All Forum Posts by: Toyin Dawodu

@Chris Martin, The point I am trying to make is that HML should not pretend to be HML when they have regular bank requirements. This conversation is for investors who may find themselves with little or no money and drops out of the game because some HML says to them, "what is your skin in the game" Major Wall street investors never use their own money. Yes, I have my own money, and I sometimes pay cash when I need to tie up a good deal. It's not really about my money, its about choices. Thank God we live in America where we have several lending options.

HERE'S MY ANALYSIS OF THE DEAL-- So you can see there's little or no risk to the HML

As an investor, I don't buy based on future potential. The day I buy, I have built in equity. For example, the property I just bought for $106,000. I had investors willing to give me $139,000 which is 92.66% of its current market value of $150K. That is still $33,000 profit to me. To my hard money lender who loaned $120,000 , its 80% of the as is value and 63% of ARV. So there's no speculation on my part.

As investors, we make our money on the day we buy, and take the profit when we sell. My position is my ability to generate money for the lender in form of loan fees, interest and other junk fees should be the main factor. As the investor, I am still the source of their income. 

@Cal C., Since I did not put any money down, the interest rate does not matter, as long as I come out whole at the exit. My return is infinite. Just to show you that we should be glad we live in the land of opportunity and choices. The loan I got on this deal is structured as follows, here's the term sheet from the lender. I pitched this deal to several of them, but one smart HML took the deal because it made a lot of sense. .

TERM SHEET FROM LENDER   

(I blanked out some information for privacy purposes)

Toyin

We are good to do the following on 5XXX J**A****M St.  

1.Loan amount $120,000.00

2.10.5% interest only, payment $1,050.00 per month $34.52 per day

3.No Prepayment penalty

4.Lender origination fee 2pts or $2,400.00

5.Loan Documents and disclosures $450.00 + $75 wire funding fee

6.  2 years.

I need:

1.Escrow estimated costs (GFE)

2.Title company and escrow company contact info and order numbers

3.Vesting information and Tax Id for corporate vesting

I can do loan docs and disclosures right away with this info above.

Prior to funding:

1.Property Insurance naming XXXX  Lending XXXX. as loss payee for loan amount

2.Corporate Resolution naming you as member with rights to bind corp to real

estate purchase and loan.

I hope this answers your question, If you need the name of the HML, please contact me directly.

This is the second loan the HML has done for me in the last 30 days.

@Account Closed,  Your analysis of each deal makes some sense, but what does FICO score have to do with the deal if you have enough protective equity. What hard money lenders fail to understand is that they are loaning against the asset, only the asset should be required to qualify not the operator or the so called "skin in the game"  

@Charlie Fitzgerald , As an investor, I don't buy based on future potential. The day I buy, I have build in equity. For example, the property I just bought for $106,000. I had investors willing to give me $139,000 which is 92.66% of its current market value of $150K. That is still $33,000 profit to me. To my hard money lender who loan $120,000 , its 80% of the as is value and 63% of ARV. So there's no speculation on my park.

As investors, we make our money on the day we buy, and take the profit when we sell. My position is my ability to generate money for the lender in form of loan fees, interest and other junk fees. As the investor, I am still the source of their income. 

@Charlie Fitzgerald, @Rod Desinord,@Bill P., As an investor, if you spend $5,000 locating a deal that has almost $80,000 equity, and the lender has the first priority to that equity in a default situation, should that not constitute a skin in the game? 

Traditional lenders should require skin in the game in case of default. because their skin in the game is the equity the borrower puts down as downpayment, which is meant to protect the lender, since the property is now leveraged to the tune of 80% and the 20% put down by the buyer.

As an investor, I came in with equity by finding and buying the property way below market and only asking for a loan that is 40% less that the market is worth. what other skin do I need? So a hard money lender who knows what he is doing should have no problem loaning at 60% LTV with zero down payment or any other "skin" from the investor.

@Cal C. I thought the price of charging investors high interest is assuming the risk that stuff happens. At LTV of 63%, the lender has enough protective equity to make more should the borrower default.

As the number of investors swell, so do the number of "so called hard money lenders" Since the recession, a lot of hard money lenders, or as I will call them, "pretend hard money lenders" ask you this question. How much skin do you have in the game? WTF?

This is the most irritating question I get from these so called hard money lenders. The reason I go to a hard money lender is because I do not want to personally qualify or put my money in the deal. My first question to the hard money lender that asks the question is what do you mean? "Skin in the game?" I found the deal, didn't I? Don't you think my cost of finding a deal that is worth $190,000 ARV and I am buying it for $106,000 is enough skin in the game?

Usually the so called hard money lender will respond, “But I still want you to put some of your money in the deal. At this point, I just hang up on the lender, "gently"

The reason we are investors is to find good deals and have others come to the party and share in our fortunes. So if I am giving a hard money lender some business that makes sense, it is irritating for the hard money lender to be harassing me with "skin in the game baloney." After all, that is why you are a hard money lender. If I wanted to put more skin in the game, I would have gone to my bank.

Please chime in, fellow investors. Do you think these hard money lenders have a right to call themselves hard money lenders when they behave like traditional banks?

I have done over 400 deals, and rarely do I put any skin in the game besides finding the deal. I consider that my skin.

By the way, I found a lender who financed the above recently closed deal by loaning me $120,000. With an after repair value of $190,000, his LTV is 63%. After paying loan costs and other escrow fees, I walked away with $7,545 in my pocket for buying the property. When I exit in 90 days, there's at least another $40,000-$50,000 waiting for me. So why would a reasonable lender ask me to put money down loan to me money on a 63% LTV property? That is my question to you fellow investors. Are these hard money lenders for real or are they just pretenders? Let me have your thoughts.

@Ron Thomas I think your article is the best one I have seen that stated the obvious to the newbies without making them look foolish. Real Estate is a business. You don't get into business expecting appreciation to be your profit center. I hate to refer to myself as an investor, even though I have bought and sold over 400 properties.  I don't buy houses for cash flow either. Your cash flow can be eaten up with one or two months vacancy. 

What you have explained to others is that you must either find a bargain or have a way of adding value so you can make the profit you anticipated. Simple. I hope I read you right. Most wannabe investors fail to appreciate these simple facts. They buy into the pie in the sky sold by professional marketers who do not buy real estate on a regular basis. I hope others will see the wisdom in your post and act accordingly. 

I can't imagine this kind of restrictive law being passed in California or any other state for that matter. What is wrong with the legislators in Washington State? Are they anti business?

The other day, I was thinking out loud to myself. The question on my mind was, how many people who read Donald Trump's books on Real Estate are now building skyscrapers? 

 The answer is probably, zero. One thing I do know is that Donald Trump's son, Donald Jr. and his daughter, Ivanka are building skyscrapers or supervising the building of some.

How many people who read the book, "Rich Dad Poor Dad" are now buying properties or investing in real estate? The first person who told me about the book was my lawyer who had read the book four years earlier. At the time he told me, he had not bought a single property.  I still have not read the book, but I have bought over 400 properties.  

This begs the question, how far can you really go from a novice to a budding real estate investor from reading a book or attending one of those three day seminars?

Please don't get me wrong. Reading books and going to seminars have their place. I have read a lot of books, and I have been to a lot of seminars.

However, my success came from someone holding my hand. I had a mentor at some point. But most importantly, I went out and started doing it. My confidence to do it increased because I  had someone to guide me and or answer my questions when I got stuck. 

A few weeks ago, I wrote a post and asked the question, "Why is it that 95% of people who attend seminars or read books about wanting to become a real estate investor never buy a single property?

The answer is simple. The solution to buying properties and becoming successful is not found in books only, but in getting into the trenches and doing it.

The fear of rejection and making mistakes are some of the factors preventing newbies from buying their first property. 

But a mentor besides you, will eliminate those fears. So the bottom line is, you need to become an apprentice to someone who has done it and who is doing it.  There are plenty of people on BP who have demonstrated success. As a newbie, you should ask to become their apprentice, even if you have to pay them or split your deals with them until you have the confidence to do it on your own.

This point was drive home to me again this morning when I read an article in the Wall Street Journal and one of the most successful deal makers in the world, Mr Schwartzman, founder of the Blackstone Group LP stated, "entrepreneurship in in finance is an apprenticeship, it takes years to get the skills required" You can substitute the word finance with real estate. 

However, real estate is still all about finance. If you don't get the numbers right going in, you will lose money when you exit the deal.

Making money is a skill, and real estate investing is no exception. If you don't learn the skill or have someone teach you, I don't think books or seminars are enough. What do you fellow investors or even newbies think?  Do you think newbies need mentors?