All Forum Posts by: Isaac Blocher

Hi BP, I have a borrower that is acquiring a property through a non-performing loan. They are buying the loan and foreclosing to own the property. So initially instead of giving me a deed of trust, they will give me an assignment of collateral. Once they own the property then they plan on record a deed of trust with me in 1st position. They aren't using an escrow company for the transaction, the seller's attorney has agreed to act as the intermediary so they gave me two options. One I can wire the money direct to the intermediary or two, I can wire the money directly to my borrower and they will take care of it. 

1. I don't understand what they are doing so if you can shed some light on what they are doing that would help me. 

2. I never wire money to a personal account or a business account. If the intermediary is really who they say they are then would that be ok or should I demand that they closing at an escrow office?

Any wisdom you can give, I would be very thankful.   

That sound very fair!

@David Weiss Thank you for explaining that. I was not sure if a 1st position lien would work myself and that is partly why I asked the question. If a rehabber was ok with a JV structure then the lender should try to give an incentive to work hard.

Set up an LLC that owns that property. The lender and the rehabber would then be owners of said LLC. Because the lender would be providing all the funds I would expect the lender to make more than the rehabber, something like 55% of all profit. Now to incentivize the rehabber to work fast and find good deals, I feel that the lender should give that 5% or even 10% back to the rehabber. So after all said and down the lender would get 50% or 45% of the profits and the rehabber would get 50% or 55% of all profits. An infinite return for the rehabber because they did not put any of their own money in the deal. An excellent return for the lender.

Was the origination fee before the gave you the loan or after they gave you the loan. It if was before that is a little fishy. @Kristyn Bradley

@Rick Baggenstoss, ok I think I understand your structure. Let's take your example, $100k purchase price, $10K repairs, and they sell the property for $150K. The total profit would be $40k.

The Lender and the Rehabber get 20% of $40K totaling $8k each. This is the part I am not sure I have right!!!

After the 20% return, the rehabber gets 75% of the remaining amount which is $24k. Which is $18k. The left over amount of $6k that would go to the Lender. 

Does not make sense?

You have a good point @Robert Freeborn

@John Miller Thank you for updating this blog. How do JV partners get nowadays? Plus is there a way to fund a deal at 100%, be in 1st position lien and still ask for 50% of the profit after the deal is done?

@Rick Baggenstoss I hope you can help me with my question. It looks like you have done a lot of deals. Here is a hypothetical scenario: A borrower has an amazing deal and I give him 100% of the purchase price and 100% of the repair costs. But, I don't want to be a JV partner on the deal. I want to be in 1st lien position. Now because I'm coming into the deal with 100% of all cost, I would like to get 40 to 30% of all profit after expenses at the end of the deal.

Is this something you have heard of? Is 40% too high to ask for? He is doing all the work but I am coming in with all the money. Thank you for all your help. I am just trying to think through the possibilities of this structure. 

WOW! A very good deal. Take it!!

CASH FLOW BABY!