All Forum Posts by: Don Konipol

Let me give you some background for context and to help you understand why I am moving in this direction with investing this year.

I have been investing in real estate for the past 15 years but more actively for the past 10 years. People started to ask me to help them learn how to invest so I started coaching new investors over the past 7 years on how to start investing in real estate. I would charge them $5,000 with the ability for them to earn back $2,500 and I'd have a call with them every other week to guide them on how to find deals and money lenders and how to get the properties fixed up and get them refinanced, etc. About 90% of my coaching students bought properties and increased their net worth on average of $100,000 the year we worked together. A mentor of mine told me that I was charging too little for the amount of value I was providing. So I increased my rate to $10,000 with the ability of my coaching students to earn back $5,000 if they completed their homework in betweeen coaching sessions that was geared towards helping them meet their real estate goals. The results of my students were about the same and they would create about $100,000 of increased net worth during the coaching program. My mentor told me I was still charging too low for the value I was providing.

Towards the end of last year, one of my buddies contacted me and told me his accountant told him that he needed to buy some real estate to lower his tax bill. I shared with him some ideas on how to buy undervalued real estate and he basically told me that he would rather just partner with me and provide the money and have me find and manage the investment and then split the profits. So I found and purchased 3 undervalued properties from wholesalers and we are just finishing up the 3rd one. Each property is estimated to create about $70,000 of profit over the next 3 years. He has deposited $100,000 into the business account. That covers the down payment for the purchase, the rehab, and the $18,000 for reserves for the account, and $5,000 for me for each property for the time and work involved. That $5,000 is part of my portion of the 50% of the profits and will be deducted from my payout when the property is sold.

The property will be rented out on a 3-year lease option and will be either sold to the tenant buyer or sold on the market if the tenant decides not to exercise the option.

The money partner on these deals will bring in about $35,000 to $50,000 for each deal and the expected IRR is around 25%-35% each year for the 3 year period essentially doubling their money in 3-4 years.

So rather than focusing on picking up a couple of coaching clients this year, I think I am just going to focus on finding money partners to buy deals with. I already have the knowledge, experience, and systems in place to do about 20 properties this year. So I think I am going to shift my focus away from coaching and more towards partnering.

I'd love to get hear some of your thoughts and get some of your feedback.

Lots of interesting feedback - but even if I didn’t feel the OPs offer to passive investors was great - I wouldn’t think it EVIL - which seems to be the opinion of some responders……

Key point for people evaluating the “fairness” and “competitiveness’ of the offering is that the sponsor is receiving too much benefit for too little contribution. The THING they seem to not be taking into account is that the sponsor is responsible for one half of any losses. This brings a much greater liability into play, and in my opinion provides greater balance.

Is this offering the best “deal” for a passive investors? Probably not even close. Is it the worst deal? Again, not even close. Basically what we have is a pretty “average” real estate opportunity investment. There are a lot more dangerous, and horribly structured investments being offered every day.

I can see this investment fitting into an investors portfolio of the investor meets and has contact one on one with the sponsor. This brings us to the question of scalability.

Again, in my opinion this model doesn’t scale, beyond a point that is reached sooner rather than later. There are many reasons. One big one is that scaling the lease option sale to a homeowner will attract both public regulatory scrutiny and private litigation, perhaps class action, once it reaches a certain threshold. And the cost of legal defense , even if successful, will drive the company out of business.

1 Vote

Gilbert, Arizona

Quote from @Patrick Roberts:

Quote from @Ken M.:

Quote from @Tracy Z. Rewey:

Quote from @Ken M.:

Quote from @Tracy Z. Rewey:

Quote from @Ken M.:

Quote from @Tracy Z. Rewey:

@Tracy Z. Rewey: What is the solution for a Due on Sale call when you buy using SubTo and sell using a Wrap?

Great question. That (and insurance issues) are two big risks. All fancy footwork and tricky strategies aside (insert sarcasm)... the ultimate solution is to pay it off if it gets called due.

It is one of the reasons I like a Wrap Note and Mortgage (or Deed of Trust). If created correctly, it could be sold (in full or part) to a note investor that would payoff the underlying 1st from proceeds when they bought the wrap note.

The other way to satisfy is to get the property owner to refinance but that is not always in your control. With a properly written and qualified wrap note the seller of the property (that is the holder of the wrap note) still has an interest and an asset they can sell. A good attorney, RMLO, and servicing company play a big part of this.

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@Tracy Z. Rewey: Your Comment: "the ultimate solution is to pay it off if it gets called due."

Hint: Once you sell a property on a Wrap, it is no longer yours to sell or refinance.
So, are you saying "you pay off a property you no longer own" out of pocket?

How do you call a performing Wrap due, in order to cover the Due On Sale on a property you did a SubTo on if your buyer is within his rights on the Wrap?

Put another way,
1. You buy a property SubTo
2. You sell the property to someone on a "Wrap"
3. The lender finds out the property has been sold, twice now, and exercises their rights under the Due On Sale and gives you 30 days to correct or they go to foreclosure.

What happens?
What do you do?

Hi Ken, You are right you no longer own the property when you sell on a wrap. You now own the mortgagee's interest in the wrap mortgage and note (or the beneficial interest in the all inclusive deed of trust). You are collecting payments on your wrap note and mortgage from the owner of the property and sending on some of the payment to the underlying lien holder (or better having your licensed servicer do this).

What you have to sell is the wrap mortgage to a note investor. When note investors buy the rights to receive payments on the wrap mortgage, we will payoff the underlying lien out of proceeds.

You are not selling the property. You are selling the wrap mortgage to payoff the lien (that you owe if you were the seller on a wrap).

Probably 80% of the notes we buy we have a payoff to an underlying 1st lender where the seller on the seller financed note still owes money to a bank from when they bought the property. Once that payoff is made the wrap mortgage moves to first position.

A wrap does NOT remove the risk of a due on sale clause being exercised by the 1st position lender. It just gives a layer of protection to the property seller that they don't get with a straight sub to (without a wrap).

The other option is to encourage or help the property owner go and refinance. As mentioned, that is not in your control. But selling the wrap mortgage to a note buyer is in your control. It is very important that the Wrap Mortgage is written at market terms using a knowledgeable attorney, an RMLO, and a servicing entity.

These have risk and I'm not saying a new investor should go out and do them. My view is there is more protection on a wrap than a sub to and with the right disclosures and underwriting can be an alternative option. I don't like a straight sub-to. It is why it was first on my top 5 of current risks.

Feel free to DM me and I'll send you my 10 Tips for Wrap Mortgages along with a video from an attorney that knows this stuff. I've been at this since 1988 and have seen them go wonderfully well and horribly wrong. My mission is to have people use creative financing safely, ethically, and legally.

@Tracy Z. Rewey: So, if someone takes over a $375,000 mortgage using SubTo on a property worth $400,000 and turns around and sells the property for $405,000 on a Wrap mortgage with a Note of $405,000 (full value) to someone else, he now has paper, not a house.

Let's say things go wrong down the road, any profit from the Wrap has been spent of course, the DOS gets called. How much can he sell the Wrap mortgage for to an investor?

What is the discount on the Note and how much are closing costs?

Wouldn't the Note would have to sell for nearly 100% to cover the Due On Sale? How likely is that?

@Don Konipol Any thoughts?

@Chris Seveney: Is that a note you would buy?

@Ken M. Great question. That is the kind of wrap note that would be a miss in my book. If the property is worth $400,000, a note buyer will base their maximum ITV Investment To Value on that value. The first alone in your example is at a 94% LTV Loan To Value ($375,000 1st divided by $400,000 value) and the wrap mortgage is underwater at 101% LTV ($405,000 divided by $400,000 value). I'd be a pass. We want to see equity, seasoning, a quality borrower, and good terms. We also buy at a discount (pricing depending on those qualities). I don't know any note buyers that would fund enough to payoff the underlying 1st in that scenario.

That's exactly my point. Selling the Wrap Note is not a good solution to solving a Due On Sale. It sounds good in theory, but in practice is highly unlikely.

It works just fine if the operator knows what theyre doing and structures it correctly. In the example you outlined and in the case of what a lot of people are doing right now (super high LTV underlying, negative equity on wrap, 100% financing for the buyer, low note rate, etc), then no, this wont work, primarily because whomever created the wrap note is either an idiot or a fraud.

Right! Exactly. Any transaction done with little or no equity contribution is most probably (there may be a few exceptions) in danger of “blowing up” from over leverage and insufficient equity cushion. (The exception would be the rare deal where the property changes hand for a price far below real market value).
The sub to or wrap adds a certain degree of ADDITIONAL risk of failure. However, the benefits of this type of transaction can still be safely realized with proper structuring and a good amount of equity injection.

2 Votes

Quote from @Ken M.:

Quote from @Tracy Z. Rewey:

Quote from @Ken M.:

Quote from @Tracy Z. Rewey:

@Tracy Z. Rewey: What is the solution for a Due on Sale call when you buy using SubTo and sell using a Wrap?

Great question. That (and insurance issues) are two big risks. All fancy footwork and tricky strategies aside (insert sarcasm)... the ultimate solution is to pay it off if it gets called due.

Let's say things go wrong down the road, any profit from the Wrap has been spent of course, the DOS gets called. How much can he sell the Wrap mortgage for to an investor?

What is the discount on the Note and how much are closing costs?

Wouldn't the Note would have to sell for nearly 100% to cover the Due On Sale? How likely is that?

@Don Konipol Any thoughts?

@Chris Seveney: Is that a note you would buy?

Good question Ken. I have never done a transaction, as a buyer, seller, real estate broker or lender where there was no equity or negative equity as per the buyer in the deal. I know others have done this, but it’s not my mo. For example, 8 years ago I sold a rooming house for $240k and received $40k down and wrapped a $200k 9% notes around an underlying $125,000 6 % note. If the buyer/borrower defaulted, I would make the underlying note payments while I pursued foreclosure. If the note was called I’d pay if off.

My experience has been that purchase transactions where the buyer has no or little skin on the game have a default rate many times that of buyers who place a significant down payment into the deal. People ask, if a borrower has 20 - 25% down, why would they need private financing? It’s because having cash available doesn’t not necessarily mean the borrower has the credit CAPACITY to obtain a loan.

2 Votes

Out of State Investing

Post: First time investor needing some confidence!

Don Konipol

#1 Innovative Strategies ContributorPosted January 30, 2025 12:57

Lender
The Woodlands, TX
Posts 5,907
Votes 9,206

Quote from @Travis Timmons:

@Nicholas L. You already know the answer to that. Bunch of realtors come on a spout off that their clients cash flow from day 1 all the time. It's always crickets when you ask for an example. And a pro forma vs. end of year actuals are very, very different.

@Benjamin Ying The only way to cash flow in the current market is to employ a higher effort strategy like STR, MTR, rent by the room, etc.

The "cash flow on paper" properties in stagnant markets or C-D class neighborhoods are probably not the type of places that you want to own long term. My advice would be to find a great asset and match that with a strategy that is a bit more work to break even or eek out a little cash flow. Leverage + appreciation is what makes real estate outperform other asset classes. If you don't see real appreciation upside (both price and rent), it's just not worth the hassle. We overthink real estate...Just find a place that people with options want to live.

“And a pro forma vs. end of year actuals are very, very different.”

45 years investing in real estate. I have NEVER seen a pro forma statement put together by a seller or broker that

1. Had any basis in reality

2. Was in any way reflective of past experience

3. That had even a passing resemblance to tax returns or financial statements

4. That could be achieved without spending an inordinate additional amount in cap ex;

In fact all I have seen had these items in common

1. Were based on dubious and unproven speculation, assumptions and best case scenarios

2. Were obviously “reverse engineered” to find a way to “back into” an attractive or at least acceptable cap rate

3. Often contained mathematical mistakes

4. Tended to leave off some categories of expenses completely

5. Assumed nothing could possibly go wrong in the next 5 years

what you want when you look at an investment property is to know the current rental amounts, specific expense items, and conditions of the building, grounds, and mechanical systems. The rest of the numbers the investor needs to “fill in” themselves based on a thorough due diligence. If you’re not willing to do this, then you may be best off investing in some kind of real estate fund concept. Prices in relation to rent are too high to have the cushion that was available before.

5 Votes

Quote from @Argel Algura:

Hey Bigger Pockets Community,

A year ago I wrote about rebuilding and starting over in life and considering real estate investing as a path (see post here: "Bad credit, minimal cash and starting over in life . . . Is there hope for me here?")

An update one year later after this post, I now have:

- Got my property and casualty license and wrote 370+ policies in a year

- Saved up a few more thousand dollars in investable cash, paid off $20K in debt and raised my credit score by 100 points

- Launched a direct to seller cold email marketing campaign and generated leads for cheap

- Got connected with a few real estate investing communities like Subtle Asian Real Estate and Pace Morby's SubTo

- Aggressively read and studied as much as I can get my hands on

That being said, I decided to run a marketing campaign to generate distressed seller leads in Phoenix, Arizona, mostly because:

1. It's a landlord friendly state.

2. After a year at staring at insurance data daily, AZ insurance rates are only increasing marginally, while most states are damn near doubling.

3. Phoenix is the fastest growing metro in AZ.

The campaign is generating leads, however with my minimal real estate investing experience and limited time from my full time job I feel like I'm not maximizing my opportunity here.

The way I see it is I have 2 paths:

1. Focus on wholesaling the leads I get from my campaign (while refining my underwriting and acquisition skills) to stack up cash, then begin acquiring rental property.

2. Go straight into focusing on creative finance, subject to, and minimal cash down deals and build from there.

I want to hear your thoughts on what direction to take here if you were in my shoes given these constraints (full time job and a few thousand saved) and you want to optimize for passive income first, then value appreciation?

I also want to hear from those of you who have transitioned out of a full time job by doing out of state investments/creative finance - how long did it take you to transition out? What obstacles did you overcome? What are the risks of going down this path?

After feeling hopeless, lost and confused about a year ago, I'm happy to report that I'm starting to see the light and the path to wealth after taking consistent action, and am excited to be seeing the progress.

Cheers, to constant and never ending improvement

Argel

I don’t see how it’s possible to generate enough cash flow as a real estate investor starting with no or limited capital. At best you’ll be able to buy, through “creative” finance break even cash flow situations, which at best may begin modest positive cash flow in 3 or more years.

Purchasing a “distressed” property and “repositioning” it requires significant capital for improvements, build outs, holding costs, maintenance.

In looking for that “needle in a haystack” slam dunk great deal you’re competing with very knowledgable, greatly experienced investors with the cash to make no contingency offers and close in a few days.

Further, deals that are “great deals” aren’t advertised as such; they are identified through analysis using information not readily known and negotiated on a one to one basis.

Expand your insurance business and increase your commission income. Take courses or read books on real estate principles, real estate law, and real estate finance. When ready, start with a small property, near home, with enough capital in reserve to handle adversity. When you build enough capital/assets/net worth to afford a reasonable monthly cushion you can see if the lifestyle of a full time investor is something you’d want to pursue. Everyone THINKS they’d be happy being a “full time” investor, but I’ve seen many go into depression when they’re alone working out of a home office and they don’t have the comraderie, social interaction, and discipline of a daily job routine.

1 Vote

San Diego, California

Quote from @Marcus Auerbach:

Quote from @Don Konipol:

Here is my list of the most dangerous real estate related investments for the “non professional” investor lacking direct knowledge and experience in these investments

1. Tax liens

2. Mortgage notes

3. Syndicated real estate offerings

4. Distressed and or vacant Commercial property

5. Triple net lease property at the end of the lease period

what do you think?

Don, I agree with your list being dangerous, but none of the top five are what I would call mainstream strategies. I believe only a relatively small amount of people attempt liens and notes in the first place.

By volume, the most dangerous are OOS BRRRR and OOS flips, especially in cheap and very cheap neighborhoods - well below the median price. The allure of fat cash flow (at least on paper) and the low barrier of entry (down payment) never stop attracting new investors. And most regret it.

I'll make the opposite case: it is VERY hard to screw up when buying i.e. a duplex in good condition in a desirable neighborhood and either self-manages or hire a quality PM to manage.

To any new investor who is reading this:

In real estate cost and risk have an inverse relationship. Low risk investments sell at a premium, that's the whole idea of cap rates. The higher the risk, the higher the cap rate, the lower the price.

My advice to anyone who is getting started: buy something safe. You don't need to make all your money on your first deal. But if you tank the first one, there will never be a portfolio..

“it is VERY hard to screw up when buying i.e. a duplex in good condition in a desirable neighborhood and either self-manages or hire a quality PM to manage.”

excellent point

0 Votes

Out of State Investing

Post: First time investor needing some confidence!

Don Konipol

#1 Innovative Strategies ContributorPosted January 30, 2025 04:48

Lender
The Woodlands, TX
Posts 5,907
Votes 9,206

Quote from @Benjamin Ying:

Hey all! First time poster here so let me try and lay down the situation.

My wife and I are just beginning our real estate investing journey. We live in California so I think the opportunities are better when it's OOS. Some areas I've been looking at are Provo/Vineyard, Colorado Springs, Indianapolis and Raleigh/Durham. Current timeline to purchase is probably 6-12 months as I start narrowing down and visiting some of the places to get a better idea over the next few months. Our downpayment budget is probably $60-$100k.

Questions:

1. Does focusing on macro trends (Population growth, rental and appreciation growth, good jobs) offset the 1% rule?

2. My friend is a big investor in Provo and has connections there. Would it make sense to reduce risk and use his connections first and invest it that area? Curious what experience others have had done.

3. Should I expand my target metros? These areas are relatively easy as a direct flight from SFO and one of the BP videos mentioned how it's a good idea to be able to fly direct if you have a OOS investment. For example, Columbus or Huntsville, AL has come up a bunch of times but I’d have to transfer.

4. Do you definitely need a property manager for OOS investing, especially as a first time investor? It seems like that would eat into the returns and you can't get positive cash flow for a while

5. Is it just a bad rule of thumb for an investment if you can't get positive cash flow for the first year or two? Or is this normal?

Beware of people with “something to sell” stating how great their product is. That’s the most BIASED “opinion” you can ever receive.

4 Votes

Quote from @Stepan Hedz:

That’s a solid list, and I completely agree that these types of real estate investments can be risky for those without direct experience or proper guidance. Each of these asset classes requires a deep understanding of market conditions, legal nuances, and financial structuring to avoid costly mistakes.

For example, tax liens can seem like easy wins but come with complications such as redemption periods and legal challenges. Mortgage notes require due diligence on borrower history and property value. Syndicated deals can be opaque, with high fees and limited control for passive investors. Distressed commercial properties often need significant capital and expertise to reposition successfully. And with triple-net properties, if the tenant doesn’t renew at the end of the lease, investors can suddenly be stuck with an underperforming asset.

That said, with the right education, partnerships, and risk management strategies, even these “dangerous” investments can be highly rewarding. Do you see any cases where a non-professional could safely participate in one of these with the right approach?

I think that a part time investor can have success with syndicated offerings and triple net leased properties if they’re willing to learn real estate fundamentals, perform “due diligence” on the deal/sponsors/property and engage legal help.

0 Votes

Quote from @Scott Mac:

Safety - Inherit a fully paid for SFH, in decent condition, in the neighborhood you live in, and rent it out to long term tenants who you are comfortable with.

Stack up the cash flow and dip into that as needed to support the asset.

Let the money stack up until you either want to buy another SFH and do the same thing, or decide to spend it on a Ferrari.

Just my 2 cents.

I can’t argue. It may not be “sexy”, but it works with a low risk and long term wealth building

1 Vote

General Real Estate Investing

Post: "Am I experienced enough to raise outside capital?"

Don Konipol

#1 Innovative Strategies ContributorPosted January 29, 2025 09:10

Lender
The Woodlands, TX
Posts 5,907
Votes 9,206

Quote from @Gregory Schwartz:

"Am I Experienced Enough to Raise Outside Capital?"

This question crossed my mind recently after reading a post and some comments discussing whether an investor is experienced enough to raise capital from outside sources. It got me thinking:

In your opinion, what are the minimum requirements someone should meet before raising money from investors (beyond family and close friends)?

What skills, experience, or track record do you think are essential to successfully and responsibly raise money from others?

There’s some really good posts in this thread. Heck, I even agree with some of them! LOL

i have raised half a billion $ ($500 million) through syndication over the last 22 years.

Just because you CAN syndicate a deal, doesn’t mean you SHOULD. AND just because you have experience and a “good deal” doesn’t mean you will be successful trying to syndicate the deal.

The first criteria is does the sponsor have the general knowledge and experience in real estate, and the specific knowledge and experience in the property type/location to give the project the best shot at success? If the sponsor is lacking here there’s no need to go any further. Even if the sponsor lacking knowledge and experience can raise capital through syndication, their life will become a living nightmare of lawsuits, hostile social media posts, public ridicule, accusations, legal threats. Sound like some people we’ve previously “engaged” with.

The second criteria is if the deal is a “fit” for syndication. Excluding the periods of “tulip bulb” irrational exuberance, a property must produce enough of a risk adjusted return to satisfy both the ROI demands of the “limited partners”, and the income/time requirements of the sponsor. The vast majority of properties at their available prices will not meet this requirement.

Raising capital thru syndication is a lot more realistic if the sponsor has a significant amount of their own cash to invest. Nothing impresses an outside investor more than the sponsor stating that he’s funding 10-20% of the “deal” with his own cash - on the same terms as the outside investors.

The last of the most important criteria is that the sponsors interest be aligned, to the greatest extent possible, with the interests of the investors. Beside investing their own cash on the same terms, the sponsors return should be heavily weighted toward “carry” (receiving the bulk of their return as sponsor in the form of an interest in the property rather than cash) with that carry subordinate to the investors receiving their investment returns PLUS a minimum annualized return.

Here’s the bottom line; unless the deal is VERY large, or the sponsor is going to syndicate a large number of deals, the investor will make more money purchasing the property theirselves with a option low to moderate interest rate loan.

1 Vote

All Forum Posts by: Don Konipol

Don Konipol has started 200 posts and replied 5139 times.

Post: New Partnership Model

Post: The Most DANGEROUS Real Estate Investments for the “Amateur” Investor

Post: The Most DANGEROUS Real Estate Investments for the “Amateur” Investor

Post: First time investor needing some confidence!

Post: Out of state investing and creative deal making as a newbie investor 1 year in

Post: The Most DANGEROUS Real Estate Investments for the “Amateur” Investor

Post: First time investor needing some confidence!

Post: The Most DANGEROUS Real Estate Investments for the “Amateur” Investor

Post: The Most DANGEROUS Real Estate Investments for the “Amateur” Investor

Post: "Am I experienced enough to raise outside capital?"

Don Konipol has started 200 posts and replied 5139 times.

Rounded Star Post: New Partnership Model

Rounded Star Post: The Most DANGEROUS Real Estate Investments for the “Amateur” Investor

Rounded Star Post: The Most DANGEROUS Real Estate Investments for the “Amateur” Investor

Rounded Star Post: First time investor needing some confidence!

Rounded Star Post: Out of state investing and creative deal making as a newbie investor 1 year in

Rounded Star Post: The Most DANGEROUS Real Estate Investments for the “Amateur” Investor

Rounded Star Post: First time investor needing some confidence!

Rounded Star Post: The Most DANGEROUS Real Estate Investments for the “Amateur” Investor

Rounded Star Post: The Most DANGEROUS Real Estate Investments for the “Amateur” Investor

Rounded Star Post: "Am I experienced enough to raise outside capital?"

Post: New Partnership Model

Post: The Most DANGEROUS Real Estate Investments for the “Amateur” Investor

Post: The Most DANGEROUS Real Estate Investments for the “Amateur” Investor

Post: First time investor needing some confidence!

Post: Out of state investing and creative deal making as a newbie investor 1 year in

Post: The Most DANGEROUS Real Estate Investments for the “Amateur” Investor

Post: First time investor needing some confidence!

Post: The Most DANGEROUS Real Estate Investments for the “Amateur” Investor

Post: The Most DANGEROUS Real Estate Investments for the “Amateur” Investor

Post: "Am I experienced enough to raise outside capital?"