All Forum Posts by: Gerald Demers

Took your survey.  We supply appliances.  Biggest questions we see are buy new or used.  We generally buy good used ones or Sears Outlet (scratch n dent).  

Exhaust hood above stove or hood and microwave together? We are putting in the microwave. 

Don't add food disposal units.  

Most properties we have dishwashers.  

Only the higher end homes have fridges with water/ice makers.  

We like glasstop stoves but honestly, I am rethinking this as we have replaced too many of them.  We have had ours for 12 years but in a rental, they seem to get scratched, cracked and busted up.  I have a coil top stove in one nice rental and we have only replaced the reflectors below each burner so I may return to buying coil tops.  

Gerald Demers

@Dana Regan, yes you can have a renter lined up before you close.  I am not sure it will help with the lender's decision to loan but you can market a property before you own it.  If you have the property under contract, you can ask the seller for a master lease allowing you to rent the property out on or after the date you would take possession and contingent upon closing.  Now, you have the ability to market for a new tenant. 

WHAT I HAVE BEEN TOLD is the reason conventional lenders won't lend you to purchase a single family home within an LLC is that they cannot sell that loan on the open market after underwriting it. Thus, they have to keep the loan in house as a portfolio loan. This is what I have been told.

@Darren Eady, it looks like @Nathan Click can help as well.  We have spoken to a number of local community bank lenders that will all do this.  Looks like Nathan will do smaller loans.  I am going to reach out to him and get more info.  

Gerald Demers

FEAR:  Feeling Excited and Ready

FEAR:  Face Everything and Respond.  This is my favorite because it doesn't deny the fear you feel; it tells you to respond (take action) anyway.  

Hello @Dana Regan.  We only partner with private lenders so no banks are involved.  

That being said, with our SFH properties owned in an LLC, individually, we cannot get conventional financing for them regardless of our income elsewhere. But as a group, we can get a commercial loan for all of them at once.

There are several lenders that will look at this and they really look at income of the property compared to debt service.  While our credit score does come into play, our income in other areas does not.  And they want to see a loan of at least 250K, 500K minimum preferred.  They only lend on performing properties - ie, already renovated and rented out.  

We just started looking at this.   Our idea is to free up about 400K in private money for purchases they won't finance like non-performing notes and other distressed property.  Once we have another group of properties, we will package that up in another loan and free up the underlying private funds.  

The lower lending rates (5% instead of 8%) will also allow us to create an additional $787 in cash flow.   We will use this additional cash for our note investing and not to accelerate paying mortgages down because we can generate significantly greater returns than 5%. 

You know costs to refinancing a single property can be a few thousand dollars. Well, those costs are multiplied when doing it for multiple properties all at once so that can be cost prohibitive. For us, the additional cash flow takes care of that. If it's 20K to refinance everything, 787*12/20K is a 47.22% ROI. I would do that all day long even if we have to borrow the refinance costs at 12%.

Gerald Demers

I AM NOT AN ATTORNEY!

Your link references a 1995 article and mine references a 1998 article.  I did not notice that and I apologize for that oversight.  You need current info.  

But the linked article you included speaks of a broker servicing the loan.  Are you dealing with a broker now?  Is broker an old term?  

What I suspect is that more than one person owns the note and they have a servicer in place to communicate directly with the borrower.  I suspect the person wanting to sell their interest in the note engaged a broker to help manage the transaction?  If that is the role of the broker, they will be paid for their services out of the proceeds the seller gets.  I don't see where they would be holding the note itself unless they were also engaged to do so.  

I ask because I, Brooks Young Financial Group, partnered with a private investor to purchase a note on a property.  It is publicly recorded that both parties own the note.  I have the actual note and the entire chain of title in my fire safe.  

WE choose a loan SERVICER to manage the loan for us (manage payments, escrow taxes and insurance).  The servicer is a vendor; they have no ownership interests or control that we don't give them.

If my private investor needed his funds back before we completed our plans for the note, I simply substitute the investor with another one.  Again, I must ensure that the appropriate assignments and allonges are drafted and recorded to identify the change in ownership.  

It sounds like this is what may be happening with you and the owner does not have the experience to manage the process themselves and so they are engaging some assistance which is smart.  

If you purchase this partial interest, for you to be safe, it must be clear you own it.  And yes, one of you has to hold the original paper and the entire chain of title.  If you don't trust the other party, engage a real estate attorney to hold onto the paperwork for you both.  

Gerald Demers  

Typically, if you have a business like an LLC (and I suggest you do to remove liability away from you personally), a business license in the county you operate in is required. For some counties, if you do business in that county, you require a business license there as well. Call the counties you do business in.

If you were really asking if you need a Real Estate License to be a real estate investor, the answer is absolutely not.  

Gerald Demers

You stated "I wonder what you guys recommend as a good strategy to close on the cash buyers; double closing, assign the contract or using transaction funding for 3 days."

You are really only describing two methods: double close or assign.  Using transaction funding is just a way to finance and can be used with either wholesale technique; it's not a method of wholesaling.

Which method you choose depends on the original seller, the ultimate buyer and how much you are making.  

If you sold me your house for 100K and found out I was reselling it for 105K, would you be okay with that?  Many would have no issues.  What if you found out I was selling it for 130K; would you still want to sell me the property?  

If you double close, you effectively hide what you are doing from both the seller and the end buyer.  If you are making a sizable spread, and God bless you if you are, double close so no one gets their knickers in a knot.  I have heard of the sellers refusing to close.  So, you close with the seller in the morning (A to B transaction) and the close later in the day with the end buyer (B to C transaction).  Use the same title company and control how the deeds get recorded.  You want to ensure the A to B transaction is recorded first and then the B to C so the last deed in the sales history lists the current owner.  

If the amount is reasonable and you never promised the seller you were going to keep the property, then you can simply assign the contract.  Make sure you go back to the seller stating that an associate wants it so you are going to let them buy it for the same price you promised to pay.  Any additional fees for that right will be paid by the end buyer and it won't affect how much they go home with in the least.  That usually makes them relax.  

I hope this gives you what you need, 

Gerald Demers

Brooks Young Financial Group

I have never heard the term fraction note.    

After some Google work, it seems you are talking about a partial interest in a note.  Hmmm, learned something new.  Check out this article: http://www.wallstreetbrokers.com/library/fractions...

Now I understand. Do you buy a partial, which is a specific amount and number of payments (example, the note is 360 months, and I am going to buy the next 36 months) or a partial interest in the whole note? I guess that depends on how long you want your money out there and what is your ROI.

If you purchase a partial, you are establishing when your payments start and stop.  To own a partial interest in the loan, if there are 300 payments left, your investment could be spread out over 25 years.  Does that work better for you or not.  

I think your return and how long your money is out there are the deciding factors.  You state above "I heard the fraction notes investors have very little control, due to broker has the original paperwork."

Only if they are not structured correctly.  If you become a part owner of a note, you must have all the paperwork showing such ownership and you must have the ability to sell your partial interest in the note at any time to anybody.  Where does this broker come into play?  Something sounds fishy to me.  

Read the article.  I suspect it will give you the ability to ask the seller some really good questions.  The answers may make you run.  

Gerald Demers

@Al Williamson, almost 1,800 posts?  Damn!  I bow before thee.  :O)   That is a serious amount of time dedicated to helping others!  Huge respect!

@Joshua Davis, regardless of how you buy any real estate or notes, you are going to need cash; even with a no money down, 100% owner financing deal.  But nowhere does it say it has to be yours.  Great deals attract cash.  If you have an asset worth 100K (real property or notes) and you have it under contract for 80K cash, would you lend your money to an investor to complete that transaction?  If they have to sell it fast for say 90K less about 9% sales costs (8,100), and the sales nets about 1,900, not such a good deal is it?  

Now, same 100K asset but you have it under contract for 55K but you're a little short by about, oh, 55K, do you think you could find an investor willing to partner with you on it?  Even at a fire sale where you net about 75K, that is still 20K in equity for safety.  

Great deals attract the money you need.  If you have a deal and no one wants to invest with you, that should tell you something about the deal.  

And great job ordering the books.  If you don't have one already, get a financial calculator. The Texas Instruments BA II Plus Financial Calculator and the HP 10bII+ Financial Calculator are the most common ones and about $28 to $30 each.  BP also has a bunch of financial tools in their Tools Section.  Check them out.  

Gerald. 

It's not that complicated @Joshua Davis.  There are lots of moving parts of course but you can also partner with someone as you learn.  And get educated.  A great book on notes is Invest in Debt by Jim Napier.  Not the best writing style but the content is spot on.  This book focuses on the financials and how changing terms and discounts on notes changes the value and return of the investment.  

But no, this is not out of the realm for anyone, even beginning investors.  You can invest in physical properties or paper.  Both are nerve wracking when you begin so you get educated, and partner with someone already successful as you learn.  Same process but when the sewer backs up, no one calls the bank; they call the owner of the rental property!  We and our financial partners are the bank.  

Gerald Demers

Brooks Young Financial Group