All Forum Posts by: Don Konipol

Quote from @Jonathan Grzeszczyk:

Soon I am taking a job with a wholesaling company on the acquisition side of the deal. Their business model is interesting and has a couple different exits strategies when getting a property under contract. So, coming in to the real estate field with no capital it seems like a good first step to get my feet wet and get a better understanding of real estate investing as a whole.

Since I will be on the buying side of the deal, obviously negotiating will be a big part of my job. Therefore, I have been trying to study up on techniques used to make good offers and over come objections. However, I have not found much on the subject relating to wholesaling. 

Pretty much everything I have seen and read is:

Find out the sellers motivation/problem and speak to solving that issue.

Give an offer but explain how you got your numbers.

Other than that, it seems pretty limited for negotiating information. For those of you who are wholesaling, what are some other ways you go about the negotiating phase? 

(Further context on the role, the business has solid marketing and network established. So, I will not be needing to source leads as much. Most of the work will be following up with warm leads already.)

When you say you’re taking a job, will you be an employee on salary + commission or an independent commission only “contractor”.  If the latter you may just be an independent “bird dog” for a wholesaler competing with everyone else. 

Does this wholesaling company you’re going to associate with actually purchase the property and then resell, or do they just “flip” the contract?  and only close IF they find a buyer to either pay for the contract assignment or pay a higher price for the property?  If the latter, depending on the jurisdiction, YOU may need to be a licensed real estate agent/broker to engage in what’s commonly called “wholesaling” but is actually “flipping”. 

Sorry if I’m discouraging, but I’ve seen this movie before. My personal experience after 40 + years in the real estate industry is that “wholesaling” is a very INEFFICIENT AND INEFFECTIVE way to gain knowledge and experience relative to real estate. People most successful in all aspects of real estate investing and the real estate BUSINESS, gain knowledge and experience n three areas: (1) real estate principles, (2) real estate law, and (3) real estate finance.  At best, wholesaling may require that you obtain a minimal understanding and experience in these three “foundations”.

Look, I wish you luck in your endeavor, and I sincerely hope you end up in the 1% that find wholesaling  to be a profitable business.  But I’d be amiss if I did not suggest that instead you gain knowledge of the aforementioned 3 foundation by studying for a real estate agent/broker license, and then seek employment with REITs, real estate operating companies, real estate managers, or real estate brokers.  Any of these will leave you in a much better position for success, and provide a greater income while you learn. 

Quote from @Dan Deppen:

Quote from @Don Konipol:

Quote from @Peter Walther:

Quote from @Don Konipol:

Quote from @Peter Walther:

I think you'll find most, if not all title insurers, will require the DIL to be dated and executed subsequent to default in order to insure.  In addition, the Grantor will probably be required to sign the same seller's affidavit that are needed for a non DIL closing.  Here's a short treatise by a title insurer:

A deed in lieu of foreclosure is a deed given by the owner of mortgaged property to the holder of the mortgage or its designee where the mortgage is in default and foreclosure is a possibility. A deed is given and accepted as an alternative to ("in lieu of") foreclosure. Unlike a foreclosure, a deed in lieu of foreclosure does not extinguish any of the liens and encumbrances affecting the property.

Most courts recognize the execution of a deed in lieu of foreclosure in a transaction subsequent to the original mortgage transaction as a legitimate alternative to foreclosure proceedings. However, deeds in lieu of foreclosure can be subject to judicial attack by their grantors and their grantors' creditors.

Grounds for attacks on deeds in lieu of foreclosure include the following:

• That the deed was an equitable mortgage - that the parties intended the deed to be given as security for a debt and that the deed was not an absolute conveyance.

• That the deed is either a preferential or fraudulent transaction within the purview of the provisions of the federal Bankruptcy Act or any other related state law.

• That the deed is a device to clog a mortgagor's right of redemption.

• Unfairness of the consideration.

• Coercion, fraud, oppression, duress, and undue influence.

• That the deed is not subsequent to the execution of the mortgage but contemporaneous with it.

• That the grantor/mortgagor was insolvent at the time of the execution of the deed.

An estoppel affidavit (executed and acknowledged by the grantor/mortgagor, attesting to the fairness of the transaction, the consideration exchanged, the value of the property, and other factors showing an intention to make a genuine transfer) or a recital (inserted directly in the deed) are supporting documents used to forestall challenges to these transactions.

State law and local title standards must be consulted in regard to the consideration and treatment of deeds in lieu of foreclosure.

What a GREAT post!   

Thanks. To expand a little on what is mentioned the underwriter's guideline, a DIL does not extinguish subsequent liens, so if the borrower has judgments against him/her/it that attach to the property, the DIL grantee takes title subject to them and may have difficulty getting them released later without payment. In addition, a DIL does not automatically satisfy the underlying mortgage/DOT so if you accept a deed from the DIL grantee you may find a title insurer will require a release or sat of it before insuring.

We have often used a “friendly” foreclosure instead of deed in lieu when we needed to “wipe out” liens junior to ours before taking property title. 

 What's a friendly foreclosure process? I had a non-performing loan once where a borrower would do a deed in lieu, but there was a deceased co-borrower, and my attorney required me to go through the foreclosure process to clear title.

The borrower knows you’re foreclosing and does not contest the foreclosure and “turns over the keys” to the lender. 

Quote from @Eli Edwards:

I am hitting a roadblock in finding deals... I have been on New Western's deal list as well as another bigger local company and everytime I underwrite these deals there is very very minimal left on the bone let alone contingency funds for going over budget on the flip... Does anyone have any contacts they wouldnt mind sharing that can add me to their buyers list?

Welcome to the club!  No matter whether you are looking at commercial or residential property, the deals that “pencil out” at OFFERING price are few and far between these days.  

Look, we’d all like to search the internet, find a deal for sale, analyze the property as having a great cash flow at current interest rates, with lots of upside potential in a gentrifying market.  Problem is it doesn’t exist as a “public” offering.  

So, as an investor you have three paths to follow to try to “capture” the rare property that meets the above characteristics. 

1. Contact potential sellers who are not actively seeking to sell their real estate holdings.  Since most people who are not actively seeking a sale are not motivated to sell at anything other than a top of the line price, this is going to be a numbers game of x thousands of contacts for every potentially doable deal.  That’s why the successful wholesalers and flippers I know spend $10,000 and more MONTHLY on marketing.  

2. Use your superior knowledge, experience and analytical ability to spot something in a property being offered for sale that everyone else has missed.  This requires a dedicated effort sourcing and analyzing hundreds of deals to find the one or two worth pursuing.  Further, it probably would also require the ability to “reposition” the property to have the below market value you seek.

3. Use negotiation to lower the price from the “no go” asking price to a “go” lowerpurchase price.  Again, large commitment of time, patience, and ability needed.

The amateur of “semi pro” investor should realize that the professional investors (such as myself) spend ALL DAY EVERY DAY doing the above.  We have education in real estate principles, real estate law and real estate finance.  We have used every strategy, technique and tactic that the gurus teach as their own.  So, the chances of someone trying to find the TRUE below market deal in their “spare time” is not great.  40 years ago you could. But times have changed. 

So, what does this leave the part time investor?  Actually, they’re in pretty good shape.  See, the majority of profit in real estate is NOT made by below market purchases.  While the rare “killing” can be done, the vast majority of deals, even ones by professionals, are done within market pricing parameters.  

Real estate wealth is built through long term price appreciation, property becomes (usually) more valuable over time, especially if purchased in areas that have either gone through development or redevelopment.  As rental rates increase, cash flow becomes strongly positive.  Real estate purchase using reasonable leverage, at todays interest rates, will build up equity through amortization.  Finally, even as the landlords cash flow increases, depreciation should keep a major portion tax deferred. 

Here's an example of what I'm speaking of. While I often "trade" properties, a friend of mine is a buy and hold guy. He purchased a SFR from me in 1979 for $55,000 with $5,000 down. Through the years he enjoyed positive cash flow with the last ten years cash flowing at about $17,500 annually. The house is worth at "quick sale" about $360,000. So, setting aside the cash flow he enjoyed for the last 40 years, he has a profit of $305,000. If he had negotiated a bargain price of say $40,000 on the purchase, his profit would be $375,000 instead of $360,000. The vast majority of wealth accumulation is through appreciation, cash flow after rents increase, and amortization.

I have 40 years experience as a real estate syndicator/sponsor and investor in other syndicators deals. I read Brian’s book and still learned more than a few things.  Excellent book ! 

Quote from @Peter Walther:

Quote from @Don Konipol:

Quote from @Peter Walther:

I think you'll find most, if not all title insurers, will require the DIL to be dated and executed subsequent to default in order to insure.  In addition, the Grantor will probably be required to sign the same seller's affidavit that are needed for a non DIL closing.  Here's a short treatise by a title insurer:

A deed in lieu of foreclosure is a deed given by the owner of mortgaged property to the holder of the mortgage or its designee where the mortgage is in default and foreclosure is a possibility. A deed is given and accepted as an alternative to ("in lieu of") foreclosure. Unlike a foreclosure, a deed in lieu of foreclosure does not extinguish any of the liens and encumbrances affecting the property.

Most courts recognize the execution of a deed in lieu of foreclosure in a transaction subsequent to the original mortgage transaction as a legitimate alternative to foreclosure proceedings. However, deeds in lieu of foreclosure can be subject to judicial attack by their grantors and their grantors' creditors.

Grounds for attacks on deeds in lieu of foreclosure include the following:

• That the deed was an equitable mortgage - that the parties intended the deed to be given as security for a debt and that the deed was not an absolute conveyance.

• That the deed is either a preferential or fraudulent transaction within the purview of the provisions of the federal Bankruptcy Act or any other related state law.

• That the deed is a device to clog a mortgagor's right of redemption.

• Unfairness of the consideration.

• Coercion, fraud, oppression, duress, and undue influence.

• That the deed is not subsequent to the execution of the mortgage but contemporaneous with it.

• That the grantor/mortgagor was insolvent at the time of the execution of the deed.

An estoppel affidavit (executed and acknowledged by the grantor/mortgagor, attesting to the fairness of the transaction, the consideration exchanged, the value of the property, and other factors showing an intention to make a genuine transfer) or a recital (inserted directly in the deed) are supporting documents used to forestall challenges to these transactions.

State law and local title standards must be consulted in regard to the consideration and treatment of deeds in lieu of foreclosure.

What a GREAT post!   

Thanks. To expand a little on what is mentioned the underwriter's guideline, a DIL does not extinguish subsequent liens, so if the borrower has judgments against him/her/it that attach to the property, the DIL grantee takes title subject to them and may have difficulty getting them released later without payment. In addition, a DIL does not automatically satisfy the underlying mortgage/DOT so if you accept a deed from the DIL grantee you may find a title insurer will require a release or sat of it before insuring.

We have often used a “friendly” foreclosure instead of deed in lieu when we needed to “wipe out” liens junior to ours before taking property title. 

Quote from @Christopher Lynch:

I recently watched an episode of BiggerPockets where the guest discussed how he started a real estate investment company and buys commercial properties with 0% down. While I understand the basic structure of General Partners (GP) and Limited Partners (LP), I was under the impression that GPs always had to put 'skin in the game.'

I have 10 years of experience in retail real estate and a couple of partners who are interested in investing with me. I also have some capital to contribute.

Could someone explain how syndications are typically structured, and how are people using Other People's Money (OPM) to build large portfolios with little to no money down?

There are some legal considerations as well as practical considerations 

1.  A “syndication” is almost always a capital raise for the sale of a security/investment.  As a result any “offering” must either be a registered securities offering, or qualify for an exemption from the required registration. The two most common exemptions are the exemption for intrastate offerings and the exemption for private placements.  Because intrastate (single state) offerings must still comply with that state’s securities laws, and because with the internet its difficult for offerings of any size to be limited to investors residing in a single state, the exemption for private placements is the exemption from registration most often used. 
There are two main ways to utilize this exemption. The first consists of the general exemption, which means the sponsor just complies with the definition as defined by the SEC. The other method is to use a "safe harbor", i.e., the specific procedures laid out by the SEC in Regulation D. Most utilized is Reg D Sec 506 b or c. The investors must be provided a Private Placement Memorandum, subscription agreement, and operating agreement. While formerly the limited partnership organizational structure was used, its now mostly an LLC structure being utilized. The legal fees and filing fees for the Reg D package average about $10,000 or so. The advantage of Reg D over relying on the general exemption is (1) if you comply the SEC can't come back and say you should have registered and (2) if your sued by a disgruntled investor you have a definitive defense, which means an attorney is unlikely to take an investors case on a contingency basis - unless fraud was committed. Further. You can have any lawsuit initiated by investors in state court moved to Federal court where the Reg D safe harbor will preclude any state law liability.

2. If you are raising capital from people you don’t have a prior relationship with, and even people who you do, they would regard you as serious only if you had a professional prepared PPM and Operating Agreement. Since in the sponsor - investor platform the investor is giving up decision making to the sponsor, there needs to be a legal structure offering the investor recourse should the sponsor not act in the investors best interest, or prove incompetent to manage the enterprise.

3. Utilizing Reg D 506 C is the only way to legally use “General solicitation and advertising” in an offering exemption from registration.  Further, Reg D 506 C offerings can accept new investors money right away, while other private placement exemptions require a 90 day waiting period for investments from investors with whom the sponsor did not have a prior relationship. 

4. There is an exemption for a “crowdfunding” type of retail offering, with limits on how much of their net assets an investor can contribute.  The advantage of this is that the investor need not be accredited.  The disadvantage is that compliance is difficult, much more expensive than Reg D, and the chances of being sued much greater, while raising capital more difficult. 

Quote from @Peter Walther:

I think you'll find most, if not all title insurers, will require the DIL to be dated and executed subsequent to default in order to insure.  In addition, the Grantor will probably be required to sign the same seller's affidavit that are needed for a non DIL closing.  Here's a short treatise by a title insurer:

A deed in lieu of foreclosure is a deed given by the owner of mortgaged property to the holder of the mortgage or its designee where the mortgage is in default and foreclosure is a possibility. A deed is given and accepted as an alternative to ("in lieu of") foreclosure. Unlike a foreclosure, a deed in lieu of foreclosure does not extinguish any of the liens and encumbrances affecting the property.

Most courts recognize the execution of a deed in lieu of foreclosure in a transaction subsequent to the original mortgage transaction as a legitimate alternative to foreclosure proceedings. However, deeds in lieu of foreclosure can be subject to judicial attack by their grantors and their grantors' creditors.

Grounds for attacks on deeds in lieu of foreclosure include the following:

• That the deed was an equitable mortgage - that the parties intended the deed to be given as security for a debt and that the deed was not an absolute conveyance.

• That the deed is either a preferential or fraudulent transaction within the purview of the provisions of the federal Bankruptcy Act or any other related state law.

• That the deed is a device to clog a mortgagor's right of redemption.

• Unfairness of the consideration.

• Coercion, fraud, oppression, duress, and undue influence.

• That the deed is not subsequent to the execution of the mortgage but contemporaneous with it.

• That the grantor/mortgagor was insolvent at the time of the execution of the deed.

An estoppel affidavit (executed and acknowledged by the grantor/mortgagor, attesting to the fairness of the transaction, the consideration exchanged, the value of the property, and other factors showing an intention to make a genuine transfer) or a recital (inserted directly in the deed) are supporting documents used to forestall challenges to these transactions.

State law and local title standards must be consulted in regard to the consideration and treatment of deeds in lieu of foreclosure.

What a GREAT post!   

Quote from @Elaine Ericson:

I sold a mobile home giving Owner Financing (OF) (never again will I offer OF).  The buyer had the mobile home demolished.  Crazy I know.  She is now in arrears 3 months and has agreed to deed the land back to me and take a Promissory Note for the balance 30K.  I think this arrangement is better than nothing or me taking her to court to only get the land back.  I know she can stop paying on the Promissory Note as it attaches to nothing.  Any ideas appreciated?  She is a real estate agent but rents so no property to place a lien on.

1. The buyer is already willing to do everything you could possibly receive in court + more.  
2. What was the value of the mobile home?  Was it a new double wide or a 20 year old single?

3.  A mobile home is almost NEVER considered real property.  To permanently affix a mobile home to the ground requires a foundation - just “tying” it down doesn’t qualify.  Very few mobile homes qualify under this definition.

4. Seek qualified legal guidance

Quote from @Gene Jung:

Hi,

Assume there is no cost for mortgage requesting for my lender. Assume my marginal income tax bracket is very high, and mortgage rate is 5.25%. If I have lump-sum free cash, should I just apply it to my mortgage to recast so that my monthly goes lower? Or should I just put them into stock market? If mortgage rate were < 3.5%, then there is no need for recasting...but 5.25 seems like a border line. To beat 5.25% mortgage rate....the corresponding, offsetting stock market return would be at least double that...

To answer your question requires (1) knowing what risk adjusted return you will be able to earn in the future (2) knowing what interest rates will do in the future.  Since neither is knowable, it’s a matter of “best” guess.  I always THINK I can earn a LOT more than 5.5% after taxes.  Then again, if you’re talking about a mortgage on your personal residence, and you live in a state with an unlimited homestead exemption for creditor attachment like Texas or Florida, there’s an asset protection consideration as well.  

Quote from @Francisco Milan:

Hello Guys

I want to get into listings, been doing buyers for the last 7+ years and I think it is time to get into listings but I how can I start building my listings pipeline? 

I am good at Tik Tok ads and Facebook ads, this works for buyers but not sure what works best for listings. I want someone who knows and is doing marketing for listings and its working for me to give me advice if possible it would be highly appreciated. 

Referrals are by far the most efficient, economical and profitable way to do business. But, how do you get referrals?
Two, (not mutually exclusive) approach’s.  First, deep relationships with people so that you know them well, they know you well, and relationship continues for many years.  As an example, we joined an expensive, but exclusive private networking group 12 years ago.  This group of 10 individuals has, through direct investment with us, and referrals accounted for over $65 million in invested cash in our syndications.  We meet every month, and are in constant contact with these individuals, in business relationships going a lot deeper than that.

The second way is to contact a large group of people with the understanding that only a few will result in “deals”.  In our case we tripled our deal flow when we started a program of direct email to mortgage brokers, real estate brokers, and real estate investors who could bring us either mortgage notes for sale or new loan opportunities for loans not qualifying for commercial financing.  Using LinkedIn, I was able to create a network of over 20,000 contacts. I was able to get 13,000 of them to opt in to receiving a monthly newsletter we issue, and as preciously stated results are 100s of deals or loan requests per year.  

Each method has a cost in both time and money.  Calculate expected returns, costs, time commitment, etc.  much of the actual time intensive work can be contracted out.  It’s know as SCALING your business.  
One word of caution.  Avoid the packaged, generic marketing programs.  A generic program can’t be tweaked enough to make it effective for any particular deep niche.  Professional guidance can be obtained from local personal experts experienced in your particular niche.  They will tailor a program for you, based on their success with similar businesses.  

Good luck