All Forum Posts by: Dion DePaoli

You did not state which type of loan the mortgage is. Again FHA has a mandate as of June 2013 that MIP can not be removed as I stated above. If the loan is not FHA then it can be removed and simply falls off once the condition of LTV is met or exceeded.

Whether that makes economic sense is also unknown to us since the varables to assess the idea are not present. However, if you can make the money out perform the cost in PMI/MIP then it would seem that may be a logical opition to puruse.

@Chris Logan

I would pay $97 dollars but honestly, I think you have to address this statement in your post, since it seems to really secure my money that would be invested in the program:

"For Your Rehab Properties And Get Over Market
Value For Your Flip NEARLY EVERY TIME - Guaranteed!"

If 'Value' is determined specifically when a Seller sells and a Buyer buys in an open market via arm's length transaction, how is it you can exceed that since the true value is only set when the sale occurs?

It seems, that may be a bit of a conundrum and circular reference. Clearly, I don't expect all the details since you are asking for folks to pay for that and attend the seminar but some idea as to how that really works might give your post creditability.

We are not really suppose to PM questions here so per the rules I must ask in open forum.

The other concept in that sentence, regarding the guarantee, seems to say something along the lines of this:

"100% of the time it works, 10% of the time"

So, this seems confusing to me. A 'guarantee' is a certainty claim of some event or circumstance. So then, it begs the question, how said guarantee will be quantified to become certain, if it is not certain to occur?

Again, I am willing to pay for this event if we can understand these two arguments. I look forward to the answer.

@John Horner

The insurance you carry will be the first line of defense in a law suit, that is one of the reason you carry it. Now, you may want to make sure you have specific landlord issue coverage which may not always be present in an umbrella policy over both your primary residence and your investment property. You may need to separate the two for coverage reasons or you may be able to add on specific coverage, depends on your insurance provider. In most situations, that will be sufficient to protect you.

Simply placing the property into an LLC does not create a real protection in some instances since the LLC can be pierced, especially when you are the sole owner of said LLC. For one single property owned by you, I am a bigger fan of simply carry good insurance which covers the spectrum risks.

Check out this thread which had a pretty good discussion around the same idea: HERE

Yea, I agree with Bill, there is no sub-prime commercial mortgage insurance policy out there. Nor does any MI policy really affect your world per se. Mortgage insurance is not insurance for the Mortgagee for the entire balance, only a portion. Bill mentions some of the factoring metrics. The borrower in most cases does not order the policy, he only pays for it on behalf of the mortgagee.

In your post you mention both debt and equity financing, that leads us to believe you really do not have money to put into the deal. That will be a barrier of entry for any commercial loan and frankly would be dangerous for you to get into a commercial property with little to no reserves (of cash) to deal with any unforeseen issues.

Perhaps you have found a property which seems like a 'good deal'. That is great, now you need to find an experienced investor to team up with to put it all together. In that event, you will take a lesser role, but you will learn what it takes and get your feet wet across many different ideas within the realm of owning and operating commercial property.

The mortgage can stay in your natural name while you title the property and operations of business into the name of your LLC. The LLC will afford some liability protection but you should also look to a good insurance policy to carry the brunt of that protection. The LLC may offer some tax incentives to you depending on other factors and you should consult an accountant as well.

The mortgage itself is a different type of liability than what is present with land lording and the ownership of the property for investment purposes. The mortgage is due and payable as long as it is outstanding as a debt. Events at your property such as a tenant getting hurt or alike are more of the liability concerns you are dealing with. Placing the asset in the LLC may (or may not depending on your state an other factors) protect your personal assets from being charged in the event someone sues you from something that happened at or around your property. That, as I mentioned, can also be handled pretty well by a good property insurance policy.

Within the mortgage documents is likely a clause which is referred to as Due on Sale or Alienation Clause. This clause gives the mortgagee the right to accelerate the balance due if any interest is granted into the property. So the conveyance from you as a natural person to your LLC could trigger this event. In most cases, the mortgagee may not pursue this concept but they can at any time.

Selling the asset to your LLC can carry tax implications for you personally, so you should discuss with an accountant as well. I am not in the business of disagreeing with legal counsel, but you may want to simply chat up another attorney to see what their take on the matter is around your specific situation, they may be other opinions.

There are many threads here on BP around this topic to give you some more insight.

@Nick B.

My commentary is around first liens. PPR invest in second liens. Liens in second position trade for less since they are in second position when they fall under distress. Some seconds can be worthless from a security stand point, only being able to collect what is due through unsecured means.

The last series of second liens I owned and sold, I purchased a collective UPB of around $3.5 Million for $600. Those liens were included in a pool of first liens that we purchased, essentially we paid $10 each. I sold them to a fund which invested in second liens, ran by a friend of mine. They paid a little over 1% of the balance. It was a nice trade for us and not so nice for them. That fund specialized in seconds and eventually closed due to lack of profitability.

I do not investor or trade second liens in any manner, only first liens. Second liens can trade for as low as 1% to 2.5% of UPB for NPN's and upwards of 20% to 25% of UPB for preforming the last time I cared to look which has been a bit. As with my same statement above, it is very difficult to put a static price idea on a loan without factoring in the other inputs. Better collect-ability warrants a higher price, just the same as with first liens. So concepts like equity in the property or lesser amounts of negative equity will influence the price amongst other things.

Many folks are attracted to second liens due to the low capital demands and barrier of entry for the same. Dave has a good reputation around BP and many folks around here are pleased with him and his program.

You are jumping from concepts held in a first lien with the amount of equity you expressed you desired to now moving to concepts around second liens. Those are not the same thing and in note investing details matter. This is why I made my statement, you do not seem ready to make an wise decision in investing just yet. Continue to gain knowledge and understand the lay of the land, as you do that you will gravitate to what makes sense for you and will be able to manage your expectations better for qualities within the loans you seek.

Posting random "stats" seems a little bit of a wide brush. I have stories but that would be more like telling war stories and is not really my authorship style. Bill in this thread as well has many stories and years of experience. I have spent most of my career within the instutional ranks of whole loan investing and origination. The universe of whole loan mortgage investing has many subsets within it from private to institutional from first to seconds from prime to distressed and from performing to non-performing. I have bought loans and lost money and bought loans and hit home runs (do the IRR on the above trade). There is a lot to learn and know. I can understand it is difficult for a new interested investor to separate fiction and non-fiction ideas at times. The good news, you have BP to ask questions and some pretty experienced folks will give you feedback.

For the record, and all things considered, if I owned a NPN with a UPB of $120k and FMV of $100k with no foreclosure start in the state of California you would pay over $65k and in Florida $45k. The $30k offer would not even get a phone call back and likely not an answer the next time you call either. As you progress, don't look for the easy answer, like some static number, look for the understanding on how to come up with a number. When you can do that, you will understand what it takes to invest in loans. It is not rooted in magic.

@Account Closed

I am not interested in a futile debate Joe. The tourette statements that get made from left field after you fail to read a post seem to resolve any need to do so.

Please tell the counter-parties you know, who seem to have endless supplies of cheap assets at static prices, I will never hold funds in their vaults due to the lack of capital preservation practices they seem to practice.

In the meantime, I will continue to rely on my experience, math, logic and reason to produce my statements. ; )

@Nick B.

Do yourself a favor and go look around on some other threads before you drive down a road that doesn't exist with more bad ideas. Frankly, you are not ready to make any type of loan investment, you don't understand some of the basics. That can be dangerous and costly. I am not discouraging your egerness, but I am telling to practice more prudence and gains some knowledge of what you are trying to do.

@Nick B.

In your story, the bank sold loans to a 'wholesaler' for 10 cents on the dollar. We will assume the dollar you are talking about is the remaining principal balance of the loan. This is fairy tale, it's not true and is a over exaggeration of reality. When a loan is made, the point is for it to be paid back with interest. The principal balance is the banks or some other investor's capital that was invested. Not paying that principal back is a loss for that investor (or bank). No investor takes a loss laying down, as such, they will work to minimize the loss as much as possible. This might include them dispositioning (resolving) the asset themselves or it might also mean they would rather sell the asset for a small loss and get back to the business they are in of lending money offsetting the loss with new profits. This is still a mitigation of loss. That does not mean there is a unreasonable fire sale at 10%. If you gave me a $100 and I simply only gave you back $10, would you be happy? I think not. Same goes for the investor.

Any new Investor (you called him a wholesaler) that is interested in purchasing the defaulted loan will want a discount which protects their invested capital and any additional capital costs they will have in order to finish foreclosure and protect their interests in the property. So a discount will be applied. It will include the cost categories I mentioned and will also take into consideration time it takes to complete this process. The faster and less expensive the process is to finish foreclosure and recapture what is due, the less of the discount the Seller will accept. The longer the process takes and more costly, the larger the Buyer will want in discount. So they are at odds. The Seller owns the asset and can finish the process themselves, so if the Buyer's bid is lower than the amount the Seller can reasonably collect, all things considered, there likely will be no trade. It would not be mitigating costs to sell for much less than the number the Seller can recoup within reason on their own.

A "re-preforming loan" is a loan that was in default at one point and was reinstated and is performing now. That can be born by either the Borrower or the Mortgagee under different ideas that I am not sure this post is ready for or Bill will make fun of me for taking up too much room. The point here is, a loan with cash flow is worth more than a loan with no cash flow. Usually loans that cash flow means no additional capital must be injected into the investment to gain a return and thus risks are reduced.

Any Seller is either out to mitigate their loss to as little as possible and any profitable sale is to make as much profit as possible. So the general idea of the step up from 10% to 20% to 50% is flawed. Those are not the realistic numbers. Would you buy a house for $10 and sell it for $20 when it is worth $100? I think not. The detailed mechanics of what you are describing are not ready for the basics we are covering here in this thread so far. So I will skip them.

As I mentioned, if we presume the average house in an average neighborhood and the average cost and time. NPN's will run around 55%. A re-performing loan will run around 65% and a more seasoned distressed loan will be around 75%. All of those can generally be applied to the value of the real property. Those are NOT meant to be static prices since not all things are always equal and no two assets are alike in all things. Total balances, negative equity, positive equity, interest rates, seasoning and a whole slew of other ideas will affect those prices going up and going down.

If I owned a NPN with equity at 50% LTV, I would not discount the sale price of that loan much at all since any new investor has enough equity (at 50% LTV) to recoup the costs that will occur to collect on the debt. This idea, having equity to help offset the cost of enforcing the agreement is the reason for the discount and is also the reason loans have down payment requirements. It is one of the driving forces of the discount.

The premise missing from your story is that a Seller is simply happy with a huge loss and that is not reality. Banks or any other investor have no duty nor a requirement to take such a loss. Additionally, you miss that anyone making a profit is simply happy to cut off the profit potential to some level and give it to someone else, essentially for free. That is more of a charitable idea than an investment idea.

Nick, you have been feed some misinformation and it is clouding your reasonable logic and judgement. There is no magic in mortgages. These are investments for the investor, they will respond like investments just like any other.

I see you are new to BP. Welcome. There are many threads here which discuss many aspects of investing in whole loan mortgages and a variety of sub topics related to the same. Take this base of knowledge you have found (hopefully not paid for), and throw it to the way side and start new reading here. As you go, feel free to ask questions based on what you take to understand. We are happy to provide you with commentary and you will get more proper and correct information than what you have gather so far.

You do not need a JV agreement. The conditions can be applied within the Contractor's agreement. Simply get his standard contract and work up an addendum to it to cover how he is paid.

There are two approaches, incentive based or punishment based. To that idea, you get more bees with honey rather than vinegar but you also must protect yourself.

To gain an idea of how to structure that, think of how an extended construction timeline will affect your resale. Perhaps cost of funds (interest paid on loan or to an investor, which could be you) influences that. Finishing it late is a different idea than not finishing it at all.

Who will own the material during the process and what happens to said material if he purchase it and walks?

You can create a buyout clause for the material, where if he walks you pay him for material only, if he is paying for the material in the first place. If he is just labor, it is a moot point.

In that case a simple step down in profit share can work. Or you can also look to give an extend time, say 60 days instead of 30 to be a bit more conservative and offer an incentive for early finish. This may relieve pressure and takes on the notion of incentive instead of punishment which might make for a happier union.

Remember as you step down, as a contractor he would have charged you 10% normally, so do not reduce him to zero otherwise you will create a break line where it doesn't make sense for him to finish if it goes to long. Under the same guise, simply adding the incentive to his 10% normal fee, might be the simplest. Say you he gets 10% for 90 days or more and gets a 10% equity kicker for each early 30 day cycle. So if he finishes work within 30 days, he gets 10% of construction plus 20% of net gain. Or something to that idea.

The point is, do not look to start from scratch, since a normal idea would be normal. Look to use the normal things that are used so you are not inventing things from scratch that just creates more work.