it rusty sloppy or something but got it done. First closing since 2019 so I take it as getting back in shape.
To your point, I will use a realtor for the listings when the projects is finished. I believe the sweet spot between 220k-280k.
0 Reply
Jamie Parker
OP
Real Estate Investor · Memphis, TN · Member since 2016 · 405 posts · 132 votes
2y
Its been a while since I have had something to say about the Latham St property. Well there has been some developments. With this being my first purchase ever, I am learning way more about what it means to "own" something.
When a squatter decides to park his RV across the alley from the d**e house, never expected it to be Walter White. About 2 months ago I saw a camper parked in the back of my lot. The house is still vacant and have not made any progress at this time. I have to own that first. I had my suspicions about the neighbors across the alley and this situation definitely locked it in. When I first saw the R/V, I approached the R/V to understand whats going on. i will refer to the squatter as Walter. Walter says "Someone stole my battery and I cant move" I ask, "Why did you park right here?" Then I tell him, first of the month Im gonna get it towed. First comes around I did not get it towed. I seller financed the property. Seller is from out of town but for some reason she was in town and drove past the property. Walter White hanging out in the back yard. She calls me, ask was is going on with the RV in the backyard. I let her know the situation. She calls the cops. I let the cops know the situation and meet them at the property. After the a few minutes I am told that if Walter is there the next day Call the cops to remove him from the property for trespassing.
Long story short, after another visit from the cops the next day, I will have to get the R/V towed at my own cost. (1975 Roll-a-long Camper Special) not registered. While it is so sketch, because the vehicle is not reported stolen or involved in a crime the police department will not be helping out in the tow of this one. So after talking to a local heavy duty tow truck company the price tag is 620$ per hour to come get the R/V off the property. Wow, I literally do not have that at the moment. So there will be an update as there are developments.
I am so grateful for purchasing something like this as my first property. I literally would lose my mind if this a "operating" property with tenants and other variables. My next door neighbor, is championing the efforts but she has been there 6 months, and the R/V been there 3. Maybe she is looking to change something but I need to buy that entire corner. Before putting footers in the ground on 1522 and 1516 Latham.

0 Reply
Jamie Parker
OP
Real Estate Investor · Memphis, TN · Member since 2016 · 405 posts · 132 votes
2y
The next installment of 1522 Latham and also 1516 Latham:

Months have past and this project has lead to many moments of "what am I thinking" and "one step in front of the next". After finally surrendering to the city's opinion and not fighting the courts something great happened. A property, condemned and badly damaged. Talking to contractors and they suggesting to simply start over. I had to swallow my pride and ego to accept what was simply the best course of action to take in the matter.

This past weekend, labor day weekend, driving around town with my mom and daughter running errands. I got the ideal to drive past the property to see how bad the weeds were. I was simply waiting on the day that the county would demolish the place. The decision was made back in May. I didnt see my tax bill showing a line item. Nothing. However I decision to go with the ideal and drive by. Such a refreshing sight to behold.
1 Reply
Jamie Parker
OP
Real Estate Investor · Memphis, TN · Member since 2016 · 405 posts · 132 votes
2y
For anyone interested. I finished my MBA in Business Analytics about 2 weeks ago. The biggest take away was my ability to utilize machine learning for this process. This using a machine learning approach creating returned something a little different than I first anticipated.

Without boring you with methodology, the result of an in depth study, leads me to believe that this is how gentrification starts. After listening Jerome Maldonado for the last week and most importantly taking notes, having 2 properties to start is the best place to start.
A quick run down:
at $150/sqft
1473-1666 sqft
1667-1833 sqft
1834-2000 sqft
The chart shows 4 categories but that can be broken down into 3 categories. Machine learning shows that building 14 more smaller properties will be more profitable than over a 10 year period than building 8 larger homes. The average build cost is nearly identical but the lower price range nets out 308 builds in ten years vs 303 with conventional algorithms.
What i will do is use $155/sqft
1426-1613 sqft
1613-1773 sqft
1774-1935 sqft
The current footprint is 1448 sqft on 1522/1516 Latham. Using the average 1519/1520 of livable square foot may be the sweet spot I have been looking to find. I went a long way to get it, but I am poised for the next phase in getting these bad boys out of the ground.
0 Reply
Jamie Parker
OP
Real Estate Investor · Memphis, TN · Member since 2016 · 405 posts · 132 votes
2y
It is wild how creating solutions can change a situation,
April 1, 2023 I closed on 1522 Latham for $35,000. Making Payments consistently and actually bumping payments up to over that actual payment amount. In July I realized that this payment hurts. A non performing asset that for reasons mentioned before and a payment for a property that was recently torn down. I realized that something had to change. So with I decided to ask the seller(lender) for a loan modification.
After going to the board of equalization to reconsider the value of the property, the came back with a updated assessed value of $8,000 and some change. After speaking with the seller, the seller was very understanding. In the regard the seller mention that I SOLVED a PROBLEM. Going through environmental court process, evicting the squatter and getting the property out of a blight situation. After the seller made those statements, I was actually joyful to hear that I was useful in this situation. For me at this time in my life, that is huge.
Short story long, we agreed on a modification of the sales price to $15,000.
This deal has been such a lesson in persistence and sticking with it. Accepting that problems come up but not giving up, finding solutions and keep going.
0 Reply
Jamie Parker
OP
Real Estate Investor · Memphis, TN · Member since 2016 · 405 posts · 132 votes
1y
After some major considering;
If I can keep the Total Build Cost under 250K, Not including Cost+ or Builder Fee, these two projects will be an amazing for the area. Sending the surveys over to my architect was a really good feeling. Scraping the previous conceptual, my architect has been extremely helpful. I would like to build a craftsman or bungalow style, Recorded in the Domesday Book of 1086 as Latune, Latham became synonymous with rural land awash with barns and farmland. I am considering Farmhouse builds but may just get these two done and change at that point. Aim for a footprint between greater than 1500 but less than 1700 square feet.
0 Reply
Chris Latham
Investor · Eastvale, CA · Member since 2015 · 38 posts · 17 votes
1y
Hi Jamie,
I admire your diligence and attention to detail.
1 Reply
Jamie Parker
OP
Real Estate Investor · Memphis, TN · Member since 2016 · 405 posts · 132 votes
1y
Quote from @Chris Latham:

Hi Jamie,
I admire your diligence and attention to detail.

Thank you Chris, I decided to chronicle the project on BiggerPockets to remember every step of the way. This being my first run at it, I knew there would be something to talk about, lol. Thank you again for noticing.
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