All Forum Posts by: Don Konipol

Quote from @Joe S.:

Does anyone have personal experience turning your property into a rent by the room with pad split?

I’m a little skeptical of taking reviews from the company itself if you know what I mean. After doing some research, I became less convinced than I was to start with. It seems like the real support you would receive from Pad split is them helping find the occupants/tenants And them processing the rent. Any issues it appears will be on the landlord. I stopped taking on any more properties where I would be theProperty Manager. I do have a property that has plenty of parking, seven rooms/bedroom that would and could be a good fit for a pad split layout in my opinion.

After looking at some of the reviews, I became less convinced than ever up into this point. I talked to my property manager that manages a number of straight rentals for us and she was not familiar with  Pad Split. 

One reviewer described it as “section 8 meets Airbnb…..”🫣

This doesn’t answer your question directly, but the whole concept is very close to the old time “rooming house”.  More business than investment. Unless you ow. The real estate and lease the property to an operator.  Hiring a manager or Pad Split still means you’re in the BUSINESS of running a rooming house. 

I personally don’t want to be in the BUSINESS of running a consumer service.  I want INVESTMENTS.  If and when someone, or a reliable company comes up with a deal to fully manage a single room rental property for me then I’ll look at the profitability, ROI, and risk and consider it.  But I don’t want to trade my time managing a business for a relatively small net income.

The mistake many people make is comparing a real estate investment returns with a real estate business returns.  They aren’t comparable. 

Quote from @Jay Hinrichs:

@Don Konipol    Don this relates to your thread we were talking about this morning.

this is the highest risk stuff I do.. but I mitigate it pretty well or at least I think I do..

So happy for this young man and his young family.

One of my bizz partners years ago and mentor.. ( he was President of a fortune 500 company) we belonged to the same country club in Napa.. him in his mansion on the Hill me on my house down in the low lands.. But he told me his job was to make those who worked for him to enable them to move up the ladder and in my business he said my goal should be to help your clients become millionaires and they will drag you along with them. :)

Thanks for sharing this success story, Jay.  Real estate investing/business can result in wealth - just not the way or form the gurus teach!

Quote from @Ken M.:

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @Ken M.:

Quote from @Peter Walther:

Quote from @Ken M.:

Quote from @Don Konipol:

Quote from @Ken M.:

Quote from @Don Konipol:

Can a “subject to” transaction be done safely? 

There’s been a LOT of “hostility” on BP toward subject to transactions.  Some posters have gone so far as to call these transactions scams, questioning the legality, morality, and ethics of the buyer.  While imo this is unfair, extreme and just plain incorrect; the detractors do rightly point out that (1) the seller remains liable for a mortgage note secured by a property they no longer own and (2) as long as the note remains outstanding the seller’s credit capacity will be impacted negatively, often resulting in the inability to obtain a mortgage for a home purchase.  They further point out that many sellers are unaware of the consequences of selling subject to. 

I think it’s important to note that subject to became popular in 1980 - 1982 when it was virtually impossible to transact real estate using conventional financing.  Mortgage rates reached 18%, so transaction were all either owner finance, wrap, cash or subject to.  

The possible negatives of subject to have been thoroughly discussed.  The positives are from the buyers prospective

1- the ability to buy a property with little down payment

2- the ability to obtain financing at below market rate

3 -not needing to qualify for convention/institutional financing

4- not having another debt on your PFS

5 - not needing to pay points and other fees to obtain a new mortgage 

The positives for the seller are 

1- can possibly sell a property in which they have negative equity without bringing cash to the closing table

2 -expand the pool of potential buyers 

3 -possibly obtain a higher price/ quicker sale 

4 - can utilize a wrap to potentially earn the “differential” on interest rate 

5 -May be able to save the Realtors commission

All this being established, here’s the BIG question:  Can a subject to transaction be done where both parties are reasonably protected?  Let us know what you think! 

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These are very important points for each side of a creative finance transaction.

A lot of SubTo transactions don't take these considerations into account when filling out their future loan applications. Omitting this information may be mortgage fraud. When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.
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I would modify #4 "4- not having another debt on your PFS" . Actually, on the loan application 1003's that I've seen, 
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Uniform Residential Loan Application  1003

Section 3: Financial Information — Real Estate. This section asks you to list all properties you currently own and what you owe on them.

and includes a full page of boxes to fill in such as 

Property Value
Status: Sold, Pending Sale, or Retained
Intended Occupancy: Investment, Primary Residence, Second Home, Other
Monthly Insurance, Taxes,
Association Dues, etc. if not included in Monthly Mortgage Payment
For 2-4 Unit Primary or Investment Property
Monthly Rental Income

Creditor Name Account Number
Monthly Mortgage
Payment Unpaid Balance To be paid off at or before closing
Type: FHA, VA, Conventional, USDA-RD, Other
Credit Limit (if applicable)

It doesn't specifically ask who's name the loan is in. If you are taking the tax write off, you are acknowledging you are paying the debt. If you aren't making the payment, you don't get the tax write off and are subject to fraud for equity skimming.

 Here’s where you make a slight error.

“Section 3: Financial Information — Real Estate. This section asks you to listall properties you currently own and what you owe on them”

What YOU owe on them.  Unless you’ve signed some additional liability vis a vis the seller, YOU as the buyer of a property SUBJECT TO a mortgage on the property do not personally OWE anything.  

“When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.”

No, when buying a property Subject to, the buyer is specifically NOT personally taking over responsibility for the debt.  That would be ASSUMING the debt.  This is merely purchasing a property that is encumbered.  And, no, the courts do NOT see it that way. Case law is well established differentiation between a loan assumption, and a subject to purchase.

Fraud can be charged if the purchaser has not fully disclosed intent and circumstance to the seller, as well as the other way around.  However, we need to be clear that with a subject to transaction the debt is secured by the property; most often personal liability via a guarantee rests and remains with the seller/original borrower, the property buyer has no responsibility for the debt and no personal liability UNLESS he modified this status by contract agreement with the seller; in which case he may be liable to the seller only. 

No problem. It's a distinction without a difference, according to the federal court judge I litigated under.

Would you also say the seller has no right to sue the buyer if the payments aren't made? Would you also say equity skimming can't occur because buyer never accepted responsibility for the loan? Would you also say the original contract has no enforceable power on the buyer without the signature of the buyer? 

I don't want to put words in your mouth, so I will just say those were issues as part of federal litigation. You have likely heard of Fidelity National Title Group, who sent 4 attorneys to litigate, because it was a Subject To case that would change Title liability.

As always, facts are case specific.  

 Do you have a cite for that case?  I'd like to take a look at it.

@Peter Walther: You've handled a lot of these, Do you concur or do you have a different experience than "If the Warranty deed is not recorded then the title has not transferred and the original seller still owns it."

Seems the property Morby bought out of foreclosure is in Lake Havasu AZ & falls under

https://www.azleg.gov/ars/33/00412.htm 
B. Unrecorded instruments, as between the parties and their heirs, and as to all subsequent purchasers with notice thereof, or without valuable consideration, shall be valid and binding.

I get that but if you used that logic all these lenders that have their borrowers sign a quit claim at closing to be held in case they default/ or DIL and instruct title to hold it.. same thing they made a  loan and now 2 minutes later they have the property back because this deed was signed.. Make for complicated transactions thats for sure.. NO equity no bueno.. long term rentals NO good either. 

In MN if you try to get a rental license and your nowhere to be found on record of ownership and there is a different owner on record, there gonna catch n flag that requiring the "actual" property owner has to complete all licensing requirements. 

And then there is the next level of doing a lease with a tenant. A lease is a conveyance of property use rights. Rights only an owner can convey, not your neighbor, not your Sunday bowling league buddy, only the property owner. 

So then say you go doing all this work around efforts. Get a rental license, get it rented. Tenant moves out and ya hit em with say $2k assessed damages at move out. 

Tenant says "F-u man, you don't even own the property, I looked it up, your renting somebody else's house". You threaten em with whatever, collections or small claims court, whatever. 

So next tenant goes to a FREE tenants rights/advocacy group, who is all too happy to jump all over it. Next they report you to the Atty Gen. office claiming your doing fraud. 

And it's a whole mess now. Court hearings galore, just a mess. Good luck wading through that feces storm. 

See, this whole SubTo thing in residential is always just this daisy-chain of work arounds for this, work arounds for that, hide this, hide that...... Vs you could have just done a C4D and gotten the exact same deal results, had it recorded, avoided all the BS. 

In residential, can anyone give me a good reason where SubTo is BETTER than a C4D? Something it does that a C4D can't?     Serious question. 

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In residential, can anyone give me a good reason where SubTo is BETTER than a C4D? Something it does that a C4D can't? Serious question.

Subto highly benefits the buyer. A guru can sell the concept of "no money needed", "no risk", "big returns" easily and make a LOT of money. ;-)

Well, in Texas, legislation has killed contract for deed (land contracts), as I found out recently.  I knew legislation made CD for residential property too risky with violations too easy and consequences too harsh with compliance too difficult and uncertain so no attorney or title company will get involved.  But when I attempted to do a commercial property CD I was turned down by four real estate attorneys afraid of being sued if they advised for”taking the risk”.  So we ended up doing a subject to transaction.

I’m not familiar with possible legislation or judicial case law in other states concerning CD transactions.  

But I agree with your basic premise: CD transactions are more beneficial to the seller than Sub to, while SuB to transaction are more beneficial to the buyer than CD.  However, my self interest depends on whether I’m buyer or seller! 

It’s been mentioned that with Subject To transactions are utilized by “equity skimming” operators.  Absolutely, this type of title transfer lends itself to crooks who gain control/ownership of a property for a small (or no) capital commitment; have no liability of the existing mortgage, and intend to collect rent for 6 months or so while not paying mortgage note. Taxes, insurance or repairs, and then lose the property to foreclosure having pocketed what6 months or more rent payments with no expenses.  
Personally, I’ve probably purchased 20 properties subject to; maybe half residential and half commercial.  I NEVER missed a note payment, tax payment or insurance.  On one deal ultimate my partner and I went $140k if youOUT OF POCKET when we lost all but one paying tenant after March 2020 (Covid). My track record makes buying SUbject viable for me.  But I also sell subject to; depending on size of down payment/capital commitment from buyer; buyers track record and buyers financial strength.  This is a lot different than a newbie mentored with limited capital purchasing a negative cash flow SFR from an unsophisticated homeowner. 

Quote from @Jay Hinrichs:

Good Morning Don,

I think most Note investors or those originating new loans/mortgages usually stick to one camp or the other.. IE they just work in the NPN space and try to work the notes and ending up owning probably happens maybe not the majority of the time but quite often..

Then you have companies that originate and having a loan go NP is a semi disaster :) 

What I am seeing is some of the NPN folks have had to go into origination as the NPN space inventory shrunk a ton and or pricing was to high to make sense.

I submit on BP your for sure one  of the most sophisticated members when it comes to this space . The vast majority of BP members really dont know anything about how lending really works but are here to learn with many more asking questions about how to be a lender.. 

Thanks Jay.  Btw, how much of your real estate activities is BUSINESS and how much is INVESTMENT?  Or do you not think of it that way? 

Quote from @Nate Marshall:

Quote from @Ken M.:

Quote from @T. Alan Ceshker:

That is a fantastic question.

For more than 20 years and over 15,000 closings we had 3 wraps called due.  We fixed all three easily.

Then for the past approximate 3 years and numerous hundred closings, we have seen about 10 to 12 due on sale issues.  There are a few reasons for this: getting insurance in place improperly; inappropriate contact with the bank; one loan servicer that is looking for wraps; etc.  So, yes - there has been an increase in the percentage of wraps called due.  Still a very small percentage -- but an increase.

On each of the approximate dozen that have occurred, only 1 loan was paid off and that was voluntary since the balance was very low.  We have fixed all the rest.

I agree the due on sale clause is a risk in wraps.It is just a very small risk that can be fixed if needed.  And, all real estate transactions have risk.  Some more than others.  It is our job to manage the risk at the inception of the project.

Thanks for the info and comments.

Alan

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Good info.

I don't mean for you to talk out of class, but Pace Morby says in one of his recent videos that he is doing "table top" closings (closing outside of escrow)  "because he knows what he is doing". 

Since he, as the "leader of the pack" has announced that information, which of course influences large numbers of others to follow suit, people who don't want to spend the money for a proper close;

well . . . let me change my thought here, from asking a question to making a comment. The recklessness that trend represents and its implications are staggering.

No response necessary ;-) 

 This is a larger problem than people think. Many of the people paying

$8,800 to 12,000.00 to Pace are not even real estate investors. I have seen Pace pop up on You Tube seemingly like he wants inexperienced people. Too many people are being hurt and it is just a matter of time before a State AG or the DOJ gets involved. The "Morby Method" people have no business making a "big chunk" off of OPD (Other People's Deals)! 

I wonder how many deals Morty’s mentees actually close? 

Quote from @Phil Cecere:

Hello,

Does anyone have experience working with Trent Ellingford and the 6 Figure Assignments Program?  Or Cody Sperber with Clever Investors? Considering joining and looking for any reviews or recommendations if the program is legit and worthwhile?

Thank you,

Phil

 Don’t have any experience with the mentioned mentors, but I do have 45 years experience in commercial real estate investing.

Flipping (wholesaling) commercial properties require the same base of knowledge (real estate principles, real estate law and real estate finance) that is a foundational requirement for flipping residential properties; PLUS, extensive knowledge of the commercial property TYPE one is trying to engage with, and extensive knowledge of the local real estate market for the subject property type. 

Example 1 - I used to have extensive expertise of automotive repair facilities located in Harris County, Texas.  This allowed me, for example, to purchase an automotive repair facility with an environmental issue thru BK court for $115,000, remediated to issue for $2,000, and sell the property for $325,000.  When I attempted to do a similar flip in another county in Texas, where I was unfamiliar with the nuances of the area, my “slam dunk” deal ended up as a $40k loss!. 

Example 2 - A relatively new real estate investor I met decided to specialize in RV parks in Harris and Montgomery Counties, Texas.  She spend an intensive 2 months studying real estate principles, law, and finance, and studying RV parks in both counties.  She created a list of all RV parks in those 2 counties, and visited every one. She then contacted all RV parks owners that had their parks listed for 9 months or more and had not sold, offering to purchase their parks for a certain amount and disclosing her intent to “flip” the contract. An attorney friend of mine owned just such and park, and was impressed that she knew more about RV parks in Texas than any broker he spoke to.  He wnent ahead and signed a contract with her; within 5 days she was able to find a buyer who paid $75k more than she did.  Eventually she just sold the contract for $50k cash (all profit to her) when the RV park sold.  I actually lent the money to the purchasers to buy the Park. 

Here’s my recommendation.  Ditch the gurus.  While I don’t know their program or them, I’ve yet to see a mentorship program that cuts the time necessary to obtain the knowledge required; that has a monopoly on any tactic, strategy or technique that’s not common knowledge; and or that provides any ongoing “help” that’s anything but “basic”.

If you’re not well versed in principles, finance, and law, either read books on these, attend college classes, or take a course(s) leading to real estate broker (salesman) licensure.  Then decide where the opportunities lie, and do as the RV Park specialist did in whatever commercial property type you want to specialize in.  
Btw, your or anyone else’s success can NOT be guaranteed by any guru, mentor, course, etc.  A lot depends on an individuals motivation, dedication, learning capacity, decision making capacity, analytical ability, time available, support system, mental state, and yes, luck. 

Permanent vs variable portfolio.  IKnow, I know, NOTHING’S permanent.  But, for practicality, I divide my portfolio of notes into two distinct portfolios.  My PERMANENT PORTFOLIO consists of notes and my participation in note syndications that are held for income, collect interest on a continuing basis, and (hopefully) get paid off at maturity without any “drama”.  In other words held for steady cash flow.

My VARIABLE (note) PORTFOLIO consists of more active/speculative notes - non performing notes I purchased at discount to principal owed; notes I hope to "work" for enhanced ROI, real property I "purchased" with a leaseback option to repurchase, and defaulted notes I purchased planning on eventually taking ownership of the real estate, as well as notes I created that don't have current payments but provide a guaranteed return plus an equity "kicker" when the property is sold.

Seems to me my “permanent note portfolio is basically a passive investment, while my variable note portfolio is somewhere between business and investment.  

Wondering is 

1- Anyone else thinks of their portfolio in a similar way

2- Anyone else see advantages (or disadvantages) of “dividing” your note portfolio into these two different arenas

3- Anyone else distinguish between “passive” investing, “active” investing, the investing “business”. 

Please share your thoughts

@James Hamling

Very well stated! 

I’m beginning to think that my experience differs from yours and others who have the same experience with sub to as you because almost all of my deals in the last 20 years have been COMMERCIAL properties; hence a significantly different species. 

Quote from @Ken M.:

Quote from @Don Konipol: 

@Jay Hinrichs: @Chris Seveney:

Quote from @Ken M.:

Quote from @T. Alan Ceshker:

That is a fantastic question.

For more than 20 years and over 15,000 closings we had 3 wraps called due.  We fixed all three easily.

Then for the past approximate 3 years and numerous hundred closings, we have seen about 10 to 12 due on sale issues.  There are a few reasons for this: getting insurance in place improperly; inappropriate contact with the bank; one loan servicer that is looking for wraps; etc.  So, yes - there has been an increase in the percentage of wraps called due.  Still a very small percentage -- but an increase.

On each of the approximate dozen that have occurred, only 1 loan was paid off and that was voluntary since the balance was very low.  We have fixed all the rest.

I agree the due on sale clause is a risk in wraps.It is just a very small risk that can be fixed if needed.  And, all real estate transactions have risk.  Some more than others.  It is our job to manage the risk at the inception of the project.

Thanks for the info and comments.

Alan

.
Good info.

I don't mean for you to talk out of class, but Pace Morby says in one of his recent videos that he is doing "table top" closings (closing outside of escrow)  "because he knows what he is doing". 

Since he, as the "leader of the pack" has announced that information, which of course influences large numbers of others to follow suit, people who don't want to spend the money for a proper close;

well . . . let me change my thought here, from asking a question to making a comment. The recklessness that trend represents and its implications are staggering.

No response necessary ;-) 

Table top closing?    Does this mean (1) no escrow or third party closer to ensure adherence to fairness and law?  (2) no independent third party escrow agent?  (3) no legal representation representing the interests of each side? (4) docs put together by someone not licensed to practice law in the state of the subject property? (5) use of “generic” documents as opposed to documents drawn to fullfill specific situations? (6) no title insurance? (7) no assurance of proper document filings? (8) no requirements in documents for purchaser to adhere to procedures to protect the seller? 

What could possibly go wrong? 

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Seems Pace Morby is doing this with people in foreclosure for "foreclosure avoidance" in AZ, TX, GA, NC, FL, CA and other places according to him. and says it is very profitable. Says in a video on his channel, he is making $150,000 on one deal where he bought the $650,000 property in question for $350,000 to solve their foreclosure problem, from an elderly couple and has given the owners (now previous owners) 6 months to pay him $500,000 to get the property back. He is actually bragging about this.

Such a generous guy. It only cost the previous owners $20,000 up front for the fee to do this foreclosure avoidance scheme, and the owners, oops . . . "previous" owners have to make payments while they live in the house. They did a "table top" closing, warranty deed signed but not recorded, no legal representation, and if the elderly couple who had no money to cure their foreclosure can come up with $500,000 in 6 months, they can buy they property back. Now that the previous owners have nothing to borrow against, . . . how do they do that?

Morby then promotes that if you join his group (which is what, $10,000 or more now) he will teach you how to equity strip and break the law and practice very bad real estate investing, just like him.

I guess without knowing the circumstances it’s not possible to say that this didn’t happen, i.e. is “made up”, but its sure hard to believe that property owners who had $20k to pay upfront and a house worth at least double the note had no better options?  

Look, this example may indeed be true, though morally “questionable”. Which would beg the question of if the homeowners were in the mental capacity to legally enter into a transaction; if this transaction is somehow a violation of of consumer law or fraud, etc.  BUT, I also question if this was a real transaction or not.  Maybe it was - but I’ve seen a lot of times where people fabricated their “tract record”, their “resumes”, and their “educational credentials”. 

Back about 40 years ago when gurus, mentorship’s, etc. was in its baby stages there was a guy going around being promoted as the epitome of real estate success now intent on “giving back” by sharing his experience and wisdom through high priced seminars, workshops, mentorship’s, “books and tapes”, etc.  Before this marketing program took off the individual in question had carelessly left his fingerprints on a glass of water.  Someone paid to run the prints, and it turned out that the individual in question was not whom he claimed to be; he was an unsuccessful professional actor; his experience was completely fabricated, and the “deals” that made up his “track record” were someone else’s.  Just because someone claims something doesn’t mean it (1) is the complete story (2) they participated in it or participated to the extent claimed (3) had the outcome they claimed and/or (4) happened at all.  

Quote from @Ken M.:

Quote from @T. Alan Ceshker:

That is a fantastic question.

For more than 20 years and over 15,000 closings we had 3 wraps called due.  We fixed all three easily.

Then for the past approximate 3 years and numerous hundred closings, we have seen about 10 to 12 due on sale issues.  There are a few reasons for this: getting insurance in place improperly; inappropriate contact with the bank; one loan servicer that is looking for wraps; etc.  So, yes - there has been an increase in the percentage of wraps called due.  Still a very small percentage -- but an increase.

On each of the approximate dozen that have occurred, only 1 loan was paid off and that was voluntary since the balance was very low.  We have fixed all the rest.

I agree the due on sale clause is a risk in wraps.It is just a very small risk that can be fixed if needed.  And, all real estate transactions have risk.  Some more than others.  It is our job to manage the risk at the inception of the project.

Thanks for the info and comments.

Alan

.
Good info.

I don't mean for you to talk out of class, but Pace Morby says in one of his recent videos that he is doing "table top" closings (closing outside of escrow)  "because he knows what he is doing". 

Since he, as the "leader of the pack" has announced that information, which of course influences large numbers of others to follow suit, people who don't want to spend the money for a proper close;

well . . . let me change my thought here, from asking a question to making a comment. The recklessness that trend represents and its implications are staggering.

No response necessary ;-) 

Table top closing?    Does this mean (1) no escrow or third party closer to ensure adherence to fairness and law?  (2) no independent third party escrow agent?  (3) no legal representation representing the interests of each side? (4) docs put together by someone not licensed to practice law in the state of the subject property? (5) use of “generic” documents as opposed to documents drawn to fullfill specific situations? (6) no title insurance? (7) no assurance of proper document filings? (8) no requirements in documents for purchaser to adhere to procedures to protect the seller? 

What could possibly go wrong?