All Forum Posts by: Jeff S.

Of course, Bonnie, you know who makes the most money in the restaurant business? (wait for it) …

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Sign painters.

(Sorry @John Roberts)

You received a lot of advice, @Charles Constant, but never defined the problem. Why is she unable to move? Is it as simple as she needs help packing? Does she need a place to go? Perhaps a medical or emotional issue? Obviously, some of this is easy to solve and some might be well over your head. You asked for next-step suggestions. There are no bad answers here, but what’s the problem? Have you asked her?

No matter what, stay as far away from a court as you can. You will lose. A second-year law student would take you to the cleaners trying to evict or justify an unrepresented wholesale purchase from an 83-year-old woman. Better to understand and solve whatever problem she’s having. First, perhaps you can explain it?

With due respect, come up with as punitive a schedule of progressive penalties as you want. Not all sellers will choose to understand these if all they want is to sell. Get your lawyer involved. But be prepared to face hers. The safest, really only, way to buy a flip is vacant. A deal can be bad even when you think the numbers make sense, as I think you’re finding out, Charles.

He knows he won’t get more than the appraised value and probably a lot less than if you leave the place vacant, @John Roberts. You’re afraid you’ll be forced out if he sells the place.

You guys are playing a game of chicken with each other.

In fact, if you are a desirable tenant (pay your rent on time, take care of the place, don’t make the landlord crazy, etc.) why would anyone who buys the place want you out, unless they also run a restaurant and want yours? Is this likely? Would the place be easy to re-rent? Do you truly have no other alternatives if you really must move (and/or does he believe that?)

Not a lot to go on here without more info but I suspect you hold stronger cards. A signed lease from a long-term desirable tenant will maintain the value of his appraisal. Don’t forget, you’re providing the cash flow. How much is an empty restaurant worth, unless there are higher and better uses?

There doesn’t appear to be any benefit to you by signing a lease with a 60-day notice clause. It only makes it easier for him to sell, buys him time, and adds risk to your continued tenancy.

From what little you wrote, and I realize we’re talking about your livelihood, I would refuse to sign a lease with the 60-day clause and, assuming it even makes financial sense to you, offer to pay the appraised value. An agent, if he has one, would think clearer on this. You might discuss this with a knowledgeable agent yourself.

You already said he’s an accidental landlord and wants out. Now he runs from you? This is telling.

Before you read one word further, @Diane Hagler, call your bank and change your account number. You are being scammed and some of the signs are obvious.

With the prime rate at 6.25% do you really think this company is going to loan you money at 5%? How much do you think this money will cost them? I can assure you it’s more than 6.25%. And for 30 years? Yeah, sure.

A few comments that might not be obvious. You didn’t say but I assume your loan is for a business purpose such as for a flip or other investment property in North Carolina. Yes? NC does not require a license to make business-purpose real estate loans. Whether the company is licensed in CA or elsewhere, they can lend in NC.

As an aside, and only to confuse things, to call yourself a lender in CA you must be licensed. If you are only making business-purpose loans in CA, you do not need an MLO and NMLS registration. You must either be a licensed real estate broker thru the DRE or California Finance Lender (CFL) thru the DFPI (we are licensed CFLs). Britz AG Finance Co. does not list a license on their website that I could find but they are in fact licensed CFLs in good standing since 1997. You can look them up here. Their corporation is also in good standing per the CA Secretary of State.

Why would a licensed lender for 25 years not include license information on their website, as required by law? Do they not know? Hmmm ...

My guess is that you are not communicating with Britz AG Finance Co. There are many fake websites impersonating legitimate companies and some have been discussed here. We’ve been victims of corporate identity theft ourselves and it’s very hard to stop even when you see it happening before your very eyes.  I don’t know how you found this site but if you really want to speak to someone at this company you might contact them through means other than the contact info on the website. LinkedIn, Agent for Service at the CA Secretary of State, or even skip tracing if you really have a burning desire are just a few of many options.

Looking up public documents such as deed-of-trusts, mortgages, lawsuits, and licenses only confirms that the company exists, not that you are speaking to a legit representative.

I know everyone likes the convenience of the web, and they are tired of hearing it, but this really is a business based on relationships, not online anonymity. My best advice is to meet your lenders face-to-face at real estate clubs, conferences, or other professional events. If they’ve been around for a while, the club organizers or others in the room will know them. North Carolina is a big place. I’m certain there are honest lenders there that could help you.

Meanwhile, Diane, call your bank.

We’re regularly involved with hoarder homes and used to have a borrower who specialized in them. They can be great financial opportunities since they cannot be funded conventionally, and they tend to scare all but battle-hardened rehabbers. They also provide a chance for you to do good for someone in need.

Hoarders usually know they have issues and are often desperate for a way out. She could be viewing you as a godsend, @Brandon Ribeiro. Many strategies here but your offer should allow her to either leave everything or take what she wants. From our experience, when hoarders leave, half will take everything, and half will take nothing. You’ll never know but make super it easy and very reassuring for her. Some years ago, a borrower and I helped an elderly hoarder move most of her belongings to a storage locker. She made a lot of money from her sale, and we also helped her locate a financial planner.

Hoarders have issues that you and I will never understand but must be sensitive to. Their belongings can also cover up an enormous number of physical issues with the property. Be very considerate with them and very careful of what you buy. This is especially true if she has animals. Also, at 90 and with an obvious psychological issue, do you know if she has the capacity to sign for herself? Last, under no circumstances should the property be inhabited when you close. Could you imagine beginning an eviction on the day you want to start construction? Against a 90-year-old!!! In the PA winter. Good luck with that.

Here's the term in a purchase agreement one of our borrowers used:

“Buyer will pay the cost of the Seller’s moving expenses (Truck, Movers, etc.) up to $1500.”

This would include renting a 25-foot truck and paying for a few months of storage space. In her case, you will also need to offer to hire some movers to pack and unpack. Your risk is the few hundred dollars for the truck and locker because she could decide not to sell at the last minute.

Move-out day is no later than the day before signing. This is no big deal to you and me. Understand that even the thought of being separated from her possessions in a storage locker can be traumatic. We don’t know her situation but since she is 90, a call to the local dept of social services might make sense. They might already know her.

There will be more handholding from you than you might imagine now. Make it worth your while but also know you’re probably making a positive impact on someone.

The nice thing about foundations issues is that they scare off a lot of rehabbers, @Shanel Dial. We’ve flipped homes with foundation issues in the Midwest and have no problem funding them in CA. Just like plumbing, electrical, and a roof, there is almost nothing in a foundation that can’t be fixed with money. They are just a bit more complicated and take more time. The problem I see with this deal, however, is that from the few numbers you provided, you won’t make any money on it.

You provided no rehab estimate. When we can't see the inside of the house to do an evaluation or no credible construction estimate has been provided, from experience we know that the rehab will typically be around 10% to 15% of the ARV. That would be about $150k in this case and it doesn't include any foundation work.

If you pay $1.16M and add the $150k, you're already at $1.31M. Add what you wish for the foundation, or nothing, and there is no profit left from your $1.35M estimate. $1.31M is already 97% of the ARV and it doesn't include sales costs, HML costs if any, insurance, taxes, title, etc. Do you know how to estimate these?

To us, a good deal to us is where the rehabber earns between 10% and 15% of the ARV (not to be confused with the rehab cost percentages). To be safe, and considering that in 6 months the market could (will?) take a hit, you shouldn't buy this place unless there's ~$150k in profit on the table.

Not the answer you wanted, and for a different reason than you asked, but you’re paying too much for this property. Even ignoring the foundation, you will lose a lot of money on it, Shanel.

You can go to the member directory for the American Association of Private Lenders at AAPLOnline.com . (Full disclosure, we are members, but we do not accept investors.) Alternately, ScotsmanGuide.com could be a good resource. Lots of lenders but the problem with each is you’ll really have no idea with whom you are speaking, @Andrew C.  Same with all the solicitations you’ll probably receive here.

If you have a substantial amount of money in your SD 401K to invest, you might be better off attending some conferences and meeting the sponsors face-to-face. The AAPL is having its annual conference next month in Las Vegas. Click on the associated link in the website above. There will be hundreds of lenders there of all shapes and sizes and many run funds.

Geraci Law Firm, one of the larger private lending law firms, holds conferences several times a year. Some of these are designed specifically to attract investors like you. Here the presentations are geared toward attracting private money. You might call them and find out which these are.

The process for lending money in second position is generally the same as lending in first position, @Allison Collins.  The paperwork, which you always obtain from a lending attorney, is also the same and it will be substantial – well beyond a note and mortgage/deed of trust, as I bet you know. Those are the similarities, and they end there.

We loan our own money and have no criteria for lending in second position. Where first-position loans can be relatively safe, second-position loans and lower are easily wiped out and are unacceptably risky in our view.

To be specific, a foreclosure by the first will wipe you out. A bankruptcy of the borrower could also wipe you out. This can be mitigated by a substantial amount of equity in the property, but it’s uncontrollable. You could make a safe loan with a complete understanding of the then-current equity in the property and find out months later the property is now a busted flip and worth substantially less. There could also be mechanics liens and unpaid taxes you’d be subject to. Some might be covered by title insurance and some not.

This doesn’t mean there is no place for making seconds. We know a handful of smaller lenders who specialize in seconds. They have the background, temperament, and wherewithal to withstand getting wiped out on occasion. Lots of rehabbers borrow their construction money, but these are well-qualified loans at the onset. You implied your potential borrower is already in trouble to some degree. Why would you do this? Would you be ok getting wiped out?

There are many well-qualified, experienced, borrowers who need second position money. These will often be behind a hard money loan. If you feel strongly about this, make sure you get to know the first position, senior lender. Do they aggressively go after their borrowers at the first misstep or are they inclined to allow a loan mod or forbearance? What are their track record and criteria? That is, as a subordinate lender, you’re at both the mercy and good nature of the senior lender as well as the skill and integrity of the borrower. Senior lenders are a good resource for a borrower reference – good or bad, and we occasionally get that phone call.

Always ask before you leap, Allison, but take heed making these types of loans.

This is a pretty common scam, @Jasmine Pickney .   There is no such thing as an insurance policy that guarantees a private loan. Don’t I wish.

The unfortunately named Private Mortgage Insurance (PMI) is only available for conventional loans (Fannie, Freddy) and FHA. The only insurance any legitimate private lender will ask you to buy is a lender's title policy and fire/hazard insurance (or landlord ins., or homeowner ins., etc., as appropriate). These would be purchased when you close your deal. The title insurance would be paid out of the proceeds you wire to Title or to your closing attorney. The fire & hazard insurance would be paid by you directly to the insurance company.

There is never a reason to send money for insurance to a lender. Other than perhaps an appraisal fee that would go directly to the appraiser, or a very nominal credit check fee, there is never a reason to ever pay any upfront fee to a private lender.

You might be a little more specific, @Ti Hon. Hard money lenders come in all shapes and sizes.

Are you simply looking to lend your own money? Perhaps you have investors who will provide funds for you to lend thru a mortgage pool or REIT? Do you have contacts with Wall Street or some insurance companies who are willing to back you? Alternately, even with no money you could find borrowers and make or arrange loans between local investors and borrowers you might know.

Lots of options and the list seems to grow every day.

Once you’ve narrowed it down, you should speak to a good lending attorney for some legal direction and help. Kevin Kim and Nema Daghbandan at Geraci Law, just up the road from you in Tustin, do this as the main part of their practice. In fact, Kevin helped us get licensed as CFL's. Before that, when we used a broker to originate our loans (and still do sometimes) Nema helped us stay in compliance.

Your timing is good, Ti. The American Association of Private Lenders is having its annual convention in a few weeks in Las Vegas. Kevin, Nema, and many other lending lawyers will be there along with hundreds of lenders large and small in all specialties. This could be a good opportunity to meet others in areas that interest you. You might even be able to get some free legal advice 😆.

If you see me, please say hello.

Similarly, the California Mortgage Association is having its fall conference in Las Vegas at the end of October. I’m not a member (yet), but I’ve heard good things. I actually like their agenda better than the AAPL conference.

It seems there's no limit to the number of organizations you can join or conferences you can attend.

Good luck to you, Ti.