All Forum Posts by: Kevin Yoo

Roy N.

I think you are good in your analysis of future rentals. But I do have a few questions.
1. Positive Cash Flow - you have to qualify this because any property will have positive cash flow if you put enough cash into it. I assume if you want CoC of 10 to 15% then you are going to leverage.
2. Leverage is also an issue because at some point, you cannot borrow any more. Your RE business will be stuck until you figure out other ways to borrow money. You can use private money that you have raised, but this will drive the CoC return for your investors down. You can get credit partners but you will have to give them something like part of the cashflow again driving CoC down for your private investors. You can get blanket commercial loan and keep good cashflow and CoC. But don't worry about this bridge now. Because the fact that you have to cross it means your business has grown well and this is a problem you want to have.
3. What is PE and BER?

As for how to package it, do it candidly and with numbers. But show your track record and people will invest. You may even want to offer private investors, investment into the properties you own now. I have used PM to do fix and flips. But I am working on the same things you are trying to do now with rentals and commercial properties. We should share notes. Good luck.

Bill Gulley and Jeff S

You are right, we have hijacked this thread. I will start new ones.

Derek Petersen
Where is Dutchtown and what does uc mean?
40% is very good but what you should want for C class property.
How do you have the management of the property set up for you? This is a challenge.

Bill Gulley

I figured so that it would be tremendous undertaking to lend everywhere. What I have done is taken my own money and lent out to a rehabber in St. Louis. We used a promissory note and shared appreciations. I did well in that one deal. I have friends and acquaintances that want to do this with me. Trying to figure out how to do this and be compliant with all rules and regulations.

I have a California LP and Delaware LLC that does all my real estate. I wonder if I could use them and be compliant with rules and regs? Do you know? Getting boots on the ground is doable and not the limiting factor.

How does Lender's Services work? What do they do for you?

How do I use local mortgage broker if I want the money to go to specific real estate project? How much do they charge?

Never had any experience using such organizations.

Bill Gulley

Thanks Bill. So, if my real estate company wanted to take my private investors money and lend it out essentially being a hard money lenders, what does that require of us? If I wanted to do it throughout the country, does that require a lot more?

Bill Gulley

It is a commercial loan because we borrow the money to do short term and long term real estate in a business.

I do introduce my patients to each other on certain occasions. I do introduce my investors to each other on certain occasions. And these occasions are when I have multiple investors in one project. And we are trying to stay in compliance with SEC regulations by consulting previously with attorneys and have a meeting this week.

My private investors are lending their own money not money from others and they do not do enough volume yet. We have hired on a broker with whom we are considering other ways to borrow and lend money. Looking to get legal and CPA counsel on this as well. Trying very hard to cover all the bases and make sure my investors are well protected.

Jeff S

So, I sign a promissory note to a private investor to put a lien on a property I fix up and sell. To do this right, should I get a real estate agent to put his stamp of approval and pay him some sort of fee every time I do this?

Derek Petersen

I live in San Diego myself but I buy and hold elsewhere. We bought a triplex in St. Louis and just finished refinancing it last week. We bought it for about $40K, put about $55K to fix it and then pulled out 80% LTV with a credit partner. It is fully rented now. I am into it for about $19K, have cash on cash return of 23% and CAP rate of 13%. We bought another fourplex and currently in the process of rehabbing it. We are going to repeat this process until we have about $100K in St. Louis and then move over to another city. You should try it.

Karen Margrave
We can't get such cashflow here in San Diego. That is why I buy and hold elsewhere and probably why Derek is looking elsewhere.

David Ma
Cory Binsfield is right about all the benefits of owning a real estate directly rather than through REIT. But the reason why I own real estate is the control I have. I would do it even if I did not have all the benefits Cory outlined. I have invested in mutual funds before but always felt so dumb and never in control. I am a firm believer in controlling your own destiny. This does not mean I don't do bad in my investments. On the contrary, I have lost a lot of money buying my own properties. But I made those mistakes and I am responsible for them. I guess you can say I am insecure.

Having said that, you can buy real estate and still be hands off as you would be in a REIT. It is called turn key investing. You will get all the benefits Cory outlined and still work very little at it. Such deals are all over BP.

I am certain that REITs are much more scrutinizing than they were before and current REIT investments are safer than they were before. But greed is always stronger than any rules on the books. Real Estate crashes will happen again and passive investors (as well as active investors) will be hurt in droves. I predict that another crash is heading our way. I am trying very hard to be prepared for it better this time.

Bill Gulley

From you excellent explanation, I see that the loans my private investors are making are commercial (not private as I had indicated) because I have a business and try to run it as such. So, does that make these transactions in my company exempt from usury laws?

I do introduce my investors to each other. It is just a policy of transparency. However, I have never had one complain of how someone else did better than another. They have complained (not vigorously)how one deal did better than another.

Thanks for the education.

Bill Gulley
24% annualized. This is not commercial. It is private individual. We use their money for 3 to 4 months. At 2% per month, they make 6% to 8%. If someone invested $25K which is the typical amount, they would make $1500 to $2000.

Now usury laws in CA would not allow charging someone 24% interest rate on a loan. But I wonder if there is an exception for a short term loan like 3 to 4 months.

Moreover, if I understand it correctly, usury law is a problem not for the borrower but the lender. I could sue my private lender for charging too much interest which I would never do. So, can my private lender get in trouble with the law or can I get in trouble for creating such a loan to borrow money?

"Make her a partner in the equity arrangement and you won't have a lending situation usually and the need to comply with lending issues."

This is OK, but if you make someone a equity partner, they are going to need protection for their equity. This is typically done by going on title. Two problems. One, if they are on title with you, this can get tricky if their is an ugly break up. Two, if the property ever gets sued, the title holders are liable making your equity partner vulnerable. As a loan, their is a lien against the property but you avoid title problems and liability.

"I've never heard of any complaint from an individual about getting less on a loan than someone else"

I agree. I never had anyone complain either. But one day it will happen.

"And, I suggest you attempt to borrow for a longer term, like a year, you can agree to use the money on a deal, release the security and put the money in a bank (even a joint account) and taht will allow you to draw funds out on the next deal. You coulld pay different rates while the money is used vs. on deposit as well."

Interesting idea which I have been playing with myself. But if I pay interest rate on money that is not being deployed, isn't that like a money market account? And am I violating some banking rule by doing that?