All Forum Posts by: Don Konipol

Quote from @Gabriel Watts:

Good Evening Everyone!

Crazy to think how much bigger pockets has changed my life but I have almost never get on the forums even though I listen every day. I was a Federal Agent for the Department of Homeland Security when I got into investing back in 2021. listening to Brandon and David on the podcast I fell in love with it all and dove right in. Started out buying small multi family thinking that was my best option, then I learned about the BRRRR process and now I am doing that at scale! we have about 3-4 BRRRR's a month going on now. a lot of people talk about a "perfect BRRRR" being when you get all your mom back out of the deal. that would be a WORST deal for me lol. I am profiting 50-75K on every BRRRR I do. looking to connect with more BP fans in Texas. Most of my portfolio is in Corpus Christi TX. I was able to step away from my job with DHS in 2023 and my real estate journey has taken off even more. I got my license in 2024 just to have MLS access. I Do represent myself on all my purchases if they are listed as well as I represent a couple of my buddies locally who are investors. Love to talk shop! I recently started a RE Youtube channel @investorplaywithgabe sharing all my on going projects and things Ive learned along the way! would be a great resource for someone just starting out or wanting to scale. I didn't come from money or a trust fund baby. I started with just money I had saved by house hacking renting my rooms of my rental out to other agents and saving every penny I could, no college degree and now have a portfolio valued in the 8 figures and have retired at age 31. Lets connect! if your looking to get into a new market or if you are in Texas! I am also expanding more into Houston and San Antonio areas as well.

You found your passion - real estate !  That’s great.  However, I need to insert a work of caution.  Your RE investing experience has been in a rising market.  For experience, assume the same investing with a market where prices crash 40% - 50%, renter defaults hit 20%, the vacancy time runs to 4 -6 months, and rental rates decline 20%.  Doesn’t happen OFTEN, but I’ve been thru FOUR of these “recessions/depressions in my real estate career.  

The point is NOT to STOP investing, but to invest with “backup” or “staying power”.  That’s a whole “nother” topic. But, here’s the reality.  With residential property being controlled more and more by investors vs users, the volatility will only increase in the future.  

Btw, congrats on your success - no SOLIDIFY that success by contingency planning 

Quote from @Mike Beville:

I'm looking to sell a fractional interest in my single family rental. This is for long term leases in a fast growing, family-centric suburb of Richmond, VA. Does anyone have experience in finding a partner for a deal like this? I'm reaching out to traditional realtors with little success, and I'm not sure their incentive structure works for this. Any tips, help, insight, etc would be appreciated.

I think you’ve got to start with two key factors for the potential buyer; what will be his ROI and how much control will he have.  

Samuel Goldwyn: A verbal agreement is not worth the paper it’s written on”. 

Quote from @Ned Carey:

@Bryan Lewis This has been discussed many times here. a search may help. @Chris Seveney and @Don Konipol have written about this recently.

Two issues, first I don't recommend transferring to an LLC from your own name just to get better financing. There are issues your lender will never tell you about because they are not a lawyer.

Second, yes you are correct that most loans do not get called for due on sale. However now that rates are rising, lenders have a reason to call loan with a low interest rate. They can reloan the money at a higher rate. 

Yeah, there is a lot of misunderstanding and mis information concerning due on sale clause. 

To start at the beginning, prior to 1978 almost all residential mortgages did NOT contain due on sale clauses.  When interest rates skyrocketed from 6% to 18%, lenders began putting due on sale clauses into deeds of trust and mortgage instruments/notes, especially since many mortgages were being originated with “teaser” rates and “buydowns”.  In response to consumer complaints, individual states began enacting laws negating these due on sale clauses.  Congress, acting on pressure from the lending industry, passed the St Germaine bill which prohibits individual states from passing laws that render due on sale clauses non enforceable. 

The law also provides specific exceptions outlining instances when a lender can not proceed to foreclose despite a property “transfer”.  Most of these have to do with death of a property owner and either inheritance or purchase by a near relative, or in a divorce situation.  There is a provision that prohibits enforcement for due on sale “a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property”.

So, the borrower/owner CAN place his property into a living trust he controls. Some pundits took this to mean that an individual can transfer the property into an LLC they control, or an LLC that's owned by their trust. This did not survive court challenge.

It’s important to understand what the law does NOT do.  It does not make the transfer of real property without paying or obtaining lender permission illegal, immoral, unethical, or anything like that, despite the insistence of some posters on BP (LOL).  AND it does not say a lender HAS TO or WILL enforce the due on sale if they find out.  It does not say that the borrower has any obligation to inform a lender of a property transfer.  

Some investors don’t want to live with a potential “time bomb” of possible due on sale clause enforcement over their head.  Others, are willing to accept the risk and make preparations for the eventuality.  It’s interesting g to note that business owners often live with the greater risk of their term loans , receivables financing, and working capital loans being called due at the worst possible time as these loans are due at the whim of the lender.  

Brokers, lenders and investors spend WAY too much time on deals with little chance of ever closing.  They do this to “fill” the time on their hands. To greatly increase your income, wealth and success, work ONLY on deals with the greatest chance of closing.  With the time freed up by NOT working on deals with little to no chance to close, spend that time marketing, selling and searching for new deals that have a greater chance of closing.

So what’s the rule?  Rank all the deals you’re  working on from most likely to close to least likely,  Now take the top half and write those down on one sheet of paper.  Take the bottom half  and write those down on a second sheet.  Now throw out the second sheet.

This alone will increase tour income 50%.  So how do you get to TRIPLE your income. Well, that requires two more steps. 

First step: Rank your list of top half deals likely to close by income to YOU. Yes you guessed it.  Throw away the bottom half, work only the top half, and spend the freed up time marketing, selling, searching for deals meeting that criteria.  Now you’ve got to doubling your income. 

Most people won’t do this because they don’t want to sell, market or search and or they don’t want to spend more money on marketing. 

Second step: Go back to your original list. Now calculate the income to you for each deal AND the expected chance of closing.  Then multiple to get “expected value”.  So if a deal closing will net you $500,000 and it has a 10% chance of losing the expected value is $50,000.  If a deal closing will net you $25,000 and has an 80% chance of closing it will net you $20,000.  Now rank these for expected value.

Here’s the HARD part.  Throw away and stop working the bottom half of the deals.  Only work on deals that have the HIGHEST expected value.  Almost NOBODY will do this.  Almost everyone will be unable to give up the “sure” deal even if it nets them an amount below the expected value of more than ”risky” (less likely to close) deals. Admittedly it’s VERY hard to do.  The tendency is to just “cheat” a little. And to remain where you are financially. 

I did just this years ago.  And within two years I tripled my income, and never looked back. . 

Quote from @Priscilla Rodriguez:

Hey BP Family,

I’m new to the multifamily space and just getting my feet wet, but I’m eager to connect with folks who are experienced in using seller financing to acquire multifamily properties. I know creative financing can be a powerful tool, especially when you’re building your portfolio, and I’d love to learn from those already doing it successfully.

If you’ve done deals with seller financing—or know the ins and outs of structuring those kinds of transactions—I’d appreciate any advice, resources, or even just connecting to swap ideas.

I’m all about building real relationships in this space and learning from the people who’ve been in the trenches!

Typically sellers are not motivated to carry back financing for a property they’re selling - the reason seller’s DO it is because either they are obtaining a higher price then possible with a cash sale or sale to a buyer obtaining third party financing or can sell a property that’s does’nt qualifying for third party financing because of area, type or condition.

Bottom line is that in my experience 98% of the time seller financing is utilized the buyer is paying over market price. Gurus sometimes suggest sellers are motivated to carry back financing a note so as to “spread out” income tax’s due.  This motivation died in 1981 when the maximum marginal rate was reduced from 70% to half that; when homeowners were able to exclude $500k in gains from income, and when 1031 exchanges rules were liberalized and a whole industry popped up making them easy to do. 

The buyer of a property hoping to buy with owner financing come in a couple of different varieties.  One is the buyer with sufficient funds for down payment and operating reserves, but who doesn’t qualify for third party financing.  They may pay a small premium (10 -15%) over market.  Next is the buyer with no money available; they’re looking for 95% seller financing or more.  If they could put a deal together, it’s at a 20% + premium, and any projected cash flow is a fantasy, typically leaving out various expenses from the projected analysis and fantasizing about the ease of increasing rents 25%.  Finally there’s the buyer who has the DP, cash reserves, and ability to qualify for a third party loan, but desires seller financing for a lower interest rate.  This scenario was much more likely 40 years ago when mortgage rates were in the mid teens.

many years ago I owned an apartment complex in a third tier type area on the far outskirts of Houston.  After running it for 3 years and never able to bring the profitability up to where we thought it should be (mostly because of constant repairs, maintenance and improvements), we decided to sell. Because we had replaced almost every wear system, we were willing to maximize the selling price by doing seller financing.  The offers came in over the first weekend; 11 offers in all.  I ended up selling to 2 physical education teachers I knew who had both experience in real estate and the capital for a 20% down payment and operating reserves.  One partner quit her job and went to manage the property - full time.  They had assumed that after 6 months she would be able to return to Houston and not have to be so hands on.  The truth of the matter was that because they had paid the “seller finance premium” over cash price of about 15% they never had the cash flow to allow for absentee ownership.  The story has a happy ending however as in the next 24 months interest rates dropped sharply and they were able to refinance at a much lower rate. 

The assault on free enterprise by socialists continues - under the guise of “consumer protection”. 

Quote from @Catie Fihn:

Hello!  If you could only spend money on one of these marketing methods (hiring cold callers or sending mailers), which would you pick and why?  Which is more effective, in your experience?

I know people who have done “relatively” well with both.  The ones that are able to create a sustainable business, rather than a “hobby”, spend $10,000 + monthly on marketing.  Otherwise, your “expected” income is going to be less than minimum wage. 

The lower cost, more effective and more efficient marketing for a part time investor, wholesaler, flipper, etc is a SUPERIOR website with SUPERIOR LANDING PAGE, that is max SEO for a VERY targeted, overlooked market.  If you can pull this off you can maintain the SEO position of your on line presence for less than $500 per month.  You might spend $3 -5,000 for a professional website, and possibly $2,500 for the initial SEO effort.

Btw, what works for us is INDEPENDENT website consultants utilizing independent contractor specialists.  You can spend a lot of money with these major marketing companies - and end up with nothing to show for it.  The web specialist you choose should only do real estate websites. 

Quote from @Chris Seveney:

As a note investor, understanding the value of the underlying collateral is one of the most important parts of the due diligence process. But not all value opinions are created equal. If you're relying on a BPO, CMA, or appraisal, you need to know not only how it was created but also what it’s actually telling you.

Let’s break it down:

CMA (Comparative Market Analysis)
Usually done by a real estate agent. It pulls recent comps and is meant to help get a eyeball value. This is informal and rarely used in note investing unless you are working with an agent you trust and need a fast ballpark number. It’s typically an as-is value, not adjusted for any repairs.

BPO (Broker Price Opinion)
This is common in the note world. It's more formal than a CMA but still prepared by an agent, not an appraiser. BPOs can be exterior or interior (rarely interior) and can vary in quality depending on the agent's experience. The critical part for note investors: always confirm if it's as-is or ARV. I have seen BPOs come back with numbers that assume the home is in good condition when the photos show otherwise. If you are buying a non-performing loan, that disconnect matters.

Appraisal
This is completed by a licensed appraiser and follows uniform standards. It is the most formal valuation, often required in traditional lending. For our purposes as note investors, appraisals are less common due to cost and access issues. Like BPOs, they can be ordered as-is or subject-to-repair. If it's being used to value an REO or note you plan to foreclose on, make sure the appraisal reflects reality, not just a best-case scenario.

Also people need to note as I am seeing this more often:

As-Is Value vs ARV

This is where investors get tripped up. If you are reviewing a value that reflects ARV but you are acquiring a loan secured by a property that is currently vacant, needs repairs, or is in legal limbo, then you are not buying that ARV—you are buying the as-is reality. I recently received some notes for sale that had valuations based on ARV even though the repairs were not done... Thus these properties were underwater.

What I recommend:

When reviewing any valuation, always ask:

What is the current condition of the property?

Is this valuation as-is or after repair? 

Were repairs assumed? If so, what kind? (BPO's have line items for this)

How were comps selected? (you do not want comps of all renovated properties)

Very good information.
Appraisals, BPOs, etc are often (dependent on property value, location  and type) much less reliable for commercial property than for residential.  

Apartment properties, triple net leased properties, land leases, motels, and fully occupied retail centers are the properties where appraisals tend to be most accurate.  Almost everything else is a “crap shoot”.  

Here’s a “tale” of two properties.  The first is an auto repair facility we financed 2 + years ago.  The appraisal stated value at $1.3 million.  The borrower filed BK 14 months ago.  The appraisal in BK court came in a $1.2 million.  When we were finally able to obtain ownership of the property we got a new appraisal that found market value at $1.35 million.  The broker we hired to market the property looked at the appraisals, and told us that they were worthless.  Why?  Because there was a lot of new development interest in the immediate area and because no property had sold that reflected that interest appraisals didn’t pick it up.  In short order he producing two offers in the $2.25 - 2.35 million range. 

Second property is a mixed use building we made a rehab loan on in 2023.  Appraisal at the time was $8.5 million “completed”.  We are now dealing with a loan modification due to the fact that the two recent appraisals have been at $2.75 and $3 million.  How does the appraised value decline 60% + in 2 years?  Well, first office building properties nationally have declined 40 -45% in value since COVID.  Second, this particular market was hit much harder.  So, the projected rental rates are less than half of what they were 3 years ago.  Further, cap rates are higher.

The main thing newer investors in our asset (real estate) need to understand is (1) real estate doesn’t ALWAYS go up and (2) appraisals are OPINIONS, not absolutes.  Hindsight is ALWAYS 20/20. 

Quote from @Daniel Sharma:

Hi,

Looking to understand the legal process for foreclosures (paper work, dos and don'ts, legal costs, how much time it takes, etc). Any lawyers or professionals out there that can help? Happy to pay a lawyer for consultation also.

Thanks,

Daniel

Conveyance is by warranty deed. Deeds of trust are the most common security instruments.

Following the posting of foreclosure sales at the local courthouse for at least 21 days, the sales themselves take place at the courthouse on the first Tuesday of the month. Texas is a community property 

- Primary Security Instruments: Deed of Trust, Mortgage

- Timeline: Typically 60 days

- Right of Redemption: No

- Deficiency Judgments Allowed: Yes

In Texas, lenders may foreclose on deeds of trusts or mortgages in default using either a judicial

or non-judicial foreclosure process.

Non-Judicial Foreclosure

The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A "power of sale" clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of the their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the "Power of Sale Foreclosure Guidelines".

Power of Sale Foreclosure Guidelines

If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:

Prior to proceeding with a foreclosure, Texas laws state that the lender must mail the borrower a letter of demand, informing the buyer he has twenty (20) days to pay the delinquent payments or foreclosure proceedings will begin.

At some point after the borrowers twenty (20) days have expired, but at least twenty one (21) days before the foreclosure sale, a foreclosure notice must be: 1) filed with the county clerk; 2) mailed to the borrower at their last known address; and 3) posted on the county courthouse door.

The foreclosure sale must take place on the first Tuesday of any month, even if said Tuesday falls on a legal holiday, but only after the proper preliminary notices have been given. The sale is on the courthouse steps by auction to the highest bidder for cash. Anyone may bid, including the lender, who bids by canceling out the balance due on the note, or some part of it.

Lenders may obtain deficiency judgments, but they are limited to the difference between the fair market value of the property at the time of sale and the balance of the loan in default.