All Forum Posts by: John E.

@Brian Burke I totally agree! When I said to try and get non-recourse financing I didn't mean it as a way to get the borrower off the hook if he/she defaults. I agree that if your borrowing from a PML lender for only a few deals then the recourse route and confession of doubt is not something you should be afraid of if you're serious. The only reason why I recommended the non-recourse loan, as you already mentioned, was to protect other properties that have been acquired via private money. The contingent liability from one PML financed rental could cause you to lose your shirt and the shirt's of many others in the process. You are also VERY right in saying that lenders will be reluctant in financing any of your future deals if you defaulted on a recourse or non-recourse loan! I definitely don't want to make it seem like I'm advocating screwing someone else that loaned you the money! It's unethical anbd bad for your real estate business.

Thanks for the response Brian!

@Steve Babiak You're right on that. It isn't in the lenders best interest.

Steve- What if the collateral is worth more than the value of the loan? Is it not ethical to borrow from PMLs if the financing is non-recourse? I mean if the deal works out to be a great one, the lender gets a great return, and the collateral is worth more than the borrowed amount (i.e loan is 80k on a 100k), isn't the recourse just icing on the cake for the lender.

The confession of judgement sounds like a good way to convince someone that you will do the best to make the payments, but as you borrow more & more from that PML and others won't you have a huge liability threat if one home goes bad? Won't it be a threat to all of the other rentals?

You know a lot more than me on this Steve! I'm trying to start an argument btw.

Thoughts?

Aside from bringing a killer deal that makes a lot of sense, I think it's imperative when borrowing money from lenders that you focus on all of the benefits for them. I'm pretty sure one of the best rules of selling is me, me, me = dull, dull, dull. Don't get into the real estate right away when taking them out to lunch (and hopefully you're paying!), but first get them talking about more lighthearted topics such as their young children and how they're doing. Remember that you're there to help them out.

Perhaps you could ease in the notion that the lenders kids are probably going to need a lot for college as prices are skyrocketing and student loans can be lethal! Maybe their money is sitting in a CD or savings account at 1% and they're watching their wealth/retirement account dissipate due to inflation (which is over 3%! Try eating!). The Market~ It's so unpredictable and fortunes could be reduced to nothing overnight. This isn't your daddy's stock market!

They are probably experiencing the pain, as millions of Americans are, but you have something that could help them! You'll give the lender an interest rate above the rate of inflation (6-10%) and provide them with a first lien position on a property that will be upheld in any court of law. It's NOT a Madoff type scheme! Thanks to your help they can achieve stable and secure returns that will, month by month, inch them closer and closer to achieving their goal amount for retirement, college savings, or any other desired result!

Show them the numbers too! Explain how it will work and why your business acumen is sound. It's a win-win for the both of you! Don't forget to sell them on the dream! Which you WILL of course do YOUR ABSOLUTE BEST to uphold.

Try your best to get a non-recourse loan. If they ask why perhaps your answer will be "Mr/Mrs Lender I cannot handle the contingent liability if I plan on helping more people such as yourself."

Thoughts?

@James Wise Hey man I've got a few quick questions~ Is the 300k liability insurance there to protect you from a lawsuit? Is it expensive and do you mind sharing the monthly premium? Do you simply own your rentals as a Sole P w/ liability insurance or under an entity? Land trusts for anonymity?

Ok... So I might be asking for a lot. Thanks in advance James. :)

@Eleena de Lisser .

First off, Hi Blake it's nice to see that you've found bigger pockets. Although waiting until the market drops off and housing crashes again (notice I said again because we're in a bubble from what I'm seeing) might seem like a great idea, it's going to slow you down because waiting to time the market will make you miss out on a lot of great deals right now. If you're going to be in the game for the long haul I think you need to learn how to create wealth in any business cycle the market is experiencing. I think the key is too watch what a lot of people are saying (these people are not savvy investors, but folks caught up in the euphoria of "good" times or melancholy of "bad" times) and do the opposite.

As for your acquisition strategy, I think that if you can get bank financing that's great, but don't forget about all the great cash flowing rental opportunities that can be acquired via creative transactions with motivated sellers that need help. Subject tos, seller financing, lease options (see local laws), and more! Easier said then done however!

Always remember the wise words from the oracle of Omaha: "Be FEARFUL when others are GREEDY. Be GREEDY when others are FEARFUL."

Mr. Buffett has a darn good head on those shoulders.

Hey @Andy Gross ! Nice to see someone from my area (DC, Virginia, and Maryland). I live just 15 minutes south of DC in Virginia. Building a rental portfolio is a sound idea for wealth building and rehabbing sounds terrific if that's what your after.

@Ned Carey is an experienced investor from Maryland based on what I've gathered on the forums and I've seen his name pop in the podcasts. Definitely follow up on his offer to answer a question or two.

Oh and hi Ned! I'm John.

@Mitch Dowler Aww! You stole my answer WORD FOR WORD! Lol~ Just joshing. It looks like someone else has been keeping up with Jason Hartman's newsletter as well!

Yes of course, inflation is a big help when you can lock in a fixed rate mortgage for 30 years because those dollars they (the bank/creditor) loaned you becomes worth less and less! Meanwhile... You're rents go up with the market and if demographic trends are working in your favor (more jobs, money, businesses, and growth) you get an additional bonus.

Notice I DID NOT say appreciation! It's a fools (ok... Call them speculators if you will) game in my mind, unless of course it's forced appreciation caused by repairs and other improvements you've made.

If you like speculating you can mimic what some Hedge Funds do- buy an oil tanker and let it sit in the dock for a few years before you then proceed to exploit price changes. Arbitrage! Isn't she a beauty?

Is Hyper Inflation coming?? I have no idea on that one, but inflation is a given. Just ask any old timer what has happened to the purchasing power of the dollar over the past few decades. We're all subject to the FED's printing presses and the rather strange remarks of past a FED chairman concerning the dropping of money off helicopters. I'm pretty darn sure we will NEVER see depression era deflation!

The two best ways I know of to protect yourself and win in an inflationary economy are: A.) Sell potato chips and other grocery items that are slowly decreasing in quantity, but rising in price. B.) Buy hard assets as a hedge against inflation like rental properties.

Inflation really is a "silent tax" on your wealth if you don't know how to protect yourself from it, but it could help you become more wealthy thanks to it!

Loser in Inflationary Economy~ All money into CDs & Savings accounts for yrs

Winner in Inflationary Economy~ Money in hard assets or earning a high% rate

Just my thoughts :)

I totally agree with Bill Gulley about not walking away if you can afford it. If I was in your shoes I would see it as "I have -400 in cash flow a month". Bill's idea of subsidizing the loan w/ other cash flow from rentals and other profit from REI ventures is spot on. I'm pretty sure if you can continue to make payments your credit score will not be hit (perhaps it will go up) and not to mention that the debt will eventually paid off w/ a free and clear property. It will also act as a self-confidence booster (at least for me) to know that you're a problem solver and that you've offset your debt by jumpstarting your REI business. After you've increased your rental cash flow from REIs to offset loses (you're at zero here), you can continue from their to grow your business! Nobody wants to loan to someone who just walked and ESPECIALLY to an investor! In summary find a creative solution, keep your credit intact, pay down the property, jump start your REI business from there and succeed! That's my best man... Wish you the best! ~ John

@Wendell De Guzman That makes so much sense! Pragmatism is key because you don't want to keep on doing something that simply won't work! I think that there is a fine line between giving up and being pragmatic.

I think that you did an amazing job of distinguishing both~ You still had the persistent desire to become a successful RE entrepreneur (and congratulations on that :}), but you were pragmatic in realizing that the rule of thumb (Not hard and fast!) wasn't working, and so you changed your strategy.

It's incredible how common sense in the form of pragmatism can make all the difference in the world.

Question~ S corp or LLC? Which one do you prefer?

Hey @Travis Barron ! Welcome to the site! I think that you'll learn a lot from this site if you set aside a portion of your day to be on it. Get involved on the forums and ask questions. BP Nation is awesome and the amount of help people are willing to give by answering your questions is incredible!

I've got to say that the podcasts are my favorite! Just about every REI niche I can think of is covered in them and I'm always pleasantly surprised when I hear of new ones. A few weeks ago, I learned of borrowing money online from websites such as lending tree and acquiring sub 30K properties using this cool form of financing.

This site is an incredible tool to be used for in learning, networking, doing deals, finding partners, and so much more.