All Forum Posts by: Kyle Altenau

You'd need to find an attorney to handle the lender legal side of things. I'd also recommend vetting and finding an appraisal company you're comfortable working with. If you don't have lending experience, I'd highly recommend getting appraisals on all of your deals. 

How much are you looking to put out in total? If it's a lot and you'll have several loans, you'd also need to invest in mortgage servicing software etc. It may be more cost effective to find a lender that takes money from investors like yourself and lends it out for you. They source the deals, underwrite, close and then service them. For instance, they'll do a loan at 12% and then give you a 10% return on your investment. You'd of course want to vet these companies as well, but it could be a more hands off approach to lending out your money. 

Your promissory note should have what penalties they can charge you. Depending on your state they will only be able to charge a certain amount. Just because it is in your promissory note also does not necessarily mean it's legal. You may need to speak to a real estate attorney. 

I never received any communication directly from the Land Bank despite constant follow up and inquiries. The properties just end up going to the politicians friends for pennies on the dollar. The city isn't trying to make any money on the properties. They're just political favors. The developers have made killings on these properties. 

@Nathan Meredith I have been to a ton of @Joseph Scorese events and definitely recommend connecting with him if you're looking to do some local Philly networking. 

It depends on what kind of security your friend would want. Theoretically he can just give you the money and you pay it back when you sell. There's a bunch of other ways you could structure it but the most "correct" way to do it would be to record a mortgage and whatever other documents you'd need depending on your state. You'd need to pay for an attorney to do that and then there are recording and title fees associated that will cost a bit more. 

If it's a standard fix and flip project, I think fair terms for friends would be 12 month term, interest only payments due monthly. The construction funds are typically released in draws where you would advance the work first, then he would inspect and reimburse you based on your pre determined budget. 

If you funded it through a mortgage, your friend would basically give the $100,000 to the settlement agent. Any other funds needed from you for the closing would be given to the settlement agent as well. Then once closing is completed, they disburse the money to where it needs to go and they record the mortgage. 

I would just do the repairs with the cash on hand then refinance once the work is completed and tenants are in. Depending on the lender you may have a "seasoning" period of 3, 6, or 12 months. What that means is up until that period is over, they'd only lend based on your purchase price. Even during that period they will include the cost of any significant repairs. Sometimes they won't include 100% of it but 85% of costs for instance. If you're out of that seasoning period, then their loan amount will be driven by appraised value not your purchase price. 

In the past I've funded deals that we called "upside down" meaning the rehab was greater than the purchase price. We don't like these projects for two reasons. 

1. As @Steve Morris said, we care about what the asset is worth as is. The closer to finished the project is the more marketable the project becomes. 

2. And this is related to 1. All the risk is in the execution. For this reason, we'd typically only fund these types of deals for experienced investors. 

Typically our down payment requirements would be higher, possibly slightly higher pricing. But really we'd just want to watch our initial funding amount vs the as is value of the property and give that metric lower leverage than usual. On something like this pre Covid if you were experienced we'd want 10-15% of project cost as down payment. Right now. For something this size, I think most lenders would just pass. 

In 2017-2018 I tried valiantly to even just get offers in for land bank properties. I wouldn't be able to, then I'd see someone had purchase something I offered $20,000 had bought it for $10,000 and now were selling it to developers for $50,000. No one is missing opportunity with the land bank properties, it is just surrounded with red tape and corruption. Google what happened between Kenyata Johnson and Ori Fiebush. That's only one small example. I spent months spinning my wheels trying to get offers accepted.  

@Andrew B. - Yes. The amount will vary depending on what county you're in. Most won't take actual cash but require certified checks. That's a little annoying because you need to get the checks before going to the auction. So I'd have a couple $1k, $5k, $20k checks etc because you don't know the exact amount you'll need. If they require $20k deposit and you only have a $25k check on you, they'll of course accept that. I'd just rather keep as much cash in my pocket as possible. 

And you are correct about the getting hard money then refinancing. I'd speak to hard money lenders in your area and title companies as well. Every state/county can be a little different with Sheriff sales so you will want an understanding of how that works. 

I was trying to figure out a way just blanketing them together and using a bridge loan might work. It definitely helps, but I don't think you'll be able to hit the right metrics. Before Covid HML were doing 90% of purchase price and 100% of reno. In that case you'd need $32,500 down. The equity that you're building into the second one would help you with LTV concerns. But now most lenders are at 85% of purchase price and 100% of construction which would put you at $48,750 with closing costs on top.

If you can only go with one, it seems like the 6 unit will get your initial investment back into your pocked quickest. Assuming you manage the reno well, you'd be able to use the built in equity in a refinance to put your original cash back in your pocket. Then you could use that for your next deal. If you went with the 7 unit first, your cash would be stuck in there longer, although it is a less risky investment being that it is stabilized.