All Forum Posts by: Jay Hinrichs

@Rick H.

My brother is in the process taking title to a neighboring property to his.. the owner died has no Known Heirs at least any that have stepped forward.

He has paid the tax's now for 5 years on the property. and is in the process of doing his quiet title action. I think he is going to get this property...Its in CA. and is 5 acres next to his current 5 acres where he lives. He might get this property for maybe 5k total out of pocket.. It would be the only one I have personally seen when someone dies intestate and someone buys it through quiet title and paying the tax's and open and notorious use.

Have you seen any others?

Now this property is out in the country but still within 90 minutes of SF so it has value for sure

@Cameron Sharp

Very nice list Cameron... And from my perspective any lender that wants a Due Diligence fee you need to be very cautious of.. This Due Diligence fee scam is older than most other scams...

A true lender will want you to pay for appraisal and credit app.. and or as suggested a small app fee say 100 bucks or so..

In my HML days I never collected anything up front.. Just charged for appraisal and credit if we closed... I underwrote the file first IE does this borrower have any money,, any credit and any experience, If it was a NO to those then it was a pass and I did not charge them anything.. If it was hey this guy looks good then we moved forward.

There may be some newbie companies out there doing true equity financing but those with any experience ( like many on this site) that went through the 08 depression.. the days of your great deal and our money are not reality with most lenders Hard money or not.

Does not do anyone any good to lend to someone who really does not have the capability to pull off a rehab and resale and or as a lender you have to go through their learning curve.. The learning curve in my mind needs to be done with family and friends money.. At least from my perspective and what I am comfortable funding.

I urge anyone trying to get into the game the best thing they can do is to put some capital together so when you approach a lender you can say Hey I am more than willing to put 5 to 20% of my own money into this deal.. that will mitigage bad credit.. and to some extent lack of experience.

@Bill Gulley

Bill actually your incorrect about my lending experience.. I am a NMLS licensed mortgage banker ( in active currently) I have owned 2 hard money companies that were small by banking standards 30 to 50 million in loans in force.. As well as a California RE broker for 35 years. That allowed me to do fractionalized TD lending in CA all perfectly legally. I have been examined by the department of corporations and securities in my state and have had them bless my RE paper offerings and have posted this on BP..

Each state is different no doubt, but I am compliant in the states I work in.

Although one hat does not fit all for sure and each investor should check their state corporate securities OR in the case of California the department of Real estate and decide if they are compliant in what they wish to do.

The real issue is how the safe act is interpreted in each state.. What's legal for private ( HML) non owner occ commercial loans in one state may not be in another.. And same with where the investor resides... Then is the investor accredited or not.. that makes a huge difference. And of course most states now have exemptions for limited activity,, I know in my state you can do 4 loans a year privately without a NMLS broker doing the paper work. Those that are clearly in the bizz need to be compliant.

I appreciate your input and agree that no one wants the auditors breathing down your neck.. I have substantial lines of credit for my building activities in my state with my small commercial bank and they were on the watch list.. They had examiners in every 6 months and they looked at each and every loan during those times. I fully understand how intrusive and hard that was for this bank.. So each of my loans with the banks got looked at every 6 months along with my financial statements. And when audit time rolls around and you get a notification on LinkedIn that a Regulator has looked at your profile you know your being checked out ( LOL) etc etc... Now they finally are being released from their order they made it through but they had to raise a bunch of capital to do it and reduce their overall exposure to RE lending. I am fortunate that they kept me as a client and still support my RE endeavors.

@J Scott

to follow up on your response.. If you remember there were all those day trading companies that had big boiler rooms of computers set up and you paid them to come in and trade with them... And so many lost so much.. If you recall one investor in Atlanta lost 600k in 3 months and then went postal.

I see now that the day traders are back at selling seminars and providing hands on training and setting up boiler rooms again.

Pretty hard to compete with the pro's who do it for a living.

But on topic... Anyone who bought real estate in 07 at the peak and panicked and sold in 09... Just like those that bought the stock market at 15k and sold at 6k...

And it really did not matter were you were at.... Ft. Myers... Atlanta, PHX, Vegas INland empire,, central valley CA... Solano county...

YOu name it if you bought at the peak and sold in the trough Trillions were lost

@Wendell De Guzman

@James Wise

Wendell, This was a very common investment scheme in CA in the 80's and 90's Although it was for Owner occ.. Prices in CA had risen so high that you had a bunch of credit worthy buyers but they could not get the 20% down to qualify ( in those days there was no No money down or low down like today) So investors would put up the 20% usually 100k or more for a prime SF bay area home... the credit partner moved in.. And in 5 years either reified the cash partner out or resold and profits were split.

Would be curious to see how your going to protect your equity infusion in these deals... AS the home would need to be titled in the investors name.

If the market retreats your equity could get eroded.

Could be a win win for all if you choose wisely.

@Bill Gulley

terminology Bill I guess this is just like the private loan vs hard money loan. there is no right or wrong how you classify it.. You could call a participation loan a Multi bene fractionalized loan as your participating with multiple banks and or beneficiary's in one deal.. Or you could call it equity share provision in the Note...

At the end of the day at least in my state... The equity participation or profit participation of the Note is not deemed interest and is deemed to be either short term capital gain or long term capital gain or ordinary income if its in your course of business. Its important to pay the tax man. When we sold a bunch of our Equity share properties last year.. We had investors participate in the up side profit and they were from all over and each of them had their accountants file the gain as cap gain.. And we got no blow back or problems with multiple accountants in multiple states treating the profit above note interest and principal as cap gain...

I like your speeding ticket analogy though..

@Bill Gulley

Bill I did not repost on purpose... sometimes when I try to reply the last thing I wrote pops up and I can't get rid of it... So if I send it again it opens the window and lets me write a new reply which I did.

I respectfully disagree with your assessment of Participation Loans.

I suppose if I had a huge issue with any of my participation loans I would then fall back on the attorney who wrote them and their E and O insurance.

but that has never remotely been the case.. Our borrowers loved them and we loved them as well.. they work very very nicely in certain deals. And again they are totally commercial in nature and as we know commercial loans have different criteria from NMLS and safe act loans.

At least in the Venue's I have used them and seen them done.

Just like fractionalizing a Trust deed is NOT a security is some states ( CA specifically) we agree to disagree on these issues.

@Karen Margrave

@Bill Gulley

Bill not only has my RE attorney created the document we have it registered and blessed by the department of corporations and securities in our state.

And when I have done these for outside investors the profit that was made on the note ( if we held the property more than a year) was deemed capital gains.

Of course every state is different and JV's are certainly just fine to do. But the notes are really easy and inexpensive to create and it gives separation between lender and developer.

AS for the practical application for most of the BPers here that fly under the radar a check with their local state agency would probably give them the answer they would be looking for.

Now of course every state is different..

IN CA. I have seen many of these as well. It was very common in the 80's and 90's for banks and thrifts to write participation mortgages and Notes as well..

Were I personally lived in Napa was a prime example... The lender at the time had a 25% participation with the borrower.. It was a 25 million dollar loan on the entire development.. The bank that made the loan went down in the Savings and loan debacle of the 80's.. And the owner of the property prior to selling to the Japanese paid 1 mil to the Resolution trust to release the participation aspect of this mortgage then promptly sold it to the Japanese company ( Owner of SEga Systems) for 110 million and kept all the up side.

@Karen Margrave

Equity share TD and Notes are also something that I have done many many times in my HML activities.. I did this primarily with my small builder clients. I would loan X take my rate of return plus a % of the profit...The Equity participation is part of the Note, and not the TD. I would have my Oregon Attorney draft the Note the TD was just on a standard TD form... these type of deals I would recommend to any lender they work great. Gives you a JV deal but separation from ownership of the asset.. And if it goes pear shaped you foreclose instead of being in the deal as the JV partner.

@Karen Margrave

Equity share TD and Notes are also something that I have done many many times in my HML activities.. I did this primarily with my small builder clients. I would loan X take my rate of return plus a % of the profit...The Equity participation is part of the Note, and not the TD. I would have my Oregon Attorney draft the Note the TD was just on a standard TD form... these type of deals I would recommend to any lender they work great. Gives you a JV deal but separation from ownership of the asset.. And if it goes pear shaped you foreclose instead of being in the deal as the JV partner.