All Forum Posts by: James Mc Ree

@Wayne Snell

Can you comment on what it is like to invest in notes as you do versus a fund?  I realize you don't invest in the funds above.  I am in the PPR fund.  PPR pays 12% per year to their investors and (theoretically) we don't need to know anything more.  The fund investors have no work to do.

I like the lower investment threshold of a fund ($10k).  Two factors that hold me back from investing in individual notes include:

• Larger investment required for a potentially longer term, though note can always be sold.
• Concerns that I've never turned a non-performing note into performing and fear that it will not go well with a larger investment at stake.

I think the OP is looking for something open to non-accredited investors.  Note buying may be open to non-accredited investors, but I think the funds are not.

Look for comps in your market.

You should do a property-by-property analysis versus deciding if the whole program is good.  I wouldn't buy anything from any program without doing thorough due diligence.

You (or they) might have missed a step - Ask them how they make their profit?  I see in your posting that they buy for $30k and rehab for $20k (or whatever) and sell to you at that price ($50k).  Are they doing this out of the kindness of their hearts, especially when they eat the overruns?  I doubt it.

I've found quite a few of these to be very generous on the revenue estimates and conservative on the expense estimates.  Again, due diligence is important even for newly renovated properties.  For example, don't believe "very little costs for 10 years" (carpet, paint, vacancy, plumbing add up).

You probably need to think this through beyond month 1.  Suppose you did buy a property all on credit cards.  What happens when you have payments coming due?

You might be able to stretch this out 6-12 months if you have enough 0% interest cards, then maybe start shuffling balances to take advantage of free balance transfer deals, but sooner or later you are going to have to pay a bill.  This could be a really bad situation if you don't have any money.  It could completely wreck your credit and prevent you from buying real estate in more traditional ways.

Check to see what the minimum payments would be on your plan and make sure you are comfortable with that before diving in.  Don't forget operational costs once you own the properties!

You own your offer.  Make your offer with the timeframe you need to do your DD.  They would have taken someone else's better offer if they had one.

You would probably need to setup some kind of waterfall, like:

1. Pay X% preferred return based on operational cash flows (guarantee return to make more attractive)
2. Provide a split of profits on the sale of the property

Your partner will probably want to share in the tax benefits (depreciation) and have no liability.  You will also need to provide an exit, such as a proposed timeframe or buyout mechanism.

My guess is you won't get a lot of interest because the amount is so small if only up to $5k. Personal connections in your REI group are probably the best route.

Personally, I recommend you find a way to fund it yourself.  The hassle of trying to raise $5k and deal with a partner just doesn't seem worth it and I would question your commitment to the deal if I were your prospective partner.  (ie. What if the property needs a new roof?  Will you pay for it, partner?)

You may find that your lender will not allow for the down payment to be financed.  You should check with your lender before engaging in a down payment financing deal.

You may need to go an equity route with partners for the down payment if you are pursuing a traditional mortgage.

I agree with the above sentiments and would probably also jump at these deals.

One big clarification - you are not getting into these deals with zero dollars.  Notice I dropped off the "out of pocket" from your sentence.  You are 100% in debt on the property.  Consider what a potential drop in property values might mean to your plans as you won't be able to sell without bringing dollars to the table.

Otherwise, great deals!  The above is just a risk worth considering in this timeframe of fantastic real estate performance, but now upward movements on interest rates and some economic uncertainty.

I agree with the above thoughts and add the developer you just found to the list @Rick Pozos just suggested.  Choosing that developer would allow you to get out with a profit or at least breaking even, hopefully, and you could help your brother.  The developer might also help your brother learn some process and discipline if that is what he needs.

Welcome neighbor!  BP is a great resource for information and how-tos.  Use the search function.  A lot of questions are covered in the archives.  The books and podcasts are great learning resources.  Best wishes!