All Forum Posts by: Dion DePaoli

@Jennifer H.

I may be the odd ball in the room, but I would do it, I would rent to the guy. He is in BK, he has a BK plan to pay for his past debts. It appears that is $300 per month.

He would have had to have reaffirmed each of the other three mortgages on the investment properties if those are still active accounts. I might ask him are they keeping or selling those based on the BK plan. If they are keeping those, then the BK Trustee thought that was financially feasible. Otherwise, the Trustee would have liquidated those assets to pay off the debts.

He makes decent money and frankly, I think most landlords will have a knee jerk response and say "No". So, you have a tenant, who makes good money, has reason to be in your geography (his kids) and is trying to make good on his past debts which some of the problem may simply be from divorce and not him being a 'bum'. His low credit score is to be expected.

Take his extra security and rent him out. He is likely not going anywhere for a couple years. I see a win/win in the background on this and not so much as a risky maybe. Again, I may be the oddball.

@Aaron Mazzrillo I don't think that is correct. Did that happen to you?

When the BK is filed, the list of creditors is established. It is not an open enrollment list. So once the list is made and the BK plan approved, that is it, it is done. A new landlord would not be added to it. That would sort of create BK in perpetuity. The BK plan does not include "future debts" only past.

A lease or rental agreement already in place at the time of BK can be included and the landlord is an unsecured creditor however the tenant who filed BK has to affirm the housing or surrender the housing back to the landlord. If they affirm, the back rent may be discharged. During the initial BK process any eviction would stay by BK order. The landlord would need to file proof of claim and affirm or surrender would apply.

If the tenant agrees to affirm the debt, they have to start paying again. Failure to pay would be a breach and the landlord would be within their rights to move forward with eviction. I am guess, although not sure, the landlord likely has to file for relief first.

If the BK plan is discharged or dismissed, then there is no protection under BK so I don't understand how it would affect anyone including a landlord up to six months after the event.

The terminology might be different than what I used for landlord tenant. I think it might be assume or reject opposed to surrender and affirm.

@Wayne Brooks ... you beat me!!!

@Annette Hibbler

Any misleading I may or may not have are derived from the material on the website of Colonial Capital. Anyone can follow this LINK to the website and bring up the brochure on the right side of the page and find what I found. In the brochure the specific example and language (text) is used.

It so happens I am fairly familiar with pooled investments. It also so happens I am familiar with pooled investment strategies that may qualify for tax exemption under Portfolio Tax Exemption law. It also so happens and related there to I have some understandings of requirements set forth by FINRA and SEC.

The first, a bond is a security. Securities require registration and license in order to be sold to the public. That is a US law. So the origin of the company does not create exemption from registering the company nor is exempt from requiring it's bonds be sold through a licensed professional. For you to sell a person into this program you would need a license issued by FINRA of Series 7 or higher. I am guessing you don't have one. I did look on FINRA and the company issuing is not registered. I will admit, my the post I assumed you don't a license since a licensed bond trader would not post what you did nor in the manner you did.

Now I hate to be a bit of a jerk, but you don't seem to know much of what you are talking about or doing regarding this solicitation nor your response to my post.

Any foreign investment, is subject to specific tax with holdings within the United States. The treaties, specifically define allowable investments but do not create any tax exemption. For UK, the withholding would be 30% for US sourced income. There are indeed ways for a UK investor to reclaim or credit withholding taxes paid, but again that is not the same as tax exempt and it is for the sake of taxation within their country not here in the US.

Further, a foreign investor raising funds from US residents where the money moves offshore (to the UK) and then back to the US (Chicago) where money is made is actually creating an excessive tax burden or at the least excessive tax administrative burden to obtain the proper tax rate for the US based investor.

The exact text from their material of "No need to register or pay US taxes" is not misleading it is completely and unconditionally wrong. It is hard for me to imagine a firm which could miss such a problem statement. Further, the same company has seemingly given you some type of initiative to offer this program for sale, a person with no license to actually sell.

If you follow the link you published, it has an astounding statement too:
"Properties purchased are refurbished to HUD standard. Typically, properties will increase in value by up to 150% once out of foreclosure and fully refurbished."

Really?? 150% appreciation??? That is a load of crap. I don't even want to address it further than that.

I also glanced at the example under "Property Example". Honestly, that entire post is a lie.

That property was foreclosed and reverted to JP Morgan Chase on 7/13/12. JP Morgan sold it to BLASHILL NICHOLAS and PATTERSON MICHAEL on 9/18/12 for $46,000. Those two guys, who doubled THEIR money sold it to REFLECTION PROP US LP on 11/16/12 for $94,500.

The website says this about the same property:
Purchased September 2012
Price $ 49,000
Refurb costs $19,000
Total Cost $ 68,000
Annual Rental Yield $ 32,400 (49%)
Sold October 2012 $103,000

It appears that not one bit of information in the website post, which is supposed to be a live example of this Colonial Capital investment strategy is true in even the remote sense. I will give them credit, they got close on the purchase price but were still off by 7%.

Well, I think this speaks to the other points I have already made. This firm is a complete scam. You seem to be blindly supporting them, likely under the idea that somehow from all of this you get paid. I can understand perhaps they have duped you into believing the story and sales pitch.

At this point, anyone can duplicate what I have done in research and verify the information. Clearly, I have actually put the time in to disprove the post and back up my original statements. I recommend you do the same and get yourself out of harm's way before it shows up at your door. If you "sell" this program to someone and they are harmed financially, that can and likely will implicate you into the scheme. That said, I am not giving you any legal advise, do as you wish. I would touch this investment with a pole that could reach the UK if I had one.

Good Luck.

This has scam written all over it.

Colonial Capital does not appear to be a FINRA member firm. I am guessing the OP is not a licensed broker either. Also investment programs which use the word "guarantee" are pretty huge red flags as any SEC/FINRA attorney in the world is going to say, never use that word.

The post wants to imply this is a HUD sanction program, but it is not. The rental income in majority is hoped to come from section 8 housing. The investment process fails to give notice for an investment prospectus, it says fill out a form and send your money, not a good sign. It asks for wire to be sent overseas, not a good sign.

The program example given in the material on CC website:

Purchase Price = $35,000 Duplex
Rehab Cost = $30,000
Gross Rent = $26,364 (seems high)

The document then refers to this idea of Gross Rents divided by Total Cost so ($26,364 / $65,000) to equal an "unleveraged yield" of 40%. Sounds fantastic but there is no mention of vacancy or expenses. A bit misleading.

Further, the information then supposes the same property can simply be sold for $100,000 which will produce a similar "unleveraged yield" of 26.4%. So, sale price, less cost ($100,000 - $65,000) is $35,000 (that is 53.8%). It doesn't mention what happens with the other $17,000 to reduce the ROI down to 26.4%. Granted some of it must be for closing costs but details are missing.

The same ideas applied here get scaled up for a triplex with 1- 2 bed and 2- 3 beds only the numbers are described as "even better". Well yea, money free of expense is always better when you get more.

Further the bond program calls for an investment then remittance on the bond is semi-annual. First payment is six months after issue. So that seems to suppose the purchase and rehab will occur almost simultaneously. Far from reality, a vacant property gives no income. A property under construction has not tenants.

The next set of stuff is really AWESOME and I quote all of the following:

a) "No need to register or pay US Taxes"
- yea, my mouth dropped too when I read that. They actually typed in in their pamphlet.

b)"Secure alternative investment managed by one of the largest title insurance companies in the US"
- when did title insurance companies get in the business of securities and property management??

c) "No worries about maintenance or refurbishment issues"
- well, yea, cause they are not doing them

@Annette Hibbler

I realize you are not the creator of this program but you seem to be promoting it. Let me not mix words. Stop what you are doing with this is complete garbage and fraudulent scam. You are going to get yourself is some serious problems one of which could be conspiracy on wire fraud or alike. This firm has disguised ripping investors off into some crazy real estate investment scheme which any real estate investor that spends 5 seconds looking at it will tear it apart. When the house of cards comes down, hopefully you are not in or around it.

@Daniel Miller

Let's clean up this a little. Take amortization back out and look at what you actually have going on:

Property A = $2,629.99 (your profit % = 0.46%)
Property B = $3,105.15 (your profit % = 2.07%)

With your equity idea:

Property A = $23,404.94 (your profit and equity % = 4.06%)
Property B = $9,116 (your profit and equity % = 6.08%)

The rate of earned equity is a function of the blended interest rate of the two loans, the blended rates are as follows:

Property B Cost of Funds = 7.23% (the entire LOC)
Property A Cost of Funds = 5.70% (LOC + Seller Loan)

At the end of 10 years, you have paid down both sets of loans:

Property A = $208,595 or 63.84% of balance
Property B = $50,577 or 67.28% of balance

Less interest in rate, will be less interest paid over time in aggregate however, it will also slow the rate of principal reduction as a function of amortization. Remember, this is already accounted for in Net Profits, debt service (in this example) is a fixed payment.

If you analyse your IRR at that 10 year mark and add in the earned equity (which is the reduction above):

Property A IRR = 3.53%
Property B IRR = 4.65%

Property B still out performs property A, why?

-Because property B is more profitable. Not because of earned equity through payment amortization.

So equity as a variable may differ if Property A were to appreciate more. For conversation sake, we are assuming they are equal since it is not quantified. However, you can see that property A would need 1.12% more in appreciation in order to simply catch up to Property B. That could happen, if say rents will rise more in Property A than Property B over time, but that idea is not expressed in the post as a number.

So, while I commend you on trying to think out of the box it is pointing you in the wrong direction. In addition, you are taking on many leaps of faith. Assuming a Seller will finance your closing costs is one of them, that is not all that normal. So in it's nature, your analysis is not taking into considerations of natural barriers of doing deals which is having equity do to so. In addition to that idea, you do not seem to have money set aside for unit reserves which may erode your profit numbers a bit more or capital expenditures as a whole.

The reason folks do not use principal reduction in most standard analysis is because it has a minimal effect on things that can't be more easily understood in simple observation. Property B was more profitable in simple analysis and remains more profitable in complex analysis (when all things were equal). Things that are not equal will have affects, but you must treat those properly. That said, complex analysis is in itself, complex and needs to be done properly.

Remember, amortization is not short term linear math it is long term curved math. If you want to see what the actual affects are, you need to run the analysis to term. Making assumptions from year 1 only, can and will point you in the wrong direction.

It is not that you do not count "profit" in "principal reduction" it is that you do not realized earned equity in profit until it is converted to cash. That event in reality is a cash out refinance or a sale of the property. It is done that way for a reason, it is the proper way to do it.

You can not 'keep a record of property value' per se. Value is not realized until the equity is converted to cash. Value is defined as what a buyer buys for and a seller sells for in an arm's length transaction in an open market. It is impossible to keep track of that since you are only one of the two parties and anything besides selling is mere speculation and could result in error.

Hope that helps. Good Luck.

Steve, was not meant to start a debate on lien priority per IRS and I agree IRS liens fall in line with redemption rights. That said, there are other types of liens that arise which are not uncommon such as federal estate tax liens and then state level and local level liens, which notably are not 'federal' liens, such real estate tax, special assessment and inheritance tax.

The point was more to speak of the idea that some liens can arise, even without notice, that are legally superior regardless of recording time. The greatest example I should have used would be real estate tax liens, but hindsight is 20/20. That said, the list is at least in the thread for reference.

As I hit post and reread you final initial post. If the amortization on both the line of credit and the seller held loan are 20 years, the numbers are less than what I have as your debt service is even more expensive and thus your numbers are even further off.

Frankly, none of this make sense.

First, what is "CBT" standing for in the examples. That is an unknown acronym.

Property B is on par with your line of credit. So the line of credit would be your cost of funds. You do not list the amortization of the line of credit, let's assume it is 30 years. So, the property has NOI of $16,593 before debt service. Debt service is $10,401 annually. Leaving $6,191 as free cash.

It is not clear if the management fee is included in NOI, which usually it is, but based on your story, it seems like this needs to be applied on top. So, we then reduce the $6,191 by the management fee of $2,332 which leave us with $3,859.

So principal reduction would what ever portion of the $3,859 plus the naturally occurring principal reduction of amortization which for year 1 is around $1,962. So the maximum principal reduction is then $5,821.

Now, in year 1 you mention the "equitable profit" is $11,721.09. Not sure where that number comes from. If you use all your free cash to reduce principal, you actually don't have a profit for the year. You would not realize any gain in equity by principal pay down until you liquidate the property. If it was meant to suppose profit plus equity earned, it is not clear if you included appreciation which seems like you are assume greater than 3.0%. Remember, if you didn't pay down the principal, you would only have $3,859 in profit.

When we go back to property A, it is a little clearer how you improperly set this up. You have a line of credit for $150,000. The sale price for the property is $560,000. So, remaining $410,000 is held by the owner we are not given terms though. The cost of the debt is missing in it's entirety. (it is pretty safe to assume it's not free money) For illustration, if we assume 30 years at your line of credit interest, the annual debt service is $29,119. So, essentially, this property has a $4,641 free cash flow. Amortized principal reduction would be $5,362 (seller held) plus $1,962 (LOC) in year 1 or $7,325 in total. If you take the fee cash and apply it to principal, you reduce principal by $11,966. Again, you have no profit, you paid your loan down.

In both cases, your numbers seem messed up. You don't have your expenses in your calculations correctly. Further, reduction of principal in a loan is a bunch of "Who Cares" since the only way to do such a thing is to use the actual profits. So instead of this approach, simply find your profit and stop there, how you apply the use of your profits is not as meaningful as to what the profit actually is.

Understand what you are trying to find in your approach, which really would be what are the long term affects of paying interest and carrying principal balances at certain levels. Not a bad analysis per se, but get the real profit number first. Then get the real costs of your loan. Then see how it can apply to reduction in time, which will really affect the long term interest paid. The principal due, is due, you can control how much interest you pay by prepaying the loan(s) prior to maturity but you can't pay less principal than you borrowed.

Well, my little timeline / seniorty text illustrations distorted when posted.
Each " | " corresponds to the named party in the line below in order from left to right.